CME Group owns and operates the Comex and Nymex commodities exchanges as well as the Chicago Mercantile Exchange and the Chicago Board of Trade. The company pulled out of the bidding for the London Metals Exchange earlier this week.

CME stated the reason for the split:

We believe that splitting CME Group stock will appeal to a broader, more diverse mix of investor portfolios. By making our shares attractive to more people, we have potential to further expand the base of ownership.

In other words, liquidity. Shares closed yesterday at $256.16 and trade an average of about 600,000 a day. Lowering the share price to around $50 will, CME hopes, attract more investors. Over the past 12 months, CME shares are down about -14%.

CME, as well as the IntercontinentalExchange Inc. (NYSE: ICE), the Depository Trust and Clearing Corp., and Chicago-based OCC (formerly the Options Clearing Corp.) have been designated as systemically important financial institutions. The designation means more regulatory oversight and perhaps larger reserves to withstand a debacle similar to the MF Global implosion.

Paul Ausick

Trading was halted after Zynga’s shares fell by -10%, then were briefly reopened before being stopped again.

Shares are now trading once more, down about -5.7% at $7.80 after posting a new 52-week low of $7.08. The previous 52-week range was $7.34-$15.91.

The signing ceremony was in Beijing, China.  This is not a merger effort.  The exchanges plan to develop educational programs designed to build understanding of their respective products, markets, technologies, and regulation.  It is also said to create the opportunity for potential future business initiatives such as marketing efforts and product development.

The news is not really helping CBOE as shares are down 0.6% at $25.15 against a 52-week range of $21.55 to $29.56.  The exchange’s equity market value is now about $2.2 billion.

FULL RELEASE

JON C. OGG

The firm noted, “BATS reported one of the best U.S. equities months in its history, with 11.5% market share in April, up from 10.6% one year ago and 10.9% in March. The BATS BYX Exchange earned a new monthly market share record with 2.8% U.S. equities market share, and BATS Options reported 3.1% U.S. equity options market share, up from 2.4% in March.  Seven new exchange traded funds were launched on the BATS Exchange in April, bringing the total number of ETFs now listed on BATS Exchange to 16.”

The NYSE Euronext, Inc. (NYSE: NYX) and Nasdaq OMX Group Inc. (NASDAQ: NDAQ) may have to be alone as far as the publicly traded exchanges that trade U.S. equities.  BATS may keep its relevance in share volumes, but its chances of coming public have dwindled severely.

By the way, our inquiries never were answered over how many programmers and IT-workers were fired after that botched IPO.

JON C. OGG

This is the first dividend paid out by NASDAQ to its common shareholders in the company’s history.  If you annualize the $0.13 as static per quarter, the yield comes to 2% for shareholders based upon the $25.33 price.  The rival NYSE Euronext, Inc. (NYSE: NYX) has a much higher dividend yield of about 4.5% and it has paid out a dividend since June of 2007.

Today’s dividend news is long overdue.  We have listed this exchange as a dividend sinner before and Raymond James noted the call for a dividend as recently as February.  If you look at the CME Group Inc. (NASDAQ: CME) it has been public far less time than NASDAQ and it has been paying a dividend since back in 2003.  CME Group even went as far as declaring a special dividend earlier this year on top of its regular common dividend.

CBOE Holdings, Inc. (NASDAQ: CBOE) has been public for less than two years and it has been paying a dividend since late in 2010.  The leader in options trading has a dividend yield of about 1.8% and that dividend is likely to be raised in the next quarter or two.

IntercontinentalExchange, Inc. (NYSE: ICE) is now the last of the public U.S. securities exchanges which does not have a dividend yield. Today’s dividend news by NASDAQ is long overdue.

JON C. OGG

The underwriting group just got this one very wrong and left millions upon millions of expansion capital on the table for Splunk to finance its growth. The book-runners of the offering were Morgan Stanley (NYSE: MS), Credit Suisse (NYSE: CS), JP Morgan Chase & Co. (NYSE: JPM) via JP Morgan Securities LLC, and Bank of America Corporation (NYSE: BAC) via BofA/Merrill Lynch. Other managers in the syndicate were UBS Investment Bank, Pacific Crest and Cowen and Co.

Splunk has a software platform that allows companies and large organizations to harness their data via real-time operational intelligence. The company has been growing rapidly and claims over 3,700 customers, which all pay license fees based on index capacity needs. Sales almost quadrupled from 2010 to 2012, with the most recent annual sales at $121.0 million. Even before the IPO came out the stock was given a boost by JMP Securities as it initiated coverage with a “Market Outperform” rating and with a $22.00 price target. The opening price was $10.00 above that! Shares rose another 2.9% to $35.79 on more than 130,000 shares in the after-hours session.

The leading underwriters could hardly argue that they did not do the company a huge disservice here. IPOs that double or come close to doubling on an opening price and that close up higher imply that the underwriters did not know what they were doing. Sure, it gives Splunk a market value of twice what it was told, but it also means that the company raised only half of what it could have raised. Companies come public so that they can finance their growth and to create a liquidity in the company (and a liquidity event for the backers).

Almost all of the shares were sold by the company: 12,507,278 shares were sold by Splunk, and 992,722 came from selling shareholders. To make matters worse, Splunk had granted the underwriters a 30-day option to purchase up to an additional 2,025,000 shares to cover over-allotments. You can bet your assets that the greenshoe option was exercised.

The reason that the 100% premium to the premium pricing is a huge disservice is because it means that money managers, hedge funds and mutual funds who were allowed to buy shares on the IPO suddenly have a double in price on their hands. They took none of the venture stage risk, and they did none of the work to get the company public other than look at the growth rates and say, “Sure, I would like to buy 10,000 to 100,000 shares.” And they double their money overnight.

When you see moves like this, it should really point out that the OpenIPO process from W.R. Hambrecht & Co. might be at least one better way. If this does not give Facebook an even stronger leg to stand on to demand that the underwriters take huge discounts and offer a strong pricing, then nothing else does.

When Splunk first filed for an IPO it was for up to $125 million. The company sold $229.5 million in total gross proceeds (including insider shares) and that is before considering the 2.02 million shares in the overallotment option, which you know have already been exercised by the underwriters. The total implication is that Splunk probably could have raised up to $300 million to $400 million, if you discount the huge opening and closing premiums on the first day.

In 2011, Splunk had the following expenses: R&D $23.56 million; Sales and marketing $74.78 million; and G&A $19.69 million. Had the underwriters priced this one correctly, Splunk could have raised another full year’s worth of operating expenses.

Imagine if you were selling a rent house property and your real estate agent left a full year’s worth of living expenses on the table. At some point in the future, companies coming public should be able to have at least a bit more control over the IPO process.

JON C. OGG

The move may seem like a coup for NASDAQ OMX Group Inc. (NASDAQ: NDAQ) and a loss for NYSE Euronext, Inc. (NYSE: NYX).  Maybe it matters about the listing fees and the pride, but Facebook was not going be the end all be all for either exchange.  There are quite literally thousands and thousands of companies listed between these two exchanges.  Today is more about bragging rights than anything.

It is not as if Facebook was going to consider taking a BATS listing as the primary exchange after that SNAFU of an IPO.

JON C. OGG

In its announcement today, Hitachi said it would continue its ADR program and “anticipates that its ADSs will continue to be traded on the U.S. over-the-counter market.”

The company says that trading volumes do not justify the costs of maintaining a listing on the NYSE. Hitachi will also de-list from exchanges in Fukuoka and Sapporo, Japan.

Hitachi also said it would continue to prepare its consolidated financial statements in accordance with US GAAP reporting guidelines.

The BATS Board of Directors stated its unanimous support for President and Chief Executive Officer Joe Ratterman.  Ratterman is a founder and has led the company since June 2007.  The statement noted, “We fully support his leadership, vision and strategic direction as BATS continues to enhance competition and foster innovation in markets worldwide.”

Here is where this gets interesting: “In addition, as part of an enhanced corporate governance structure, the Board will separate the roles of Chairman and CEO. Mr. Ratterman, who has been Chairman since June 2007, will hold the position until a new Chairman is named.”

In short, Ratterman is losing the oversight control but is keeping the operational control.  “Splitting the roles” sure sounds like a demotion after such a large embarrassment as its IPO.

We have sent emails asking how many of the exchange’s technology officers got fired after the IPO SNAFU on Friday, but we have not heard back from the company on that matter.

JON C. OGG

A statement from the exchange was as follows, “Although our affected market has reopened, in the wake of today’s technical issues, which affected the trading of certain stocks, including that of BATS, we believe withdrawing the IPO is the appropriate action to take for our Company and our shareholders.”

This was truly an embarrassment for the company and it is probably more than assumption that some technicians and technology staff just lost their jobs.  What happens when an initial public offering of a stock exchange cannot trade because of technical glitches?  It is called amateur hour.

Another statement from BATS about the problems earlier in the day was as follows: “This morning at 10:45 a.m. ET, BATS BZX Exchange experienced a systems issue affecting trades in securities in symbol range A through BF…. As a result of this systems issue, three erroneous trades occurred on the BATS BYX Exchange in Apple Inc. (APPL), one of which caused a volatility halt in that stock. The erroneous trades were broken under BATS’ clearly erroneous trade policy.”

BATS was supposed to be one of the top 17 IPOs of 2012.  What a joke.

JON C. OGG