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NYSE Euronext reported a 25 percent jump in quarterly profit as its growing derivatives operation offset sluggish stock trading and for the first time accounted for more than half of core income.The results matched expectations and were seen as progress in the exchange operator's slow transition to a more diversified business model. But shares of the New York Stock Exchange parent fell more than 5 percent as Wall Street has grown accustomed to better-than-expected earnings, and as the broader market tumbled.Derivatives-based revenue jumped 44 percent from a year earlier, offsetting a 15 percent drop in its traditional base of listings and cash equities trading, where thinner margins and fierce competition have hurt NYSE Euronext."The market is beginning to recognize the progress we are making in transforming the company," Chief Financial Officer Michael Geltzeiler said on a conference call with analysts and reporters.NYSE Euronext earnings were boosted by a larger slice of the U.S. options market and slightly lower costs. Historically, costs have been a thorn in the side of the company, formed in the 2007 trans-Atlantic NYSE-Euronext merger.Graphic of NYSE results: http://link.reuters.com/vyh62kShares of the company are up about 24 percent this year as regulators prepare to force more derivatives through exchanges and clearinghouses, and as the shares' price-to-earning (P/E) ratio -- a measure of expected growth -- improves."As long at they grow in derivatives, and toward the multiples of (exchange operators) CME and ICE, that's a good thing for them," said Sandler O'Neill analyst Richard Repetto.The company posted core earnings -- the figures watched by analysts -- of $140 million, or 54 cents a share, up from $112 million, or 43 cents a share, a year earlier.The profit matched expectations after four straight quarters of better-than-expected results. Revenue was up 7 percent at $645 million, below expectations of $653.3 million, according to Thomson Reuters I/B/E/S.Including one-time items, earnings were up 25 percent at $130 million, or 50 cents per share.NYSE Euronext shares were off $1.73, or 5.3 percent, at $31.27, after hitting $31.14, their lowest point in three weeks, earlier. The Dow Jones Global Exchange index was down 2.7 percent as Greece's debt woes sparked a broad drop.NYSE Euronext's P/E ratio is better than that of its closest rival, Nasdaq OMX Group Inc, but lags derivatives-oriented exchanges such as CME Group Inc and IntercontinentalExchange Inc."(W)e anticipate it could take a few more quarters before material earnings power realization," Credit Suisse analyst Howard Chen wrote in a note.Nasdaq last week posted lower quarterly earnings, missing analysts' expectations, while CME logged its best quarterly profit since 2008.GIVE AND TAKENYSE Euronext, which runs exchanges in a handful of European countries, has ceded market share in stock trading to upstarts such as BATS and Chi-X but has boosted its share in options and futures markets.While overall stock trading volumes -- the lifeblood of exchanges -- have dropped in the last few quarters in the wake of the 2008-2009 market crisis, CFO Geltzeiler said Europe's sovereign debt crisis helped boost futures trading at the company's London-based Liffe platform.Its U.S. options market share rose to 27 percent from 17 percent a year earlier, making it the largest U.S. options venue in the quarter. It recently sold stakes in the Amex venue to several big market participants, boosting trading there.Slow to shift from a floor-based model to largely automated trading over the last decade, NYSE Euronext aims to add the last of its platforms to a global trading system this year, which is expected to boost trading speeds.Geltzeiler said the company expects gross proceeds of $175 million from the sale of its 5 percent stake in the National Stock Exchange of India, announced on Monday, and will use the funds to pay down debt.Looking ahead, NYSE Euronext expects growth from the launch of the NYPC joint venture with clearinghouse DTCC and the launch of interest rate futures contracts on Liffe U.S., both meant to challenge CME's near monopoly in Treasuries and Eurodollars, starting in the third quarter.NYSE Euronext and the Financial Industry Regulatory Authority, or FINRA, announced on Tuesday the nongovernmental regulator would take over NYSE surveillance and enforcement from in-house body NYSE Regulation.Exchanges are at the crux of several pending regulatory changes, including stock market structure reviews on both sides of the Atlantic and possible crackdowns on proprietary and swaps trading at banks, their biggest customers.(Reporting by Jonathan Spicer and Jane Baird; Editing by Gerald E. McCormick and John Wallace)
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