IntercontinentalExchange Inc. (NYSE: ICE) was reinstated at Buy with a $170 price target as the transformational acquisition of NYSE Euronext Inc. (NYSE: NYX) is going well with strategic benefits as a result of the deal.

Nasdaq OMX Group Inc. (NASDAQ: NDAQ) was reinstated at Buy with a $34 price target as the exchange has attractive cash flow and optionality, and it is well positioned with more stable non-transaction revenues and can take advantage of new growth opportunities in the near term. It also can target a pick-up in trading activity and can potentially pursue strategic options.

CBOE Holdings Inc. (NASDAQ: CBOE) was reinstated only with a Neutral rating and a $36 target price. The report said:

While we view CBOE as well positioned for a pick-up in trading volumes, to remain differentiated from peers (given proprietary and exclusive products), to take advantage of new growth opportunities, and for management to continue to manage its cost and capital base effectively, given the current valuation, somewhat sluggish volumes, and rising costs, we see limited upside.

Still, it is said to have over 90% of the index option market share.

The Wall Street Journal reports:

The discussions, which haven’t progressed into formal merger talks, illustrate the pressure on exchanges to expand by fusing their operations following a multiyear slide in trading activity.

It also reflects the stepped-up challenge to CME as rivals forge deals to create stronger competition to the Chicago-based company.

Deutsche Börse said in a statement Monday it isn’t in merger negotiations with CME Group and is focused on “organic growth.”

A spokeswoman for CME declined to comment.

In December 2012, the boards of both IntercontinentalExchange Inc. (NYSE: ICE) and the NYSE Euronext Inc. (NYSE: NYX) approved a merger of the two exchanges.

The Wall Street Journal has discussed that private equity player The Carlyle Group LP (NASDAQ: CG) has held discussions with NASDAQ OMX about possibly going private. The talk is that the private equity group approached the electronic trading exchange but it is also said that talks are not ongoing as the two companies did not see eye to eye on price. The tie here is that NASDAQ’s former CFO is now the Carlyle CFO.

We have said that exchange mergers are likely to consider as long investors understand that regulatory risks are present here. The NYSE and Deutsche Boerse were blocked from merging. Other exchange mergers might first be formed by ventures and alliances if they feel that regulators would get involved.

Another issue to consider is that the reason these entities came public in the first place was to unlock the value for the exchange seat-holders and to get access to the capital markets. If a private equity group buys an exchange, chances are high that the exchange will be sold down the road or might even come public yet again in an IPO.

NASDAQ shares are up about 4% at $30.75 at a new 52-week high above the $21.03 to $29.49 share price range of the last year.

The Shanghai Stock Exchange lists that the market holidays will be observed from February 11 to February 15. In short, the Chinese stock market will be closed all week. ADRs, closed-end funds and exchange traded funds will trade in New York. This can make for a large discrepancy in many ADRs, ETFs and closed-end funds that trade and try to adjust to global market price changes in Japan, Europe and the United States.

Most years we might not have so much interest, but the problem is that this multiple day holiday each February grinds business to a slowing halt. It would be the equivalent to the United States extending Thanksgiving from a Thursday holiday to an all-week holiday. Why this matters so much in 2013 is that China is trying to dig itself out of very slow growth. With China being the world’s growth engine of the past decade and a half or so, this matters significantly to the United States and Europe.

The iShares FTSE China 25 Index Fund (NYSEMKT: FXI) closed out 2012 at $40.45. This ETF reached a high of $41.97 in the first week of 2013 and peaked back at $41.93 on January 22, and then with the same $41.93 high again on February 1. The market will try to interpolate the share prices each day.

SPDR S&P China (NYSEMKT: GXC), PowerShares Golden Dragon China (NYSEMKT: PGJ) and Market Vectors China ETF (NYSEMKT: PEK) are broad market Chinese ETF products we will be watching to see if any share price abnormalities surface.

In Hong Kong shares, there is the iShares MSCI Hong Kong Index (NYSEMKT: EWH). It is also actively traded and its shares are up about 3% so far in 2013.

In Taiwan there is the iShares MSCI Taiwan Index (NYSEMKT: EWT), which is very active and its shares have not been able to hold on to gains in 2013 either. There is a more thinly traded closed-end fund called the The Taiwan Fund Inc. (NYSE: TWN), which trades at a 7.7% discount to its net asset value and it is up more than 3% so far in 2013.

An ETF for Singapore is the iShares MSCI Singapore Index (NYSEMKT: EWS). It is actively traded but is essentially only flat so far in 2013.

An ETF for Vietnam is the Market Vectors Vietnam ETF (NYSEMKT: VNM), and this has grown in volume since its inception. This ETF is up a whopping 25% so far in 2013.

The ETF for Malaysia is the iShares MSCI Malaysia Index (NYSEMKT: EWM), and while it is active, it is also down about 5% so far in 2013.

Templeton Dragon Fund Inc. (NYSE: TDF) is up about 4% so far in 2013, and it is listed as trading at close to a 9.5% discount to its net asset value. This fund may be targeted toward China, but it invests at least 45% of assets in the equity securities of companies with primary businesses conducted in or with main offices in China. It can include companies with business that is expected to improve from development in China, and it may include other Asian firms.

There are many key China ADRs we would be watching closely:

• Baidu Inc. (NASDAQ: BIDU) is considered to be the “Google of China” and it just got crushed after earnings. Shares are close to a 52-week low.
• E-commerce China Dangdang Inc. (NYSE: DANG) has just seen shares pop up by 5% or so to move away from the 52-week lows after a tepid outlook in mid-January.
• Renren Inc. (NYSE: RENN) is often considered to be the “Facebook of China,” and at $3.25, its 52-week range is $3.00 to $7.87.

There are many other ADRs of much larger companies, but American investors have migrated toward investing and trading in ETFs and even closed-end funds rather than picking between the A-shares and B-shares over governance issues and listing differences between Shanghai and Hong Kong. There are many other funds and investment vehicles in countries not mentioned that also will be potentially affected that we did not cover due to length and timing issues.

Chinese New Year likely will matter to investors this year. Let’s hope this snake does not bite into portfolios.

*Discounts to NAV calculated by CEFA.com

The real value here is not just the floor operation of the New York Stock Exchange. In fact, that may actually be a drag holding the NYSE value down to under $8 billion today. To prove the point, the NYSE share price of $32.00 and change after the buyout compares to a share price peak above $90 back in 2007 before the recession.

This begs a question. With exchange mergers continuing to take hold, will CME Group Inc. (NASDAQ: CME) with its $17 billion market value go after the Nasdaq OMX Group Inc. (NASDAQ: NDAQ) and its $4.3 billion market value. The CME competes against ICE and the NASDAQ and NYSE are longstanding rivals. The NASDAQ and ICE were looking for a NYSE bid in 2011 and the Deutsche Boerse merger with NYSE was blocked. Recent reports showed that the CME was interested in buying the NYSE.

This brings up a simple yet serious question. Will CME go after NASDAQ? The answer is not so simple. Stay tuned. The global consolidation of financial exchanges is not yet finished.

JON C. OGG

The transaction requires a lot of approvals, including from the European Commission (EC), which in February of this year rejected a $10 billion merger between NYSE Euronext and Germany’s Deutsche Boerse A.G. That deal was killed because the EC said the combined company would have controlled more than 90% of all trading in European derivatives, effectively closing out any potential competition.

Similar mergers in the U.S. have beefed up both the CME Group Inc. (NASDAQ: CME) and the Nasdaq OMX Group Inc. (NASDAQ: NDAQ), but it is not unthinkable that the two might now have to consider their own merger. And certainly CBOE Holdings Inc. (NASDAQ: CBOE) and its stable of valuable commodities options contracts also figure in the mix.

CME, which owns the Nymex, is by far the largest of the three, and the one that could face the most troubles from the NYSE-ICE tie-up. ICE’s electronic trading of crude oil futures is particularly a threat to Nymex, and it will be more of a threat when Brent crude becomes the international benchmark, replacing WTI.

Shares of NYSE Euronext and ICE were halted in premarket trading this morning. NYSE Euronext closed at $24.05 last night, in a 52-week range of $22.25 to $31.25. Intercontinental shares closed at $128.31 last night, with a 52-week range of $110.67 to $142.75.

Paul Ausick

Not all market participants like decimalization. It has acted as a key income killer for market makers. The flip-side is that Joe Public is no longer 12.5-cents out of the money every time he buys a stock. We would have assumed that this argument about the future of decimalization was dead and buried. Apparently, Tom Clancy’s line of “Assumption is the mother of all F*&^ups” is true in this case.

News came out this week that the Securities and Exchange Commission staff will host a roundtable early in 2013 (Feb. 5) to discuss the impact of decimal-based stock trading on small and mid-sized companies, market professionals, investors, and U.S. securities markets.

In the notice the SEC said that various parties have raised concerns that the adoption of decimalization may be detrimental to small and mid-sized companies. The Jumpstart Our Business Startups Act (or JOBS Act) was enacted in April and it directed the SEC to conduct a study of the effects of decimalization on initial public offerings and on small-cap and mid-cap companies.

This does not imply that an end of decimalization is on the horizon. The SEC’s notice says that the roundtable is meant to discuss what changes, or if any changes, should be considered. What this does imply though is that there could be a push for decimalization or fraction pricing changes in new companies or in smaller companies.

The Report to Congress on Decimalization prepared earlier this year noted, “Prior to the IPO Task Force Report, in a paper released in June 2010, Grant Thornton also concluded that decimalization has had a negative effect on the equity markets, and characterized decimalization as a “death star.”12 The paper argues that decimalization almost eliminated the economic incentive to trade in small capitalization stocks, taking “96 percent of the economics from the trading spread of most small cap stocks – from $0.25 per share to $0.01 per share.” The paper also asserts that decimalization, combined with other innovations such as an increase in online brokerage, was significantly more damaging to the IPO market than oft-criticized provisions from the Sarbanes-Oxley Act of 2002.”

Imagine how confusing it would be if the really large companies were quoted in fractions and the rest of the companies were in pennies. Or what if the SEC determined that the smaller companies should be in fraction prices again?

Regulations and changes of this magnitude are difficult to implement and they often take considerable time to get used to. Sometimes changing back to the way things were before is too much trouble.

If you want to consider how hard change is, consider the metric system. Not many Americans can use the metric system and cannot translate pounds from kilos and miles from kilometers. The U.S. has even passed laws to get the country on the metric system yet airlines in America do not have “Frequent Flyer Kilometer” plans. If you go sell scrap gold or silver it is measured in grams, but go ask someone the price of gold and they will tell you that gold is close to $1,700 per ounce.

Decimalization has been around for more than a decade now. Even if a roundtable came out in favor of reverting back to fraction pricing it may be too late to go back.

JON C. OGG

• The NASDAQ Stock Market
• NASDAQ OMX BX
• NASDAQ OMX PSX
• The NASDAQ Options Market
• NASDAQ OMX PHLX
• NASDAQ OMX BX Options
• The NASDAQ OMX Futures Exchange
• NASDAQ OMX Commodities Clearing Company (NOCC)
• FINRA/NASDAQ Trade Reporting Facility (ACT)

We would note that NYSE Euronext, Inc. (NYSE: NYX) has still not yet updated its website to show that trading will be restored but a statement has been issued by the NYSE showing that NYSE Euronext trading will reopen for normal trading at 9:30 AM EST.

JON C. OGG

The main goal is to now open for normal or quasi-normal trading on Wednesday, October 31. It is important to know that Wednesday is month end and trading is likely to be very light at the source of the exchanges even on Wednesday even if volume is strong elsewhere.

NYSE: In consultation with other exchanges and market participants, NYSE Euronext, Inc. (NYSE: NYX) will close its markets in coordination with all U.S. equities, bonds, options and derivatives markets on Tuesday, Oct. 30, 2012.  This follows the closure of U.S. markets on Monday, Oct. 28, 2012. We intend to re-open our U.S. markets on Wednesday, Oct. 31, 2012, conditions permitting; updates will be provided tomorrow.

NASDAQ: The NASDAQ OMX Group, Inc. (NASDAQ: NDAQ), parent of the world’s first electronic stock market, today announced The NASDAQ Stock Market and other NASDAQ OMX-owned U.S exchanges and markets and the FINRA/NASDAQ Trade Reporting Facility (TRF) will be closed for business on Tuesday, October 30. All other NASDAQ OMX exchanges outside the U.S. will be open for business on Tuesday as scheduled.

SIFMA: The Securities Industry and Financial Markets Association (SIFMA) recommends a full market close on Tuesday, October 30, for the trading of U.S. dollar-denominated fixed-income securities in the United States due to Hurricane Sandy and severe weather.  However, SIFMA notes that primary dealers will need to determine if they intend to provide limited staffing on funding desks on Tuesday, October 30, in order to accommodate any potential open-market operations by the Federal Reserve Bank of New York. In addition, SIFMA is recommending full closes for the trading of US dollar denominated government securities in Tokyo and London for October 30, 2012.

This is going to be an interesting week, to say the least.

JON C. OGG

Nokia Corp. (NYSE: NOK) saw short interest rise 13% to 246 million shares, 6.6% of the company’s total float.

Bank of America Corp. (NYSE: BAC) short interest fell nearly 2% to 216 million shares, which represents a 2% of the company’s float.

Advanced Micro Devices Inc. (NYSE: AMD) showed a rise of 11.7% in short interest, to 110 million shares, about 18.4% of AMD’s float.

American International Group (NYSE: AIG) showed a rise of 5.1% in short interest, to 21.6 million shares, about 2.5% of AIG’s float.

Sprint Nextel Corp. (NYSE: S) saw short interest fall more than 24% to 98 million shares, 3.3% of the company’s total float.

Chesapeake Energy Corp. (NYSE: CHK) showed a drop of 3.3% in short interest, to 88.7 million shares, or 13.5% of Chesapeake’s float.

Citigroup Inc. (NYSE: C) saw short interest rise more than 10% to 64.5 million shares, or 2.2% of the bank’s float.

JPMorgan Chase & Co. (NYSE: JPM) showed a drop of 6.3% in short interest, to 39.5 million shares, or 1% of the company’s float.

General Electric Co. (NYSE: GE) showed a drop of 6.3% in short interest, to 39.5 million shares, or 0.7% of the company’s float.

Ford Motor Co. (NYSE: F) showed a rise of 11.4% in short interest, to 109 million shares, or 2.9% of the carmaker’s float.

Paul Ausick