Shares of Nasdaq OMX Group Inc. (NDAQ) unexpectedly dipped 1.5% to $39.0 after it ended year 2013 with the culmination of a strategic business deal with Turkey’s sole stock exchange -- Borsa Istanbul. The deal, signaled in July 2013, encompasses Nasdaq to offer its globally comparable, superior-quality and complete market technology to the Turkey exchange.
Per agreement, Nasdaq will acquire 5% equity stake in Borsa Istanbul and share its trading, clearing and infrastructure expertise, including the Genium INET technology, for all asset classes, with the Turkey stock exchange for an undisclosed amount. Borsa Istanbul will also be able to resell or make use of this software in 25 countries.
This is a progressive step by Nasdaq to explore the emerging markets of the Eurasia region, Turkey being a key developing economy therein. The deal will also enhance the company’s non-transaction based revenue sources, while generating incremental cash synergies.
On the other hand, Borsa Istanbul has also agreed to buy a minority share in Nasdaq, about 2% stake, eventually in order to boost its global presence as a stock exchange operator. However, the decision on swapping of stakes may materialize only by mid-2014.
The business developments are also part of Borsa Istanbul’s strategy to expand its operations in the technology and market data products space, in order to become a leading integrated multi-asset exchange. It also seeks to begin listing by the end of 2015. Hence, the technology-alliance with Nasdaq will likely empower Borsa Istanbul to attract more investors toward its trading platform.
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, technical glitches in the past have raised doubts over the company’s technical competence in the near term.
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).