Business | Banking
Time to consolidate global acquisitions
Bob Greifeld is chief executive officer of the Nasdaq OMX Group, the world's largest exchange company, and has a 20-year history in technology and created one of the first electronic stock order matching systems.
- By Babu Das Augustine, Banking Editor
- Published: 23:35 November 20, 2008
- Image Credit: Arshad Ali/Gulf News
- Greifeld believes that the current global financial crisis will pave the way for over-the-counter products becoming more standardised and moving to the exchange-traded model.
Dubai: Bob Greifeld is chief executive officer of the Nasdaq OMX Group, the world's largest exchange company, and has a 20-year history in technology and created one of the first electronic stock order matching systems.
Nasdaq OMX has over 3,900 companies from 39 countries representing all industry sectors. Greifeld led Nasdaq's merger with Stockholm-based OMX AB, as well as the acquisitions of the Philadelphia Stock Exchange, the Boston Stock Exchange and most recently Nord Pool, now Nasdaq OMX Commodities.
Under Greifeld's leadership, the growth of The Nasdaq Stock Market has been impressive, with 14 consecutive quarters of top line growth. The year 2007 was Nasdaq's most successful since it began reporting financials in 1997. The group's third- quarter earnings rose 28 per cent on record trading.
Nasdaq OMX Group is a strategic partner of Borse Dubai and holds one-third stake in Nasdaq Dubai (formerly DIFX). With its strong partnership with Borse Dubai and Nasdaq Dubai Greifeld plans to play a big role in technology upgrading and consolidation of stock exchange business in the region.
Gulf News: Last year and the early part of this year saw major developments in stock exchange consolidation around the world with Nasdaq Group playing a major role. With leading global economies slipping into recession do you see this process slowing down?
Bob Greifeld: Independent of the economy, we closed a number of deals last year and this year. For example, we closed Nord Pole, the power exchange in Europe, a few weeks ago. The Phila-delphia Stock Exchange deal was closed last July and the OMX deal at the end of February. This is the time to digest these acquisitions regardless if there is a recession or not. Now we are focusing our energies on consolidating all our recent acquisitions. We take great pride in our promises. Now it is time for us to deliver them in terms of gains in expense and revenue synergies and we will do that.
With the acquisition of OMX and partnership with Borse Dubai, Nasdaq has foothold across the US, Europe and the Middle East. Asia has several emerging economies with huge market capitalisation. What are your plans for Asia?
We have a large number of listings from Asia. Right now, the largest number of listings from outside our home market come from China. These are trading extremely well. We are also building good businesses in Asia, particularly in our market technology business. We provide technology to exchanges. Now several markets across Singapore, Hong Kong, Australia are running on our technology.
What are your plans for Nasdaq Dubai? Apart from running this exchange what are your plans for the wider Middle East?
Our mission here is to offer the best value we provide to the capital market system across the region. Through our market technologies, we intend to provide a forum where innovative entrepreneurial ventures can raise capital with ease. We want to provide the best-in-technology platform and value-added service to the region. I am very happy about the development and our involvement with Nasdaq Dubai. Our priority is building liquidity in the exchange.
In the region as a whole, we are actively involved in exchange technology business. Here, Dubai Financial Market is already using our technology platform, Nasdaq Dubai has migrated to it. We have exchanges in Qatar, Egypt and Saudi Arabia using our technology. In several ways we are well represented in the region. In terms of business it is a very strong region for us.
Nasdaq and Borse Dubai began their relationship as rivals in the takeover battle for OMX. Eventually you ended up as partners. How do you see this evolution?
When we first got together, there were obvious tensions because we were competing. When we sat across the table and looked at what both of us were trying to accomplish by acquiring OMX, we saw great opportunities for both of us and they were not really conflicting. We saw great business opportunities in the UK and Europe. We wanted to build a platform to take advantage of these. As for Dubai, they had a strong interest in technology business and the relationship business OMX had in the Middle East and also the know-how of the exchanges business. In reality, these were not clashing. So we began to communicate with Dubai about the business opportunities in Europe, and Dubai educated us on opportunities in the Middle East. Thus, at the end of the day we found it was not that difficult to come to terms with the situation and work together.
Borse Dubai has nearly 20 per cent stake in Nasdaq OMX Group. As you acquire more exchanges, expand and consolidate your business, do you see dilution happening in this shareholding?
We did our last two acquisitions with cash. At some point when we acquire with stock, there is a possibility of dilution. But in this case, Dubai has the option to buy shares to prevent dilution. They can do it from the open market or through bilateral transactions.
Do you see a slowdown in volume of transactions on your exchanges as the US and European economies get deeper in to recession?
This year has been a very strong year because our transaction volumes have been exceptionally high. We are paid per transaction. When we look at the economic turbulence, it increases volatility and volatility drives volumes. The weak part of our business model in 2008 has been IPOs [initial public offerings]. There has been a dearth of IPOs in the marketplace. Our expectation is that in 2009 will look similar to 2008. We will still have high turbulence combined with high volumes but no IPOs.
How are your new European businesses helping your overall business?
We launched a new marketplace in London after the acquisition of OMX. This is clearly the result of the synergies from the merger. We combined the Nasdaq technology and OMX's European expertise. After all, this was the fundamental premise of the transaction. In the Nordic markets, there is a decline in trading volumes. For derivatives and fixed income business, there has been a significant growth.
In London, we are enjoying our stature as a competitor to other well-established European exchanges. Clearly, London Stock Exchange is one of them. Our London market (Nasdaq OMX Europe) competes with other exchanges such as Deutsche Borse, EuroNext and all other leading continental exchanges. The market really focusses on the most liquid of European stocks.
The private market for derivatives, especially the over the counter trade in credit default swaps have attracted blame for the current financial crisis. Now regulators around the world want a central counterparty to clear these complicated products. Do you expect this to boost your derivatives trading volumes?
Definitely. One thing we have learned from this credit crisis is that the exchange model is a transparent one for price discovery where the central counterparty clearing works. We had to handle in some respects unbelievable amounts of volumes during the credit crisis, but the systems held up, exchange held up, and proved to be reliable. I believe that this crisis will pave the way for OTC [over-the-counter] products getting more standardised and moving to the exchange traded model. And the first move will be on the clearing side.
Several exchanges have come forward to establish a centralised clearing for credit default swaps (CDS). We are not particularly focussed on CDS but we will be big in interest rate swaps, which we think has a better ability to be standardised.
There are several hundreds of trillions in derivatives trade outstandings with institutions particularly in CDS outstandings. When do you expect the unwinding of these positions to be complete? Are these positions going to take down more institutions?
Well, I can't predict an answer to the second question. But the clue to unwinding of these positions lie in not focussing excessively on the notional values of these trade outstandings. Now the focus should be on net outstandings. That is precisely the problem when we don't have a central clearing.
What is your take on the global financial crisis and the onset of recession in most developed nations?
I think we are moving out of the most dangerous phase of the crisis because a paralysis in the financial system stops all industry and there is no natural bottom to a paralytic situation. Now we are clearly slipping into a recession. It is indeed difficult to live through a recession, but in recession we hit a bottom in economic activity and then the business start to build higher from there.
This year has been a very strong year because our transaction volumes have been exceptionally high. We are paid per transaction. When we look at the economic turbulence, it increases volatility and volatility drives volumes."
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