Expanding its presence in Europe, Nasdaq OMX Group Inc. (NDAQ) formed a strategic partnership with Germany’s second largest stock exchange – Borse Stuttgart, whereby the former will provide its high-grade technology to the German exchange. The alliance will be launched by 2015.
Accordingly, the deal inked between the two parties entails Nasdaq to provide its Genium INET technology to the trading platform in Germany. Through this upgraded technology, Borse Stuttgart, is expected to reap the benefits of flexible connectivity and ensure low latency processes.
This will further enhance the ability to improve price discovery and reduce trading costs, thereby raising demand for stock trading within Borse Stuttgart. The German stock exchange’s history dates back to 1860 when it was established by a consortium of business-giants from various industries. Since then, it has successfully paved its way to emerge as the ninth largest stock exchange in Europe, on the basis of market volume.
Hence, the technology-alliance with Nasdaq will likely empower Borse Stuttgart to tap private investors toward its trading platform, thereby generating investing opportunities at par with institutional investors. On the other hand, the alliance is another attempt by Nasdaq to strengthen its roots in Europe.
In July this year, Nasdaq had expanded its network in Turkey by offering its technical expertise to Borsa Istanbul. Among other business developments, in May, the company also launched its new interest rate derivative trading platform – Nasdaq NLX – in London, which is again built on Genium INET technology.
Given the competitive concerns and the changing dynamics of the global stock exchange industry, we believe that Nasdaq’s business efforts are well-timed and crucial for its long-term growth. However, the recent technical glitches that resulted in a 3-hour outage last month, followed by a 6-minute outage last week along with the widely-criticized technical anomaly during the IPO of Facebook Inc. (FB) last year, among others, have raised doubts over the company’s technical competence in the future.
Hence, we remain on the periphery at present to analyze the future course of action that Nasdaq takes to avoid any technical malfunction that causes flawed pricing within equities. Our neutral opinion on Nasdaq is also justified by its Zacks Rank #3 (Hold).