Trading Glitches: These Exchange Owning Stocks Have the Most to Loose – NYX, NDAQ, ICE, CME & CBOE

On Wednesday, a trading glitch at market maker Knight Capital Group (NYSE: KCG) gave stock markets another black eye and investors another headache – meaning it might be worth taking a look at NYSE Euronext (NYSE: NYX), NASDAQ OMX Group (NASDAQ: NDAQ), IntercontinentalExchange (NYSE: ICE), CME Group (NASDAQ: CME) and CBOE Holdings (NASDAQ: CBOE) that own or operate various types of exchanges and are not immune to trading glitches of their own. Specifically, the trading glitch at Knight Capital Group (KCG) was caused by a malfunction in a trading algorithm generated by faulty software and sent that stock down over 32% as it could loose as much as $170 million or more when the dust finally settles. With that along with the recent Facebook (NASDAQ: FB) IPO fiasco in mind, is there reason for investors to even consider owning stocks like NYSE Euronext (NYX), NASDAQ OMX Group (NDAQ), IntercontinentalExchange (ICE), CME Group (CME) and CBOE Holdings (CBOE) that own actual exchanges? Here is a closer look:

Stock Exchange Stocks: NYSE Euronext (NYSE: NYX) and NASDAQ OMX Group (NASDAQ: NDAQ)

NYSE Euronext and NASDAQ OMX Group are the big barracudas of the exchange world. Specifically, the NYSE Euronext has approximately 8,000 listed issues from more than 55 countries on its equity markets (the New York Stock Exchange, NYSE Euronext, NYSE MKT, NYSE Alternext and NYSE Arca) that account for one-third of the world’s equities trading plus it also operates the NYSE Liffe (a European derivatives business that’s the world's second-largest derivatives business by trading value) and the NYSE Liffe U.S. (a global, multi-asset class futures exchange) while the NASDAQ OMX Group owns and operates 24 markets, 3 clearing house, and 5 central securities depositories spanning six continents plus seventy exchanges in 50 countries use its technology. That means there is plenty that could go wrong.

Nevertheless, traders on the NYSE trading floor (which has not gone completely electronic) were quick to notice something wrong on Wednesday and offered praise for NYSE officials (then again, there was also that flash crash a few years ago). On the other hand, NASDAQ OMX Group officials have been forced to admit that they were not exactly prepared for the Facebook IPO – arguably the most important IPO in Nasdaq history with that fiasco also being blamed on “software glitches.”

On Wednesday, NYSE Euronext fell 2.16% to $24.93 (NYX has a 52 week trading range of $21.80 to $32.58 a share) for a market cap of $6.33 billion (NYX is down 4.5% since the start of the year, down 25.5% over the past year and down 67.2% over the past five years) while the NASDAQ OMX Group rose 0.40% to $22.8 (NDAQ has a 52 week trading range of $20.32 to $27.34 a share) for a market cap of $3.87 billion (NDAQ is down 7% since the start of the year, down 5.3% over the past year and down 26.9% over the past five years).

Other Exchange Players: IntercontinentalExchange (NYSE: ICE), CME Group (NASDAQ: CME) and CBOE Holdings (NASDAQ: CBOE)

The IntercontinentalExchange is an operator of global futures exchanges, over-the-counter (OTC) markets, derivatives clearing houses and post-trade services; the CME Group offers a range of global products across all asset classes, owns and operates large derivatives and futures exchanges in Chicago and New York City and offers online trading platforms; and CBOE Holdings is the largest US options trading exchange. Naturally there is plenty of risk of a trading glitch happening with any of these stocks.

Otherwise, it should be noted that the IntercontinentalExchange has recently reported that last quarter’s revenue rose 8% from $325.2 million to $351.2 million while net income rose 17.8% from $121.4 million to $143.1 million thanks to strong trading volume in the energy futures markets. On the other hand, the CME Group recently reported that last quarter’s revenue fell 5.1% from $838 million to $796 million and net income fell 17% from $294 million to $245 million as near zero interest rates reduced trading in the company’s biggest contract while CBOE Holdings’ revenue rose from $120.3 million to $132.6 million and net income rose 22% from $32.6 million to $37.9 million because investors bought and sold more of its contracts. In other words, these three stocks also face both market headwinds and tailwinds depending upon the product offering.

On Wednesday, the IntercontinentalExchange fell 1.39% to $129.40 (ICE has a 52 week trading range of $102.57 to $142.75 a share) for a market cap of $9.41 billion (ICE is up 7.3% since the start of the year, up 4.9% over the past year and down 14.5% over the past five years).

Meanwhile, the CME Group fell 1.91% to $51.11 (CME has a 52 week trading range of $44.94 to $60.92 a share) for a market cap of $16.99 billion (CME is up 4.9% since the start of the year, down 12.8% over the past year and down 54.1% over the past five years).

Finally, the CBOE Holdings fell 0.35% to $28.40 (CBOE has a 52 week trading range of $21.55 to $29.56 a share) for a market cap of $3.78 billion (CBOE is up 9.8% since the start of the year, up 23.3% over the past year and down 8.4% since mid 2010).

The Bottom Line. Trading glitches aside, it seems that the NYSE Euronext (NYX) and NASDAQ OMX Group (NDAQ) have been the worst most recent performers while their more exotic brethren IntercontinentalExchange (ICE), CME Group (CME) and CBOE Holdings (CBOE) have been the best performers.