NYX Nyse Euronext

The head of NYSE Euronext (NYX) said Tuesday that an expansion of its U.S. derivatives business will likely be delayed until 2011 due to a regulatory logjam triggered by sweeping financial reforms.

Duncan Niederauer, chief executive, said it may be January before its U.S. futures arm can launch new interest-rate products because regulators have to first approve its plans for a new clearinghouse.

NYSE Euronext had planned to introduce the new products in the third quarter, but U.S. regulators are weighing new rules in the wake of the May 6 "flash crash," while preparing to craft hundreds of new regulations called for in the financial overhaul bill signed into law last month.

Niederauer said on a conference call that in spite of the slower-than-expected approval process for the venture, new financial legislation will provide a long-term benefit as more trading migrates toward exchanges and clearinghouses.

The company reported a $184 million profit for the second quarter Tuesday, buoyed by asset sales alongside record trade in its U.S. options and U.K. futures franchises, which now make up almost half of operating income.

"We're growing our derivatives business, stabilizing our cash equities business, and providing innovative technology solutions," said Niederauer.

Market volatility during April and May lifted trading volume across the exchange sector, though activity has tailed away in July and August.

NYSE Euronext, which owns the New York Stock Exchange and four European stock exchanges, has diversified from its traditional focus on cash equities by expanding its derivatives business and bolstering a technology unit selling services to traders and other exchanges.

Key to the U.S. effort is New York Portfolio Clearing, a new venture developed by NYSE Euronext and the Depository Trust and Clearing Corporation that will handle rate futures listed on the still-small NYSE Liffe US market.

Systems for the NYPC platform are on track, Niederauer said, as the platform awaits regulators' blessing.

New rules aimed at shifting off-exchange transactions into clearinghouses and electronic trading platforms open up new possibilities for NYSE Euronext to develop market data and clearing services, Niederauer said.

NYSE Euronext's second quarter profit compared with a year-ago loss of $182 million weighed on by merger and restructuring costs. Earnings per share of 70 cents beat market expectations and compared with a 70-cent loss a year earlier.

NYSE Euronext shares recently were up 0.8% at $30.19, lifted by the upside surprise and full-year cost guidance trimmed by positive currency effects.

Revenue and operating profit from its cash equities and listings unit fell from a year earlier, though was up from the first quarter of 2010.

The company is developing new data centers in New Jersey and the London area, underpinning a raft of products and services NYSE Euronext seeks to sell to trading firms and other market participants.

Niederauer said Tuesday that 80% of revenues in its technology business is "recurring," and the company expects it to contribute $1 billion in revenues within three to five years.

For the quarter, NYSE Euronext recorded a net pre-tax gain of $54 million from asset disposals, primarily tied to the sale of a 5% stake in India's National Stock Exchange for $175 million, after NYSE Euronext saw limited opportunities for joint business growth.

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

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