Bloomberg News

Falling Volume Pushes Direct Edge to Market Data, Hochron Says

May 10, 2012

Direct Edge Holdings LLC, the fourth- biggest operator of U.S. stock exchanges, is turning to market data to drive revenue as industry volume slows, according to Chief Technology Officer Richard Hochron.

“We’re now focused on market data and trying to create value for our clients there,” Hochron said today at the Bloomberg Enterprise Technology Summit hosted by Bloomberg Link. “We’re becoming less and less dependent on the transaction volumes for our major source of revenue.”

Exchange operators receive fees from securities firms that pay for its quotations and transaction data.

U.S. exchanges and securities firms are grappling with lower profits as equity volume slows. Trading of exchange-listed stocks has been shrinking since 2009, when it averaged 9.77 billion shares a day. It fell to 8.52 billion in 2010, 7.8 billion last year and 6.71 billion so far in 2012, according to data compiled by Bloomberg. NYSE Euronext (NYX:US) and Nasdaq OMX Group Inc. (NDAQ:US), the largest U.S. stock exchange owners, both reported first-quarter earnings that missed analysts’ estimates because of a drop in trading.

“The volume stuff is all about confidence,” Hochron said. “Whatever action is taken to raise consumer confidence can drive additional trading.”

Volume is also disappearing as the average price of U.S. shares reaches a record high. Standard & Poor’s 500 Index companies had an average price of $58.52 at the end of April, the most in Bloomberg data going back more than two decades.

To contact the reporters on this story: Nina Mehta in New York at nmehta24@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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