Exchanges 2009 Outlook
More Negative On Volumes
Rob Rutschow
Research Analyst
(+1) 212 2506600
rob.rutschow@db.com
Tom Hennessy
Research Associate
(+1) 212 250-3099
tom.hennessy@db.com
Volumes Look Worse Than Expected
In October we released a report titled "Stirring Up The Coals", which included a
negative outlook for volumes in 2009. At this point, we are increasingly negative
on volumes as we look ahead, and now look for weakness in all categories (we
had been somewhat optimistic about cash equity and commodity volumes), with
declines averaging 20-25% (vs. a 10-15% decline) previously. We have reduced
estimates for most companies and have a neutral to negative bias for the group.
Deutsche Bank Securities Inc.
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Industry Update
Top picks
NYSE Euronext (NYX.N),USD29.88 Buy
MF Global (MF.N),USD2.92 Buy
Companies featured
BGC Partners (BGCP.OQ),USD3.24 Hold
BGC Partners (BGCP.OQ),USD3.24Hold
2007A 2008E 2009E
EPS (USD) 0.24 0.53 0.30
P/E (x) 38.0 6.1 10.7
CME Group Inc. (CME.O),USD203.00 Hold
CME Group Inc. (CME.O),USD203.00Hold
2007A 2008E 2009E
EPS (USD) 15.47 16.33 13.35
P/E (x) 37.3 12.4 15.2
GFI Group (GFIG.OQ),USD4.74 Hold
GFI Group (GFIG.OQ),USD4.74 Hold
2007A 2008E 2009E
EPS (USD) 0.80 0.84 0.45
P/E (x) 94.8 22.6 42.6
IntercontinentalExchange (ICE.N),USD62.59 Hold
IntercontinentalExchange (ICE.N),USD62.59 Hold
2007A 2008E 2009E
EPS (USD) 3.41 4.37 4.15
P/E (x) 43.5 14.3 15.1
Investment Technology Group (ITG.N),USD24.54
2007A 2008E 2009E
EPS (USD) 2.52 2.60 1.90
P/E (x) 16.5 9.4 12.9
MF Global (MF.N),USD2.92 Buy
2008A 2009E 2010E
EPS (USD) 1.08 0.72 0.60
P/E (x) 24.6 4.0 4.8
Nasdaq Stock Market Inc (NDAQ.OQ),USD25.82
2007A 2008E 2009E
EPS (USD) 1.36 1.99 1.80
P/E (x) 25.7 13.0 14.3
NYSE Euronext (NYX.N),USD29.88 Buy
2007A 2008E 2009E
EPS (USD) 2.49 2.91 2.10
P/E (x) 33.9 10.3 14.2
Global Markets Research Company
We Have A More Negative View Toward Derivatives And Cash Equities
In our October report we had been optimistic that some types of derivatives,
commodities in particular, would show resiliency in 2009, while declines in other
areas such as rates, equities and foreign exchange would show only modest
declines. We were also hopeful that high frequency traders would support cash
equities volumes. However, we are revising both estimates downward to reflect a
greater impact from de-leveraging, fewer hedge funds, lower commodities prices,
lack of debt issuance and impact of higher credit costs for market participants.
We are revising our 2009 volume estimates down 15-20% for cash equities (we
forecast roughly 8-9 billion shares traded per day) and down 20-25% for
derivatives (though still with a more favorable bias toward commodities).
We continue to feel that equity exchanges are better positioned than derivatives
exchanges, given less dependence on volume for revenues and more stable
businesses such as listings and technology. In conjunction with estimate
reductions we have reduced our ratings on GFI Group and
IntercontinentalExchange from Buy to Hold (see pgs 30-32 for more discussion).
Revising Estimates Down
As a result of our more negative bias toward volumes, we’ve reduced our EPS
estimates for most companies. We are reduced 2009 estimates by 21%, and we
are now 25% below consensus on average for the companies in our universe.
We have separate notes out for each company with estimate revisions.
Valuation/Risks
In valuing individual companies we use a dividend discount model, discounted
cash flow model, price/earnings-to-growth model, and in some cases historical
and return on capital models. Given limited upside to targets for most companies,
we have a neutral to negative view on the group, with a bias toward cash equity
exchanges. Risks to exchange earnings and ratings include higher or lower
volumes, higher or lower fees per share/contract traded (commissions/RPCs),
more or fewer market participants, lower or higher technology costs, greater or
less competition for trading, and increased reliance on technology.

Derivatives. The fourth quarter and start of 2009 have shown a sharp decline in both
exchange traded and OTC derivatives. We feel that macro factors have negatively affected
derivatives volumes, and that these factors are unlikely to be alleviated in the near term,
leading us to reduce estimates for derivatives exchanges.
• For rate contracts, a lack of debt issuance, reduced leverage at financial services
companies (including hedge funds and traders holding positions overnight), fewer
market participants (as the result of bankruptcies, bad performance, less available
leverage and other factors), and a disconnect between LIBOR and Fed Funds has
led to lower levels of activity. One caveat would be treasury issuance, which we
expect to increase significantly throughout the year. It may be the case that
increased treasury issuance spurs additional rate activity in the second half of 2009.
• For equity contracts, fewer market participants, extreme levels of volatility, and
higher credit costs have led to less activity.
• For commodities, lower prices have pushed producers to the sidelines, and while
consumers have picked up some of the slack, they are a relatively smaller portion of
the market, and so coupled with a pull back in hedge fund and pension activity, we
see commodities volumes under pressure.
• Credit default swap activity has also seen a sharp decline (perhaps down 50% YOY
early in ‘09), reflecting fewer hedge funds (once more than half of the market), less
issuance, and de-risking at former investment banks.
We view most of these issues as intermediate term in nature, meaning that the downturn in
volume could last for some time. However, there are a few key factors which could cause
volumes to revert to higher levels including: tighter LIBOR-Fed Funds spread, increased debt
issuance, and higher commodity prices (e.g. oil above $100 per barrel).
Cash Equities. Cash equities have also seen a sharp drop-off from high volume levels in the
third and fourth quarters. While equity volumes in the U.S. averaged above 10 billion shares
per day in the fourth quarter, we look for more normalized volumes of 8-9 billion per day in
2009. This could prove optimistic if volatility drops off to much lower levels, as the deleveraging
that has negatively impacted derivatives volumes will also hurt equity volumes.
While high frequency traders appear to be active, it takes two to tango, and a lack of activity
from liquidity takers will almost certainly have a negative impact on activity among liquidity

providers. A lack of issuance and fewer traditional market participants should also put a
damper on volumes.
In Europe the picture could be a little brighter for US equity exchanges, as fragmentation
presents both challenges and opportunities. Both NYSE Euronext and NASDAQ OMX have
launched or intend to launch in early 2009, multilateral trading facilities in Europe, which
coupled with existing MTFs, should encourage more high frequency traders to enter
European markets. Growth in high frequency trading in Europe, which is in perhaps the
single digits of market share at this point (vs. perhaps 30-40% in the US) could help offset
weakness at traditional market participants.
We have included the body of our October 2008 report “Exchanges and Liquidity Providers
2009 Outlook: Stirring Up The Coals”, which highlights factors we feel will affect volume
growth going forward (pages 4 through 30).