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Why Nasdaq OMX Group Has It Going On

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A return to the old uptick format would be great; the modified uptick rule from the SEC would be a mistake.

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Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial).

Nasdaq OMX Group Inc.
(NDAQ) has seen nothing but good news and positive commentary, yet it can't mount any sustained uptrend. Even so, I'm grabbing the root on this name and not letting go as I feel it is so severely undervalued. Nasdaq OMX Group also has one of the most gorgeous balance sheets around.

I feel the biggest thing holding this stock back is the fear of some sort of transaction tax. Additionally, while volumes have increased in the "no uptick world," the sustainability and pricing of those transactions are seriously questionable. A return to the old uptick format would be exceedingly good for Nasdaq OMX Group and NYSE Euronext, Inc. (NYX), even though I'm likely the only one with that view.

I keep hearing rumblings that the SEC is bringing forth the modified uptick rule. I think this is a serious mistake of policy and won't do any good -- in fact, it may be worse than doing nothing as the conditions of the modified uptick rule essentially spell out the rules for the "gaming" of stocks. That is, just short them (a given stock) unfettered until it's down 9.5% (per day) and then move on to the next victim.

In fact, I can see it now -- after a year or so of this rule, we'll see infomercials on how to screen for stocks down 9.5% to 10% to buy for scalps and for stocks down 2% to 3% with volume increasing, you just jump on for the ride down to minus 7% to 9.5%.

If this rule goes into effect I also feel we'll see an even greater disparity in the valuation of large- to mega-large-cap stock versus small- to mid-cap. And this may serve to further constrain capital formation as many innovative companies will stay private, thus avoiding all the difficulties and costs inherent in being publicly traded. This in turn would also hinder job growth and further dampen US competitiveness.

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Position in NDAQ

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