NYX Nyse Euronext

The single biggest misconception about exchange operator NYSE Euronext (NYX), Chief Executive Duncan Niederauer said Wednesday, is that it's a stock market-focused company.

Never mind the Big Board or the famed trading floor at the intersection of Wall and Broad streets--futures and options are the main business of NYSE Euronext these days, and the company's valuation ought to reflect that, according to Niederauer.

"Most people still think of us as largely a U.S. equities exchange, and we haven't been that since 2006," Niederauer said. "We have a much more vibrant derivatives franchise that I would say accounts for much of our market capitalization."

Niederauer's comments came in an investor presentation that outlined a continued derivatives push in 2010, as the company prepares to launch its initial suite of U.S. interest rate futures products in May and aims at becoming the largest U.S. equity options market operator.

NYSE Euronext shares were recently 2.5% higher at $25.00.

Derivatives trading in the U.S. and U.K. made up 30% of NYSE Euronext's third-quarter revenue this year, with equities trade amounting to 21% as intense competition continues to drag down profitability.

Smaller electronic competitors like BATS Exchange and Direct Edge have taken business from NYSE Euronext and Nasdaq OMX Group Inc. (NDAQ), while more stock transactions have taken place on private venues.

In the past year, NYSE Euronext has seen its share of the U.S. equities market fall from 36% to 28%. Niederauer said the slide has stabilized, but continued efforts to diversify away from stocks mean that even if that number drops another 5%, "it's not going to change the future fortunes of the company," according to Niederauer.

He touted new rate futures products set to launch on NYSE Liffe US, the company's nascent futures platform, which will coincide with the planned completion of a new clearing venture with the Depository Trust and Clearing Corporation.

The aim of the new clearinghouse, dubbed New York Portfolio Clearing, is to bring together Treasury-linked futures and cash Treasury positions into one clearinghouse.

NYSE Euronext hopes that the efficiency-focused approach will lure investors away from CME Group Inc. (CME), which holds 98% of the U.S. Treasury futures business.

"We realize the road is littered with people who tried to do that historically and failed," Niederauer said, speaking at an investor event Wednesday. "We're trying to do something nobody has tried to do before."

Niederauer also noted the exchange operator's success in recent months drawing more trade to its options markets, with its total equity options market share rising to near 25% in November.

Gains at both its NYSE Amex and NYSE Arca options platforms saw NYSE Euronext pull even with the International Securities Exchange, the second-largest U.S. options venue by volume behind the dominant Chicago Board Options Exchange.

He said the company will look to capture the top spot in 2010, with help from banks and trading firms that signed on in September as equity partners in the company's NYSE Amex options platform, and are expected to direct more order flow there.

Shares in NYSE Euronext outpaced rival exchange operators Wednesday following an upgrade from Raymond James, as analyst Patrick O'Shaughnessy agreed that the company's derivatives franchise is underrated.

"While futures exchanges IntercontinentalExchange (ICE) and CME Group currently trade at more than 20x our 2010 EPS estimates, NYSE is currently trading at only 11x, likely due to the lingering perception that it is primarily an equities exchange," O'Shaughnessy wrote in a note to clients.

-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com

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