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NYSE Euronext (NYSE:NYX)

Q4 2012 Earnings Call

February 05, 2013 8:00 am ET

Executives

Stephen Davidson - Vice President of Investor Relations

Duncan L. Niederauer - Chief Executive Officer and Director

Michael S. Geltzeiler - Chief Financial Officer and Group Executive Vice President

Lawrence E. Leibowitz - Chief Operating Officer

Analysts

Howard Chen - Crédit Suisse AG, Research Division

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

Alex Kramm - UBS Investment Bank, Research Division

Roger A. Freeman - Barclays Capital, Research Division

Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division

Brian Bedell - ISI Group Inc., Research Division

Christopher J. Allen - Evercore Partners Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2012 NYSE Euronext Earnings Conference Call. My name is Shequanna, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the call over to Mr. Stephen Davidson, Head of Investor Relations at NYSE Euronext. Please proceed, sir.

Stephen Davidson

Thanks, Shequanna. Good morning, and welcome to the NYSE Euronext Fourth Quarter and Full year 2012 Earnings Conference Call. Before I introduce today's speakers, let me remind you that comments on the call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are based on NYSE Euronext's current expectations and involve risks and uncertainties that could cause NYSE Euronext's actual results to differ materially from those in the statements. These forward-looking statements speak as of today and you should not rely on them as representing our views in the future. Please refer to our SEC filings for a full discussion of the risk factors that may affect any forward-looking statements.

Except for any obligation to disclose material information under the federal securities laws, NYSE Euronext undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after this conference call.

We will discuss non-GAAP financial measures during this call. These non-GAAP measures are fully reconciled in the tables attached to the text of the earnings press release that we issued earlier today. We believe that these tables provide investors useful information about our business trends. However, our non-GAAP measures do not replace and are not superior to GAAP measures.

Duncan Niederauer, Chief Executive Officer, will review the highlights for the quarter, update you on key developments in our businesses and conclude with an update on the acquisition by ICE. Michael Geltzeiler, Chief Financial Officer, will then review the financial results for the fourth quarter and full year 2012. We will then open the line for your questions.

Also in the room for the Q&A session is Larry Leibowitz, Chief Operating Officer.

We are incorporating slides for the call today, which are available for viewing on our website, and Duncan and Mike will refer to the slides during their remarks.

With that, let me turn the call over to Duncan.

Duncan L. Niederauer

All right. Thanks, Stephen. Good morning, everybody, and thanks for joining today's call. I'm going to be starting on Slide 4 in the deck that we distributed to everybody online. And what we're really going to talk today is the progress we made in the fourth quarter to conclude 2012, which we really view as a table-setting year for driving improved operating results in 2013.

To start where I know everybody wants us to start, our announced transaction with ICE presents the opportunity to create a worldwide leader in trading markets and risk management, focused on the high-growth derivatives markets with world-class clearing capabilities supporting it, alongside the world's premiere listing venue.

I'll provide you with an update on the combination in a later slide, but I can tell you now we're very pleased with the progress we've made so far. We've filed our joint proxy statement and U.S. antitrust filings in late January. We hope to hold shareholder meetings in the early spring, and integration planning and regulatory processes have begun.

I'm going to start first with the macroeconomy. And while challenging conditions remain, we're seeing many encouraging signs. The U.S. markets are performing well and the U.S. economy is poised for growth in 2013. Capital flows into U.S. mutual funds are at their highest level in quite some time. And while one month doesn't make a trend, we're hopeful that this is an indicator of the reemergence of the retail investor and resurgence of interest in the U.S. equity markets. Corporate profits are strong, balance sheets are healthy and unemployment is slowly improving.

In Europe, the worst of our fears about a messy breakup of the euro have begun to subside. And lastly, the health of European financial institutions has improved as many banks have quickened the pace of repayments from the ECB's 3-year tender.

So in our mind, all of these are positive indicators for our business as well. Trading volumes in our interest rate complex in Europe for January were up around 40% year-over-year. Consolidated average daily volume in U.S. equities and options markets are showing slight signs of improvement. And our listings franchise is poised to capitalize on the improved market tenor and lower volatility.

As financial institutions continue to focus on getting stronger, we also believe that our technology services business is well positioned to partner with banks and brokers to develop the next generation of technology solutions to help them run their businesses more efficiently.

Now turning to the quarter. We reported $0.43 on $562 million in revenue compared to $0.50 on $628 million in revenue in the prior year's fourth quarter. The lackluster trading environment continued to impact our results, but the recent trends I just discussed give us reasons to be encouraged for 2013.

Please turn to Slide 5. Slide 5 illustrates the strong progress we've made in executing against our strategy. We focused on growth, efficiency and capital deployment. Let's start with the growth side of the ledger. We have several new product development and growth initiatives underway that should benefit the company well into the future.

First, our listings franchise continues to build momentum especially in terms of market share of technology listings, and we were the global leader in IPOs for the second consecutive year. We signed several technology agreements during the quarter, which improves our technology services revenue line, and we are optimistic about opportunities for the business in 2013. We've revamped our global data agreements, which will result in incremental revenue this year and into the next year. And we are continuing to launch new derivatives products and establish new partnerships to fuel our future growth. More detail on all of these initiatives will follow later in our remarks.

On the efficiency front, we continue to show cost discipline as illustrated by our results. Our clearing agreement with ICE Clear will position our European derivatives business for growth and will increase cost savings and accelerate -- I'm sorry, will accelerate cost savings and reduce investment costs in 2013. In January, we signed a new clearing agreement with LCH for our Euronext cash business, which will reduce clearing costs for our clients by approximately 20%. This agreement will run through 2016.

As we indicated on our prior earnings call, we completed the unwind of BlueNext, and we will continue to look at opportunities to prune our business portfolio. You'll hear more from Mike on the cost efficiency component of Project 14 later in our presentation.

Lastly, on the capital front, we are continuing to look at opportunities to rationalize stakes in businesses that do not support our strategic objectives. We will be looking to divest some or all of our LCH.Clearnet and MCX [ph] stakes in the first half of 2013.

Please turn to Slide 6 for me. Slide 6 provides an update of our derivatives markets in both the U.S. and EU. In early 2012, we organized this business and the sales teams that support it to foster innovation and product development. The focus was to bring new products to market faster and to grow penetration and the diversity of our product line. Since the reorganization, we have seen a meaningful jump in new product innovation.

Starting on the left-hand side of the slide. In the fourth quarter of 2012, we launched 4-year mid-curve options on Euribor and Short Sterling Futures, this, following the successful introduction of the Euribor 3-year mid-curve options contracts, which is currently one of the fastest-growing STIR options products ever. Continued growth in ADV and open interest in these products and the launch of the 4-year mid-curve options continues our goal of expanding our product set out along the yield curve.

As I indicated earlier, we've also seen a dramatic increase in fixed-income derivatives volumes to start of 2013, specifically in Euribor Futures, which set on all-time high in ADV on January 25 with 3.2 million contracts traded. And for the month of January, ADV averaged 1.4 million contracts in Euribor, representing a 116% increase during January of 2012. Again, the high volumes were spurred by the news of European banks making larger-than-expected and earlier-than-anticipated repayments of emergency loans from the ECB.

Turning to the right side of the slide. The chart shows ADV growth in the MSCI Index Futures traded on NYSE Liffe U.S. With the gains we showed on ADV in 2012, the MSCI Index Futures contracts have made substantial progress since open interest migrated to NYSE Liffe U.S. in the middle of 2011.

The month of December last year was particularly notable with open interest hitting an all-time high of 268,000 contracts and December open interest more than doubled versus the prior year. So good progress on the products front in derivatives as we strengthened that business to build momentum into the envisioned combination with ICE.

Please turn to Slide 7. Slide 7 provides an update of our equity derivatives -- our equity and equity derivatives businesses in the U.S. and EU.

Let's start with U.S. options. Although operating in a difficult macro environment, combined with low volatility and uncertainty over domestic policy, which resulted in a decrease of 12% in overall options year-over-year, Q4 volumes were up versus Q3 and this positive trend is carried into early 2013. January brought a new record combined market share for our options platform of just under 30%. So with the first month of the new year behind us, we continue to be confident in the growth of our U.S. options franchise.

Despite the macro challenges, the business had a strong year in '12. We maintained our position as either the #1 or #2 options exchange group based on market share with an ADV of 3.9 million contracts. In the fourth quarter, we also continued to innovate by announcing the successful expansion of the short-term options program. In November, NYSE Amex and NYSE Arca Options led the industry as the first exchanges to file for and receive SEC approval to expand the listing and trading of short-term options on single stocks and ETFs from a single week to 5 consecutive weekly expirations.

While I am on this slide, let me spend a few minutes on the U.S. cash business as well. Although trading volumes were at multi-year lows, and TRF market share moved higher throughout 2012, the cash business was at least stable in the fourth quarter, so we focused on those levers, which we can control.

In an effort to streamline and integrate our trading systems across all of our equities and derivatives markets, the Universal Trading Platform project for NYSE and NYSE MKT officially began rolling out on September 24, 2012. The UTP migration will bring U.S. cash clients lower latencies, higher throughput and increased functionality. To date, we have migrated over 1/2 of our symbols, and the latency numbers for acknowledgments have declined by more than 50% for the stocks that have been migrated. We expect NYSE and NYSE MKT to be fully migrated to UTP by the end of this month.

The RLP initiative is also beginning to make headway with the expansion of participants and ADV growth since the initiation of the program.

Lastly, a little bit on our equity derivatives business in the EU. Again, despite difficult market conditions in '12, NYSE Liffe is the #1 equity futures exchange worldwide last year with ADV at just under 1 million contracts a day. The MSCI Sector Indices experienced strong growth in volumes. And in December, we announced the new partnership with Turkey to develop new features and option contracts on the IMKB 30 Index.

We continue to expand our geographical coverage with the successful launch of a partnership with the Egyptian Exchange announced just a couple of weeks ago. The signed agreement also enables NYSE Liffe to develop and launch futures contracts based on the EGX 30.

Please turn to Slide 8. Slide 8 provides you with an overview of the target operating model for the new clearing agreement with ICE Clear. As we mentioned when we announced the deal independent of the acquisition by ICE, we negotiated and signed a multi-year agreement to move our Liffe derivatives clearing to ICE Clear. ICE Clear is a leading global clearing solution with U.S. and U.K. regulatory status and is the only CCP with previous experience in handling a transition from LCH.Clearnet. Greater than 90% of the positions and exposure of clearing members in NYSE Liffe have crossed over with ICE Clear, which should considerably simplify and decrease the level of effort and complexity and costs needed on the member side for the transition. The smooth conversion for the majority of our members will allow us to focus on Liffe Clear members not currently connected to ICE Clear. The cost of transitioning Liffe derivatives to ICE Clear is significantly less than what we expected to spend on our own clearing initiative because we are leveraging ICE's existing infrastructure and these costs will be shared by NYSE Euronext and ICE.

The solution not only provides us with revenue and strategic benefits of a fully in-sourced clearing model in a timely and less costly manner, but it also drives product innovation for our business in the short term. In the long run, it creates an efficient clearing model poised for growth as the interest rate market recovers.

Please turn to Slide 9. Slide 9 shows the continued momentum in our Listings business, which was a real bright spot for us in an otherwise challenging 2012. As I mentioned earlier, NYSE Euronext was the global leader in IPO proceeds for the second consecutive year, raising $37 billion in total global proceeds from 120 IPOs and $167 billion in proceeds from 441 follow-on offerings in 2012. Globally, the U.S. was the leader in IPO activity. Asia and Europe were relatively quiet in 2012. NYSE Euronext led the U.S. market with 79 IPOs, listing 17 of the top 20 deals by total proceeds raised. And we also captured the majority of technology IPOs in the U.S., listing 53% of all tech IPOs.

Comparing 2012 to 2011's private equity-backed year, I think you would call 2012's IPO market one that was really driven more by venture capital-backed yields. Forbes also put out an article on the top 20 tech IPOs in 2012 and we're proud to say that 16 of those 20 listed with us.

NYSE Euronext was also the leader in transfers with 17 companies transferring to the NYSE in 2012, 15 to the NYSE and 2 to NYSE MKT with only 6 companies moving in the other direction from the NYSE and 3 from NYSE MKT. It was quite a good year for us on the transfer front. Of the 15 companies that transferred to the NYSE, 3 were among the top 100 largest companies by market cap listed on our competitor. So far in 2013, we are continuing to gain market share with respect to new listings, building on last year's global leadership position.

Looking forward, we expect to attract several international deals from Latin America and Europe this year. And given that 2013 is poised to show the return of the larger private equity-backed IPOs and carve-outs we aspire to continue attracting these quality issuers to our markets and maintaining our position as the global vendor's choice for capital formation.

Please turn to Slide 10 for me. On Slide 10, we are refocusing our Technologies business around 3 centers of excellence with the SFTI network as the common foundation. We intended to have Jon Robson walk through a more detailed description of his vision for this business, but given the focus on the acquisition by ICE, we'll save that for another time, perhaps for the next quarterly earnings call.

The underlying thesis for our businesses is that large financial services companies are trying to reduce infrastructure spend but at the same time are being buffeted with requests for greater support from their business leaders. So we are positioning our business to capture this opportunity by being their partner. We are reorganizing our product-focused portfolio into more of a solutions-focused business, converging around 3 centers of excellence: one, an independently managed services capital markets infrastructure business for the financial community; two, an integrated cloud-based set of rich content and applications available to scale; and three, an open platform for liquidity innovation, providing tools and access to market -- to markets and counter-parties. This is the value proposition we're going to market with, and the feedback we have received from clients thus far is very encouraging. Remember that this opportunity is an addition to the aforementioned market data initiatives, which we expect will drive top and bottom line growth for the business beginning in the second quarter of this year.

And finally, to conclude my section, please turn to Slide 11. This is an update on our combination with ICE. This is a landmark deal that brings together 2 leading exchanges that are highly complementary with the goal of creating a leading exchange player in derivatives worldwide adjacent to the premiere listing venue. This deal gives our shareholders a substantial premium with a significant cash component. We feel good about the synergies announced with the deal. We are not including any revenue synergies in our projections, but we certainly see further upside for investors for revenue synergies we hope to extract from cross-selling our respective services and the potential IPO of Euronext.

As we discussed on announcement day, any IPO of Euronext would occur as soon after the closing as practical. But as you would expect, our focus right now is on the approval process for the merger. In terms of process, we filed the U.S. antitrust filings in January and our proxy statement with the SEC in late January. We are aiming to hold our respective shareholder meetings this spring. We are also working with the U.S. and European regulators to move the process forward, and given what we are seeing and hearing so far, we are cautiously optimistic regarding a closing in the latter half of 2013.

With that, let the turn the call over to Mike for a discussion of our financial results.

Michael S. Geltzeiler

Thanks, Duncan, and good morning. Slide 12 provides comparative GAAP results for the fourth quarter 2012. Our GAAP EPS of $0.12 per share included a high level of merger and exit costs this quarter, reflecting on investment write-off and wind-down of our clearing operation in connection with our move to ICE Clear, the closure of BlueNext and merger-related expenses from our combination with ICE. Although the move to ICE Clear necessitated a Q4 write-off of prior investments, the effort will result in a sizable cash investment saving in 2013 from the discontinuation of Project Gemini [ph] and will generate annualized P&L savings beginning in the second half of 2013 that exceed the $25 million to $30 million we were expecting previously. Our Q4 results also included a non-operating charge of $24 million to retire a portion of our U.S. dollar and euro-denominated debt. The refinancing of this debt will generate significant interest expense savings over time.

My review our financial results from this point forward will exclude the impact of merger expenses and exit costs, the debt refinancing charge and discrete tax items.

Slide 13 provides a more detailed look at our financial results for the quarter. While volumes, particularly in our derivative businesses, began to improve in December, our financial results in the fourth quarter and full year 2012 were impacted by the lackluster trading environment with volatility hitting multi-year lows. Net revenues on a reported basis were down 11% year-over-year and were 13% lower for the full year 2012. On a currency adjusted basis, 2012 revenues were lower by 11%.

Transaction or volume-based revenues declined 21% for Q4 year-over-year and 25% for the full year, which were somewhat offset by the acquisition of Corpedia, slightly higher listing revenues and some higher non-volume-based revenues such as court and regulatory fees.

Costs were lower by $24 million or 6% for the quarter and were 6% lower for the full year on a constant dollar, constant portfolio basis. For the fourth quarter, 35% of our operating expenses were denominated on either euros or pounds, 64% in U.S. dollars and 1% in other currencies.

Diluted share count was reduced by 18 million shares to 244 million for Q4 versus prior year.

Slide 14 provides our consolidated and segment results on a currency neutral basis. The U.S. dollar strengthened versus the euro this quarter versus prior year by 4%, but weakened versus the British pound by 2%. In the fourth quarter, 42% of our net revenues were denominated in either euros or pounds.

Currency impact on net revenues for the quarter was negative $4 million versus prior year; and operating income, an unfavorable $3 million. On a currency neutral basis, fourth quarter net revenues were down 10% and operating income decreased 18% versus the fourth quarter of 2011.

Operationally, revenue for our derivatives and Cash Trading and Listings businesses decreased 15% and 9%, respectively, attributed entirely to the 21% reduction in net trading revenues. Cash revenue decline was partially offset by higher revenues in Listings and corporate services.

Commercial technology revenues were down 4% in constant dollars and grew $7 million sequentially versus the third quarter.

Slides 15 and 16 detail the financial performance for our derivatives segment. Derivatives revenue in the fourth quarter of $160 million was lower by 14% year-over-year and down 2% sequentially, mostly attributable to lower trading volumes. Expenses on a reported basis were essentially flat, but were lower when you adjust for the investments we made in our U.K. clearing initiative prior to our agreement with ICE Clear.

Derivatives accounted for 28% of our consolidated net revenues and 32% of our operating income. Revenue capture for NYSE Liffe was lower year-over-year, but improved quarter-over-quarter. The decline year-over-year was primarily due to modified pricing in Q4 2011 for the trading of individual equity options and index futures in Amsterdam and Belgium.

Capture for the U.S. options business was relatively stable quarter-over-quarter but declined year-over-year, principally due to pricing pressures on NYSE Arca from other post-date venues.

Overall, the volume story for derivatives has begun to show improvement beyond what is reflected in the Q4 results. Liffe volumes, including Bclear were higher in Q4 than Q3, while CONNECT volumes fell 8%. However, Liffe volumes were stronger in December, and as Duncan mentioned, January 2013 volumes were significantly higher, including some record days in fixed income trading.

U.S. option volumes fell 7% versus Q4 2011 but increased 13% versus last quarter, and for January 2013, are up over 10% from Q4 ADV.

Similarly, Slide 17 and 18 show the financial performance for our Cash Trading and Listings segment. Cash Trading and Listings accounted for 50% of our consolidated net revenues and 51% of our operating income in the quarter. Cash Trading and Listings net revenue was $282 million in the fourth quarter of 2012, down 10% versus the prior year period and flat compared to the third quarter of 2012.

European cash market share across our 4 primary markets, which excludes off-exchange trading volume, was 66% in the fourth quarter, in line with the prior year but down from 68% in the third quarter. In U.S. cash equities, our market share across all tapes remain stable sequentially, but is down 250 basis points year-over-year.

Non-exchange-traded shares or TRF share remains elevated at 34% of the U.S. equities market, up 30% in the prior year.

Revenue capture for the U.S. cash remained stable, around $0.040 per 100 shares handled. Revenue capture for the European cash on a per-transaction basis also remained stable at $0.58 for the fourth quarter when compared to the fourth quarter of 2011, but did increase from $0.54 in the third quarter of 2012. The increase compared to the third quarter was driven by lower activity from our SLPs, more activity during the auction period and clients not [indiscernible].

Slide 19 details the financial performance for our Information Services and Technology Solutions segment. Information Services and Technology Solutions accounted for 21% of our net revenues and 18% of our operating income in the fourth quarter. Segment revenue was $120 million in the fourth quarter, a decrease of $7 million from Q4 prior year, but increased $7 million sequentially. The sequential increase was driven by the Russell and ATG deals signed in the quarter. Operating margins improved to 29% as expenses and investments are being managed well given the challenging operating environment. Our top line growth in this segment, as Duncan discussed earlier, has been below our expectations due to the constricted technology spending environment. We are gratified by the sequential increase in revenue and the return to higher operating margins. Through new global market data agreements, we expect to see Technology Services revenue growth to accelerate in the back half of 2013. These incremental revenues begin in Q2 and grow as the year progresses.

Slide 12 -- 20 provides you with the progress we have made with our Project 14 cost efficiency program. In 2012, our reported expenses of $1.581 billion were $85 million below 2011 levels. Adjusting for foreign exchange changes and incremental investments and acquisitions of $44 million, we have a core expense base in 2012 of $1.551 billion, which is $115 million below the 2011 expense base of $1.666 billion. This is well favorable to the $63 million commitment for 2012 we guided as part of our $250 million 3-year expense reduction goal. Some of the incremental savings is coming from lower variable compensation related to our lower financial performance.

We expect operating expenses to continue to trend lower for 2013. Despite the ICE transaction, we are continuing to execute our P14 efficiency plan. We are guiding 2013 reported expenses on rates similar to last year to approximate $1.525 million, a decline of $55 million on 2012 reported expenses.

Adjusting for incremental investment spending year-over-year for things like a full year effect from the Corpedia acquisition and onetime costs of spend in the IT area as part of the IT transformation plan, we expect core expenses to be $86 million below 2012. This will position us to be approximately $200 million below our 2011 expense base through year 2 of our efficiency program, again considerably favorable to the original timing.

Slide 21 provides you with other guidance for 2013. With the agreement to move clearing to ICE Clear, we now expect to achieve significant savings both in terms of operating expenses and investment costs as previously mentioned. The movement to ICE Clear will generate annualized savings north of the $25 million to $30 million targeted previously. These savings will not begin until July 1 when our outsourcing contract ends with LCH.

Our debt refinancing saved us $1 million in interest expense this quarter, and we are anticipating annualized savings of $15 million in 2013 with the retirement of the sub and annualized savings of $24 million in 2014. These savings will mostly be realized beginning June 2013 when we retire the $414 million of outstanding 4.8% U.S. bonds primarily with cash we will generate in the first half of 2013.

Turning to capital. We're still planning on selling part of our -- or all of our MCX stakes shortly after the lock that expires in early March, as well as a portion of our LCH state. With minimal investment now required for clearing, we are guiding capital expenditures to return to more normal levels of $150 million.

We discontinued our buyback plan early in Q4 once our 10b5-1 expired as a result of the merger discussions. We do not anticipate any share repurchases prior to the transaction closing.

With improved operating results, lower expenses, lower capital expenditures and no share repurchases, we expect to be in a significant delevering mode in 2013. Gross debt will stay around $2.5 billion as cash balances build until we can repay the $414 million of U.S. notes when they expire in June 2013. For the year, we expect our leverage to be at or below 2x by year end 2013. Lastly, we expect 2013 tax rate to be between 24% and 25%.

Slide 22 details our cash and debt position as of December 31, 2012. Gross debt at September 30 -- I'm sorry, gross debt at December 31, was $2.5 billion, including $0.4 billion remaining of the 4.8% June 2013 notes, which will retire in the second quarter of 2013. We also had about $400 million in cash. Our debt-to-EBITDA leverage ratio increased to 2.5x, reflecting weak EBITDA generation and the share buyback. Capital expenditures were $66 million in the quarter and $191 million year-to-date.

We executed $28 million in stock repurchases in the fourth quarter, retiring 1.1 million shares at an average price of $24.67. For the full year, we've retired 17 million shares at an average price of $26.55. Last week, the board declared a $0.30 quarterly cash dividend for the first quarter of 2013, which is payable on March 28.

Now, I'd like to turn the call back to Duncan for closing remarks.

Duncan L. Niederauer

Okay. Thanks, Mike, and thanks, everybody for listening. In closing, I think we all know last year was a pretty tough year for the industry, but -- and for us, and 2013 is certainly off to a much better start, which leaves us very excited about the future, that future as a standalone company and then hopefully as part of what we think will be a terrific new company.

I think -- I hope you took away from the call that we didn't stand still in 2012, and it was a tough environment. We used that as an opportunity to continue to execute against our strategy and the pillars of growth efficiency and capital deployment. And we think that, as Mike just outlined, puts us on a track to deliver some -- much better results in 2013.

We are particularly excited about the strong start that 2013's gotten off to, as Mike said earlier. One month doesn't make a year, but it's nice to be out of the gate with what feels like a little bit of a tailwind in some of the businesses and in the equity market. So we're obviously going to focus a lot on our core business in 2013, so that we can build momentum as we, on a parallel path, work on the integration with ICE.

So we will stop there, and we're happy to open the line for your questions. Thanks a lot.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Howard Chen representing Crédit Suisse.

Howard Chen - Crédit Suisse AG, Research Division

Duncan, you spoke about some of the dynamics driving the recent volume recovery in Europe, but just given the improvement in Liffe volumes have been so dramatic, I wanted to follow up and get your view as to whether you think that lift we're seeing is the beginning of a trend or is there something in some of those features that you mentioned that make kind of the current volume backdrop a bit more elevated than it should be?

Duncan L. Niederauer

Yes, I mean, it's a little hard to tell on the latter part of that, Howard. But I think what we thought was -- we know it's been a pretty depressed down cycle for quite some time. You had very low volatility. No one really with different views about where short-term rates were headed. So it was kind of a status quo market where there wasn't a tremendous amount of interest. But I think the biggest outside factor was what I mentioned on the call, with the banks -- with some of the banks in Europe accelerating and increasing their payments on the ECB loans, I think that was certainly viewed very positively and that seemed to bring clients back into the market. The question is how likely are we to maintain this. Now those of you who follow the derivatives market know that as volume and open interest builds, that tends to be a fairly good leading indicator of business for at least the next quarter or 2. So I think we're optimistic, but at the same time we're not yet convinced that there's going to be any follow through. But to have January '13 so much better than '12, obviously it's been a nice turnaround. Mike, you have anything to add to that?

Michael S. Geltzeiler

Sure. I think also the strengthening we're seeing in the euro and the credibility, I think, it's returning a little bit more to being a benchmark rate and I think more money is coming into the euro, so a combination of the interest rates and sort of stabilization and a little bit of improvement in the euro is helping the business.

Howard Chen - Crédit Suisse AG, Research Division

Understood. And my follow-up is relating to the non-core stakes that you could sell. Mike, you mentioned LCH and MCX, but other than the lockup, can you detail what else needs to be done to complete those 2 disposals? And as you evaluate the portfolio, does anything else fit in that bucket now?

Duncan L. Niederauer

Early violation of the one-question rule. A follow-up on an entirely unrelated topic is probably a second question.

Howard Chen - Crédit Suisse AG, Research Division

Sorry, Duncan.

Duncan L. Niederauer

We realized, we're just happy a few people actually showed up on the analyst call, so we're excited about that.

Howard Chen - Crédit Suisse AG, Research Division

I can keep going but. . .

Michael S. Geltzeiler

So, as I mentioned, the MCX lockup expires early March and we are lined up to actually sell that in a number of block trades in the open market. So pretty -- really there's no restrictions on us other than maybe the size of any one particular trade not exceeding 2%, so I think that's certainly within our control. The lockup is not just for us. It's for some others in the marketplace as well. So we will just gauge the market opportunity at this time. The business is performing very well. The valuation on our 5% stake was most recently somewhere in the mid-$60 million range, so we'll continue to monitor that situation, but that's totally within our control to sell that market. On the LCH side, it's all real tied to the LSE transaction, so we are -- have indicated our interest to sell as much of our stake as we can. And I think that process is a little bit out of our control at this stage. In terms of what else we have, and we have a number of other minority stakes, those are the 2 that I would probably tee up for this year. There could be -- there are some smaller stakes that from time-to-time, some may approach us and say they have some interest in, that there may not necessarily be a liquid market for it today. So there could be some upward surprise on that, but I would think for guidance purposes I would stick with these 2 areas as being the principal dispositions.

Operator

And your next question comes from the line of Richard Repetto representing Sandler O'Neill.

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

So my question's on clearing. And Mike, you talked about the savings exceeding the $25 million to $30 million. I guess, on Slide 20 you also outlined, I guess, the reduced investment spend. So I guess, the question is what is the big -- as you look at clearing savings and that was outlined in the original transaction as being a big component of ICE's $300 million, what comes into ICE's $300 million? What additional Clearing savings is there beyond exceeding the $25 million to $30 million that you're getting by pulling out of LCH and then the incremental investment spend pullback?

Michael S. Geltzeiler

I mean, just to clarify. So the $25 million to $30 million or what we're saving by exiting LCH and moving to ICE Clear is actually in the $150 million bucket related to P14, so it was not in the $150 million tied to ICE's and NYSE's integration with Liffe and Clearing, so there is not a double count there. The other opportunities are the savings we're discussing is specifically focused on the U.K. portion of moving Liffe Clear from LCH to ICE Clear. There's also the continental piece, which we indicated we'd have not only incremental revenue in the first quarter of 2014 when we bring that in, but that we were expecting to have probably around 50% margins on that. Clearly, if that was to move into ICE Clear, they would -- the margins would be considerably more than 50% because we wouldn't -- we would be able to leverage their existing infrastructure. So that's one area where there could be incremental savings beyond our P14 savings. I think, the summary of it all is we are looking to spend $100 million to $125 million over 2 years on Clearing. We spent about $65 million last year, $20 million in the P&L, the rest you're seeing we wrote off in the first quarter. So the savings from this transaction comes from not having to spend year 2 of the capital in P&L to build this thing. And the annualized savings that we're getting just from the U.K. piece will be above what we had -- we thought we could do if we brought it in-house ourselves. The third part of it clearly will come from the continental.

Duncan L. Niederauer

Right. And so just to summarize that, Rich, because we get asked about that a lot. So the U.K. derivatives migration will happen at midyear. I think we've been pretty transparent on what the savings on that were likely to be if we were doing it ourselves and now what Mike just articulated with the increase in savings by moving that into ICE Clear, and he can follow up with you guys one-on-one later if you'd like. The Cash business, the second leg of it, the Cash business is pretty straightforward, right. We haven't -- the savings that we're getting are being passed on to the clients. That's a long-term contract to stay with Clearnet and we think that will obviously be well received by the European regulators as they care mostly about the equities market. And you also know that we've announced before that the clearing of our European equity derivatives business is scheduled -- was scheduled to migrate to Liffe Clearing in the beginning of 2014. It's our intention until further notice to move that business to ICE Clear in Q1 '14 and what Mike's trying to articulate is that the revenue capture will be similar, but the cost we would have to -- the incremental costs that we would have to spend to handle that business if we were standing alone weighs more than what ICE will have to invest given that they already have the clearing infrastructure in place. So more details to come on that when we start talking about the '14 outlook for the hopefully the new company.

Richard H. Repetto - Sandler O'Neill + Partners, L.P., Research Division

Yes, I guess my point is it just doesn't seem like that's a big percentage of the $300 million that comes from ICE -- from NYSE-ICE combined?

Michael S. Geltzeiler

Yes, it's not. It's almost -- it's actually a smaller [indiscernible]. We agree with you.

Operator

The next question comes from the line of Alex Kramm representing UBS.

Alex Kramm - UBS Investment Bank, Research Division

Maybe just very quickly stay on that clearing discussion, can you just walk us through a little bit more what the steps are to get the initial summer transaction going with ICE Clear like where are you in discussions with the broker-dealers? Are there any risks that this could actually get delayed? I think ICE's own transition a few days ago got delayed because of some events. So if there is a delay, are there risks that you have to stay longer with LCH? Are there contingency plans? Maybe just talk us through a little bit more there.

Duncan L. Niederauer

Yes, sure, Thanks, Alex. It's Duncan. So first of all, we obviously have been in communication with a lot of our customers on this. And I may be slightly off on these numbers, but we have just under 50 different clearing members that are members of Liffe now. And all but a handful of them are also members of ICE Clear. So for them, there's actually less work to do than if we were creating our own because there's no new clearing house they need to connect to, they're already connected. So particularly for the handful that may trade a few contracts with us, they know that ICE doesn't trade, so they got no connectivity to ICE Clear. We've got to do some work with them, but we're talking about 4 or 5 clearing members. The overwhelming majority are already on ICE Clear so that will be easy. We've begun the conversation with all these clients about what's required for the migration, and the overwhelming response we got is that it's less work, as I said a minute ago, than they were going to have to do if they migrated over. So we actually think we reduced a lot of the frictional costs and risks associated with any immigration there. Now to get to the last part of your question, obviously at the insistence of the regulators to both us and LCH, there is a contingency plan. Now, remember, if memory serves, ICE's migration out of LCH to their own clearing house was delayed, I think, because of the financial crisis. If I got my timing right, they were trying to finish that migration right around the time of the Lehman collapse, so I'm sure that added some complexity at the time. But if something like that were to transpire and we needed to avail ourselves of the services of LCH for another month or 2 at the insistence of the regulators, that contingency is in place for as long as we would need it. It is our anticipation now that we would not need that given how smooth this migration seems to be.

Operator

Your next question comes from the line of Roger Freeman representing Barclays.

Roger A. Freeman - Barclays Capital, Research Division

Just looking at the market share in the U.S. and U.S. equities, the internalized or off-exchange for both your market and NASDAQ has been going up and much more so even in January. I'm just wondering what you're seeing? Is this more broker-dealer facilitation or dark pool volume, just any thoughts around that?

Lawrence E. Leibowitz

I think it's a combination of a couple of things, Roger. First is volatility has been relatively low, which tends to make [indiscernible] go higher. And just over time, the brokers are getting better at internalizing and circulating among their dark pools and segmenting their customer base. They've gotten very sophisticated about different pricing schemes, different segmentation schemes and the market's just moving in that direction. We've been on record about our opinions on that and we'll see where that goes. We don't think it's healthy at a certain point for price discovery in the health public markets, but that's the market structure we have right now. It's very competitive, and we're going to do our best to mitigate it.

Operator

Your next question comes from the line of Niamh Alexander.

Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division

If I could come back to the transaction tax because since the last call what we've had is the kind of agreement, the usual agreement, but you know there are certain number of member states, including France and Germany, looking to plow ahead and now it's emerging that they really want to capture, not only where to trade -- the country of origin and then the product country of origin. So it could actually impact your Liffe business, maybe your ICE's business, too, as well. So help me think about what you can do to countermand that or what your clients can do because it seems like if you're a French utility, even if you're trading on Liffe U.S. or Liffe Europe, you could get taxed here and this could have an impact on volume?

Duncan L. Niederauer

Yes, it's a good question, Niamh, so thank you for asking it. So the only country so for where we really had any experience in the potential impact of these types of taxes is in France, and I think that we've been pretty transparent that the impact on volumes, although it's tough to isolate, right, because the fourth quarter was kind of a strange quarter for a host of other reasons in the markets, to the best of our ability it looks like about a 10% to 15% impact in volumes. Now to be clear to everybody on the call, as Niamh said, this is kind of an unusual agreement that's been struck with these 10 member states. So it's called enhanced cooperation. It's a bit of a euphemistic term. So it's 10 countries, it's Germany, France, Italy, Spain, Greece, Portugal, Belgium, Austria, Slovakia, Slovenia, Estonia. I think it's basically those 10 or 11 countries. And the Netherlands is sort of saying we'll do it, too, as long as our pension funds are exempted and the revenues find their way back to the proper place. So I discussed this with a lot of policymakers in Davos because obviously a number of the countries in which we operate are among the group that's having the enhanced cooperation. Just to be very clear, all of these states would have to agree. When the negotiation begins, they all have to agree not just the final text, but how it's implemented, where it's implemented, what the exemptions are, what the ground rules are. And the sense I got from talking to policymakers in Davos is that this is going to be much more challenging to implement than meets the eye because each one of those companies I just mentioned has a very different view of what it should be, who should be taxed, how it should be implemented, whether local enterprises are exempted, et cetera. So the phrase that was used with me quite a bit was that this will be slow walk. Now, that doesn't mean we're going to take our eye off it. We have to pay attention to it. But I think it's going to take a lot longer than we think for 11 countries, each of whom have their own idea of what this should be, for it to be implemented in this broader way. And there's no sense that the full 27 countries are interested in doing this, none whatsoever.

Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division

So it doesn't sound like you're too concerned from Liffe's perspective because if, for example, they do actually manage to get it done, even within 2 years instead of a year or whatever they're targeting, it just sounds like it could impact Liffe's revenue because a lot of the customers that are trading on Liffe are probably based on Continental Europe, and maybe some of the products even originate there?

Duncan L. Niederauer

Yes. Well, just remember, I mean, a lion's share of Liffe's volume actually comes from U.K.-based companies, not just from Continental Europe, just like a lot of our equities are actually from U.K.-based companies, not Continental Europe.

Niamh Alexander - Keefe, Bruyette, & Woods, Inc., Research Division

Okay, so the vast majority is U.K.-based?

Duncan L. Niederauer

And clients, most of the big global clients, Niamh, have offices all over the world. And I've talked to many of them that are already trying to figure out where would they need to manage their business from and send the orders from because even if all 10 or 11 countries agree, you still got plenty of other venues and jurisdictions in which you can operate that this -- where this wouldn't be a problem. But I want to be very clear, it's not something we're just taking -- we're not complacent about it because, frankly, enhanced cooperation is a lot further than I thought they might get.

Operator

Your next question comes from the line of Brian Bedell representing ISI Group.

Brian Bedell - ISI Group Inc., Research Division

Mike, could you talk a little bit more about the revamped market data agreements and frame the potential revenue impact for this year and maybe 2014? And then also in with that, talk a little bit about the traction that you're seeing in the technology business from a revenue perspective and what we should be thinking about?

Michael S. Geltzeiler

Let me tackle the market data. As we mentioned several times in the call that and also in the fourth quarter, we have introduced a number of initiatives in market data that we're pretty convinced will accelerate our revenue growth there. We're restructuring the global data agreements, particularly the non-display area, addressing some of the data that's purchased for feeds and routers and algos. There were some pricing changes, and we've launched a number of new products that we're pretty excited about. So those are be implemented in various stages throughout 2013. And I think a couple of times in the call we said we expect the revenues from these initiatives to reach kind of nice mass in Q2 and to accelerate as we move forward in the quarter. And I think in previous calls, we've talked about this certainly north of 10% of our market data business as a sort of annualized potential upside from this. So I think it's a series of initiatives. It's pretty comprehensive. It's similar to what others have done in the marketplace, so it's not untested and it's well underway. So I think we'll leave the guidance at that for now. For [indiscernible] Larry [indiscernible] than from a technology in general.

Duncan L. Niederauer

Why don't we let Larry talk about kind of what we think some of the other opportunities there referenced with the new structure in the call, and then we'll take one more question and wrap it up.

Lawrence E. Leibowitz

Sure. As Mike mentioned, we did sign a couple of agreements in the fourth quarter that are indicative of the types of individual opportunities, whether it's the Russell contract or ATG. But I think in talking with a lot of our customers now, they are seriously talking about how they outsource significant chunks of infrastructure because they really need to get some savings. It's all consistent with when we put that chart in and you saw. If you really look at it, you'll say, well, it's not that different than what you said. I think the issue was the thesis of the banks who need to do these things was early 2 years ago. Now I think they really need to get on with it, particularly with Dodd-Frank coming in and other things that are happening. They really need to increased their return on equity and decrease their operating costs. So we're having a lot of discussions in terms of those sort of deals. I don't think that there are any of them, in particular, that's going to be huge and, so we're not looking for big and chunky. We're looking for steady growth of projects that are proof of concept that this thing continues to have legs.

Operator

Your question comes from the line of Chris Allen representing Evercore.

Christopher J. Allen - Evercore Partners Inc., Research Division

Brian just asked my question, but I guess just in the context of the ICE transaction, any thoughts about the data centers longer term and any new plans to monetize them moving forward?

Lawrence E. Leibowitz

So as we've said before, we're always looking at these strategic assets meaning we don't get any personal satisfaction out of owning a data center. We don't go visit it and [indiscernible]. So the point is we're always looking for, well, gee, would we be better with a sale leaseback? Are there other ways to monetize this asset if we've got empty space? And that process was underway before the ICE transaction. That will be reassessed in combination with not only ICE transaction, but other things that may happen like what happens when you spend on Euronext? What's the state of the NYSE business? And we're going to continue to look at what are the different ways to make the best use of this asset for the strategic values of the businesses and also for the financials on a quarterly basis for our shareholders. And I think we've been engaged with ICE on it. I think it's a very good discussion.

Duncan L. Niederauer

All right, thanks, everybody. Obviously, the team is available throughout the day for those of you who want to follow up, and enjoy the rest of your day. Thanks a lot, everybody. Thanks, operator.

Operator

You're welcome. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.

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