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Nasdaq OMX Group (NASDAQ:NDAQ)

Q4 2011 Earnings Call

February 01, 2012 8:00 am ET

Executives

Vince Palmiere - Vice President of Investor Relations & Nasdaq Corporate Finance and Head of Nasdaq Activities

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

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

Analysts

Michael Carrier - Deutsche Bank AG, Research Division

Roger A. Freeman - Barclays Capital, Research Division

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

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

Howard Chen - Crédit Suisse AG, Research Division

Alex Kramm - UBS Investment Bank, Research Division

Jillian Miller - BMO Capital Markets U.S.

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Matthew S. Heinz - Stifel, Nicolaus & Co., Inc., Research Division

Brian Bedell - ISI Group Inc., Research Division

Jonathan E. Casteleyn - Susquehanna Financial Group, LLLP, Research Division

Rob Rutschow - Credit Agricole Securities (NYSE:USA) Inc., Research Division

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

Operator

Good day, ladies and gentlemen, and welcome to the NASDAQ OMX Fourth Quarter 2011 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Vincent Palmiere, Vice President of Investor Relations. Please go ahead, sir.

Vince Palmiere

Thank you, operator. Good morning, everyone, and thanks for joining us today to discuss NASDAQ OMX's Fourth Quarter and Full Year 2011 Earnings Results. Joining me are Bob Greifeld, our Chief Executive Officer; Lee Shavel, our Chief Financial Officer; and Ed Knight, our General Counsel.

Following our prepared remarks, we'll open up the line to Q&A. You can access the results press release and presentation on NASDAQ OMX's Investor Relations' website at www.nasdaqomx.com. We intend to use our website as a means of disclosing material nonpublic information and for complying with disclosure obligations under SEC Regulation FD, and these disclosures will be included under the Events and Presentations section of the site.

Now before I turn the call over to Bob, I'd like to remind you that certain statements in the prepared presentation and during the subsequent Q&A period may relate to future events and expectations and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The actual results might differ materially from those projected in these forward-looking statements. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our press release and other periodic reports filed with the SEC. And with that, I'll turn the call over to Bob.

Robert Greifeld

Thank you, Vince, and thanks, everybody, for joining the call this morning. I will begin by spending a few minutes highlighting our results and then update you on our plans going forward. Lee will then walk you through the detailed financials.

For the fourth quarter, we delivered solid results as we grew net revenues, income and earnings per share from prior year levels despite the backdrop of a challenging volume environment. Non-GAAP EPS was $0.63 for the quarter, up 15% from the $0.55 in the fourth quarter of 2010.

For the full year 2011, results were truly outstanding as we set new records across the board. Net revenue and non-GAAP net income grew 11% and non-GAAP diluted earnings per share grew 27% to $2.53. This is a remarkable achievement that caps a 4-year run as we -- in which we have grown our earnings per share by an average of 14% per year and highlights the success of our strategic plan as it was delivered during a period in which we operated in an ultra-competitive environment with weakening, macroeconomic drivers.

During this time, we saw equity trading volumes decline, industry employment levels retrieved and fewer companies going public. When viewed through the harsh reality of this operating environment, our results over the last 4 years reflect truly exceptional performance.

Our ability to grow the business has been achieved by focusing on 3 key elements of our strategic plan: first, investing in new organic growth initiatives; second, making sound acquisition decisions; and three, managing our capital efficiently. The execution of this plan has resulted in the diversification of our business and a broadening of our product offering. This past year was the second consecutive year in which derivatives trading revenue exceeded those of cash equities as revenues grew 18% from 2010 and then as average growth of approximately 15% annually over the past 4 years.

Other areas in which we've chosen to diversify have also grown. In Access Services, revenue grew by an astounding 29% in 2011 and have grown by an average of 24% annually since 2007. Corporate Solutions has a 4-year compounded average growth rate of 14%; Market Technology has a full year CAGR of 12%; and U.S. market data revenues have grown an average of 10% annually.

The chart on Slide 5 of our presentation does a good job of highlighting the success of our diversification strategy. Today, 14% of our revenues come from trading cash equities, down from 23% in 2007, and 2/3 of that revenue is generated from products and services that are recurring in nature. It is this solid base of recurring revenues that provides the foundation for our strong cash flow model, a model that has allowed us to invest in new initiatives and make strategic bolt-on acquisitions while also returning capital to shareholders.

While revenues have grown, it's important to note that we've been able to deliver this growth while maintaining strong operating margins. In 2011, our non-GAAP operating margins came in at 46%, on par with the full year of 2010, but up significantly from a 38% margin we achieved in 2007.

Now turning to the details of the quarter. Within our Market Services business segment, despite a slight decline in industry volumes, we managed to grow our U.S. equity matched volumes by 7% from prior year levels as market share improved.

In the quarter, our total share was 21.3%, up from 19.6% in the fourth quarter of 2010, due primarily to the success of our Investors Support Program known as ISP. This program is designed to attract retail and institutional order flows while rewarding firms that exceeds certain liquidity provision and execution requirements. We're encouraged by the progress of this program and remain confident about its continued success.

Within U.S. options, we witnessed growth in the number of market makers of the NASDAQ Options Market, which we attribute to the migration of NOM to the PHLX technology architecture during the third quarter. We also saw growth in new members of PHLX from those looking to trade in our open outcry market and with our new, improved complex order functionality.

In the Nordics, N2EX continues to grow at an impressive rate. And they ended the year with 34 members and 15 companies trading U.K. power futures. Scottish Power became the third of the 6 large U.K. utilities to commit to bidding arrangements in N2EX's day-ahead auction. This follows earlier commitments from E.ON and SSE. Just last week, Drax Power, the largest independent power producer became the most recent member of N2EX.

During the fourth quarter of 2011, total cleared volume was 20.3 terawatt hours, up from 9.7 terawatt hours in the prior quarter, over 100% growth quarter-on-quarter. Truly impressive.

In Nordic equities, we now intentions to introduce competitive central counter-party clearing in cooperation with EMCF, EuroCCP and SIX x-clear. Interoperability will allow members to choose between multiple clearing houses to clear and settle trades. We expect this initiative to be implemented by the end of April subject to the necessary regulatory consent or approvals.

In the fourth quarter, we also launched Genium Risk, a new risk management platform for the Nordic clearinghouse. This is a state-of-the-art system that provides a clearinghouse with real-time risk management solutions, including tools for improved risk monitoring and handling of incidents for derivatives clearing, and plans for our member default fund for our clearinghouse are on target for the end of the first quarter. Establishing a member default fund should free up approximately $100 million, $100 million USD in capital once it has been established.

Within Access Services, revenue grew 17% over the fourth quarter of 2010, driven by the addition of FTEN and increased demand for services. During the quarter, we continue to invest in our beyond-the-mat strategy, which is being developed to help our broker-dealer customers across the globe meet their changing business needs and evolving regulatory requirements. We'll share more with you about these exciting new developments within the strategy as the year progresses.

In Market Data, we diversified into new content with the acquisition of a business that provides machine-readable economic news. This business called, Event Driven Analytics delivers U.S. government and other economic indicators to a variety of participants.

Moving onto our Issuer Services business segment. Revenues grew for the fourth quarter of 2010 on the strength and demand for our Corporate Solutions. We continue to expand our product offering in Corporate Solutions through the acquisition of Glide Technology, a leading software and service provider specializing in corporate communications and reputation management solutions. By integrating Glide into our corporate solutions platform, we are able to create the first and only fully integrated workflow solution for investor relations and public relations professionals.

During the quarter, we are happy to welcome 52 -- 56 new listings and 16 IPOs, including Groupon, Ubiquiti Networks, Zynga and Jive Software. On the IPO front, things appear to be improving as our pipeline continues to grow providing us with the largest IPO pipeline in more than 10 years. And we were very successful in attracting companies to switch their listings to NASDAQ. And all companies representing over $80 billion in market capitalization have switched to NASDAQ. This list includes blue chip companies, such as Texas Instruments and Viacom and also contains companies from diverse industries, such as Icon Enterprises, Sallie Mae, Frontier Communication and Wendy's. This was all accomplished in the fourth quarter of 2011.

In Market Technology, the SMARTS broker compliance business continued to grow during the quarter, winning contracts with 2 global brokerage firms, each operating in 28 markets. In parallel with Chi-X Australia commencing operations, SMARTS launched our broker compliance in support of the new market, while also securing nearly a dozen new clients for the service.

Also during the quarter, Market Technology signed a strategic alliance with the Chilean Stock Exchange, and we will provide them with extreme trading and advisory services for product development and global visibility. Overall, SMARTS revenue grew more than 25% when compared to the year ago period. On the whole, we've made tremendous progress on many fronts during the quarter.

As we look towards 2012, there are some signs that the market is improving. However, challenges remain, and this type of environment creates uncertainty for market volumes. Clearly, the year has started slow, but we've faced similar challenges in the past and we have found ways to grow. As Lee will discuss in his remarks, the first leg of our strategic plan is yielding results as our investments in organic initiatives have flourished and efforts to redefine the markets in which we operate are delivering growth. Not only are we looking to expand our addressable market, we're also working to ensure that our products and services continue to evolve through innovation and provide increasing value to customers. This type of entrepreneurial spirit has driven us in the past and will carry us in 2012 and beyond.

We also believe the opportunities before us, not just internally, but externally as well, are now better than ever. As we've done in the past, we'll continue to pursue a sound acquisition strategy, one that ensures transactions exceed the criteria of our thorough evaluation and approval process.

Finally, we'll continue to make sound capital management decisions. While our strong cash flow model supports all 3 legs of our strategic plan, we have been particularly aggressive with plans to return capital to shareholders. Since announcing our most recent share repurchase plan in September, we purchased 4 million shares with the book value of over -- aggregate value of over $100 million. And from the time we first started our buyback program in March 2010, we have purchased 42 million shares or nearly 20% of our outstanding shares at an average price of $21.47 and compounded value of around $900 million. Our plans for 2012 are to complete the existing repurchase plan and prepare for the next steps of our capital return policy, which will include the consideration of a dividend.

I'll close my prepared remarks by emphasizing the fact that in 2011, our strategic decision making continue to pay off as we achieved double-digit growth in revenues and earnings. Investments in new initiatives, contributions from acquisitions and capital deployment decisions all contributed to our success despite the backdrop of a difficult macroeconomic environment. As we entered 2012, we remain committed to our strategic plan to ensure that we are well positioned for growth.

With that, I will turn the call over to Lee.

Lee Shavel

Thank you, Bob. Good morning, everyone, and thanks for joining us today. Our GAAP net income for the fourth quarter of 2011 was $82 million or $0.45 per diluted share. Results this quarter include $44 million of pretax expenses associated with our debt refinancing, the impairment of an available-for-sale investment security and mergers and strategic initiatives. When excluding the impact of these items, our non-GAAP diluted earnings per share for the quarter were $0.63, an increase of 15% when compared to the fourth quarter of 2010.

Net income reported on a non-GAAP basis was $113 million, an increase of $3 million, or 3%, when compared to the prior year quarter. Reconciliations of GAAP to non-GAAP results can be found in the attachments to our press release and in the presentation that's available on our website at ir.nasdaqomx.com.

Turning to our fourth quarter operating results. Net exchange revenues came in at $422 million, representing an increase of $22 million, or 6%, when compared to the fourth quarter of last year. Within Market Services, revenues for the quarter were $281 million, an increase of $16 million over prior year results.

Cash equity revenues were $59 million, down $1 million as value traded in the Nordics declined. Net derivative trading and clearing revenues were $73 million, down slightly when compared to the fourth quarter of 2010, due primarily to lower volumes within our PHLX option market. And in Nordic derivatives, revenues were flat when compared to the prior year as increases in index derivative volumes were offset by volume declines in equity derivatives.

In the fourth quarter, revenues within Nordic derivatives were comprised of $13 million from energy and carbon products, $13 million from stock and index derivatives, $5 million from fixed income products and approximately $1 million from other revenues and fees.

In Access Services, revenues were $56 million for the quarter, an increase of $8 million, or 17%, from last year, due to the inclusion of results from FTEN, which was acquired at the end of the fourth quarter of 2010 and to continue growth in our core services.

Market Data revenues were $87 million in the quarter, up $8 million when compared to the fourth quarter of 2010, driven by increased demand for products, modified fees for European products and higher audit-related revenues. And in Issuer Services, revenues were $93 million for the quarter, up $4 million when compared to the fourth quarter of 2010. Driving this growth was increased demand from listed companies for our Corporate Solutions, higher revenues from European listing fees and an increase in Global Index Group revenues.

Turning to Market Technology. Revenue was $48 million for the quarter, up from $46 million in the fourth quarter of 2010, due primarily to fees generated from recently delivered projects. Looking forward for the first quarter of 2012, we expect Market Technology revenues to be in the range of $44 million to $46 million.

Now turning to expenses. On Slide 9, you can see that our total non-GAAP operating expenses for the fourth quarter were $235 million, representing an increase of $19 million or 9% when compared to the fourth quarter of 2010. The increase in expenses is primarily driven by the inclusion of results from FTEN and Zoomvision, which were acquired in December of 2010. Expenses associated with these acquisitions contributed an incremental $8 million for the quarter. Also contributing to the increase in expenses was the impact of changes in exchange rates of various currencies as compared to the U.S. dollar, which had the effect of increasing expenses by $1 million. So when you exclude the impact of foreign exchange and costs associated with these new acquisitions, our core expenses increased to $10 million, or 5%, when compared to the fourth quarter of last year.

As I've discussed with many of you, in 2012, we are implementing bifurcated expense guidance between core expenses and incremental new initiative spending. The purpose of this improved transparency is to ensure that you have a clear view of our expense management discipline around core expenses, as well as an understanding of where we are making additional investments in new initiatives that we believe have strong growth and return potential.

On Slide 11, you can see that for 2012, we expect core operating expenses to be in the range of $915 million to $935 million. Plus an additional $40 million to $50 million for incremental new initiative spending resulting in total operating expenses in the range of $955 million to $985 million. Also included in the 2012 guidance are approximately $14 million of incremental expenses associated with the recent acquisitions of Glide Technologies, RapiData and the Lithuanian CSD.

On the surface, this guidance reflects an increase in total expenses of about 5% when compared to 2011. However, if you exclude expenses for new initiatives and adjust to include the full year impact in 2011 of expenses from recent acquisitions of $14 million, you see that costs for our core operations are estimated to be up only 1% in 2012 from 2011 levels. This reflects our continuing commitment to controlling expenses and maintaining the operational efficiency that investors have come to expect from us while balancing the need to invest in promising growth initiatives with strong growth and return potential.

While providing guidance for new initiative spending is not entirely new for us, I do want to take a minute to walk you through how we're approaching it for 2012. First of all, the funds that we've earmarked for new initiatives are not fully committed at this point. Many of the projects have to complete the comprehensive approval process we use to ensure that they exceed return on capital and profitability thresholds that we evaluate when approving new initiatives. As such, it is possible that the amounts we approve this year may vary from the $40 million to $50 million range. However, based on discussions we've had to this point, we believe it prudent to provide you with some estimate for 2012 investments.

We do expect new initiative spending to grow gradually as we move throughout the year with approximately $10 million of spending to be incurred in the first quarter of 2012. As a result, expenses for the first quarter are expected to be approximately $230 million to $240 million within the range of expenses incurred in the preceding 2 quarters. Investing in new initiatives have always provided organic growth opportunities for NASDAQ OMX, and in turn, enabled us to provide superior returns for investors.

Slide 12 of our presentation highlights the revenue and expense of investments we've made over the years. You can see that in 2012, initiatives that are fully deployed are expected to have margins of more than 50%. Our commitment going forward is to apply the same return on investment discipline that has driven us in the past to the new initiatives we plan to launch this year.

Now continuing down the income statement. Our non-GAAP operating income in the fourth quarter of 2011 was $187 million, an increase of $3 million over prior year results as operating margins came in at 44%. And net interest expense was $23 million in the fourth quarter of 2011, a decrease of $1 million from the fourth quarter of 2010, but a decline of $4 million when compared to the third quarter of 2011. Driving the material decline when compared to the third quarter is the recent refinancing of our credit facility and the repurchase of $335 million of the 2.5% convertible notes that we completed in October.

Finally, on the income statement. The non-GAAP effective tax rate for the quarter was 32%. We expect the tax rate to be in the range of 32% to 34% in 2012.

Before I get to the balance sheet, I want to provide some detail on the $44 million of pretax expenses that we incurred this quarter and that are excluded from our non-GAAP results. These expenses include $25 million in pretax charges, of which $24 million is noncash, following our tender offer to purchase the 2.5% convertible notes. Included were $22 million of an acceleration of unamortized debt discount, $2 million of debt issuance costs and $1 million of other expenses.

Secondly, a noncash other-than-temporary charge of $18 million related to an available-for-sale investment security in Dubai financial market. As of December 31, 2011, the cost basis of this investment security was $36 million and the fair value was $18 million. We determined that the decline in value of the security below its carrying amount was other than temporary. And finally, $1 million in expenses related to merger and strategic initiatives.

Moving onto the balance sheet on Slide 13. Cash and cash equivalents and financial instruments at the quarter end were approximately $933 million. Of this amount, approximately $504 million is reserved for regulatory requirements and other restricted purposes. During the quarter, we used $37 million for capital spending purposes bringing our total capital spending for the year to $88 million. And on Slide 14, you can see that we ended the period with $2.1 billion in debt obligations, down from $2.3 billion at the end of 2010. Our total debt to EBITDA is now at 2.4x, down from 2.9x at the end of last year.

And finally, as Bob mentioned earlier, under our authorized share repurchase program, we repurchased 3.98 million shares at an average price of $25.10 with an aggregate value of $100 million. This leaves an additional $200 million available under the authorized plan.

Before we open up the line to questions, let me say that we're very happy with the results for the fourth quarter and particularly for the full year as 2011 was a success across the board. Not only did we grow earnings to record amounts, we also increased cash reserves, reduced outstanding debt obligations, lowered our borrowing costs and continued to return capital to shareholders. In the coming year, we plan to leverage our diversified business model and the strong cash flow it generates to invest in growth opportunities while continuing to generate strong returns for shareholders.

Thank you for your attention, and I will now turn it back over to Vince.

Vince Palmiere

Thank you, Lee. Operator, we're ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] And first on the line, we have Michael Carrier with Deutsche Bank.

Michael Carrier - Deutsche Bank AG, Research Division

Maybe first question is just on the expenses. Just given the environment thus far, when we think about the core expenses, I think that the flat or up 1% makes sense. On the new initiatives, I guess you guys gave the chart, and it looks like maybe $29 million of revenues coming in, in 2012. I guess in terms of timing of that versus the incoming expenses, how should we think about that? And then just when you look at the bars that you have on that Slide 12, if you can explain sort of the deployed versus in development just because it looks like that expense level in 2012 in terms of in development is a bit higher?

Lee Shavel

Sure. So I think the important thing to start off with is that in defining the deployed versus the in development, the deployed projects represent initiatives that really have been effectively launched to the marketplace and have achieved in our view, kind of core momentum within the business. They're generating revenues consistent with our expectations and have been established. The in development represent businesses or new initiatives that are currently still establishing their product and distribution. They're characterized by higher-level investment upfront in the businesses in which we expect to generate stronger revenue growth in the years ahead. Now as we look forward, what were our expectations are, are that for the new initiatives spending of $45 million, it consists of a portfolio of new initiatives that have a varying degree of revenue growth across the next 3 to 5 years. We look at them primarily from a return on capital standpoint to make certain that they are generating good returns, as well as generating strong revenue growth, and ultimately, operating profit growth. We show everything on Page 12 in terms of what we've made in investments to make certain that everyone appreciates the fact this is not a new activity for us. That we've been able to generate exceptionally strong revenue growth relative to expenses across that -- across the past 4 years in each of these. And as you can see at the bottom, a number of these initiatives that we've identified that are all in the deployed category.

Michael Carrier - Deutsche Bank AG, Research Division

Okay, that's helpful. And then, Bob, just a follow-up. Given what just kind of transpired throughout last year and then more recently on the M&A front and when you're thinking about capital deployment, the opportunities where there's buyback, dividends, and what you guys have been fairly good at is the bolt-on acquisitions. Just how do you prioritize, or how do you think that plays out in 2012 and '13?

Robert Greifeld

Well, the first thing I would say is take a little issue. I think we've been very good at the bolt-on acquisitions, not pretty good. And that they've worked incredibly well for us. I think we have the great benefit of being able to execute successfully on all 3 areas. So we talked about organic growth initiatives, which you just questioned Lee on. Clearly, we'll do some other acquisitions, and we'll also do capital returns. So our business model allows us to really do all 3, I think, well. And so we don't really see a bottleneck or contention in those objectives.

Operator

Our next question comes from the line of Roger Freeman with Barclays Capital.

Roger A. Freeman - Barclays Capital, Research Division

Just in terms of the new initiatives, can you help us maybe think about the buckets whether it's by market services or issuer and services market tech beyond the matched? How much of it is that? And then also, you kind of talked about, I guess, expanding this year with a 3- to 5-year time horizon. What is the track record that you show on Slide 1 going back to 2009 show with respect to the average payback derivatives?

Robert Greifeld

So in terms of the distribution of the initiative dollars, you'd have to say that the larger percentage of the dollars are going into our transaction businesses at this point in time. So whether that be in derivatives, in equities, in commodities, they're consuming the single largest amount of dollars.

Lee Shavel

And I would say on the payback period, if you look at the chart on Page 12, you can see that in 2009 obviously, expenses were higher than revenues. But by 2010 in those deployed expenses, we had really achieved operating profit among those -- on those established ventures. It obviously varies project by project. But I would say on average, we generally are reaching our payback period within 1 to 2 years on these deployed projects.

Roger A. Freeman - Barclays Capital, Research Division

Okay, that's helpful. And then I guess on capital return, you mentioned that dividend maybe in the offing. What timeframe do you have in terms of deciding sort of the mix of buybacks versus dividends?

Robert Greifeld

Sure, good question. What I've said before, Roger, is that the dividend question is not if, but when. And clearly, we're focused on the buyback. And I think the dividend will become more real as we get towards the end of the buyback program. And again, these discussions are all subject to the Board voting on whether or not they want to do a dividend. My comment.

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

And then just lastly, on the $100 million capital that -- when we free up and in the Nordic clearinghouse. Can you remind us what restrictions there are in terms of moving that around or being able to redeploy that?

Robert Greifeld

Sure, on the $100 million from the Nordic clearinghouse, that will be capital that is in Europe and in order to -- we would plan on utilizing that capital within the European venue. If we needed to, we could bring that back to the U.S., although we would have to pay taxes in order to bring that back. We don't see any need for that given the strong cash flow and cash levels that we have within the U.S., but that is a restriction that we would face in repatriating that cash out of Europe.

Operator

Our next question comes from Rich Repetto with Sandler O'Neill.

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

I guess first just a follow-up on the buyback. You bought back 4 million shares. The diluted share count didn't drop by 1, I think, basic drop by 2. So could you just talk about, were there options granted to increase the diluted share count? And just to clarify the previous question, the $100 million then from clearing in Europe, that's really -- you don't really use that in the calculations of, well at least, 50% to 75% of net income or cash available?

Robert Greifeld

So Rich, on the first question the reason that you don't see as big an impact in the fourth quarter is that we received authorization for that relatively late in the quarter, and we're subject to our blackout period. And so it had a relatively limited impact in the fourth quarter. You'll see the full effect in the first quarter. And with regard to the second question, the $100 million freed up, I think you're correct that I'm not -- we wouldn't characterize that as available to supplement the share repurchase program. But that is capital that will be utilized within the European business, but we continue to stand by our guidance from ongoing share repurchases.

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

Okay, okay. And then I guess just an adamant question, but the tax guidance, $32 million to $34 million. Is there a reason -- I believe the old guidance was $31 million, but $33 million. Is there -- have I got that right, or is there an increase here?

Lee Shavel

Yes, that's correct. Obviously, it varies by business mix between our U.S. and international jurisdictions. I would say that within the U.S., what we are experiencing are some increasing tax rates, particularly at the state level that is influencing that upwards.

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

Okay, and then, Bob, my last question. The media reported that you might be viewed as a candidate for the chairmanship at NASDAQ. Just trying to see whether you can provide any color on that. How would your -- view corporate governance if you were to sort of hold both positions. Would that be -- do you think that's reasonable arrangement at NASDAQ? And I just -- overall color behind what was released by the media.

Robert Greifeld

Well, I think it was a single person, Rich, who ran a story that was obviously not picked by anybody else. And so it was just one story, and we're not really going to comment beyond that.

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

But would you say he's had -- that one person's had a reasonable track record in the past?

Robert Greifeld

I think the track record's been unbelievably bad in terms of information, but that's our opinion. So it was one story that was written from there. Obviously, any Board deliberations are Board deliberations -- and right now, we have a long-standing chairman, who done a wonderful job for NASDAQ OMX.

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

Well, maybe the fair question then, would you be interested in the chairmanship?

Robert Greifeld

I serve at the pleasure of the Board. And right now, I'm having a great time being the CEO of NASDAQ OMX, and hopefully, investors think that I'm doing a reasonably good job with it. And that's what we're focused on.

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

And you have, you had a solid year in 2011.

Operator

Our next question comes from the line of Howard Chen with Credit Suisse.

Howard Chen - Crédit Suisse AG, Research Division

Just another follow-up on the buyback. The pace of the share repurchases was much more aggressive than we anticipated this quarter. Was there anything you would say unique to the environment of the stock price that got you to that $100 million? So I guess to put it another way, do you see that as a sustainable level?

Lee Shavel

No, there was nothing unique about the environment. I would say that the share repurchase levels in the fourth quarter reflected the fact that we had really built up some excess capital from not being able to repurchase shares early in the year. And so to a certain extent, the $100 million level was a bit of a catch-up with some of the excess capital that we had generated. And I think in some of my remarks earlier, we had signaled that we may exceed the $50 million to $75 million levels from time to time depending upon on how we gauge our overall capital levels and our needs within the business. I would continue to point folks towards the $50 million to $75 billion per quarter going forward, absent any unexpected changes in capital availability as well as our internal uses of capital.

Howard Chen - Crédit Suisse AG, Research Division

Great. And then, Bob, you've been successful in diversifying the franchise away from transaction-related revenues. We're still hoping for your outlook on broader market volumes as you've been a good predictor in the past.

Robert Greifeld

I don't know if I have been that good. But I would say -- what I do say is obviously, over the medium to long-term volumes will follow GDP growth. To the extent you have increased GDP activity, you've got disposable income. People will take that and tend to invest it in equities. Certainly, when we look at the volume over the last 2 years, we had 1 good month of volume in 2011, that was August. In 2010, we had really May and part of June. So we have built this business right now to certainly enjoy when we have good volumes, but what we can produce I think adequate performance, adequate to good performance in a bad volume environment. So when I look at a given year, I think it's reasonable for us to expect that we would have 1 to 2 good months. January is certainly not that. But with what's going on in the world and what's going to happen in the American election cycle, we sit here in January thinking that there'll be several months during the year that we'll enjoy higher volume volatility. So that's our kind of 2012 outlook. It's in our plans. I would say the volume outlook though for '12 is still below what we presented during our Investor Day. So we're not seeing getting back to that level, but we're reasonably comfortable.

Howard Chen - Crédit Suisse AG, Research Division

And then finally, I wanted to get your thoughts on the decision by the European Commission regarding NYSE Euronext and Deutsche Boerse. In hindsight, you were really accurate in your assessment of the complexity, the time for that deal to close. But I guess at this point, what do you see as potential implication to that ruling on the future of European regulation and your business?

Robert Greifeld

Yes, well, I'll answer this question. I'll do is answer this question as comprehensively as I can, and then hopefully, that will be the last question on the topic. The first thing you have to say with respect to the failed transaction is that we here at NASDAQ OMX is certainly empathetic to the feelings of the management team of both Deutsche and NYSE. It wasn't too long ago that Jeff Sprecher, myself and the management teams from ICE and NASDAQ, obviously, failed. And we had to go through really a painful moments full of frustration and a dominant feeling of not having your arguments understood. Now we recovered, ICE has recovered. And I'm sure that Reto and Duncan and their teams are formidable competitors and will recover from this setback. Now when you look at this any time you're trying to complete a merger where the number of competitors is low or the market share is high, your successful hinge on whether you can broaden the definition of the market. In our situation, we attempted to define capital raising and the public listing market in global terms. And during the brief period of time, we're involved with the DOJ process name brand companies, such as Samsonite, Prada and Glencore chose to list outside their home markets. We also witnessed billion-dollar capital raises occurring outside of public markets. But we obviously didn't carry the day with the winning market definition. Our deal was turned down similarly you see that this deal was turned down because they were not able to successfully redefine what the market is. Now we do not believe that this ruling will preclude other large exchange deals from happening. Our rejection by the DOJ and today's rejection by the EU Competition Committee certainly sent a clear message that if a transaction results in over 90% market share in a predefined market is highly suspect. But there is a compelling industrial logic of combining operations and technology of nonoverlapping exchanges, and that will happen in the future. Now with respect to NASDAQ OMX, as we've said now several times during this call, we're focused on our strategy of organic growth, amplified through bolt-on acquisitions while providing a capital return to shareholders. And this plan was developed independent of the Deutsche Boerse acquisition of NYSE and is obviously not affected by today's decision.

Operator

Our next question comes from Alex Kramm with UBS.

Alex Kramm - UBS Investment Bank, Research Division

Just a couple of data questions, I guess, for Lee here. In terms of market data and extra services, can you talk a little bit about the sequential change? I think in market data, you had an acquisition in there, but it seemed to be pretty decent pick-up. And then on access services, a little surprised to see the drop there, so curious where that's coming from. I thought that was still a pretty decent growth area for you guys.

Lee Shavel

Yes, so an access services, let me address that one first. In access services in the third quarter, we had an exceptionally elevated level in the third quarter due to an audit that generated some one-time revenues. So the decline sequentially third quarter to fourth quarter I think just reflects a reversion back to our normalized growth rate. So that really explains that difference. From a global data product standpoint, the growth in revenues from the third quarter of about 5%, as well as the 10% growth from the fourth quarter is a reflection of a larger number of TotalView pro users, as well as some increased audit revenues over that period. And we think it's particularly strong results given naturally, the relatively weak environment from a Street and broker-dealer standpoint. But those are the primary contributors to the growth in the Data Services business.

Alex Kramm - UBS Investment Bank, Research Division

And just actually picking up on your last comment there. I think I asked something similar to this already a quarter ago. But given the weak environment and that obviously, some larger firms and smaller firms, pulling back a little bit from the markets in terms of employment and so forth, are you seeing weakness in certain areas? I mean I see the pipeline in market technology has declined year-over-year and quarter-to-quarter. Are there certain areas where you definitely see people not renewing licenses or turning -- or actually, it takes longer to get people over the hump to kind of sign the line? Or do you think you have a pretty solid pipeline you have of yourself in terms of your businesses?

Robert Greifeld

I would say this, first, with respect to our internal organic growth initiatives, we are what we call a high-watermark with respect to the opportunities available to us. And we obviously are committed to funding those opportunities to invest in our future. Likewise, in the spear of acquisitions under the broad category of bolt on, we see more opportunities coming our way then we've had in the last several years. Obviously, there's always a stand-off with respect to valuation, and we've sit down on a number in the last 18 months based upon that. But I think things are getting closer together on the bid offer spread. In our core businesses, as I said in my prepared comments, we obviously have started the year slow with respect to volume. As we look at our businesses, which have now diversified away from being so volume dependent, we certainly think that as we look at the numbers we want to achieve in 2012, we need 1 to 2 quarters -- 1 to 2 months of good volumes to hit our numbers. And I think that's a reasonable expectation that will happen based upon the geopolitical situation that we live in and plus the basic economy in the U.S. starting to heal. And we certainly see a broad pipeline of IPOs. As I said again in my prepared comments, we have a higher level of IPO applications than in the last 10 years, which is kind of shocking when I saw that stat a couple of weeks ago, there. With respect to market technology, in general as we've articulated before, we are on a mission to broaden the scope. We crossed the Rubicon when we made the SMARTS acquisition where we're defining our markets to be not just exchanges and regulators, but brokers, so we see a tremendous growth opportunity in that in the time to come. And again in my prepared comments, it says that SMARTS year-on-year grew I think 25%. So it's been an impressive performance. In market tech in particular, there is some lumpiness represented in numbers between the breakdown between, we'll call it, large-scale projects and short term, what we call CRs, customers change request. So that will kind of skew back and forth depending upon what's going on. But clearly, the market tech franchise is at, I think, a high-watermark with respect to its strength.

Lee Shavel

I will just add. I think you also asked about market data. And there, I think, the observation is correct. Obviously, there are some headwinds from an industry standpoint. But clearly, where we have seen opportunities to grow as been developing new products in our Proprietary Data Products business as well as a number of our recent acquisitions, like Rapid Data and the machine-readable news service where we're able to find new markets, new appetite for products that have allowed us to continue to generate growth despite a more challenging market environment for some of the traditional products.

Alex Kramm - UBS Investment Bank, Research Division

Very good. Just one quick one here, on the expense side, I think you might have addressed this, but given Bob that you said we're off to a slow start and you're expecting 1 to 2 months of strength, which I would actually agree with. But if that doesn't materialize and we've stayed this kind of lackluster environment, do you think on the expense side -- on the core expense side, there -- there's room to maybe pare back a little bit. I think you are running a pretty lean ship already, but is there any -- are there any areas that you could pull back?

Robert Greifeld

Definitely. And certainly the first and foremost is our incentive pay, which is tied to a certain level of performance. But I want to say very clearly that how we're managing NASDAQ OMX today is on 2 different tracks. So on the core track, which you asked a question on, we will manage the business climate and clearly, if we think the revenue forecast we have for that core business is no longer valid, then we'll make the appropriate responses from a management point of view, as we have done in the past. So I think I've demonstrated a good track record of doing that. The second side of our core initiatives, we have dramatically increased our ways to execute those initiatives and to weigh, measure and count and to track them quite efficiently. So they go to a separate set of dynamics, some of the dynamics are actually nonfinancial milestones that these things -- these initiatives have to hit to the extent they don't, that we have a discipline to say, "Okay, whatever we assumed in the beginning is not quite working and then make whatever clinical decisions we have to after that." So the core is certainly responsive to the particular environments for the year, investments are really responsive to the state of the opportunity and how we're executing there.

Operator

And next on the line, we have Niamh Alexander with Keefe, Bruyette, & Woods.

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

Lee, if I could just on the expenses, just ask a question maybe another way. Every business has to invest in its initiatives and to kind of reinvent itself is what you're focusing on. And here, I guess you're really giving us the numbers and showing us, we have been doing this for quite some time and this is a revenue we're kicking in as well. So going forward, I think I'd be inclined to kind of build in these initiative expenses into kind of the estimates and the core model because they are part of your everyday business. But is this something like we should think about also for -- maybe the bolt-on acquisition is that -- you seem to be -- I'm getting the signal that you're seeing a lot more attractive opportunities now. Should we be expecting kind of 1 clean number going forward because you have done quite a few, and it looks like you'll do this going forward? Or could we get like the smaller M&A and the bolt-on deals will get kind of a separate level of disclosure for those, as well as the initiatives, as well as the core?

Robert Greifeld

Niamh, what I would say is that acquisitions are kind of a different game. And what we want to isolate here are in our specific organic investments within the business. Obviously, our acquisitions are subject to exactly the same disciplines from a return on capital and from a profitability standpoint. I think we want to particularly focus on those internal projects because we want to provide some separation between where we're maintaining expense discipline on the core business and then where we're investing for growth on the internal side.

Robert Greifeld

And the important thing to recognize, Niamh, was acquisitions. We're looking always looking to do a transaction. What we'd call, one bowling pin left or right, which is leveraging some assets of the mother ship. And what that means in so many words is these acquisitions quickly gets subsumed within the mother ship, and it's hard then to track them independently in a quite rapid period of time. And we try to do that for as long as we can. But for example, when we buy a company, such as FTEN or SMARTS, then the operations aspect of the company goes into our corporate operations area. The development people go in a different direction, the salespeople go here. So we tend to subsume things in. We don't have companies that are left to stand-alone portfolio plays.

Lee Shavel

And I think putting it into scale, clearly a couple, even small bolt-on acquisitions could, I think, overwhelm kind of the data related to this initiative. We want to keep the focus on this and we'll obviously, it will give you updates in terms of how the acquisitions are going from an integration and from a returns standpoint. And obviously, that will be embedded in our overall numbers. But I don't want folks to have the expectation that this breakout of spending is going to encompass all of our independent deployment of capital and acquisitions. It's really just focused on the new initiatives.

Robert Greifeld

Yes, really we should not call them bolt on. They're bolt-in acquisitions is the way to look at it.

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

And then if I could get back to kind of the core business, where there is still quite a lot of leverage. The options business, especially where it's now much bigger than the equities. You've had some great growth there. The price compression is not nearly been as aggressive as we've expected. How do you feel about that business going into this year? Do you see maybe more opportunities to take market share or is it getting a little bit more difficult from here? How do you feel about the pricing environment?

Robert Greifeld

Well, I think the options business is a very competitive business, and in certain dimensions, it's as or not more competitive than the equities business. Now we have obviously, a very capable management team led by Eric Noll and as Tom Wittman and we've taken a lot of proper steps in the marketplace. We certainly see that we're setting the tone. Competitors are responding to us, and it is a chess game that we play quite aggressively. So one is we think the core options franchises a strong franchise. We think as an asset class is still continuing to be accepted by a greater number of market participants so that will help us there. And as we mentioned with our complex order flow and other initiatives we have, we feel very comfortable that we have a good path to success there.

Operator

And our next question comes from the line of Jillian Miller with BMO Capital Markets.

Jillian Miller - BMO Capital Markets U.S.

So you guys have said that the conversations with the major dealers regarding IDC or -- IDCG is ongoing and the decision whether or not to continue funding the venture could be made relatively soon may be in the next month. I just want to get an update on those discussions. And if you could remind us just how much capital is going to be freed up if you do you shut out IDCG?

Robert Greifeld

Good question. And I've said before that we expect to have a resolution of IDCG by the end of February, and I believe I said it back in November. I think that is still a very good date. I don't think it will be February 1, it might be February 31, if such a date exists, but it's good. It's moving along, we feel comfortable with it. We have currently $75 million of capital tied up at IDCG, so we expect with any resolution that, that capital will be available for general use.

Jillian Miller - BMO Capital Markets U.S.

And that capital, unlike the Nordic clearing capital, is kind of based in the U.S. and would be potentially available for capital returns through buybacks?

Lee Shavel

That's correct.

Robert Greifeld

That's correct.

Jillian Miller - BMO Capital Markets U.S.

Okay. And then on then on the colo, I was just wondering how your payment contracts work, whether they're like long-term leases for the space or if it's more of a flexible pace, so that, that might be more impacted by changes in outlook for trading activity?

Robert Greifeld

Yes, I would say this, and Eric's here if I can't answer the question properly. It's generally flexible in terms of how people approach it and that's obviously worked out well for us. But I'd also want to make it very clear that the infrastructure that's built up, while our terms are flexible is somewhat inflexible from the customers' point of view. So we find that there's great retention for that, and it really stays there, independent of volume.

Operator

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

Christopher Harris - Wells Fargo Securities, LLC, Research Division

So over the last year, we've seen a bit of a divergence between growth in Nordic equities as opposed to Nordic derivatives. And I assume some of that is related to higher market maker activity on the equity side. Where are you guys with respect to getting more market makers and derivatives? And is there a specific volume threshold that we should look for that could potentially be a catalyst for more activity in that market?

Robert Greifeld

Well, one is we've seen the increased activity in derivatives market. As you know, we have converted just recently most of that activity to Genium INET. The next major evolution is to move to the member guarantee fund. And then we'll have, I think, a European class competitor in the marketplace. We are in the process of moving more computer-based trading into our data center. So it's moving along basically the same track as the equity plan just at a little different phasing of the timing.

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Okay, and then on the regulatory front, just whole idea of a transaction's tax in Europe just obviously, does not want to go away here. Bob, I'd love to get your perspective on how you think this develops. Where do you think a tax might be implemented? Is it pretty much a done deal at this point? And then how it might affect your Nordic markets whether positively or negatively?

Robert Greifeld

All right, so this is, I've said before, it is really right out of a bad horror movie in that the monster gets killed. But then next scene, they come back to life somehow. And we're going to live through that with the transaction tax discussion both here in the U.S. and Europe. Europe obviously, has more publicity at this particular point in time. It's important to note that Sweden tried a transaction tax to disastrous effect and that is in the psyche of everybody from a political and a regulatory perspective. And they, in many of the other countries in the Nordics are, in fact, dead set against that transaction tax. So as you know, Sweden and Denmark normally don't trade on the euros. So they said they put a transaction tax in on the Europe countries, we will only be affected in Finland, which is one of our smaller markets. So one, if we're to predict anything right now, we don't see our Nordic countries supporting it. We don't see it applying to them to the extent it applies to the eurozone. And then it would probably represent some of level of opportunity for us.

Operator

Our next question comes from the line of Dan Fannon with Jefferies.

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

I guess speaking with the regulatory front here domestically, on the high frequency trading or any other issues that you are being discussed out there. I guess how do you kind of envision 2012 unfolding from kind of regulatory topics here in the U.S.?.

Robert Greifeld

I would say this that we think that the opportunity in the regulatory side is not in enactment of the concept release. We believe that will continue together, dust on the shelf. But we are witnessing an increased receptivity by the commission to entertain different type of market structures and certainly market structures that have some advantage to naturals, whether that would be institutional and/or retail providers. So it'd be our job to understand that and then respond to that opportunity. So I think that's probably more of a focus than anything else right now.

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Okay. And then I guess, Lee, as we think about 2012, I mean based on -- we got your expense guidance and looking everything else, so basically the GAAP and the non-GAAP basically converge as you think about what's on the table for next year?

Lee Shavel

Yes, Dan. I think that it is -- we can't anticipate what may generate a non-GAAP expense going forward to 2012. Obviously, there were some exceptional expenses related to the refinancing and the joint bid for the NYSE that drove the bulk of that difference that we experienced, as well as the write-off that we talked about earlier. So we don't -- there isn't anything on the horizon that we would identify as a substantial non-GAAP element. And certainly, our hope is that there wouldn't be as significant a difference going forward. But that could change depending upon what happens.

Operator

Our next question comes the line of Matthew Heinz with Stifel, Nicolaus.

Matthew S. Heinz - Stifel, Nicolaus & Co., Inc., Research Division

In some of your previous presentations, you guys talked a bit about the anticipated return on invested capital of some of your new initiatives. And I'd just like to know kind of how you think about that metric internally as a driver of the multiple on your stock? And I think by my calculations, it's -- you're roughly kind of in line to slightly below, may be your blended cost of capital. How do you think about that metric internally? And how do you manage the thing about capital management as it relates to your returns?

Robert Greifeld

The first is I will say is in the future, we're going to try to provide more details on the financial success of these initiatives over time. Certainly, on what is it Page 11, 12? Page 12 today, you can see that we've done well with it, but there's other timebase metrics that we'll provide to you in the future. But certainly, with respect to how we are deploying our capital, this one of the things that drive us here at NASDAQ OMX.

Lee Shavel

And I would add that we look at the amount of capital that we're generating. And as I talked in the past, on a GAAP basis, we've generated between $100 million and $125 million in earnings each quarter. And we think about the returns that we can get from investing that within the business in these types of new initiatives in the core businesses, through acquisitions. And we subject all of those deployment decisions to an evaluation of whether we're going to generate an adequate return on our capital consistent with our cost of equity. And if we don't think we can utilize that capital within the business then we're going to return that capital through share repurchases or eventually through dividends. And that's the discipline that guides all of our capital deployment decisions and one that we certainly believe investors should value us for, and hopefully will become kind of a factor of what they view as the total return potential on the stock.

Robert Greifeld

Right. And we obviously balance that against our need to have a strong balance sheet.

Matthew S. Heinz - Stifel, Nicolaus & Co., Inc., Research Division

And then Lee, on your break-out of your European derivatives revenue, I think you said that energy and carbon was now at $13 million this quarter. That's up pretty substantially, I think, from the $10 million run rate you guys were at just a few quarters ago, and now it looks like it's probably one of the biggest businesses within that Nordic franchise. Can you talk a little bit about what's driving the growth there, and whether it's something that we can expect to continue?

Robert Greifeld

You've got 2 things. This is Bob. One is the Nordic power certainly started to improve its core performance as the year waxed on. It was, overall, not a good year for Nordic Power, but we saw an improvement, especially as we got into December and that's carried into January. And the second, as I referenced in my comments, N2EX, essentially quarter-on-quarter, doubled their terawatt hours that we traded on, on the market. So we have a corresponding increase in revenue. So that's certainly one of our new initiatives, which is moving beyond the funding stage. And it was starting to contribute in a very positive way for us.

Operator

Our next question comes from the line of Brian Bedell with ISI Group.

Brian Bedell - ISI Group Inc., Research Division

Just, Bob, question on the European transaction strategy. Can you just elaborate a little bit about where you sit right now in terms of developing the high-frequency trading market in the Nordic cash business and whether you think that has a lot more runway for growth over 2012 that could help you offset any kind of your macro volume-related headwinds? And then same for the derivatives, in terms of your long-term strategy there. Let's say the next 1 to 2 years, do you intend to be much more aggressively, and through the year broader European derivative marketplace with your initiatives?

Robert Greifeld

Yes Brian. One is we have been pursuing a strategy to make our markets in the Nordic more attractive to Europe and the global -- European and global players. And obviously, part and parcel of that is to make sure that we have the technology and the colocation services that are acceptable in that defined set of circumstances. So the equity market had a very successful year with colocation business and we see that, that's increasing its penetration, quite dramatically. And we would say that the trading volume has not gone up as quickly as the colo business would suggest, but we think that's just a matter of time and circumstances. The derivatives market is the same, same drill, same marching plan, I think the equity market's somewhat ahead of the derivatives market, but you expect that, that won't narrow as we march forward in 2012.

Brian Bedell - ISI Group Inc., Research Division

Because there's much more upside on the derivative side over the next say, 12 to 18 months, relatively?

Lee Shavel

Yes. And there's upside in a couple of different ways, not just the introduction of high frequency trading, but as I said as we become a recognized clearinghouse, we think we have the ability to innovate in the product area, and we'll be focused on that.

Brian Bedell - ISI Group Inc., Research Division

And then just on the -- just one more on the buybacks. So you got $200 million left in the authorization. We should assume that, that essentially gets executed this year. And you can do the bolt-in acquisitions over and above that, is that a correct assessment?

Lee Shavel

Yes, that's correct.

Brian Bedell - ISI Group Inc., Research Division

Great. Okay. And then once you're done with the $200 you'll consider the dividends? So that could be at some point later this year?

Lee Shavel

Yes.

Brian Bedell - ISI Group Inc., Research Division

Right. Okay. And then just lastly, housekeeping, the $230 million to $240 million 1Q expense guidance includes the initiatives spend of $10 million, is that correct?

Lee Shavel

That is correct.

Operator

Our next question comes from Jonathan Casteleyn with Susquehanna.

Jonathan E. Casteleyn - Susquehanna Financial Group, LLLP, Research Division

I believe some naked access spam has finally went through the U.S. cash equity markets at the end of last year. Any understanding of its current impact on volumes as we're negative comping here in January to start the quarter?

Lee Shavel

Zero impact on volumes, and it's important to recognize with our FTEN acquisition, we are well positioned to be the supplier of the tools necessary to ensure you're meeting the extra standards.

Jonathan E. Casteleyn - Susquehanna Financial Group, LLLP, Research Division

So you believe no impact on U.S. cash equity volumes that actually grow trajectory on the access part of the business?

Robert Greifeld

Yes, the selling of software solutions to help meet those roles.

Jonathan E. Casteleyn - Susquehanna Financial Group, LLLP, Research Division

Right. And then Lee, you talked about some flexibility in the core expenses, I believe, in incentive compensation. But on the growth initiatives, the $40 million to $50 million, is that tried and true throughout the year? I mean if the environment really worsen from here, will you really spend that $40 million to $50 million?

Lee Shavel

I think there's 2 dimensions that I would just discuss on that. First is and probably most importantly is that the $40 million to $50 million assumes that the projects that are currently in the queue that we're considering, get through that approval process, they need to return hurdles, the growth hurdles that we have. And so it's going to vary as we go through that process. I think that's our best estimate based upon what we see at this point. And then obviously, these initiatives our developing businesses and so the amount of capital they may need may vary from point-to-point. And then thirdly, we are tracking each of these investments very carefully to make certain that they're meeting their milestones. And to the extent that an initiative has clearly fallen off of its milestones, then we'll terminate that investment, thus freeing up capital. And so there are number of variables that are going to influence that number. This is our best guess of what we expect to spend in 2012.

Robert Greifeld

It's important to recognize that the core business will be influenced by the economic forces of the year, but the initiatives will not be influenced so much by that, but really the microenvironment in terms of how they're trying to compete and also by the particulars of that competitive dynamic in that microenvironment.

Jonathan E. Casteleyn - Susquehanna Financial Group, LLLP, Research Division

Okay, great. And then lastly, any Boerse, Dubai update you can give us? They still own 16% of the stock. Any understanding of their intention with their holding? And then do you believe over the long term, is there another chance to buy back stock from them?

Robert Greifeld

Well, one, is you obviously want to talk to them. I don't want to speak for them. I would say that they certainly have evidence in every way, shape or form that they are a very long-term holder of NASDAQ OMX. They represent our Board and are a strong contributor to our board discussions. So I think we're, I think, in a very good place with the relationship, and we don't anticipate any opportunity to buy back any of their shares.

Operator

Our next question comes from Rob Rutschow with CLSA.

Rob Rutschow - Credit Agricole Securities (USA) Inc., Research Division

Just a point of clarification on the investment spending. Is all of that revenue generating or is some of that spending for, say, improved security and technology spend there?

Robert Greifeld

No -- yes, we're absolutely clear that these are separate in the Street investment projects. We're not moving investments in infrastructure or security or anything related to the business into this. These all have to have, have an independent business model that demonstrates revenue production in order for us to make the investment.

Rob Rutschow - Credit Agricole Securities (USA) Inc., Research Division

And how would we think about the return on investment, if you will, for the new initiatives?

Robert Greifeld

Sure, we -- the return on investment for each of these individual projects is really calibrated based upon -- starting with what we think our cost of equity is. And as we've said in the past, we view this currently the 10% to 11% range. And then what we'd do is we'll apply some risk-adjusted premium that we think is appropriate for the risk of that individual investment so that we're comfortable that the project is expected to generate some significant return in excess of our core cost of equity.

Robert Greifeld

It's important to recognize and I think with the businesses that we're in, we only invest in, what I'll call, scalable businesses that have high leverage returns to us. And as we look at these initiatives as a, I think, the fundamental grounding of it is somewhat binary. In that if they work, we'll do very well. We're not in a low-margin, business-type environment. And obviously, if they don't work, then it's time for us to move upon. But we have as an operating entree to only invest in technology-based businesses that are fundamentally scalable.

Rob Rutschow - Credit Agricole Securities (USA) Inc., Research Division

Okay, second sort of related question, a lot of the large investment banks are scaling back in several areas. So I'm wondering if you can talk about how your attempts to cross sell, if you will, are going with that particular client base, and I don't know if you can answer this, but is it possible to give us an idea of how much, say the 5 or 10 biggest investment banks represent to you in terms of revenue or earnings?

Lee Shavel

Yes, the first thing is we have a tremendous opportunity, and our opportunity is to redefine the markets that we're in. And with respect to the transaction business, we have coined a phrase called, beyond the matched. So it's our job to go to these investment banks to all our customers. It's okay. We're providing matching services for you. You'll love the technology, you'll love the speed, everything we do there, and we understand your explicit price per transaction is declined quite dramatically. But in the prestructured fragmented world of REG and MS, your infrastructure costs has exploded. And you see that, that infrastructure cost is no longer in any way, shape or form a relative competitive advantage. It just represents a cause. What can we do essentially to allow you to be in the equity game without such a high step-up costs? So when you see the great growth we've had in our equity businesses in a very tepid transaction environment, we've done that by understanding what our customers are about and then offering products and services that release infrastructure costs. And clearly, we've made certain acquisitions, such as SMARTS and FTEN to do that. But we've also developed our colocation services or access services. So we're on that mission. It's part of obviously, our long-term strategic direction. And it's a little counterintuitive, but to the extent our customers get more focused on their cost of being in the business that represents fundamental opportunities.

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

So according to our calculations, it looked like in January percentage of U.S. equities volume trading that took place off exchange, was at a new high, or at least, close to previous record high. So if you look at the U.S. equities business, Bob, what sort of conversations are you having with the regulators or what sort of efforts do you think exchanges can do to ensure do to ensure that liquidity does stay on exchange?

Robert Greifeld

Yes, the first thing is when you have low volatility, which we experienced so far, we experienced in January then you tend to see internalization going higher. As I said previously, we do not expect the regulators to move upon the concept at least, and it's not our focus at this particular point in time. But we do see opportunities for us to further segment our market and product offerings, which will represent some -- we think some fundamental opportunity for us. So that's what we're focused on. How do we segment our customers? How do we make sure we're delivering the right price, right service and right kind of market structure for each of these customers at the appropriate point in time.

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

Okay. That's fair. And then my follow-up question in the U.S. options business, still access market share has trailed down a little bit the last couple of months and you've kind of addressed this earlier. But what sort of things specifically can you guys do to shore up your U.S. options market share?

Robert Greifeld

Yes, there's probably 3 or 4 things we're focused on. Some of them I referred to in the past, but clearly when we're talking about complex orders, we're working to improve both our functionality and our distribution on that, and we think we're making some headway in that regard. And then the options pricing is orders of magnitude, more complicated and more segmented than the equity world. And it's really a question of which part, which dollar you spend to attract certain business from certain customers. And we continue to refine that, that witch's brew.

Operator

At this time, I'm showing no further questions in the queue. I'd now like to turn it over to our speakers for any closing remarks.

Robert Greifeld

So we're certainly very proud of our success in 2011, and when you look at our last 4 years, as I said in my opening comments, with declining macro economic forces, we've been able to continue to execute quite successfully. We start with an engaged -- in 2012, with an engaged management team has a clear sense of direction and we will continue to execute as we've done over the past number of years. So I appreciate your time and your support. Looking forward to talking to you next quarter. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.

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