Nasdaq Annual Report 2004

FY2004 Annual Report · Nasdaq

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Built for Business

2004 Annual Report

NASDAQ® is a publicly traded company that runs the
premier electronic stock market in the U.S., home to
over 3,200 leading companies across every industry
in 2004. A world-renowned market and world-class
competitor, NASDAQ is supported by diversified business
lines with the goal of providing exceptional value to
the marketplace and significant opportunities to the
company with the highest regulatory integrity.

NASDAQ has moved the needle
of opportunity significantly since
2003. We’re now positioned on
every level as a business and as
a market to lead, and to deliver
superior opportunities to all our
stakeholders.

In 2004, we became a highly focused enterprise in support
of our goal to out-compete and outperform our competitors.
NASDAQ has also developed a more responsive organization,
able to set — and meet — the highest standards for corporate
governance and compliance, including the added demands
of Sarbanes-Oxley.

We formulated far-reaching strategic plans in 2003 and
have since begun implementing them. We expect to see the
wisdom and to begin reaping the results in 2005. And, we
have otherwise prepared our entire enterprise to progress
in the face of coming changes for the industry near and
long-term, especially on the regulatory front.

Unlike other U.S. equities markets and alternative trading
systems, NASDAQ is more diversified and adaptable. In
comparison to every other U.S. equity market, we’re fairer,
more transparent and more cost efficient for the user.
We completed a secondary offering in February 2005,
and NASDAQ’s common stock is now listed on our own
NASDAQ National Market® making NASDAQ a more liquid
and visibly traded equity.

We continue to champion investor protection and raise
awareness about the virtue and value of having the right
market structure and quality. We also continue to ensure
and enhance market integrity by promoting increasingly
heightened corporate governance standards for our over
3,200 listed companies — the same rigorous standards
NASDAQ follows.

Whatever perspective you take, you’ll see NASDAQ
operating from a position of strength and strategy.

We’re effectively navigating
intense change and competition.

NASDAQ is built
to compete and
win business.

IPOs up 174%

to 148; representing 61% of total IPOs on
all markets. Source: Thomson Financial, as
of 12/31/04

25 newly listed

international companies; 10 from China.
Source: Thomson Financial, as of 12/31/04

$15 billion

in IPO capital raised on NASDAQ
in ’04. Source: Thomson Financial,
as of 12/31/04

As a sophisticated, sales-centric business, we’ve shaped
and streamlined the entire company to be tremendously
efficient and competitive.

2004 was a year of strong forward momentum for our Issuer
and Market Services segments, with NASDAQ cutting costs,
improving systems and infrastructure, satisfying existing
customers and attracting new ones, and leveraging our
assets and advantages with the goal of building revenues
and profits.

More Diversified and Competitive
Our listings, financial products, transaction services and data
products businesses distinguish NASDAQ from most of our
competitors that rely on trading volume driven revenue.
For those building a model based solely on transaction
processing — an area that has become highly commoditized —
there’s little opportunity for true market leadership; especially
for higher cost providers. We’ve priced aggressively in this
area and believe our average trade execution fee per share
is the most competitive in the industry.

ISSUER SERVICES provides NASDAQ-listed companies with
the highest level of support, visibility and market intelligence;
and a body of well-designed and in-demand financial
instruments and indexes.

Listings — The NASDAQ Corporate Client Group
NASDAQ continues to list more companies than any other
U.S. equity market. In adding 148 initial public offerings
(IPOs) in 2004, our growth in IPOs was nearly three times
the level of 20031. We’re benefiting from a healthy domestic
and international pipeline of companies seeking to access
the capital markets, which generates incremental revenues
for the company through new listings.

Thanks to our solid international reputation, 25 of these
new listings were foreign companies, 10 from China alone1.
Last year, over 99% of NASDAQ-listed companies chose to
retain their listing on NASDAQ, and two NYSE companies
made the switch to our market. Additionally, the venerable
Sears Holdings Corporation has announced its intent to
switch to NASDAQ in connection with its merger with Kmart,
a NASDAQ-listed company.

We have taken out significant costs to improve margins on
transactions, which may result in organic growth that would
effectively improve our bottom line.

1 Thomson Financial as of 12/31/04

98.5 million

QQQ shares traded daily on average in
2004. Source: FactSet Research Systems
Inc. as of 12/31/04

1st foreign ETF

listed in Latin America, with May ’04 QQQ
launch in Mexico. Source: NASDAQ,
as of 12/31/04

160 licensees

Approximately 160 licensees contracted
with NASDAQ to use NASDAQ indexes as
benchmarks for trading their financial
products. Source: NASDAQ, as of 12/31/04

Our performance for liquid stocks continues to be demonstrably
better, a fact confirmed by Securities and Exchange
Commission (SEC)-mandated “Dash-5” data reported by all
market centers. Our cost-to-value is even more compelling.
Our electronic market model is widely preferred and
endorsed by investors. Our brand is one of the best known
globally — especially for growth and innovation. And,
NASDAQ-listed companies are benefiting from more products,
tools and resources to help them be more effective.

NASDAQ is building a comprehensive suite of exclusive
programs and services, valued by NASDAQ companies in
all stages of going and being public. The NASDAQ Director
is a dedicated, professional, day-to-day contact working to
answer companies’ questions and provide information
affecting their stocks. The Market Intelligence Desk® gives
companies a critical touch point for timely trading analysis,
market and company information, using 20 different
information sources; many of them real-time. NASDAQ
OnlineSM, a proprietary investor relations (IR) web site,
supports solid investor relations strategies. NASDAQ facilitates
premier IR program building, and IR Conferences help

companies develop more effective IR programs. The
NASDAQ Insurance Agency, as of January 2005 a wholly
owned subsidiary of NASDAQ, is a full-service corporate
insurance broker specializing in customized management
liability and risk management advice.

The NASDAQ MarketSite®, a state of the art media studio
and event setting located in New York’s Times Square,
provides our listed companies with a high profile venue for
opening bell ceremonies and other high visibility events.

As we navigate through 2005, market structure changes are
still pending with the SEC. These include how market data is
sold and displayed, and whether investors will be free to
choose where and when their orders are traded — meaning
more buyers and sellers could have the ability to bypass
slower markets and direct their trades to an electronic venue
that offers them more certainty of fast order fills at the prices
they expect. We’ve been vocal in advocating solutions based
on the competitive dynamic, believing that any legislation
supporting natural market forces will lead to a better outcome
for investors.

The NASDAQ MarketSite broadcast
studio in New York’s Times Square.

Beyond this, our dual-listing initiative has fundamentally
changed the whole listing conversation and opened a new
channel of opportunity for NASDAQ. In 2004, we had more
discussions with NYSE-listed companies than at any time in
our history, to educate them on the benefits of NASDAQ’s
model. We believe this effort has moved the listing decision
onto board agendas to be considered and reconsidered
regularly. It has also pushed our competitors to improve their
price and trade performance — a good thing for investors.

For any company that believes in competition, and giving
their stockholders the best possible execution and trading
venue in an environment of the highest regulatory integrity, it
makes sense to consider a move to NASDAQ. In our view, if
a company isn’t getting critical value from its market or that
market isn’t providing much beyond brand image, it’s time to
explore a NASDAQ listing.

NASDAQ Financial Products
We believe we’re exceptionally positioned to enhance our
fast-growing global funds business on numerous fronts.
These opportunities range from developing and licensing

more financial and derivative products to listing more exchange
traded funds (ETFs). Domestically and internationally, our
leadership remains strong crowned by QQQ®, our NASDAQ-
100 Index Tracking Stock®, still the most liquid and actively
traded listed equity security in the United States and the
most actively traded exchange traded fund worldwide in
terms of average daily share volume.

During the last year, we met demand for QQQ in new markets.
In addition to moving its listing to our NASDAQ National
Market in December, QQQ began trading in Israel, Mexico
and Japan, offering NASDAQ more brand exposure and
bottom line revenue. The European version of our ETF,
EQQQ®, is listed in Switzerland and Germany, and continues
to extend throughout Europe. EQQQ continues to grow in
assets and visibility as investors overseas seek to invest
in innovative financial products. Additionally in 2004, we
saw assets in the BLDRSSM Funds grow. Listed on NASDAQ,
BLDRS are ETFs that track The Bank of New York ADR
Indexes. Lastly, we’re developing additional indexes to
advance our position as a world-class index provider.

We’re running the world’s best
electronic equity market, and doing it
more fairly, efficiently, transparently
and responsively than anyone else.

455.6 billion

total share volume for ’04; Up 7%.
Source: NASDAQ Economic Research,
as of 12/31/04

$8.8 trillion

total dollar volume for ’04; average
daily volume was $34.8 billion; up 24%.
Source: NASDAQ Economic Research, as
of 12/31/04

333 million

shares executed in 10 seconds in the NASDAQ Closing
Cross on June 25, 2004, at the annual reconstitution of
the Russell U.S. stock indexes; representing $5.3 billion
in dollar volume. Source: NASDAQ Economic Research

We’re delivering on our total value proposition: actively
investing and innovating to increase transparency and
improve execution for participants, and provide higher
value for listed companies.

Our trading network links, with ease and speed, a large
and geographically dispersed body of market participants
that have very different business models and trading
technologies — and enables them to freely interact
and compete.

MARKET SERVICES provides market participants with a fast,
low-cost way to invest, trade and compete — and a higher
level of data to help them make better decisions.

NASDAQ Transaction Services
This is the engine of our market. Over the course of 2004,
we established and acquired important assets to improve it,
by creating an integrated, higher-powered Market CenterSM.
It enables us to trade all equity securities listed on major
U.S. capital markets, on a single, seamless platform;
including the capability to trade all NASDAQ, NYSE and
AMEX-listed stocks.

Other major market innovations in this area included the
rollout of the Opening and Closing Crosses which enable
NASDAQ to capture liquidity at the most important and active
points of every trading day. When the markets open at 9:30
AM, the Opening Cross is an efficient, fair and transparent
electronic process, where market forces play a key role in
discovering a single, start-of-day price that reflects the true
state of supply and demand for each NASDAQ stock.

Similarly, the Closing Cross provides more transparency and
price discovery for all participants at the market close. It
brings together the buy-and-sell interest in specific NASDAQ
stocks and executes the maximum shares for each stock at
a single accurate price. Like the Opening Cross, it’s driving a
new level of efficiency, and helping to maximize volume
while tempering volatility. A great reflection of the success
of the Closing Cross was the 2004 annual rebalance of
the Russell Indexes, a major trading event in June, where
NASDAQ executed 333 million shares representing $5.3 billion
in volume — in all of 10 seconds. The Closing Cross generates a
closing price widely used throughout the industry including
all major indexes such as the Russell Indexes, Standard &
Poor's and Dow Jones.

NASDAQ is built
to outperform
other markets.

NASDAQ Business Group Heads (L-R):
John L. Jacobs, EVP Worldwide Marketing
and Financial Products; Bruce E. Aust,
EVP NASDAQ Corporate Client Group;
Adena T. Friedman, EVP Strategy and NASDAQ
Data Products; Christopher R. Concannon,
EVP NASDAQ Transaction Services

Our acquisition and integration of the BRUT ECN in 2004
has raised our efficiency across the board and allowed us
to lower prices to the trading community. We’ve enjoyed a
resulting overall increase in liquidity, which is translating
into substantial growth in business and revenues. We also
gained the added reach of BRUT’s routing and distribution
channel, which has accelerated our opportunities, especially
with the derivative and arbitrage desks at major trading
firms by opening the door to new relationships and revenues.

Last year, we re-priced our transactions business to fit our
future cost structure. We took a hit to revenue up front, but
believe now our average trade execution fee per share is
the most competitive in the business. This is designed to
increase our transaction volume in the future.

The net effect of pending SEC national market structure
regulation, Regulation NMS, will be to push more automation
into the markets, which strongly reinforces the value of

NASDAQ’s market model. In the bigger picture, trading orders
are seeking the least friction, and the trend is toward a
fully electronic and frictionless market — a strategic advantage
for NASDAQ.

NASDAQ Data Products
This business group gives market participants, from investors
to issuers, a clear, deep and open view into our market and
trading activity, and vital, real-time market intelligence that is
essential to making informed investment decisions.

In a fast-paced environment where transparency, immediacy
and reliability matter most, NASDAQ is an extremely fast and
transparent equity market. NASDAQ’s premier data product,
TotalView®, displays every quote and order at every price
level in the NASDAQ Market Center. At the start of 2005
TotalView achieved a 50% speed improvement making it
the fastest data feed available for receiving NASDAQ order
book information.

Steven J. Randich,
EVP Operations and
Technology and
Chief Information Officer

2 million

terminals receive NASDAQ data in
over 146 countries. Source: Market
Data Distribution (VARS database)

30% more trades

executed in ’04; averaging 3.8 million daily.
Total executed trades were 955.2 billion.
Source: NASDAQ Economic Research, as of
12/31/04

420,000

The number of Level 1 professional market
data terminals is over 420,000. Source:
Market Data Distribution (BiS billing system)

These improvements not only enable users to better identify
trading opportunities, but also to assist participants in
fulfilling best execution obligations. Every participant has
the ability to know exactly what’s available, and when, and is
able to confirm that they are receiving quality executions.

In 2004, we invested in new technology that enables us to
be nimbler in getting our products out to the investing
public. We also broadened the number of networks carrying
our data and created a cost advantage we’re sharing with
our clients.

NASDAQ Data Products continues to raise the bar on market
quality and transparency by investing in research to develop
new ways to see the market. We have a pipeline of market
data enhancements and new market data products, some
of which are featured on our new Experimental Market
Information web site (http://emi.nasdaq.com). The EMI site,
launched in 2004, enables NASDAQ to test new information
products, and gives investors and traders a way to provide
valuable feedback about what they want in terms of data
products and services. Response has been overwhelmingly
positive with over 1,200 registered users to date for this
free service.

Relative to regulation, the outcome of Regulation NMS will
define what data can be sold competitively versus what data
must be placed in a central pool and sold collectively, with
those revenues shared across all markets. We have been
a leading voice in the industry discussion, promoting the
idea of pricing essential data at very reasonable levels for
investors and letting the markets compete on selling other
value-added products. As it stands, NASDAQ has been able
to capitalize consistently on its data offerings and is well
positioned to compete under new rules.

We continue building sustainable
long-term strategic advantages and
setting the pace for the industry,
from business and market model to
corporate governance and compliance.

NASDAQ is
built to go the
distance and set
the standard.

1/50th second

or less response time can be maintained
by NASDAQ systems. Source: NASDAQ
Operations and Technology, as of 12/31/04

20,000

transactions per second can be handled
by NASDAQ systems. Source: NASDAQ
Operations and Technology, as of 12/31/04

7,800

Over 7,800 NASDAQ, NYSE and AMEX-listed
stocks tradable through the new NASDAQ
Market CenterSM. Source: NASDAQ Economic
Research, as of 12/31/04

We’re delivering on our total value proposition: actively investing
and innovating to increase transparency and improve execution
for participants, and provide higher value for listed companies.

The world’s markets have moved to the electronic model
because the benefits of all-electronic markets are clear
to investors. Dynamic companies continue to come to our
market, drawn by the power of our brand and the proven
value of a NASDAQ listing. NASDAQ is publicly out front,
helping to frame the big issues that impact the markets
and investors with the goal of serving those interests first,
best and foremost.

We believe our competitive strengths include: our leading
and unconflicted market model; diversified set of businesses
and revenue streams; proven track record and globally
potent brand; strong momentum and public accountability.

As we progress through 2005, we’re taking the assets we
have built and leveraging them from our brand and customer
base to our sales channels and portfolios of products and
services. In every dimension that truly matters to investors,
issuers and stockholders, we’re a leader in the field, and
ready to capitalize on a wealth of new opportunities.

We’re Leading on All Levels

Like all stock markets, NASDAQ
is a unique business. We are
striving to lead the capital
markets on every essential level,
heeding our corporate charter
to work for the greater good of
the investors. We’re focused on
our regulatory responsibilities
and the dialogue on Regulation
NMS for the right market and
corporate governance regulations...

Robert Greifeld
President and CEO

... We’re innovating more technologically, and out-
maneuvering the competition with dynamic and
diversified business lines. I believe we’re enhancing the
entire value proposition for all our stakeholders, and
approaching a tremendous lift-off point in performance
and realized potential.

For NASDAQ, 2003 was a year of refocusing, and 2004, a
year of repositioning strategies designed to grow revenues
and profits. This year, 2005, is our year of expanding on
this success. Since last year’s report, there has been much
progress with our business and market, which is a great
source of pride and energy for the company.

In Listings, one of the highest profile accomplishments was
winning Google’s landmark IPO, and 147 others, a nearly
174% jump from 2003. Twenty-five were international
companies. We’re also proud that Sears Holdings, as part
of the Kmart merger, has announced its plan to list on our
market, a historic move from the NYSE where they have
listed since 1910. In addition to successfully retaining a record
number of companies, our dual-listing program continues to
attract attention, getting us in front of companies listed on
competing markets and onto board agendas for consideration.
And we are expanding our already strong foothold with

companies in Israel and India that are seeking U.S. investors,
as well as further expanding our international reach into
Russia, South America and China.

In Transactions, we acquired BRUT, an ECN, which immediately
brought us routing capability, better connectivity and
increased market share in trade reporting. We created new
Opening and Closing processes, to better meet investors’
needs. We also launched an integrated Market Center,
where 7,800 NASDAQ, NYSE and AMEX stocks can be
traded on one advanced platform. The Market Center
simplifies trading and gives us more cost efficiencies. To
increase our reach and revenues, we fielded an expanded
transaction services sales force.

In Financial Products, we exported our leading ETFs globally,
with QQQ to Japan, Israel and Mexico, and EQQQ to
Switzerland and Germany.

With Data Products, we’re sharpening our edge with our
proprietary data product TotalView, our flagship proprietary
data product that displays more depth and information
about NASDAQ stocks than any other data product offered
by any market. Further, we continue to innovate, as shown by
recent enhancements to our existing data products and by
new data products featured on our Experimental Market
Information web site.

With a solid foundation in place across each business line,
we’re ready to move forward on many levels. This includes
capitalizing on the result of the SEC’s pending Regulation
NMS changes, which are designed to modernize an outdated
1970s market structure. Although the rules are not yet
finalized, I am confident that they will bring other markets
in line with NASDAQ’s pioneering, all-electronic model and
enable electronic markets to compete more effectively with
traditional, floor-based markets.

If you’re an institutional investor, it’s important that you think
about which equity market delivers the most value, from
quality to transparency, and what the very real and critical
differences are between markets.

If you're an individual investor, it makes sense to think about
which market is committed to investor protection and strong
standards of regulation.

If you’re a board member or CEO, ask which market offers
strong performance. Based on SEC Dash-5 data2, NASDAQ
is a clear winner. Our electronic market model brings
buyers and sellers together electronically, and intermediaries
compete to provide the best value for investors.

If you’re a stockholder, be sure you are looking carefully at
which equity market business is positioned to win; which
market has a diversified business model and opportunities;
and which has the most scale and substance. You should
also understand why a competitive market maker model,
like NASDAQ’s, makes the most sense.

2 Based on 2004 data mandated by SEC Rule 11Ac1-5, S&P 500 stocks,
all marketable orders, all order sizes. Stocks listed on NASDAQ have, on
average, lower effective spreads, lower quoted spreads, and faster execution
speeds than stocks listed on other markets. Averages executed share
volume weighted.

Without question, NASDAQ is exceptionally well built as a
business and as a market. We also continue to be an
important national asset and economic force — a channel for
established and emerging companies from China and Israel
to India, seeking capital, liquidity and U.S. investors. Just
as importantly, we’re unwavering in our commitment to
promote and follow the highest level of corporate governance
and compliance.

There’s a lot of good news from and about NASDAQ. Above
all, I believe we’re at a major tipping point in every business
line — a point of concentrating all our assets and executing
on a confident, high-impact business plan based on our
progress and notable successes in 2004.

Heading now into the rest of 2005 and beyond, our goal is
to deliver further diversification around our core strengths,
including more value-added products and services for
customers; robust market share growth; more listings; more
trading volume; and even greater efficiency, effectiveness
and innovation.

NASDAQ’s trademark entrepreneurial thinking, vision and
spirit are inspiring and propelling our people, business and
market resiliently into the future.

Robert Greifeld
President and CEO

Officers and Directors

EXECUTIVE OFFICERS

BOARD OF DIRECTORS

H. Furlong Baldwin
Chairman of the Board,
The Nasdaq Stock Market, Inc.
Retired Chairman and
Chief Executive Officer
Mercantile Bankshares Corporation

Michael Casey
Executive Vice President,
Chief Financial Officer and
Chief Administrative Officer
Starbucks Corporation

Jeffrey N. Edwards
Senior Vice President,
Head of Global Capital Markets
and Financing
Merrill Lynch & Co., Inc.

Lon Gorman
Retired Vice Chairman
The Charles Schwab Corporation

Robert Greifeld
President and Chief Executive Officer
The Nasdaq Stock Market, Inc.

John P. Havens
Managing Director,
Global Head of Institutional Sales
Morgan Stanley

Patrick J. Healy
Head of Europe
Hellman & Friedman Europe, Ltd.

John D. Markese
President
American Association of
Individual Investors

Thomas F. O’Neill
Principal
Sandler O’Neill Partners

James S. Riepe
Vice Chairman
T. Rowe Price Associates, Inc.

Arvind Sodhani
Senior Vice President and Treasurer
Intel Corporation

Thomas G. Stemberg
Chairman and Founder
Staples, Inc.

Fred D. Thompson
Attorney-at-Law/Consultant/Actor

Mary Jo White
Partner
Debevoise & Plimpton

Deborah L. Wince-Smith
President
Council on Competitiveness

Robert Greifeld
President and Chief Executive Officer

Bruce E. Aust
Executive Vice President
NASDAQ Corporate Client Group

Christopher R. Concannon
Executive Vice President
NASDAQ Transaction Services

Adena T. Friedman
Executive Vice President
Strategy and
NASDAQ Data Products

Ronald Hassen
Senior Vice President
Controller
Principal Accounting Officer and
Treasurer

John L. Jacobs
Executive Vice President
Worldwide Marketing and
Financial Products
Chief Executive Officer
NASDAQ Global Funds, Inc.

Edward S. Knight
Executive Vice President and
General Counsel

Steven J. Randich
Executive Vice President
Operations and Technology and
Chief Information Officer

David P. Warren
Executive Vice President and
Chief Financial Officer

Shareholder Information

INVESTOR INFORMATION

NASDAQ’s home page on the World Wide Web is at
www.NASDAQ.com

Stockholders are advised to review financial information
and other disclosure about NASDAQ contained in its
Annual Report on Form 10-K (the “Form 10-K”). Investor
information, including the Annual Report, Form 10-K,
Form 10-Q, Proxy Statement and other periodic SEC updates,
as well as press releases and earnings announcements
can be accessed directly from our web site at:
www.NASDAQ.com/investorrelations/ir_home.stm

Investor inquiries should be directed to:
By email: investor.relations@nasdaq.com
By phone: 212.401.8742
By mail: NASDAQ Investor Relations
9513 Key West Avenue
4th Floor
Rockville, MD 20850

TRANSFER AGENT AND REGISTRAR

Mellon Investor Services
85 Challenger Road
Ridgefield Park, New Jersey 07666-2108
USA

Domestic: 888.305.3741
International: 201.329.8660
Domestic TDD: 800.231.5469
International TDD: 201.329.8354
www.melloninvestor.com

HEADQUARTERS

One Liberty Plaza
165 Broadway
50th Floor
New York, New York 10006

REGIONAL HEADQUARTERS

United States
2500 Sandhill Road, Suite 220
Menlo Park, California 94025

55 West Monroe Street, Suite 3450
Chicago, Illinois 60603

9600 Blackwell Road
Rockville, Maryland 20850

1801 K Street, NW
Suite 801L
Washington, DC 20006

NASDAQ MarketSite
4 Times Square
43rd & Broadway
New York, New York 10036

United Kingdom
120 Old Broad Street
London, United Kingdom EC2N1AR

Asia
No. 9, III Floor, UNI Building
Thimmaiah Road
Miller Tank Bed
Bangalore 560 052
Karnataka, India

NASDAQ, NASDAQ-100 Index, NASDAQ-100 Index Tracking
Stock, NASDAQ National Market, QQQ, EQQQ, TotalView,
Market Intelligence Desk and MarketSite are registered
trademarks and NASDAQ Market Center and NASDAQ
Online are service marks of The Nasdaq Stock Market, Inc.

All other trade/service marks are the property of their
respective owners.

Cautionary Note Regarding Forward-Looking Statements
The matters described herein may contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks, uncertainties or other factors
beyond the control of The Nasdaq Stock Market, Inc. (the “Company”), which could cause actual results to differ materially from
historical results, performance or other expectations and from any opinions or statements expressed or implied with respect to
future periods. These factors include, but are not limited to, the Company’s ability to implement its strategic initiatives, economic,
political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition,
and other factors detailed in the Company’s registration statement on Form 10-K, as amended, and other periodic reports filed with
the U.S. Securities and Exchange Commission. We undertake no obligation to release any revisions to any forward-looking statements.

The Nasdaq Stock Market, Inc.
Selected Consolidated Financial Data

As of or for the year ended December 31,
(in thousands, except share amounts)

Statements of Income Data:
Total revenues
Cost of revenues
Gross margin
Total expenses
Net income (loss) from continuing operations
Net income (loss) from discontinued operations, net of tax
Net income (loss)
Net (loss) income applicable to common stockholders
Weighted average common shares outstanding
Basic and diluted net (loss) earnings per share:

Continuing operations
Discontinued operations

Total basic and diluted net (loss) earnings per share

Balance Sheet Data:
Cash and cash equivalents and investments available-for-sale
Total assets (1)
Total long-term liabilities (1)
Total stockholders’ equity (1)

(1) Includes continuing and discontinued operations.

2004

2003

2002

$ 540,441
(55,845)
484,596
476,413
1,804
9,558
11,362
(1,826)
78,607,126

(0.14)
0.12
(0.02)

$ 233,099
814,820
449,941
156,563

$ 589,845
—
589,845
647,159
(45,112)
(60,335)
(105,447)
(113,726)
78,378,376

(0.68)
(0.77)
(1.45)

$ 334,633
851,254
452,927
160,696

$ 787,154
—
787,154
675,307
65,021
(21,893)
43,128
33,363
83,650,478

0.66
(0.26)
0.40

$ 423,588
1,175,914
636,210
270,872

Results were positively impacted by lower operating expenses from corporate-wide cost reduction programs and NASDAQ’s 2003 strategic
review. However, continued competitive pressure resulted in lower revenues and gross margin (total revenues less cost of revenues).

NASDAQ’s revenues and gross margin declined 8% and 18%, respectively, during 2004 when compared to 2003. Driving the decline in revenues
and gross margin is increased competition from regional exchanges and alternative trading systems. To remain competitive, NASDAQ continues
to focus on expanding market share and reducing expenses while driving toward operational self-sufficiency.

NOTE: The above review of NASDAQ’s financial performance should be read in conjunction with the consolidated financial statements and
notes thereto included in the 2004 Form 10-K as filed with the Securities and Exchange Commission. NASDAQ’s future performance may differ
materially from that of 2004, 2003 and 2002 as a result of certain factors, including, but not limited to, those set forth in the 2004 Form 10-K
under “Item 1. Business—Risk Factors” and elsewhere in the 2004 Form 10-K.

This Annual Report includes market share and industry data that we obtained from industry publications and surveys, reports of governmental
agencies, and internal company surveys. Industry publications and surveys generally state that the information contained therein has been
obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. We
have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied
upon therein. Statements as to our market position are based on available market data that speaks as of the date indicated. For market
comparison purposes, data in this Annual Report for initial public offerings or IPOs of companies in the United States is based on data provided
by Thomson Financial, which does not include best efforts underwritings and, therefore, may not be comparable to other publicly-available IPO
data. While we are not aware of any misstatements regarding industry data presented herein, our estimates involve risks and uncertainties and
are subject to change based on various factors, including those discussed in “Item 1. Business-Risk Factors” in NASDAQ’s Form 10-K, as amended.

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