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NYSE Euronext bets on cuts to offset trading losses

U.S. flags hang from the New York Stock Exchange building, February 15, 2011.

JOSHUA LOTT/REUTERS/JOSHUA LOTT/REUTERS

NYSE Euronext , the world's largest stock market, is hoping ambitious cost cuts will help offset lower trading levels, in the latest sign of growing pressure on the world's top trading firms.

NYSE Euronext said on Tuesday it smashed its 2012 cost cut target of $63-million (U.S.) by taking out $82-million of expenses, a third of the $250-million the exchange has pledged to cut by 2014.

But this came as the group reported net revenue down a fifth to $559-million for the third quarter, net income down 42 per cent to $108-million and earnings per share off 38 per cent at $0.44.

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NYSE rivals the London Stock Exchange and interdealer broker ICAP are set to report next week, with analysts predicting lower profits for the largest British exchange and broker.

NYSE Euronext's results reflected weaker trading in the group's main equities and futures markets in New York, London and Paris because of ongoing concerns about the global economy and a strong third quarter last year.

NYSE said on Tuesday net third quarter revenue in its futures and options trading unit was down 27 per cent to $164-million and share trading dropped 20 per cent to $282-million.

The group said the average daily value of European shares traded was off 31 per cent in the third quarter compared to last year while equity trading activity in the United States was down 39 per cent for the period.

"Operationally NYSE Euronext was broadly in line with expectations. Project 14 seems to be moving ahead of schedule which is encouraging given the weak trading levels seen this year" Richard Perrott, an analyst at Berenberg Bank, said.

Analysts see LSE net income off 7 per cent at 120 million pounds ($192-million) and earnings down 5 per cent to 44.3 pence a share, according to data from Thomson Reuters, when it reports first-half results on Nov. 16.

ICAP is expected to file net income down 8 per cent to 117.5 pounds and earnings per share off 12 per cent at 16.8 pence when it publishes on Nov. 14.

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"Low overall trading levels are a challenge for the LSE and ICAP, though at least in this period the LSE should be cushioned thanks to earnings from non-volume related businesses like information subscriptions and treasury income from its clearing house," said Perrott.

Some of the world's top investment banks also saw lower third quarter equity revenues, with UBS reporting revenue down 16 per cent on the prior quarter and JP Morgan booking equities revenue down 14 per cent.

Deutsche Boerse, the exchange with which NYSE tried and failed to merge earlier this year, was last week forced to cut its 2012 revenue target as lower market volatility caused a dip in third-quarter trading.

NYSE and the German exchange were forced to drop their $7.4-billion merger in February this year after European competition authorities blocked the deal over concerns it would create a monopoly in European futures trading.

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