Friday, February 02, 2007

NYSE Where Is The Value?

NYSE Group Inc (NYSE:NYX) announced impressive increases in Q4 net income swinging from losses to profits. They reviewed a flurry of mergers, alliances, investments and technological innovations. All of which are designed to capture more and more trading transactions and the associated revenue stream.

Some of the spends are huge as increasingly difficult efficiencies are wrung out of the system. In the final analysis the conclusion is so what? Investors large and small seek profits and wealth creation. No one really takes serious pride that they have purchased on NYSE rather than NASDAQ. Everyone wants to reduce their friction costs.

In the olden days the exchange was a club run primarily for the benefit of investment dealers who would charge the end user for the value added service. Today the exchange seeks to be competitive so that investment dealers can charge end users for a value added offering.

The exchange is in a hyper competitive environment requiring increasing amounts of capital for technology which seems to be easily matched. The best one can hope for is that the stock becomes a utility with a reasonably predictable flow of revenues that creates a yield play. The core value proposition of acting as an intermediary between buyer and seller is ancient. Price competition usually disappoints shareholders.