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Executives

Edward Ditmire

Robert Greifeld - Chief Executive Officer, President, Staff Director, Member of Executive Committee and Member of Finance Committee

Lee Shavel - Chief Financial Officer and Executive Vice President of Corporate Strategy

Eric W. Noll - Executive Vice President of Transaction Services - US and UK

Analysts

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

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division

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

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Jillian Miller - BMO Capital Markets U.S.

Michael Carrier - BofA Merrill Lynch, Research Division

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

Brian Bedell - ISI Group Inc., Research Division

Akhil Bhatia

Gaston F. Ceron - Morningstar Inc., Research Division

The NASDAQ OMX Group, Inc. (NDAQ) Acquisition of eSpeed Conference April 1, 2013 5:00 PM ET

Operator

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the NASDAQ OMX acquisition of eSpeed. [Operator Instructions] As a reminder, today's conference may be recorded. It's now my pleasure to turn the floor over to Ed Ditmire. Sir, the floor is yours.

Edward Ditmire

Good afternoon. On behalf of NASDAQ OMX, I'd like to welcome you to this investor call to discuss the acquisition of eSpeed. Thank you to everyone for participating on short notice. I'd like to refer everyone to our press release and presentation on the NASDAQ OMX IR website for the customary disclosures and disclaimers.

And with that, I'd like to turn the call over to NASDAQ OMX's CEO, Bob Greifeld.

Robert Greifeld

Thank you, Ed. Good afternoon, everyone, and thank you for joining us today on short notice. We're here to discuss what we believe is a very exciting development for our transaction business and for NASDAQ OMX. Let me start with our strategic rationale and why we believe the eSpeed acquisition is so compelling. Now as some of you know, when it comes to evaluating strategic opportunities, we recognize that we have a responsibility for understanding all the pieces on the chessboard. We look for adjacent opportunities in our core business areas, but we are careful not to cast our nets too wide. It is important that these opportunities be strategically significant, and in some material way, lever the expertise of our organization. We have applied this approach in diversifying our European and U.S. transaction businesses to expand capabilities and derivatives, fixed income, commodities and clearing, as well as our original diversification efforts in Corporate Solutions, which recently announced the Thomson IR acquisition. The soundness of this approach, over time, has proven successful and allowed NASDAQ OMX to create a diverse, customer-centric portfolio of corporate trading technology and information solutions which have delivered value for our customers and for our shareholders.

When we look at the transaction space in particular, it is obviously something very near and dear to us and something that we do exceptionally well. So while we are extremely proud of the diversity of our business model, it has never stopped us from recognizing a fundamental opportunity to lever our technology and scale across multiple asset classes to improve the efficiency of our markets.

eSpeed is a high quality business that operates central limit order books for U.S. Treasuries, the world's largest government bond market. They are a market leader. The parallels between the U.S. Treasury market and the equities market are significant. Both are highly electronic, efficient marketplaces. Our scale entry into fixed income execution business is a true game changer for our Transaction business and fits with NASDAQ OMX's broader strategic vision. In addition, this asset allows us to take advantage of the current market dynamics and growth opportunities while further diversifying our revenue base.

The U.S. Treasury market is one of the largest cash markets, with over $500 billion traded daily. On-The-Run Treasury trading is one of the most active liquid global financial instruments trading today with about $200 billion traded of the total U.S. Treasury market. This compares to a roughly $150 billion of cash equities traded per day. So clearly, it is a tremendous opportunity. As I mentioned, this transaction will allow NASDAQ OMX to take advantage of the growth in the treasury market, which has been buoyed by current market trends, trends we anticipate will continue.

Government intervention through quantitative easing and other market operations have artificially depressed the natural volatility in the U.S. Treasury market. And while we cannot predict when, we know that the government intervention will, at a time, cease, and this will have a positive impact on volumes.

In addition to delivering strong returns on capital and being accretive to our earnings within 12 months, critical filters for doing any transaction, the acquisition supports our commitment to delivering consistent and stable returns to shareholders. The eSpeed platform is a compelling extension of our strategic direction. It is a major platform for trading U.S. Treasuries, it has a significant percent of revenue coming from fixed contracts, it has a long-standing presence on the trading desk all across the globe. On the NASDAQ OMX's independent ownership, independent of any voice brokerage affiliation, we will be in a position to maximize the true potential of this platform. We will also provide -- be provided the opportunity to cross-sell eSpeed's fixed income trading to NASDAQ OMX's existing customer base, many of whom already trade across multiple asset classes.

Today, we trade just about every asset class on the planet across all markets in the U.S. and Europe. Entering the U.S. Treasury market represents a significant milestone for our U.S. Transaction business and one that uniquely enhances our trading offering for and positions us for future growth. We are dedicated to providing market participants with transparency, opportunities for price improvement and robust two-sided liquidity. We are extremely enthusiastic about this asset and what it represents for NASDAQ OMX, and look forward to incorporating eSpeed in our platform in the months to come.

With that, I'll turn the call over to Lee to talk a little bit about the deal financing.

Lee Shavel

Thanks, Bob. So in addition to the strategic merits that Bob has mentioned, I just want to reiterate, from a financial standpoint, this is a transaction that we are very excited about as well. We believe that, certainly, this is a strategically important platform; that this is a reasonable 10.9x multiple of trailing EBITDA, which compares well to recent deals in the electronic trading space, as well as other electronic trading competitors that are publicly traded. It will be accretive within 12 months and meets our criteria for return on invested capital. The $750 million cash upfront payment will be financed through a combination of existing cash resources, as well as in the long-term debt markets. We're currently evaluating our financial package with the intent of maintaining our investment-grade status. The transaction, currently, is supported with a committed bridge facility that we'll have in place but we'll expect to go to the broader debt markets before closing, estimated in mid-2013. The transaction out-of-the-box is expected to generate leverage of slightly over 3x, and as a consequence, we are suspending guidance on our share repurchases as we focus on reducing our leverage to our targeted range in the mid-2s.

And with that, I -- we just want to make certain that everyone understands, as is presented in the presentation in the appendix, that the deferred contingent stock consideration over 15 years of $484 million is matched, offset by an estimated value of $499 million of the cash tax benefits over 15 years. We can go into more detail on that, but wanted to make certain that everyone understood that dynamic here.

And with that, we'll open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Richard Repetto with Sandler O'Neill.

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

I guess, the first question is, on the actual trading platform, so this isn't -- as far as revenue, you mentioned some revenue synergies. But platform cost synergies, this is, you're going to maintain run. This isn't leveraging the INET platform in any way?

Robert Greifeld

That's not the current plan. Certainly, we want the technology people to get together over time and see how we can rationalize operations very clearly. The eSpeed platform is a superb platform. We're very happy with it, and we'll be doing more with it.

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

And -- Bob, and then, Lee, you mentioned the debt-to-EBITDA being slightly over 3. I'm sure we'll be able to run it over time. But when do you expect to be able to resume -- get back to the 2.5 and resume the buyback program?

Lee Shavel

Sure, Rich. We expect to be back in our target range in the mid-2s within 12 months of the close of this transaction.

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

Okay. And then, the last question, Bob, is I got a little familiarity with the long-term contracts. And at least, in the past, some of the contracts with the big dealers were capped. Long-term contracts, but capped as far as volume, once they reached a certain volume, there wouldn't be incremental revenue. Could you give us any breakout of any long percentage of revenue, this long-term capped or capped on long-term contracts?

Robert Greifeld

Well, I would say this, Rich, the standard contract is 1 year. So I would not call that long term. And I think we're very comfortable with the balance between what we'll call recurring revenue and pure transaction revenue. So obviously, a bit of their transaction revenue is, in fact, recurring because of the contract aspect for -- of it, but it's a good balance.

Operator

Our next question comes from the line of Alex Blostein with Goldman Sachs.

Alexander Blostein - Goldman Sachs Group Inc., Research Division

I was hoping you could spend a minute just kind of going through the rationale of weighing in the option of buying this entity versus continue with your current plan which is, I guess, obviously was the buyback and then, potentially, something else on the dividend maybe. I mean, presumably, some of that has to do with the potential earnings power of this company. So maybe you can talk also a little bit about if the environment and when the environment normalizes, what do you think the revenue run rate could look like?

Robert Greifeld

Okay, fine. So the first thing I would say, this is definitely a continuation of our plan. Our plan was never limited to the capital management. It's an important part of our future, not the exclusive part. So this plan, with respect to getting into other asset classes, has been with us, really, for many years now. And what was particularly attractive about this space is, as I mentioned in my prepared comments, you see a space, it really looks and feels very much like an equity environment. There's transparent price discovery in the marketplace, it's visible on screens around the world. The market relies on the data which is disseminated around the planet, and you've got a wide range of highly involved customers that are comfortable dealing in electronic marketplace. So all things we're very comfortable with. Now when we look at that, as I said, you've got a market, just in Treasuries, that's about $500 billion per day. The On-The-Run Treasuries is about $200 billion. So it's certainly our belief that this customer desires to have more of the treasury market move into an electronic format. And we certainly believe that we're in a great position with this acquisition to take advantage of that. We also saw a somewhat unnatural set of circumstances where you have, and it's hard for us in the equity world to relate to this, but you have the Fed as this large and persistent buyer in the marketplace. And they're obviously doing it for good things for the overall economy, but it does have the direct impact of suppressing demand in the marketplace. And that's, as I said, we know that will change, we're not sure when. And if you look at the volume in the marketplace, as a percent of the shares of outstanding of the dollars outstanding, you see that the velocity has come down almost 3x. It went from a high around 11% down to 4%. So certainly, as the Fed will step away, we think that will be a positive aspect going forward. The other thing, which is kind of good to like, is that this is a market that's almost guaranteed to grow in terms of size, all right? Today, you have $11 trillion of debt outstanding that will grow automatically another $1 trillion this year. We'll be at $15 trillion before you know it. And certainly, when you see the Democratic's budget put forward by Patty Murray, we thought it was interesting that after 10 years, they get the deficit spending down to $500 billion per year. So we're not going to make any general comments on the economy, but if you're into the Treasury business for the long term, it's kind of nice to know your market's getting bigger year-on-year. So as the market gets larger and the Fed steps out and the market gets to a normal level of volume and volatility, these are all good things. So we feel that the acquisition is coming at a particularly fortuitous time.

Operator

Our next question comes from the line of Patrick O'Shaughnessy with Raymond James.

Patrick J. O'Shaughnessy - Raymond James & Associates, Inc., Research Division

I wonder if you could talk about how you see the competitive environment in the treasury market. I think historically it's been something of a duopoly and there's been a lot of, I think, pressure on the pricing over the longer term timeframe. Where do you think we are in terms of that cycle? And then, I guess, kind of building off a comment that Bob made in the introduction, how do you think that eSpeed kind of was disadvantage by being attached to a voice brokerage in the past, and how does independence and being within the NASDAQ model really help?

Robert Greifeld

Yes, the first thing I would say is I -- we don't really think of the market as a duopoly. There are other well-funded competitors in the space. Certainly, eSpeed would be one of the large ones and BrokerTec there, but it's not by any stretch, as we look at the market, as a duopoly. When you look at the $500 billion per day that's traded, and of which $200 billion is in the On-The-Run Treasuries, at least $300 billion, and certainly, we believe that $300 billion, one has to go electronic based upon customer requirement, customer demand. But that being said, I think the way the market is brokered today with the voice brokerage, probably, is not an accelerant to the progress of the electronification of the market. And we think there's some relative advantage for the company like NASDAQ OMX to be in the ownership position. Eric, do you want to add to that?

Eric W. Noll

No, I would agree to that. And I think the other thing is that being independent, it allows us to, if you will, cross-sell to our new customers who are NASDAQ OMX customers, but not yet active in the treasury space. So we see great opportunity for us to talk to our existing customer base about treasuries and about trading treasuries and start to include them in our growth plans as we move the business forward.

Operator

Our next question comes from the line of Chris Allen with Evercore.

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

I just wanted to, I guess, start in, when you talked about doing M&A in the past, it's always been about leveraging the core technology platform, leveraging the mother ship, to borrow your phrase. So I'm a little surprised that you wouldn't be looking at an acquisition to leverage your existing technology, which is well regarded as best-in-class. And typically, the IDBs have not been there on -- I mean, from a technology level. So any color and why the change in strategy somewhat here...

Robert Greifeld

Let me say, one, it's not a strange change in strategy. We certainly will lever technology assets, but I would also point out that eSpeed was the pioneer in bringing electronics to the fixed income world, and their technology is quite well-regarded. And certainly, our technology teams will work together and we will use best breed across our organization wherever we can. And there will be those opportunities. So I don't mean to say there won't be, but also, we have great respect for what's been built here, and we certainly want to understand its unique competencies and see how that plays into the broader firmament. And on the other side, where there clearly will be synergies is in the physical infrastructure. We will definitely be moving the eSpeed platform to our Carteret data center. That will represent, obviously, expense synergies, but more importantly, I think, it ties back to Eric's point, is that we have a large number of our customers in Carteret who are currently not customers in eSpeed. And we think we're going to make that as easy as possible for those customers to then trade in our environment. We'll have common -- obviously, common interfaces, common location, co-location services and we're excited about that. So there will be synergies on the expense side on both the operations and the technology side, but just -- we'll do it as intelligently as we can.

Eric W. Noll

And Chris, one other thing on the technology and synergy space. I think in the Market Data business, we see an opportunity to use again, as you described, the market-leading technology, our TotalView data feed and start to really provide market data of significance and depth for market users in a real way relatively quickly. So I would expect that for us to enhance the market data offerings of the eSpeed platform as we move forward in this space to provide more of data in this space to our customers.

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

Got it. And then, I was just kind of curious, I mean, it sounds like there's a 3-year non-compete here in terms of BGCP not participating in the On-The-Run markets and obviously, they're going to be participating in the Off-The-Run markets in the interim. Just, what gives you the comfort around that -- that kind of timeframe? How long do you think it's going to take the Off-The-Run markets to move electronically? Any color there?

Robert Greifeld

Well, the first thing I would say, with the Off-The-Run and other treasury instruments, it really will come down to what the customers want to happen. We certainly believe that the electronification of the markets will happen. It is the march of time. We don't predict when, just we don't predict when the Fed will stop buying up all the treasuries that are available. So it will happen. The customer has to want it to happen, and we'll certainly be attune to their desires and hopefully, at the right time and place, be able to meet their needs. With respect to the non-compete, I certainly think it's our job and one I expect we'll do incredibly well, is to carry on as aggressively as we can. And as I said before, this is not a duopoly market, there will be other competitors in the next 3 years, and we'll be hyper-focused on making sure that we execute our game plans as well as we can. To the extent we do that, we certainly love our positioning.

Operator

Our next question comes from the line of Chris Harris with Wells Fargo.

Christopher Harris - Wells Fargo Securities, LLC, Research Division

So if I look at the margins of this business and they look to be, really, quite attractive, just wondering what it is about eSpeed that results in such high margins? And then what give you guys comfort that we'll be able to maintain the margins where they are, given some of the competitive pressures you talked about?

Robert Greifeld

Well, one is, it's an electronic business, so to the extent you are efficient with respect to running the technology, then incremental revenue can quite nicely drop to the bottom line. So one, we have great confidence that we can maintain the margins, but we also want to increase the revenue and increase the margin, as some of the things we talked about become reality in the quarters and the years to come. And we know we're more experienced than anybody in the Transaction business, so we understand the dynamics of it.

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Okay. Then, another question here on the valuation of the deal. 11x EBITDA, Lee, I think you had mentioned a few other transactions you guys kind of use maybe to kind of guide your thinking. But can you maybe flesh that out a little bit more? I mean it seems kind of like a high multiple, I mean, you guys are only trading at 6x EBITDA, so definitely a huge premium to where you are. And if you look at BGC, they kind of seem like a distressed seller here. I mean, the stock's at $4. Were there other bidders involved that kind of made you guys pay a little bit more than perhaps you would have? So any other additional clarity on that would be helpful.

Robert Greifeld

Well, what I would say, that we're not going to comment on other bidders. That would be for Howard and team, I guess. But we have to make our own value determination, independent to whether they are bidders or not. And we perfected that discipline. So when you look at this, one is our returns, and Lee will spend more time on it, are quite positive. And that's in the assumption that we're in the current business cycle. So we're not essentially buying this asset to get the returns we talked about in this release where we accrete within 12 months and provide returns on capital. We're buying it because we believe that we are in a position to help the electronification of -- just the U.S. Treasury market alone is remarkable, what the returns can be to investors. So we want to be in that space. In addition, we like the beta play with respect to when does velocity come back into this market. I think that's a guarantee. It will come back. Whether it's 6 months, 12 months, 18 months or 36 months, I don't know. I would predict more, if I was in the 12 to 18 months, but it will come back. And we'll obviously be in the position to be the beneficiary of that. We have a tremendous opportunity to cross-sell within our existing customer base that did not exist as eSpeed is buried into BGC, which we think has a lot of upside. And you point out the margins are high. So we don't have to grow revenue by some ungodly amount to have a tremendous return for our shareholders. So all these things led to us feeling actually very bullish on the ability to secure this asset.

Lee Shavel

Yes. Then, Chris, let me give you a couple of data points that I think are relevant to the question. First of all, if you look at, and recognizing that the 10.9x is a trailing 12 months multiple, our comparable multiple off of our 2012 EBITDA is an 8.1x. You might be looking at 2013 estimates. But apples-to-apples, it would be an 8.1 multiple that we're at. I think the most important data point or 2 data points is, in Thomson Reuters' recent acquisition of FXall, that transaction was done at a reported 13.3x trailing 12 months EBITDA. Obviously, a company that played a similarly purely electronic role, as volume -- as FX volume migrated to electronic platforms. And then, we also look at the current multiples for market access in the Corporate Bond business at 12.1x 2013 EBITDA, so the LTM number is probably slightly higher than that. So those are certainly multiples that were in our minds. Plus, I think if you look at the exchanges, particularly the derivatives exchanges, that have had -- that are -- have higher expected growth rates, they are generally trading in the 11x to 12x multiple of EBITDA. So that's, I think, what we factored in. But as Bob said, this is a unique asset. It's a high-quality asset in terms of its market positioning and certainly something that we think we can add a lot of value to.

Robert Greifeld

Yes. I just want to amplify that. I mean, when you talk about the different assets, that's interesting. But I don't think any of them would compare to the market positioning that eSpeed has in U.S. Treasuries. And the U.S. Treasury market for good, bad or indifferent will be here. In fact, it's guaranteed to grow. So we've got a leading position in probably the -- one of the most secure markets on the planet. And we're just extremely excited about the opportunities to grow with this thing over the years. Obviously, it will become a core asset of NASDAQ OMX.

Operator

Our next question comes from Jillian Miller with BMO Capital Markets.

Jillian Miller - BMO Capital Markets U.S.

I was just wondering how separating kind of the On-The-Run fully electronic Treasury business from all of the other Treasury broking that was being done at BGC might impact the market. Like, I don't know if there's any reason to think that folks who are trading very liquid products would prefer a competitor like ICAP, let's say, where they can get all of their Treasury products in a one-stop shop versus coming to you for the fully-electronic On-The-Run stuff and then having to go to some other venue to trade all of their less liquid treasury products.

Eric W. Noll

Jillian, this is Eric. I think the right way to answer that question is the great bulk of volume that takes place in the eSpeed platform and what we understand takes place on other On-The-Run Treasury platforms comes through APIs. So your computer interfaces to the platform, whereas the bulk of activity that takes place in the other bond product still takes place either what is known as a hybrid method, with a computer delivery and a person involved, or by phone. So actually, there's a very clear distinction between the volumes that are done in the On-The-Run business from the volumes done in the other types of fixed income securities that are traded.

Robert Greifeld

Yes, and in terms of numbers, and these are probably not exact, but it's our understanding that about 92% of the volume comes through APIs, and about 8% through a GUI. So that really, in many respects, as I say, it just exactly mirrors the equity world. So it is a parallel universe.

Jillian Miller - BMO Capital Markets U.S.

Okay, that's helpful. And then, just wanted to get some more detail on how you plan to leverage the cash treasury platform to expand into, I guess, additional fixed income products. I'm trying to figure out what fixed income products are really liquid enough besides these On-The-Run Treasuries to fit into kind of your wheelhouse. So maybe you could give us an idea for what several products might be first on your list.

Robert Greifeld

Yes, I would say this first is, we have -- intend to engage in fairly intensive customer discussions now that the transaction is announced. And as I said, we have strong belief that the customer demand has to dictate our move into other products. And everything we hear is the customers are at the point where they want that to happen, and the easiest and low-hanging fruit is strictly in the U.S. Treasury marketplace. Eric, do you want to amplify that?

Eric W. Noll

No. I think Bob is correct with that in the sense that we aren't going to try to force anything here. This will be led by customer demand. And we are hearing customer demand and I would say, over the next couple of weeks, we will be spending an enormous amount of time with the main users of this platform and other customers, learning what other products they would like to see move onto an electronic platform and providing that service for them.

Operator

Our next question comes from the line of Mike Carrier with Bank of America.

Michael Carrier - BofA Merrill Lynch, Research Division

Just maybe on just the accretion. I mean, we can see that the revenues, just trying to understand, when you look over the next 12 months, what are the assumptions whether it's on the revenue side, on the expense side, on the financing side? You're just trying to figure out how you're getting to the accretion over 12 months.

Lee Shavel

Sure. So Michael, let me try to give you some parameters around that. I think the starting point is, obviously, and you start with the $750 million of debt financing at, let's assume, a 5% interest rate. That will give you a pretax interest cost, and that really is the hurdle that you need to get over in order to get to accretion. So that's $37.5 million on a pretax basis; on an after-tax basis, that's approximately $20 million, $22 million. And then, so you need to clear that. Then I would say, off of the existing EBITDA -- EBITDA multiple and with our assumed depreciation and amortization, our expectation is out-of-the-box. In the first quarter, the transaction will be about $0.01 dilutive, and then over the next 12 months, that will become less and less dilutive to reaching the point of accretion. And that will be driven by revenue growth expectations. And then as you -- as we've indicated, we're going to be focused on reducing our leverage. So the interest cost comes down over that period as we are reducing the debt, and that brings us easily to accretion within the 12-month period.

Michael Carrier - BofA Merrill Lynch, Research Division

Okay, got it. And then, just on the debt side, and you mentioned the buyback and then resuming that later on. Just on the rating agencies, have you gone through in terms of their thoughts on over 3x and what their view on that is if you're -- if you have a pass to pay that down and get under, back to that 2x, 2.5x?

Lee Shavel

Yes. We've briefed the rating agencies on the transaction and what our expectations are in terms of reducing that leverage quickly. Ultimately, we obviously can't speak for the rating agencies. They'll come to their own conclusion, but we have communicated our commitment to maintaining our investment grade status and to manage our capital in a way to make, as certain as possible, that we're able to do that. And so we believe based upon the approach that we're taking in our continuing discussions around the financing package that, hopefully, our approach will support the view that our long-term leverage will be in the mid-2s range. We'll return to that very quickly and we have a demonstrated ability to do 2 things. One is to, in past situations, bring that leverage down, as we've indicated at the outset. And the second is, I think, that we also get credit for being operationally strong and for integrating our transactions well. That operational risk is also an element that they factor into their analysis. So hopefully, all of those elements will come into play here.

Michael Carrier - BofA Merrill Lynch, Research Division

Okay, thanks. And then, Bob, just the last one. If you look at this transaction and then just bigger picture, on the fixed income side of the business, you have the initiative on, in terms of NLX, progressing and then you had the stake in LCH. Just when you look at it -- and obviously, different markets, but when you look at it bigger picture, whether it's 1, 2 years down the road, where do you see you NASDAQ in terms of whether it's the fixed income, the fixed income derivative markets? Just what's the endgame or the game plan for over the next couple of years?

Robert Greifeld

Good question. One, I would say this, that we like to have a balance in our efforts, so balance being between acquisitions and organic growth. So clearly, NLX is about organic growth. Also on the organic growth side, we've done a lot of work in the Nordics, we're prepared, I think, more than others for EMEA. And we recognized some fundamental opportunities there in fixed income and we're in the process of going live with those this year. So I would say, if you fast-forward several years from now, you'll see us continue with new business initiatives. Our GIFT council process works in an increasingly effective way year-on-year. This asset is core. We certainly see that we have a clear glide path with respect to what we can do in the broader treasury market. We've covered that several times already in this call. We clearly think that the beta aspect of it will play into our advantage: one, between this market growing bigger; and the velocity of the market picking up. But I would say, the unifying theme that you're asking for is where can we do things that lever what we're doing now? So here we talked about obviously, there will be some leverage of data center, of technology, of customer base. Our customers want to be in this business and they can use us as their partner to come into this business because it does look and feel so much like the equity world that exists today. So any time we have points to leverage, we'll do that. So NLX, same story. We had the technology in-house to do it. We had the relationships in the London-based market. We also knew there was discontent with the existing player and we said it's time for us to step in, in a consortium-based approach. So just smart moves based upon leveraging core competencies that exist in the marketplace. eSpeed will be, definitely, one of our core competencies, and we'll continue to look to lever it in the years to come.

Operator

Our next question comes from the line of Niamh Alexander with KBW.

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

Just, I guess, it's like what's next? Because I see Moody's has put you on review for downgrades, saying they liked the strategic rationale. And I can -- I understand, I get the strategic rationale. And that is one of the areas of fixed income that has gone fully electronic and there's a lot of overlap with your customers from what we understand. But Lee, does this kind of take you out of deals for now? Or is it that, you know what, being in the non-investment-grade status is okay, fine for us because, guess what, it's pretty inexpensive these days. So are you still kind of looking and considering other deals for now? Or does this kind of take you out of more deals for a while until you get back to investment-grade status?

Robert Greifeld

So one, let me first try answering the question from the business side and Lee will get to the financial side. We take great pride in delivering on what we say we're going to do with respect to these acquisitions. And we have a history of underpromising and overdelivering. So clearly, this management team needs to be focused on the successful integration and then deployment of the Thomson Reuters asset and now eSpeed, and that's what we'll focus on. So we will not consider any acquisitions to the point of time -- until the point in time where we are, basically, dead certain that these acquisitions are going well and we're going to deliver exactly what we said we're going to do and hopefully, obviously, more than that. So it's an exciting time. And I do want to highlight, again, that this management team that we've built here, everybody comes from an operational background, right? And that's what we're about. And certainly, Eric, Anna Ewing, Bruce Aust, these people have all run businesses through their lives. We didn't come from the investment banking world, with the notable exception of Lee as the CFO, but in the operational side, we're here. So we're excited to get to do what we do, which is run businesses quite successfully. And that's what we're going to do.

Lee Shavel

And Niamh, just to address the other part of your question. The -- our understanding is that we are on credit watch for a possible downgrade and -- which means that rating agencies will be evaluating what steps we take in terms of how we finance the transaction, what our plan is in managing that leverage and the points that I made in the earlier question. One thing that I would emphasize is, as you know, our business, because of its stability, generates a lot of cash flow. And we are able to direct that cash flow to managing our leverage very effectively, bringing it down. We have operated for a fairly extended period now at the 2.4x or 2.5x debt-to-EBITDA, and that's certainly something that we believe we can re-achieve quickly here, given the strength of the business. So that's -- we are -- we believe that being investment-grade is valuable to us and we're committed to trying to maintain that. As I said before, we certainly expect that when we look at the full transaction and what we're able to do financially, that we have a very strong case to be made here.

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

Okay, fair enough. And then, I guess, just on the same subject, if you do get downgraded, how does that affect the Listings business, as companies have considered going public on NASDAQ? And then, secondarily, are there other financial costs, so some other debt you have outstanding right now?

Lee Shavel

Niamh, I actually -- we've got this question before in a different context in terms of the impact of -- and potentially being a non-investment grade company. And I'll be consistent with what I said before, which is, we exist in an environment with other non-investment-grade companies. We don't think that it has an operational impact on what we do from a day-to-day business, either in the Transaction or the Listings side. So in terms of, if that hopefully unlikely scenario plays out, we don't think that has an impact on our business.

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

And no other terms there for debt -- cost of debt changes in any of your other debt facilities?

Lee Shavel

No, nothing material.

Operator

Our next question comes from Brian Bedell with ISI Group.

Brian Bedell - ISI Group Inc., Research Division

Most of my questions have been asked and answered, but maybe just to talk a little bit more about the -- the long-term strategic thought process on -- with the Reuters deal, you were moving more towards recurring revenue stream, potentially higher multiple. This sort of puts you a little bit back towards the Transaction side, albeit it's a little bit more steady stream transaction. But maybe, Bob, if you can talk about over the long-term, say, next 2, 3, 4 years, how you envision the business mix migrating. Is it really more you're looking for the opportunistic acquisitions like you were talking about before? Or would you prefer to shift the revenue mix towards recurring?

Robert Greifeld

Well, I think, first and foremost, we want to have a balance in our revenue mix. And we, in no way, shape or form are trying to shy away from the Transaction business. We love the earnings power and clearly, you cannot have a better lever than a transaction business that's doing more volume where that incremental revenue associated with the volume drops right to the bottom line. What's really great about eSpeed is you're kind of serving both masters in that you have, in this Transaction-based business, something approaching 70% of the revenue is, in fact, recurring. So it fits in broadly with the percentages we have in place for the business today which is, I think, around 71%. So in this situation, checks both boxes. But like you said, if we had a great transaction business or built one, we wouldn't complain about the margins that, that generates. So we're there. And as NASDAQ grows, obviously, we do a number of diverse things and we look clearly, at what is unifying themes that holds this organization together. And as I've said, we have to make sure that what we're doing is leveraging some fundamental advantage of the mother ship. It has to be strategically significant. Now when you talk about acquisitions being opportunistic, we were keenly aware of the eSpeed asset over the last 9 to 10 years. And did we ever have a set plan where the asset would be available for us to purchase? No. But when it became available, we certainly knew of our interest, we knew of the space, we knew how closely the space aligned with the equity space, had a firm view that we thought the treasury market was depressed, based upon a number of different factors, had a firm view that we could lever our customer relationships, had a firm view that this was the platform that would allow us to lever into other fixed income instruments in a really somewhat unique way, and had a strong interest. And we really are, at this point in time, surprised that such a core asset, right, that is such -- in such a leading position, in a leading asset class became available and we're obviously fortunate to be in a position to consummate the transaction. And as I said, the returns we talk about, really, are formulaic. It will be a good deal for our investors. But it's our job, and under Eric's leadership I have no doubt we'll get there, to provide what I call non-linear returns to our investors. This platform allows us to do that, and we certainly intend to.

Brian Bedell - ISI Group Inc., Research Division

Great. That's very helpful color. And then, just 1 follow up question for Lee. The accretion over the next 12 months, I assume that does not include any impact of stock buybacks or the lack of a stock buybacks?

Lee Shavel

Yes, that's correct.

Operator

Our next question comes from Akhil Bhatia with Rosenblatt Securities.

Akhil Bhatia

Just a quick follow-up on some of the rating agency questions before. Is there a set level of leverage where they are more likely to downgrade? Is it [indiscernible] over 3?

Lee Shavel

Akhil, it's probably more of a question for the rating agencies. That I think that they weigh a number of factors, including that -- the leverage. Our sense is that above 3x is where they become focused. And to the extent that you're able to bring that down quickly, then it becomes less of a concern. It really is the leverage over time and that average level that they are focused on.

Akhil Bhatia

And did you consider that as a possible scenario when you were running your accretion analysis?

Lee Shavel

Which scenario, Akhil?

Akhil Bhatia

Of a potential downgrade.

Lee Shavel

We recognized that, that was a possibility.

Operator

And we do have time for one final questioner. Our final question will come from the line of Gaston Ceron with Morningstar Equity.

Gaston F. Ceron - Morningstar Inc., Research Division

Just very quickly here, Bob. I know you've talked a little bit about how attractive the asset was and also how there are other competitors in the space and you are very happy that it became available. So would it be fair to say, then, that this is the only asset in the fixed income space and this space that really interests you? Or did you consider many other significant alternatives?

Robert Greifeld

Well, what we do, Gaston, and we've done it now for a number of years, is we recognize a fundamental responsibility to understand all the different assets and all the different asset classes around the world. And we have to have a preconceived notion of the value of those assets and how they would help or possibly hinder our strategic mission. Once you build that baseline understanding, then the world will move in slow motion. So we look at all assets. So to say this is the only one, that would obviously be incorrect. This one, we're fundamentally excited about. As I said, it's kind of -- we never could have planned that this leading asset in this leading asset class would become available. We're going to do great things with this asset over time. The returns we talked about, the accretion within the first 12 months, is really, as I said, formulaic based upon us executing a business plan in the short term. But our goal, our aspiration is a lot higher than that. This will be the core asset we use in fixed income. It will be able to be leveraged into other parts of the U.S. government arena. And then we'll go from there. One step at a time, and we'll continue to execute with the maniacal focus on detail that we ever have -- we always have, and we'll definitely do very well with it.

Gaston F. Ceron - Morningstar Inc., Research Division

Okay. And very quickly, on the cross-selling opportunity, what -- I don’t know if you mentioned this and I missed it, but what percentage of your customer base, like, your existing base, is not active in these markets that eSpeed's in? I'm just trying to get an idea of how big the cross-sell opportunity is.

Robert Greifeld

Yes. I -- we don't have the precise number on that, but it's a significant and material percentage.

Operator

And at this time, that does conclude our time for questions. I'd like to turn the program back over to Bob Greifeld for any additional or closing remarks.

Robert Greifeld

All right. Great. One is I appreciate, again, everybody getting together here on short notice. I'll repeat myself very briefly. The management team here is fundamentally excited to be able to work with a great eSpeed team. We believe there's a time and a place for this transaction to happen. That time and the place is now. I think it's a win-win transaction for both sides of both parties to this transaction. We certainly believe that we're buying this at a low end of a cycle, a cycle that has been depressed by how the government is intervening into the treasury market, and a cycle that represents an historic low with respect to trading relative to the size of the notional outstanding.

We're excited, one, that the market will grow as we look at different acquisition opportunities around the world. There's not too many where you have a certainty of growing market. So we certainly see that, that will grow, whether it stops at $16 trillion or $18 trillion, we don't know. But it will grow for -- a long way from here. Velocity will increase.

In addition to benchmark on-the-runs, we obviously have the ability to go into the other $300 billion of average daily trading volume in the treasury marketplace. We have tremendous opportunity to cross-sell into our existing customer base. And part of that will also give us expense synergies as we consolidate data centers in the next 12 months. We'll recognize some technology synergies as we know each other's platforms better, recognize we're taking the best-of-breed for both. And as I said, it's not too often -- we look at, as I say, 100 assets a year, it's not very often that you look into an asset of this quality with this kind of protected niche in the marketplace, and it will be our job to do that much more with it. And I think in our particular status as an unaffiliated player without any of the encumbrances of having a vested interest in the voice manner of doing business, we'll be in a position to be a change agent, change agent dictated to by what the customer needs are. We listen very closely to our customers and delivering to them the product and services they require, hopefully, in a first-mover advantage.

So this is a strategic move for us. It becomes part of our core competency, and one we'll look to lever in a very material way, in both the short-, medium- and long-term. So we obviously welcome the opportunity. It's been a pleasure dealing with the BGC folks. And like I said, this deal is a win-win for both sides and we're going to do great things there. So thank you for your time, and we look forward to following up with answering your additional questions.

Operator

Thank you, presenters, and thank you, participants. This does conclude today's conference. Thank you for your participation, and have a wonderful day. Attendees, you may log off at this time.

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