Sector Snap: Exchange and platform operators

Shares of exchange and trading platform operators mostly rose Thursday morning after the sector was upgraded by Goldman Sachs Group Inc.

Goldman upgraded the "market structure" sector to "Neutral" from "Cautious" amid better-than-expected trends in equities and options trading. Stock valuations in the sector are beginning to reflect potential growth rather than concern about a collapse in capital markets, Goldman analyst Daniel Harris wrote in a research note.

It appears the sector has passed its bottom amid the ongoing global economic downturn and operating performance should begin to improve, Harris wrote in the note.

While upgrading the sector, Harris also upgraded his ratings on both CME Group Inc. and Knight Capital Group Inc. to "Buy" from "Neutral." Harris raised his price target on CME Group by 54 percent, to $330 from $215, and his price target on Knight Capital to $21 from $20.

CME Group shares jumped $7.72, or 2.8 percent, to $281.47. Knight Capital shares gained 6 cents to $17.04.

Harris said Knight Capital, based in Jersey City, N.J., will see improving volume as it adds market share and new products. The company will be able to benefit from new products it has recently launched that had low implementation costs, Harris wrote in the note.

CME Group will benefit from expected regulatory changes that could push more derivatives trading to regulated exchanges from over-the-counter trading, Harris said. With interest rate spreads narrowing, CME Group, Chicago, could also see a pickup in interest rate and foreign exchange swaps trading soon, boosting revenue, he added.

Despite upgrading the sector, Harris cut his rating on MarketAxess Holdings Inc., adding it to the "America's Sell List." Its shares fell sharply in morning trading, declining 67 cents, or 6.2 percent, to $10.20.

Harris attributed the downgrade to a decline in market share. New York-based MarketAxess, which operates a platform for trading corporate bonds, saw its market share decline to 4.6 percent in April 2009 from 6.4 percent during the third quarter last year, Harris note. The disruption in credit markets last fall likely pushed some investors in the space to more traditional trading methods instead of the electronic platform, he added.

Though he did not change his "Neutral" ratings on Nasdaq OMX Group Inc. or NYSE Euronext, Harris did change his price targets for each company. He cut his price target on New York-based Nasdaq OMX Group to $21 from $23, while raising his price target for NYSE Euronext of New York to $30 from $19.

Shares of Nasdaq OMX Group rose 47 cents, or 2.7 percent, to $18.32. NYSE Euronext shares increased 49 cents to $26.08.

Harris also maintained a "Conviction List Buy" rating on IntercontinentalExchange Inc. and increased his price target on the Atlanta company's stock to $120 from $115. Its shares rose $2.52, or 2.6 percent, to $100.83.