UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 001-38855
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Nasdaq, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
52-1165937
(I.R.S. Employer Identification No.)
151 W. 42nd Street, New York, New York
10036
(Address of Principal Executive Offices)
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: +1 212 401 8700
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
0.875% Senior Notes due 2030
1.75% Senior Notes due 2029
1.750% Senior Notes due 2023
3.875% Senior Notes due 2021
NDAQ
NDAQ30
NDAQ29
NDAQ23
NDAQ21
The Nasdaq Stock Market
The Nasdaq Stock Market
The Nasdaq Stock Market
The Nasdaq Stock Market
The Nasdaq Stock Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
No
No
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
No
been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
Accelerated filer
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
As of June 28, 2019, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was
approximately $11.1 billion (this amount represents approximately 115.5 million shares of Nasdaq, Inc.’s common stock based on the last reported
sales price of $96.17 of the common stock on The Nasdaq Stock Market on such date).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Common Stock, $0.01 par value per share
Outstanding at February 13, 2020
165,011,712 shares
Documents Incorporated by Reference: Certain portions of the Definitive Proxy Statement for the 2020 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
Nasdaq, Inc.
Part I.
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
Part II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III.
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV.
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
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Throughout this Form 10-K, unless otherwise specified:
About this Form 10-K
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“Nasdaq,” “we,” “us” and “our” refer to Nasdaq, Inc.
“Nasdaq Baltic” refers to collectively, Nasdaq Tallinn AS, Nasdaq Riga, AS, and AB Nasdaq Vilnius.
“Nasdaq BX” refers to the cash equity exchange operated by Nasdaq BX, Inc.
“Nasdaq BX Options” refers to the options exchange operated by Nasdaq BX, Inc.
“Nasdaq Clearing” refers to the clearing operations conducted by Nasdaq Clearing AB.
“Nasdaq First North” refers to our alternative marketplaces for smaller companies and growth companies in the Nordic and
Baltic regions.
“Nasdaq GEMX” refers to the options exchange operated by Nasdaq GEMX, LLC.
“Nasdaq ISE” refers to the options exchange operated by Nasdaq ISE, LLC.
“Nasdaq MRX” refers to the options exchange operated by Nasdaq MRX, LLC.
“Nasdaq Nordic” refers to collectively, Nasdaq Clearing AB, Nasdaq Stockholm AB, Nasdaq Copenhagen A/S, Nasdaq
Helsinki Ltd, and Nasdaq Iceland hf.
“Nasdaq PHLX” refers to the options exchange operated by Nasdaq PHLX LLC.
“Nasdaq PSX” refers to the cash equity exchange operated by Nasdaq PHLX LLC.
“The Nasdaq Options Market” refers to the options exchange operated by The Nasdaq Stock Market LLC.
“The Nasdaq Stock Market” refers to the cash equity exchange and listing venue operated by The Nasdaq Stock Market LLC.
Nasdaq also provides as a tool for the reader the following list of abbreviations and acronyms that are used throughout this
Annual Report on Form 10-K.
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401(k) Plan: Voluntary Defined Contribution Savings Plan
ASU: Accounting Standards Update
2016 Credit Facility: $400 million senior unsecured term loan
ATS: Alternative Trading System
facility repaid in full and terminated in June 2019
2017 Credit Facility: $1 billion senior unsecured revolving
credit facility which matures on April 25, 2022
2019 Notes: $500 million aggregate principal amount of senior
unsecured floating rate notes repaid in full on maturity in
March 2019
2020 Notes: $600 million aggregate principal amount of 5.55%
senior unsecured notes repaid in full and terminated in May
2019
2021 Notes: €600 million aggregate principal amount of
AUM: Assets Under Management
CAT: A market-wide consolidated audit trail established by
Nasdaq and other exchanges under an SEC approved plan
CCP: Central Counterparty
CFTC: U.S. Commodity Futures Trading Commission
EMIR: European Market Infrastructure Regulation
Equity Plan: Nasdaq Equity Incentive Plan
ESPP: Nasdaq Employee Stock Purchase Plan
3.875% senior unsecured notes due June 7, 2021
ETF: Exchange Traded Fund
2023 Notes: €600 million aggregate principal amount of 1.75%
ETP: Exchange Traded Product
senior unsecured notes due May 19, 2023
2024 Notes: $500 million aggregate principal amount of 4.25%
senior unsecured notes due June 1, 2024
2026 Notes: $500 million aggregate principal amount of 3.85%
Exchange Act: Securities Exchange Act of 1934, as amended
FASB: Financial Accounting Standards Board
FICC: Fixed Income and Commodities Trading and Clearing
senior unsecured notes due June 30, 2026
FINRA: Financial Industry Regulatory Authority
2029 Notes: €600 million aggregate principal amount of 1.75%
IPO: Initial Public Offering
senior unsecured notes due March 28, 2029
2030 Notes: €600 million aggregate principal amount of
0.875% senior unsecured notes due February 13, 2030
LIBOR: London Interbank Offered Rate
MiFID II: Update to the Markets in Financial Instruments
Directive
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MiFIR: Markets in Financial Instruments Regulation
SEC: U.S. Securities and Exchange Commission
MTF: Multilateral Trading Facility
SERP: Supplemental Executive Retirement Plan
NFF: Nasdaq Financial Framework; Nasdaq's end-to-end
technology solutions for market infrastructure operators, buy-
side firms, sell-side firms and other non-financial markets
NFX: Nasdaq Futures, Inc.
NPM: The NASDAQ Private Market, LLC
NSCC: National Securities Clearing Corporation
OCC: The Options Clearing Corporation
OTC: Over-the-Counter
Proxy Statement: Nasdaq’s Definitive Proxy Statement for
the 2020 Annual Meeting of Stockholders
PSU: Performance Share Unit
Regulation NMS: Regulation National Market System
Regulation SCI: Regulation Systems Compliance and
Integrity
SaaS: Software as a Service
SFSA: Swedish Financial Supervisory Authority
SI: Systematic Internalizer
S&P: Standard & Poor’s
S&P 500: S&P 500 Stock Index
SRO: Self-regulatory Organization
SSMA: Swedish Securities Markets Act 2007:528
TSR: Total Shareholder Return
U.S. GAAP: U.S. Generally Accepted Accounting Principles
UTP: Unlisted Trading Privileges
UTP Plan: Joint SRO Plan Governing the Collection,
Consolidation, and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed Securities Traded
on Exchanges on a UTP Basis
VAT: Value Added Tax
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NASDAQ, the NASDAQ logos, and other brand, service or product names or marks referred to in this report are trademarks or
service marks, registered or otherwise, of Nasdaq, Inc. and/or its subsidiaries. FINRA and TRADE REPORTING FACILITY
are registered trademarks of FINRA.
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This Annual Report on Form 10-K 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 they contain has been obtained from sources believed to be reliable, but we cannot assure you that this information
is accurate or complete. 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 the most currently available
market data. For market comparison purposes, The Nasdaq Stock Market data in this Annual Report on Form 10-K for IPOs is
based on data generated internally by us, which includes best efforts underwritings; therefore, the data may not be comparable to
other publicly-available IPO data. Data in this Annual Report on Form 10-K for new listings of equity securities on The Nasdaq
Stock Market is based on data generated internally by us, which includes best efforts underwritings, issuers that switched from
other listing venues, closed-end funds and ETPs. Data in this Annual Report on Form 10-K for IPOs and new listings of equity
securities on the Nasdaq Nordic and Nasdaq Baltic exchanges and Nasdaq First North also is based on data generated internally
by us. IPOs and new listings data is presented as of period end. 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 1A. Risk Factors” in this Annual Report on Form 10-K.
Nasdaq intends to use its website, ir.nasdaq.com, as a means for disclosing material non-public information and for complying
with SEC Regulation FD and other disclosure obligations.
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Forward-Looking Statements
The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s
future prospects and make informed investment decisions. This Annual Report on Form 10-K contains these types of statements.
Words such as “may,” “will,” “could,” “should,” “anticipates,” “envisions,” “estimates,” “expects,” “projects,” “intends,”
“plans,” “believes” and words or terms of similar substance used in connection with any discussion of future expectations as to
industry and regulatory developments or business initiatives and strategies, future operating results or financial performance, and
other future developments are intended to identify forward-looking statements. These include, among others, statements relating
to:
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our strategic direction;
the integration of acquired businesses, including accounting decisions relating thereto;
the scope, nature or impact of acquisitions, divestitures, investments, joint ventures or other transactional
activities;
the effective dates for, and expected benefits of, ongoing initiatives, including transactional activities and other
strategic, restructuring, technology, de-leveraging and capital return initiatives;
our products, order backlog and services;
the impact of pricing changes;
tax matters;
the cost and availability of liquidity and capital; and
any litigation, or any regulatory or government investigation or action, to which we are or could become a
party or which may affect us.
Forward-looking statements involve risks and uncertainties. Factors that could cause actual results to differ materially from those
contemplated by the forward-looking statements include, among others, the following:
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our operating results may be lower than expected;
our ability to successfully integrate acquired businesses or divest sold businesses or assets, including the fact
that any integration or transition may be more difficult, time consuming or costly than expected, and we may be
unable to realize synergies from business combinations, acquisitions, divestitures or other transactional activities;
loss of significant trading and clearing volumes or values, fees, market share, listed companies, market data
customers or other customers;
our ability to develop and grow our non-trading businesses, including our technology and analytics offerings;
our ability to keep up with rapid technological advances and adequately address cybersecurity risks;
economic, political and market conditions and fluctuations, including interest rate and foreign currency risk,
inherent in U.S. and international operations;
the performance and reliability of our technology and technology of third parties on which we rely;
any significant error in our operational processes;
our ability to continue to generate cash and manage our indebtedness; and
adverse changes that may occur in the litigation or regulatory areas, or in the securities markets generally, or
increased regulatory oversight domestically or internationally.
Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the uncertainty
and any risk related to forward-looking statements that we make. These risk factors are discussed under the caption “Item 1A.
Risk Factors,” in this Annual Report on Form 10-K. You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. You should carefully read this entire Annual Report on Form 10-K,
including “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated
financial statements and the related notes. Except as required by the federal securities laws, we undertake no obligation to update
any forward-looking statement, release publicly any revisions to any forward-looking statements or report the occurrence of
unanticipated events. For any forward-looking statements contained in any document, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
1
PART I
Item 1. Business
Overview
Nasdaq is a global technology company serving the capital
markets and other industries. Our diverse offerings of data,
analytics, software and services enables clients to optimize and
execute their business vision with confidence.
We manage, operate and provide our products and services in
four business segments: Market Services, Corporate Services,
Information Services and Market Technology.
History
Nasdaq was founded in 1971 as a wholly-owned subsidiary of
FINRA. Beginning in 2000, FINRA restructured and broadened
ownership in Nasdaq by selling shares to FINRA members,
investment companies and issuers listed on The Nasdaq Stock
Market. In connection with this restructuring, FINRA fully
divested its ownership of Nasdaq in 2006, and The Nasdaq
Stock Market became fully operational as an independent
registered national securities exchange in 2007. In 2006,
Nasdaq also reorganized its operations into a holding company
structure.
In February 2008, Nasdaq and OMX AB combined their
businesses. This transformational combination resulted in the
expansion of our business from a U.S.-based exchange operator
to a global exchange company offering technology that powers
our own exchanges and markets as well as many other
marketplaces around the world. In connection with this
acquisition, we changed our corporate name to The NASDAQ
OMX Group, Inc. We operated under this name until we
rebranded our business as Nasdaq, Inc. in 2015. The chart below
shows our historical evolution from 1971 through the present.
Growth Strategy
Since our transformative combination with OMX AB in 2008,
we have grown our business both organically and through
acquisitions that have expanded our operations globally and
increasingly diversified our product and service offerings. This
evolution was driven by our ability to create opportunities in
areas adjacent to our core businesses, many of which are non-
transaction based and rooted in innovative technology. To keep
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pace with our understanding of future trends and to ensure our
continued success in the evolving business environment, we
have focused on refining our vision, mission and strategy:
Our Vision: We reimagine markets to realize the potential of
tomorrow.
Our Mission: We bring together ingenuity, integrity and
insights to deliver markets that accelerate economic progress
and empower people to achieve their greatest ambitions.
Our Strategy: Our strategic direction is driven by our
continuous examination of: (i) key macroeconomic, regulatory
and technology trends, (ii) consultation with our clients about
short- and long-term trends in their businesses and (iii) the
competitive landscape.
Under the strategic direction that we have been implementing
over the past three years, we have focused on maximizing the
resources, people and capital allocated to our largest growth
opportunities, particularly in our Market Technology and
Information Services segments. In addition, we are committed
to maintaining and enhancing the marketplace platform
businesses that are core to Nasdaq, and reducing capital and
resources in areas that we believe are not as strategic to our
clients and have less growth potential within Nasdaq.
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Increasing Investment in Businesses Where We See the
Highest Growth Opportunity. We have
increased
investment in areas that we believe help solve our clients’
biggest challenges and are likely to generate growth for
our stockholders. These areas include: the data analytics
business within our Information Services segment; NPM,
within our Corporate Services segment; and our Market
Technology segment (including our regulatory technology
business).
Consistent with this objective, in 2019 we acquired
Cinnober Financial Technology AB, or Cinnober, which is
now part of our Market Technology segment. We also are
continuing to invest in the Market Technology segment
through the NFF and the expansion and enhancement of
our Nasdaq Trade Surveillance offering, including the
incorporation of machine intelligence capabilities.
Sustaining Our Foundation. As we strive to grow our
business, we also have focused on enhancing our
leadership position in the marketplaces in which we operate
as we continue to innovate with new functionality and
strong market share in our core markets. For example, we
expect the migration of Nasdaq BX Options to a new
trading platform that leverages the NFF to be completed
during the third quarter of this year. This updated
technology will drive commonality across our internal
derivatives markets.
• Optimizing Slower Growth Businesses. We continually
review areas that are not critical to our core. In these areas,
we expect to continue to target resiliency and efficiency
versus growth, and free up resources when possible to
redirect toward greater opportunities. We completed
several divestitures in 2019. In March 2019, we completed
the sale of our BWise enterprise governance, risk and
compliance software platform. In October 2019, we
completed the divestiture of the Nordic Fund Market, an
electronic mutual fund service that was a smaller unit of
our Broker Services business, in November 2019, we sold
the core assets of our NFX business and in January 2020,
management commenced an orderly wind-down of our
broker services operations business.
Products and Services
We manage, operate and provide our products and services in
four business segments: Market Services, Corporate Services,
Information Services and Market Technology.
Collectively, the Nasdaq Nordic and Nasdaq Baltic exchanges
offer trading in cash equities, depository receipts, warrants,
convertibles, rights, fund units and ETFs, as well as trading and
clearing of derivatives and clearing of resale and repurchase
agreements. Our platform allows the exchanges to share the
same trading system, which enables efficient cross-border
trading and settlement, cross membership and a single source
for Nordic data products. Settlement and registration of cash
equity trading takes place in Sweden, Finland, Denmark and
Iceland via the local central securities depositories. In addition,
Nasdaq owns two central securities depositories that provide
notary, settlement, central maintenance and other services in
the Baltic countries and Iceland.
Market Services
FICC
Our Market Services segment includes our Equity Derivative
Trading and Clearing, Cash Equity Trading, FICC and Trade
Management Services businesses.
Equity Derivative Trading and Clearing
We operate six electronic options exchanges in the U.S.: Nasdaq
PHLX, The Nasdaq Options Market, Nasdaq BX Options,
Nasdaq ISE, Nasdaq GEMX and Nasdaq MRX. These
exchanges facilitate the trading of equity, ETF, index and
foreign currency options. Together, our combined options
market share in 2019 represented the largest share of the U.S.
market for multiply-listed options on equities and ETFs. Our
options trading platforms provide trading opportunities to both
retail investors, algorithmic trading firms and market makers,
who tend to prefer electronic trading, and institutional investors,
who typically pursue more complex trading strategies and often
trade on the floor.
In Europe, Nasdaq offers trading in derivatives, such as stock
options and futures and index options and futures. Nasdaq
Clearing offers clearing services for fixed-income options and
futures, stock options and futures, index options and futures,
and interest rate swaps by serving as the CCP. Nasdaq Clearing
also operates a clearing service for the resale and repurchase
agreement market.
Cash Equity Trading
In the U.S., we operate three cash equity exchanges: The Nasdaq
Stock Market, Nasdaq BX and Nasdaq PSX. Our U.S. cash
equity exchanges offer trading of both Nasdaq-listed and non-
Nasdaq-listed securities. The Nasdaq Stock Market is the
largest single venue of liquidity for trading U.S.-listed cash
equities. Market participants include market makers, broker-
dealers, ATSs and registered securities exchanges.
In Canada, we operate an exchange with three independent
markets, Nasdaq Canada CXC, Nasdaq Canada CX2 and
Nasdaq Canada CXD, for the trading of Canadian-listed
securities.
In Europe, Nasdaq operates exchanges in Stockholm (Sweden),
Copenhagen (Denmark), Helsinki (Finland), and Reykjavik
(Iceland). We also operate exchanges in Tallinn (Estonia), Riga
(Latvia) and Vilnius (Lithuania).
Our FICC business includes the Nasdaq Fixed Income business
and Nasdaq Commodities.
The U.S. portion of Nasdaq Fixed Income includes an electronic
platform for trading U.S. Treasuries. The electronic trading
platform provides real-time institutional trading of benchmark
U.S. Treasury securities. Through this business, we provide
trading access to the U.S. Treasury securities market with an
array of trading instruments to meet various investment goals
across the fixed income spectrum.
The European portion of Nasdaq Fixed Income provides a wide
range of products and services, such as trading and clearing, for
fixed income products in Sweden, Denmark, Finland, Iceland,
Lithuania and Latvia. Nasdaq is the largest bond listing venue
in the Nordics, with more than 6,500 listed retail and
institutional bonds. In addition, Nasdaq Nordic facilitates the
trading and clearing of Nordic fixed income derivatives in a
unique market structure. Buyers and sellers agree to trades in
fixed income derivatives through bilateral negotiations and then
report those trades to Nasdaq Clearing for CCP clearing. Nasdaq
Clearing acts as the counterparty to both the buyer and seller.
and
products
Nasdaq Commodities is the brand name for Nasdaq’s European
commodity-related
services. Nasdaq
Commodities’ offerings include derivatives in power, natural
gas and carbon emission markets, seafood, electricity
certificates and clearing services. These products are listed on
Nasdaq Oslo ASA, except for seafood, which is listed on
Fishpool, a third party platform.
Nasdaq Oslo ASA, which is authorized by the Norwegian
Ministry of Finance and supervised by the Norwegian Financial
Supervisory Authority, is the commodity derivatives exchange
for European products. All trades with Nasdaq Oslo ASA are
subject to clearing with Nasdaq Clearing, which is a CCP
authorized under EMIR by the SFSA to conduct clearing
operations.
Trade Management Services
We provide market participants with a wide variety of
alternatives for connecting to and accessing our markets for a
fee. Our marketplaces may be accessed via a number of different
protocols used for quoting, order entry, trade reporting and
connectivity to various data feeds. We also offer the Nasdaq
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Workstation, a browser-based, front-end interface that allows
market participants to view data and enter orders, quotes and
trade reports. In addition, we offer a variety of add-on
compliance tools to help firms comply with regulatory
requirements.
We provide colocation services to market participants, whereby
we offer firms cabinet space and power to house their own
equipment and servers within our data centers. Additionally, we
offer a number of wireless connectivity routes between select
data centers using millimeter wave and microwave technology.
Our broker services operations business primarily offers
technology and customized securities administration solutions
to financial participants in the Nordic market. Such services
and solutions primarily consist of flexible back-office systems,
which allow customers to efficiently manage safekeeping,
settlement and corporate actions and reporting, and include
connectivity to exchanges and central securities depositories.
In January 2020, we commenced an orderly wind-down of this
broker services operations business. We expect this wind-down
to continue through the second quarter of 2021.
Corporate Services
Our Corporate Services segment includes our Listing Services
and Corporate Solutions businesses. These businesses deliver
critical capital market and governance solutions across the
lifecycle of public and private companies.
Listing Services
We operate a variety of listing platforms around the world to
provide multiple global capital raising solutions for private and
public companies. Companies listed on our markets represent
a diverse array of industries including, among others, health
care, consumer products,
services,
information technology, financial services, industrials and
energy. Our main listing markets are The Nasdaq Stock Market
and the Nasdaq Nordic and Nasdaq Baltic exchanges.
telecommunication
Companies seeking to list securities on The Nasdaq Stock
Market must meet minimum listing requirements, including
specified financial and corporate governance criteria. Once
listed, companies must meet continued listing standards. The
Nasdaq Stock Market currently has three listing tiers: The
Nasdaq Global Select Market, The Nasdaq Global Market and
The Nasdaq Capital Market. All three market tiers maintain
rigorous listing and corporate governance standards (both
initial and ongoing).
As of December 31, 2019, a total of 3,140 companies listed
securities on The Nasdaq Stock Market, with 1,420 listings on
The Nasdaq Global Select Market, 870 on The Nasdaq Global
Market and 850 on The Nasdaq Capital Market.
We seek new listings, including from companies conducting
IPOs as well as companies looking to switch from alternative
exchanges. In 2019, The Nasdaq Stock Market attracted 313
new listings, including 188 IPOs, representing 78% of U.S.
IPOs in 2019. The new listings were comprised of the following:
Switches from the New York Stock Exchange LLC,
or NYSE, NYSE American LLC, or NYSE
American, or IEX
IPOs
Upgrades from OTC
ETPs and Other Listings
Total
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188
31
78
313
During 2019, we had 16 new listings resulting from new
companies switching their listings from NYSE, NYSE
American or IEX to join Nasdaq, and combined with companies
that transferred additional securities to Nasdaq during 2019, an
aggregate of $230 billion in global equity market capitalization
switched to Nasdaq. Our new U.S. corporate bond listing
offering won 11 new issues and 37 existing bonds that
transferred from NYSE. Notable switches in 2019 included
Exelon Corporation, ViacomCBS Inc., and Noble Energy Inc.
We also offer listings on the exchanges that comprise Nasdaq
Nordic and Nasdaq Baltic. For smaller companies and growth
companies, we offer access to the financial markets through the
Nasdaq First North alternative marketplaces. As of
December 31, 2019, a total of 1,040 companies listed securities
on our Nordic and Baltic exchanges and Nasdaq First North.
Our European listing customers include companies, funds and
governments. Customers issue securities in the form of cash
equities, depository receipts, warrants, ETPs, convertibles,
rights, options, bonds or fixed-income related products. In
2019, a total of 53 new companies listed on our Nordic and
Baltic exchanges and Nasdaq First North. In addition, 10
companies upgraded their listings from Nasdaq First North to
the Nordic and Baltic exchanges.
Our Listing Services business also includes NPM, which
provides liquidity solutions for private companies and private
funds. NPM’s platform helps employees, investors, companies,
funds and institutions execute transactions, whether for private
companies, private investment funds, or other private asset
classes. In 2019, NPM announced an agreement with a
secondary fund advisor to provide enhanced execution
capabilities for general partner, or GP, sponsored secondary
transactions using our platform. We believe that the combined
offering can bring greater standardization and efficiency to this
market while appealing to the broader ecosystem of GPs,
limited partners and secondary investors.
We are continuing to grow our recently launched U.S. Corporate
Bond exchange for the listing and trading of corporate bonds.
This exchange operates pursuant to The Nasdaq Stock Market
exchange license and is powered by the NFF. Surveillance is
conducted by the Nasdaq regulatory team, assisted by our
Nasdaq Trade Surveillance solution. As of December 31, 2019,
58 corporate bonds traded on the Corporate Bond exchange.
Corporate Solutions
Our Corporate Solutions business serves both public and private
companies and organizations. Our public company clients can
be companies listed on our exchanges or other U.S. and global
exchanges. We help organizations enhance their ability to
4
understand and expand their global shareholder base, and
improve corporate governance through our suite of advanced
technology, analytics, and consultative services.
As of December 31, 2019, we provided Corporate Solutions
products and services in the following key areas:
•
Investor Relations Intelligence. We offer a global team of
that deliver advisory services
consultative experts
including Strategic Capital Intelligence, Shareholder
Identification and Perception Studies as well as an
industry-leading platform, Nasdaq IR Insight®, to investor
relations professionals. These solutions allow investor
relations officers to better manage their investor relations
programs, understand their investor base, target new
investors, manage meetings and consume key data
elements such as equity research, consensus estimates and
news.
• Governance Solutions. We provide a global technology
offering that streamlines the meeting process for board of
directors and executive leadership teams and helps them
accelerate decision making and strengthen governance.
Our solutions protect sensitive data and facilitate
productive collaboration, so board members and teams can
work faster and more effectively.
In October 2019, Nasdaq acquired the Center for Board
Excellence, or CBE, a provider of corporate governance
and compliance solutions for boards of directors, CEOs,
corporate secretaries and general counsels.
Information Services
Our Information Services business provides the global
investing community with access to the financial markets
together with strong investment insights.
Our Information Services segment is organized into the
following businesses:
• Market Data;
•
•
Index; and
Investment Data & Analytics.
For both institutional and retail investors, our market and
alternative data enhances transparency and access to the
markets we operate, and we help guide investment decisions
around the globe through our proprietary indexes and
investment data and analytics.
Market Data
Our Market Data business sells and distributes historical and
real-time market data to the sell-side, the buy-side, retail online
brokers, proprietary trading shops, other venues, internet
portals and data distributors.
Our market data products enhance transparency of market
activity within our exchanges and provide critical information
to professional and non-professional investors globally. We
collect, process and create information and earn revenues as a
distributor of our own, as well as select third-party content. We
5
provide varying levels of quote and trade information to our
customers who
this
information. Our systems enable distributors to gain access to
our market depth, mutual fund valuation, order imbalances,
market sentiment and other analytical data.
in turn provide subscriptions for
We distribute this proprietary market information to both
market participants and non-participants through a number of
proprietary products, including Nasdaq TotalView, our flagship
market depth quote product. TotalView shows subscribers
quotes, orders and total anonymous interest at every displayed
price level in The Nasdaq Stock Market for Nasdaq-listed
securities and critical data for the opening, closing, halt and IPO
crosses. We also offer TotalView products for our Nasdaq BX,
Nasdaq PSX, Nasdaq Fixed Income and other Nordic markets.
We operate several other proprietary services and data products
to provide market information, including Nasdaq Basic, a low
cost alternative to the industry Level 1 feed and Nasdaq Canada
Basic, a low cost alternative to other high priced data feeds. We
also provide various other data, including data relating to our
six U.S. options exchanges, Nordic and U.S. futures, Nordic
commodities, and U.S. Treasuries.
Our Market Data business also includes revenues from U.S.
tape plans. The plan administrators sell quotation and last sale
information for all transactions in Nasdaq-listed securities,
whether traded on The Nasdaq Stock Market or other
exchanges, to market participants and to data distributors, who
then provide the information to subscribers. After deducting
costs, the plan administrators distribute the tape revenues to the
respective plan participants based on a formula required by
Regulation NMS that takes into account both trading and
quoting activity.
The Nasdaq Nordic and Nasdaq Baltic exchanges, as well as
Nasdaq Commodities, also offer data products and services.
These data products and services provide critical market
transparency to professional and non-professional investors
who participate in European marketplaces and, at the same time,
give investors greater insight into these markets.
Much like the U.S. products, European data products and
services are based on trading information from the Nasdaq
Nordic and Nasdaq Baltic exchanges, as well as Nasdaq
Commodities, for the following classes of assets: cash equities,
bonds, derivatives and commodities. We provide varying levels
of quote and trade information to market participants and to
data distributors, who in turn provide subscriptions for this
information. Significant European data products include
Nordic Equity TotalView, Nordic Derivative TotalView, and
Nordic Fixed Income TotalView, Level 2 and Analytics.
Index
Our Index business develops and licenses Nasdaq-branded
indexes, associated derivatives, and financial products and also
provides custom calculation services for third-party clients.
License fees for our trademark licenses vary by product based
on a percentage of underlying assets, dollar value of a product
issuance, number of products or number of contracts traded.
We also license cash-settled options, futures and options on
futures on our indexes.
in AUM. This
for $233 billion
As of December 31, 2019, 332 ETPs listed in 20 countries and
on 24 different exchanges tracked a Nasdaq index and
accounted
includes
approximately $100 billion in ETP AUM that tracked our smart
beta indexes during this same time period, which accounted for
approximately 43% of the total ETP AUM tracking Nasdaq's
indexes. Our flagship index, the Nasdaq-100 Index, includes
the top 100 non-financial securities listed on The Nasdaq Stock
Market.
We provide index data products based on Nasdaq indexes. Index
data products include our Global Index Data Service, which
delivers real-time index values throughout the trading day, and
Global Index Watch/Global Index File Delivery Service, which
delivers daily as well as historical weightings and components
data, corporate actions and a breadth of additional data for our
more than 30,000 indexes that we operate.
Nasdaq Dorsey Wright, or NDW, provides passive indexing and
the financial advisor
to support
smart beta strategies
community, as well as Systematic Relative Strength strategies
to manage separately and unified managed accounts. NDW
strengthens Nasdaq’s position as a leading smart beta index
provider in the U.S.
Investment Data & Analytics
Our Investment Data & Analytics business provides asset
managers, investment consultants and asset owners with
information and analytics to facilitate better investment
decisions. Through eVestment, we provide a flexible suite of
cloud-based solutions to help the institutional investing
community identify and capitalize on global investment trends
and to select and monitor investment managers. eVestment’s
products also enable asset managers to market their funds
worldwide. Nasdaq Fund Network and Quandl are additional
components in our suite of investment data and analytics
offerings. Nasdaq Fund Network gathers and distributes daily
net asset values from approximately 35,000 funds and other
investment vehicles across North America. We have extended
Nasdaq Fund Network to support the distribution of collective
investment trusts, hedge funds, managed accounts, separate
accounts and demand deposit accounts. Quandl strengthens our
position as a leading source for financial, economic, and
alternative datasets. For hedge funds, investment banks and
other asset managers, we provide predictive insights to inform
investment decisions from discovered data.
Market Technology
Powering over 100 market infrastructure operators in more than
50 countries, our Market Technology business is a leading
global technology solutions provider and partner to exchanges,
clearing organizations, central
securities depositories,
regulators, banks, brokers, buy-side firms and corporate
businesses. Our solutions can handle a wide array of assets,
including but not limited to cash equities, equity derivatives,
currencies, various interest-bearing securities, commodities,
energy products and digital currencies. Our solutions can also
be used in the creation of new asset classes, and non-capital
6
markets customers, including those in insurance liabilities
securitization and digital advertising futures trading.
Nasdaq’s market technology is utilized by leading markets in
the U.S., Europe and Asia as well as emerging markets in the
Middle East, Latin America, and Africa. Additionally, more
than 160 market participants leverage our surveillance
technology globally to manage their integrity obligations and
assist them in complying with market rules, regulations and
internal market surveillance policies.
In January 2019, we bolstered our Market Technology business
by acquiring Cinnober, a major Swedish financial technology
provider to brokers, exchanges and clearinghouses worldwide
that provides technology solutions similar and complimentary
to our Market Technology business. This acquisition
strengthened our position as a leading market infrastructure
technology provider.
Market Infrastructure Operators (MIO) & New Markets
Portfolio
For MIOs, we provide and deliver mission-critical solutions
across the trade lifecycle via the NFF, which is our flexible and
modular architecture and technology that provides next
generation capital markets capabilities in an open and agile
environment. The NFF is designed to cover all aspects of a
market operator’s needs, from trading and clearing to risk
management, market surveillance, index development, data,
management, testing, and quality assurance. During 2019, we
continued to invest in the NFF by enabling emerging
technologies, including integrating technology for issuance and
settlement of securities, cloud-enabled trading and clearing, and
machine learning applications.
Our New Markets initiative is focused on extending the NFF’s
capabilities and our expertise as a market operator outside of
capital markets. Market Technology currently offers its services
to several digital assets exchanges, a commercial real estate
market, the reinsurance market, an airline derivatives market,
and several sports wagering operators.
Many MIO and New Markets projects involve complex
delivery management and systems integration. Through our
integration services, we can assume responsibility for projects
that involve migration to a new system and the establishment
of entirely new marketplaces. We also offer operation and
support for the applications, systems platforms, networks and
other components included in an information technology
solution, as well as advisory services.
Buy- and Sell-side Portfolio
We continue to expand the NFF offering to the global bank and
broker community. Regulatory pressure across multiple
jurisdictions has made outsourcing of front-office infrastructure
an attractive option for sell-side organizations and, as a result,
we offer trading and execution infrastructure for SIs, single-
dealer platforms and both multi-lateral and organized trading
facilities. Our execution platform business added four new
banks in 2019, in addition to the two global investment banks
that have been working with us since 2017.
We also continue to gain market share for our Nasdaq Trade
Surveillance solution, which is a managed service designed for
brokers and other market participants to assist them in
complying with market rules, regulations and internal market
surveillance policies. In addition, our products include Nasdaq
Risk, which is a suite of products that offer a real-time, multi-
tiered risk solution that integrates pre-, at- and on-trade risk
management, including margining.
Technology
Technology plays a key role in ensuring the growth, reliability
and regulation of financial markets. We have established a
technology risk program to evaluate the resiliency of critical
systems, including risks associated with cybersecurity. This
program is focused on (i) identifying areas for improvement in
systems and (ii) implementing changes and upgrades to
technology and processes to minimize future risk. We have
continued our focus on improving the security of our technology
with an emphasis on employee awareness through training,
targeted phishing campaigns, and new tool deployment for our
securities operations team. See “Item 1A. Risk Factors,” in this
Annual Report on Form 10-K for further discussion.
Core Technology. The NFF is Nasdaq’s approach to delivering
end-to-end solutions for market infrastructure operators, buy-
side firms, sell-side firms and other non-financial markets. The
framework consists of a single operational core platform that
ties together Nasdaq’s portfolio of functionality across the trade
in an open framework whereby exchanges,
lifecycle,
clearinghouses, central securities depositories, and other
entities can easily integrate Nasdaq’s business applications with
each other, as well as other third-party solutions. In addition to
being able to integrate a broad range of business functions, the
NFF enables end users to leverage recent technology
developments.
Competitive Strengths
We are a global technology company that in recent years,
through building on capital markets experience, technological
expertise, and a clear understanding of our clients’ needs, has
diversified its product and service offerings.
A Unique Value Proposition
We operate a diverse and resilient capital markets franchise with
a marketplace core. Our businesses provide capital-markets
infrastructure services to industry players, allowing us to:
• Develop efficient and reliable technologies to facilitate
capital markets activity;
• Manage the complexities and costs of business on a global
scale; and
•
Provide data, tools and insights that drive sound decision
making.
Technological Strength
We are living through a time where innovative technologies are
transforming financial services. We have come a long way in
trading since Nasdaq launched the first fully electronic
exchange in 1971 and we see forces accelerating that will bring
major changes to the capital markets. The strength and
resiliency of our technology, enhanced by our Market
Technology business, in meeting the advancing demands of our
global customer base is vital to the continued success of our
business and distinguishes us from our competitors.
A Focus on Client Needs Throughout the Marketplace
We strive to serve a diverse range of clients by:
• Brokers and Traders - Helping brokers and traders to
confidently plan, optimize and execute their business
vision.
• Market Participants - Enabling market participants to
monitor and capitalize on real-time market changes.
•
Investors and Asset Managers - Offering products and
services to assist investors and asset managers in
optimizing their portfolios and offerings.
• Listed Companies - Promoting the capital health of our
listed companies.
• Private Companies - Working with private companies to
meet liquidity needs, manage relationships with long-term
institutional investors and oversee their entire equity
program.
• Market Infrastructure Players - Assisting market
regulators,
infrastructure
clearinghouses, and central securities depositories) in
increasing efficiency, meeting customer needs and
growing revenue.
(exchanges,
players
• Capital-Markets - Delivering efficiencies
through
economies of scale (cost, speed, connectivity) to all
members of the capital-markets ecosystem.
Competition
Market Services
We face intense competition in North America and Europe in
businesses that comprise our Market Services segment. We seek
7
to provide market participants with greater functionality,
trading system stability, speed of execution, high levels of
customer service, and efficient pricing. In both North America
and Europe, our competitors include other exchange operators,
operators of non-exchange trading systems and banks and
brokerages that operate their own internal trading pools and
platforms.
In the U.S., our options markets compete with exchanges
operated by Cboe Global Markets, Inc., or Cboe, Miami
International Holdings, Inc., or Miami, and Intercontinental
Exchange, Inc., or ICE. In cash equities in the U.S., we compete
with exchanges operated by Cboe and ICE. New exchanges in
the U.S. have recently been launched or announced, including
one to be established by a group of our customers. We also face
competition from ATSs, known as “dark pools,” and other less-
heavily regulated broker-owned trade facilitation systems, as
well as from other types of OTC trading. In Canada, our cash
equities exchange competes with exchanges such as the Toronto
Stock Exchange, or TSX, and other marketplaces.
In Europe, our cash equities markets compete with exchanges
such as Cboe, Euronext N.V., Deutsche Börse A.G. and London
Stock Exchange Group plc, or LSE, and many MTFs such as
Turquoise. Our competitors in the trading and clearing of
options and futures on European equities include the Eurex
Group companies, or Eurex, Cboe, ICE Futures Europe and the
MTFs. In addition, in equities in Europe we face competition
from other broker-owned systems, dark pools, SIs, and other
types of OTC trading. Competition among exchanges for
trading European equity derivatives tends to occur where there
is competition in the trading of the underlying equities. In
addition to exchange-based competition, we face competition
from OTC derivative markets.
The implementation of MiFID II and MiFIR has resulted in
further competitive pressure on our European trading business.
MTFs and SIs are already attracting a significant share of
electronically matched volume. With
regulatory
environment likely to stay more favorable to alternative trading
venues, we expect such venues to compete aggressively for the
trading of equity securities listed on our Nordic exchanges.
Different bilateral trading systems pursuing block business also
remain active in Europe. As part of this, trading on SIs has
increased markedly as volumes migrate from more transparent
types of trading venues.
the
Our FICC business also operates in an intensely competitive
environment. Our trading platform for benchmark U.S.
treasuries faces competition from both long-established
competitors, such as CME Group Inc. (which recently acquired
BrokerTec) and newly emerging electronic and voice
brokerages, and the operating environment remains extremely
challenging. Our European fixed income and commodities
products and services are subject to relentless competitive
pressure from European exchanges and clearinghouses.
Our Trade Management Services business competes with other
exchange operators, extranet providers, and data center
providers.
Corporate Services
Our Listing Services business in both the U.S. and Europe
provides a means of facilitating capital formation through
public capital markets. There are competing ways of raising
capital, and we seek to demonstrate the benefits of listing shares
on an exchange. Our primary competitor for larger company
stock share listings in the U.S. is NYSE. The Nasdaq Stock
Market competes with local and international markets located
outside the U.S. for listings of equity securities of both U.S. and
non-U.S. companies that choose to list (or dual-list) outside of
their home country. For example, The Nasdaq Stock Market
competes for listings with exchanges in Europe and Asia, such
as LSE and The Stock Exchange of Hong Kong Limited.
The Listings Services business in Europe is characterized by a
large number of exchanges competing for new or secondary
listings. Each country has one or more national exchanges,
which are often the first choice of companies in each respective
country. For those considering an alternative, competing
European exchanges that frequently attract many listings from
outside their respective home countries include LSE, Euronext
N.V. and Deutsche Börse A.G. In addition to the larger
exchanges, companies seeking capital or liquidity from public
capital markets are able to raise capital without a regulated
market listing and can consider trading their shares on smaller
markets and quoting facilities.
In our Corporate Solutions business, competition is varied and
can be fragmented. For our Investor Relations Intelligence
business, there are many regional competitors and relatively
few global providers. Other exchange operators are partnering
with firms that have capabilities in this area and seeking to
acquire relevant assets in order to provide investor relations
services
listing services. The
competitive landscape for our Governance Solutions business
varies by customer sector and geography. Most participants
offer SaaS solutions that are supported by a data center strategy.
Some firms offer specialized services that focus on a single
niche sector. The larger players often offer additional services.
Customers frequently seek single-source providers that are able
to address a broad range of needs within a single platform.
to customers alongside
Information Services
Our Market Data business in the U.S. includes both proprietary
and consolidated data products. Proprietary data products are
made up exclusively of data derived from each exchange’s
systems. Consolidated data products are distributed by SEC-
mandated consolidators (one for Nasdaq-listed stocks and
another for NYSE and other-listed stocks) that share the revenue
among the exchanges that contribute data. In Europe, all data
products are proprietary, as there is no official data consolidator.
Competition in the data business is intense and is influenced by
rapidly changing technology and the creation of new product
and service offerings.
The sale of our proprietary data products in both the U.S. and
Europe is under competitive threat from alternative exchanges
and trading venues that offer similar products. Our data business
competes with other exchanges and third party vendors to
8
provide information to market participants. Examples of our
competitors in proprietary data products are ICE, Cboe, TSX,
and Dow Jones & Company.
The consolidated data business is under competitive pressure
from other securities exchanges that trade Nasdaq-listed
securities. In addition, The Nasdaq Stock Market similarly
competes for the tape fees from the sale of information on
securities listed on other markets.
Our Index business faces competition from providers of various
competing financial indexes. For example, there are a number
of indexes that aim to track the technology sector and thereby
compete with the Nasdaq-100 Index and the Nasdaq Composite
Index. We face competition from investment banks, dedicated
index providers, markets and other product developers.
Our Investment Data & Analytics business faces competition
from a broad array of data and analytics suppliers, both
established firms and small start-ups. Our primary competitors
are Morningstar, Factset, Mercer and any number of smaller
and
start-up
firms
aggregators. Additionally, other large providers to the financial
services industry, such as Bloomberg and Refinitiv, are believed
to be interested in pursuing certain aspects of the services we
provide.
along with
providers
data
Market Technology
Traditionally, exchanges and exchange-related businesses
technology, sometimes aided by
internally developed
consultants. However, over time this model has changed as
many operators have recognized the cost-savings made possible
by buying technology from third parties. As a result, two types
of competitors have emerged in our Market Technology
segment: exchange operators and technology providers
unaffiliated with exchanges. These organizations make
available a range of off-the-shelf technology, including trading,
clearing, market surveillance, settlement, depository and
information dissemination, and offer customization and
operation expertise. Market conditions in Market Technology
are evolving rapidly, which makes continuous investment and
innovation a necessity.
A wide range of providers compete with us in surveillance. In
surveillance, standardization of products and budget pressures
drive customers to focus on pricing.
Intellectual Property
We believe that our intellectual property assets are important
for maintaining the competitive differentiation of our products,
systems, software and services, enhancing our ability to access
technology of third parties and maximizing our return on
research and development investments.
To support our business objectives and benefit from our
investments in research and development, we actively create
and maintain a wide array of intellectual property assets,
including patents and patent applications related to our
innovations, products and services; trademarks related to our
brands, products and services; copyrights in software and
creative content; trade secrets; and through other intellectual
9
property rights, licenses of various kinds and contractual
provisions. We enter into confidentiality and invention
assignment agreements with our employees and contractors,
and utilize non-disclosure agreements with third parties with
whom we conduct business in order to secure and protect our
proprietary rights and to limit access to, and disclosure of, our
proprietary information.
We own, or have licensed, rights to trade names, trademarks,
domain names and service marks that we use in conjunction
with our operations and services. We have registered many of
our most important trademarks in the U.S. and in foreign
countries. For example, our primary “Nasdaq” mark is a
registered trademark that we actively seek to protect in the U.S.
and in over 50 other countries worldwide.
Over time, we have accumulated a robust portfolio of issued
patents in the U.S. and in many other jurisdictions across the
world. We currently hold rights to patents relating to certain
aspects of our products, systems, software and services, but we
primarily rely on the innovative skills, technical competence
and marketing abilities of our personnel. No single patent is in
itself core to the operations of Nasdaq or any of its principal
business areas.
Corporate Venture Practice
We operate a corporate venture program to make minority
investments primarily in emerging growth financial technology
companies that are strategically relevant to, and aligned with,
Nasdaq. Investments are made through the venture program to
further our organic research and development efforts and
accelerate the path to commercial viability. We expect that
capital invested will continue to be modest and will not have a
material impact on our consolidated financial statements,
existing capital return or deployment priorities. Since its
inception in 2017, our venture program has grown, with
aggregate initial and follow-on investments of approximately
$42 million in ten companies in various sectors, including data
and analytics, digital assets, market infrastructure, machine
intelligence and regulatory technology.
Environmental, Social and Governance Matters
Nasdaq is committed to long-term environmental, social and
governance, or ESG, advocacy, oversight, and philanthropy to
engage with stakeholders at all levels. During 2019, we
broadened our corporate and community ESG efforts, including
expanding ESG oversight of our own operations and furthering
our commitment to greater sustainability. We also expanded our
ESG services and solutions with new offerings for our clients,
including our Nasdaq Sustainable Bond Network, which
provides access to detailed information on sustainable, green
and social bonds and allows investors to obtain detailed
information on sustainable bonds for product due diligence,
selection and monitoring.
For more information regarding our ESG efforts, both internally
and externally, please see our Proxy Statement.
Regulation
We are subject to extensive regulation in the U.S., Canada and
Europe.
U.S. Regulation
U.S. federal securities laws establish a system of cooperative
regulation of securities markets, market participants and listed
companies. SROs conduct the day-to-day administration and
regulation of the nation’s securities markets under the close
supervision of, and subject to extensive regulation, oversight
and enforcement by, the SEC. SROs, such as national securities
exchanges, are registered with the SEC.
This regulatory framework applies to our U.S. business in the
following ways:
•
•
regulation of our registered national securities exchanges;
and
regulation of our U.S. broker-dealer and investment
advisor subsidiaries.
National Securities Exchanges. SROs in the securities industry
are an essential component of the regulatory scheme of the
Exchange Act for providing fair and orderly markets and
protecting investors. The Exchange Act and the rules
thereunder, as well as each SRO’s own rules, impose many
regulatory and operational responsibilities on SROs, including
the day-to-day responsibilities for market and broker-dealer
oversight. Moreover, an SRO is responsible for enforcing
compliance by its members, and persons associated with its
members, with the provisions of the Exchange Act, the rules
and regulations thereunder, and the rules of the SRO, including
rules and regulations governing the business conduct of its
members.
Nasdaq currently operates three cash equity, six options markets
and one corporate bond market in the U.S. We operate The
Nasdaq Stock Market, The Nasdaq Options Market and the
Corporate Bond Market pursuant to The Nasdaq Stock Market’s
SRO license; Nasdaq BX and Nasdaq BX Options pursuant to
Nasdaq BX’s SRO license; Nasdaq PSX and Nasdaq PHLX
pursuant to Nasdaq PHLX’s SRO license; and Nasdaq ISE,
Nasdaq GEMX and Nasdaq MRX, each of which operates an
options market under its own SRO license. As SROs, each entity
has separate rules pertaining to its broker-dealer members and
listed companies. Broker-dealers that choose to become
members of our exchanges are subject to the rules of those
exchanges.
All of our U.S. national securities exchanges are subject to SEC
oversight, as prescribed by the Exchange Act, including
periodic and special examinations by the SEC. Our exchanges
also are potentially subject to regulatory or legal action by the
SEC at any time in connection with alleged regulatory
violations. We have been subject to a number of routine reviews
and inspections by the SEC or external auditors in the ordinary
course, and we have been and may in the future be subject to
SEC enforcement proceedings. To the extent such actions or
reviews and inspections result in regulatory or other changes,
we may be required to modify the manner in which we conduct
our business, which may adversely affect our business.
Section 19 of the Exchange Act provides that our exchanges
must submit to the SEC proposed changes to any of the SROs’
rules, practices and procedures, including revisions to
provisions of our certificate of incorporation and by-laws that
constitute SRO rules. The SEC will typically publish such
proposed changes for public comment, following which the
SEC may approve or disapprove the proposal, as it deems
appropriate. SEC approval requires a finding by the SEC that
the proposal is consistent with the requirements of the Exchange
Act and the rules and regulations thereunder. Pursuant to the
requirements of the Exchange Act, our exchanges must file with
the SEC, among other things, all proposals to change their
pricing structure.
Nasdaq conducts real-time market monitoring, certain equity
surveillance not involving cross-market activity, most options
surveillance, rulemaking and membership functions through
our Nasdaq Regulation department. We review suspicious
trading behavior discovered by our regulatory staff, and
depending on the nature of the activity, may refer the activity
to FINRA for further investigation. Pursuant to regulatory
services agreements between FINRA and our SROs, FINRA
provides certain regulatory services to our markets, including
some regulation of trading activity and surveillance and
investigative functions. Our SROs retain ultimate regulatory
responsibility for all regulatory activities performed under
regulatory agreements by FINRA, and for fulfilling all
regulatory obligations for which FINRA does not have
responsibility under the regulatory services agreements.
In addition to its other SRO responsibilities, The Nasdaq Stock
Market, as a listing market, also is responsible for overseeing
each listed company’s compliance with The Nasdaq Stock
Market’s financial and corporate governance standards. Our
listing qualifications department evaluates applications
submitted by issuers interested in listing their securities on The
Nasdaq Stock Market to determine whether the quantitative and
qualitative listing standards have been satisfied. Once securities
are listed, the listing qualifications department monitors each
issuer’s on-going compliance with The Nasdaq Stock Market’s
continued listing standards.
Broker-dealer regulation. Nasdaq’s broker-dealer subsidiaries
are subject to regulation by the SEC, the SROs and various state
securities regulators. Nasdaq operates five broker-dealers:
Nasdaq Execution Services, LLC, Execution Access, LLC,
NPM Securities, SMTX, LLC, and Nasdaq Capital Markets
Advisory LLC. Each broker-dealer is registered with the SEC,
a member of FINRA and registered in the U.S. states and
territories required by the operation of its business.
Nasdaq Execution Services operates as our routing broker for
sending orders from Nasdaq's U.S. cash equity and options
exchanges to other venues for execution. SMTX acts as an
intermediary to facilitate closings of, and introduce prospective
accredited investors in connection with, private non-capital
raising transactions. Nasdaq Capital Markets Advisory acts as
10
a third-party advisor to privately-held or publicly-traded
companies during IPOs and various other offerings.
Two of our broker-dealers also are registered with the SEC as
an ATS. Execution Access operates as the broker-dealer for our
fixed income business, including as Nasdaq Fixed Income’s
registered ATS for U.S. Treasury securities. NPM Securities
operates an ATS that facilitates the purchase and sale of
ownership interests in primary and secondary transactions in
certain funds (both registered or not registered under the
Investment Company Act of 1940), business development
companies, certain closed end funds and private real estate
investment funds.
The SEC, FINRA and the exchanges adopt rules and examine
broker-dealers and require strict compliance with their rules and
regulations. The SEC, SROs and state securities commissions
may conduct administrative proceedings which can result in
censures, fines, the issuance of cease-and-desist orders or the
suspension or expulsion of a broker-dealer, its officers or
employees. The SEC and state regulators may also institute
proceedings against broker-dealers seeking an injunction or
other sanction. All broker-dealers have an SRO that is assigned
by the SEC as the broker-dealer’s Designated Examining
Authority. The Designated Examining Authority is responsible
for examining a broker-dealer for compliance with the SEC’s
financial responsibility rules. FINRA is the current Designated
Examining Authority for each of our broker-dealer subsidiaries.
Our registered broker-dealers are subject to regulatory
requirements intended to ensure their general financial
soundness and liquidity, which require that they comply with
certain minimum capital requirements. As of December 31,
2019, each of our broker-dealers were in compliance with all
of the applicable capital requirements.
Regulatory contractual relationships with FINRA. Our SROs
have signed a series of regulatory service agreements covering
the services FINRA provides to the respective SROs. Under
these agreements, FINRA personnel act as our agents in
performing the regulatory functions outlined above, and FINRA
bills us a fee for these services. These agreements have enabled
us to reduce our headcount while ensuring that the markets for
which we are responsible are properly regulated. However, we
have reduced the scope of services provided by FINRA under
these regulatory services agreements and are performing certain
of those regulatory functions directly. In addition, our SROs
retain ultimate regulatory responsibility for all regulatory
activities performed under these agreements by FINRA.
Exchange Act Rule 17d-2 permits SROs to enter into
agreements, commonly called Rule 17d-2 agreements,
approved by the SEC with respect to enforcement of common
rules relating to common members. Our SROs have entered
into several such agreements under which FINRA assumes
the
regulatory responsibility for specifics covered by
agreement, including:
•
agreements with FINRA covering the enforcement of
common rules, the majority of which relate to the
regulation of common members of our SROs and FINRA;
•
•
•
industry agreements with FINRA covering
joint
responsibility for enforcement of insider trading rules;
industry agreement with FINRA covering
joint
enforcement of rules related to cash equity sales practices
and certain other non-market related rules; and
joint industry agreement covering enforcement of rules
related to options sales practices.
Regulation NMS and Options Intermarket Linkage Plan. We
are subject to Regulation NMS for our cash equity markets, and
our options markets have joined the Options Intermarket
Linkage Plan. These are designed to facilitate the routing of
orders among exchanges to create a national market system as
mandated by the Exchange Act. One of the principal purposes
of a national market system is to assure that brokers may execute
investors’ orders at the best market price. Both Regulation NMS
and the Options Intermarket Linkage Plan require that
exchanges avoid trade-throughs, locking or crossing of markets
and provide market participants with electronic access to the
best prices among the markets for the applicable cash equity or
options order.
In addition, Regulation NMS requires that every national
securities exchange on which an NMS stock is traded and every
national securities association act jointly pursuant to one or
more national market system plans to disseminate consolidated
information, including a national best bid and national best
offer, on quotations for transactions in NMS stocks, and that
such plan or plans provide for the dissemination of all
consolidated information for an individual NMS stock through
a single plan processor.
The UTP Plan was filed with and approved by the SEC as a
national market system plan in accordance with the Exchange
Act and Regulation NMS to provide for the collection,
consolidation and dissemination of such information for
Nasdaq-listed securities. The Nasdaq Stock Market serves as
the processor for the UTP Plan pursuant to a contract that was
extended for a five-year term beginning in October 2015. The
Nasdaq Stock Market also serves as the administrator for the
UTP Plan. To fulfill its obligations as the processor, The Nasdaq
Stock Market has designed, implemented, maintained, and
operated a data processing and communications system,
hardware, software and communications infrastructure to
provide processing for the UTP Plan. As the administrator, The
Nasdaq Stock Market manages the distribution of market data,
the collection of the resulting market data revenue, and the
dissemination of that revenue to plan members in accordance
with the terms of the UTP Plan and of Regulation NMS.
Regulation SCI. Regulation SCI is a set of rules designed to
strengthen the technology infrastructure of the U.S. securities
markets. Regulation SCI applies to national securities
exchanges, operators of certain ATSs, market data information
providers and clearing agencies, subjecting these entities to
extensive new compliance obligations, with the goals of
reducing the occurrence of technical issues that disrupt the
securities markets and improving recovery time when
disruptions occur. We implemented an inter-disciplinary
11
program to ensure compliance with Regulation SCI. Regulation
SCI policies and procedures were created, internal policies and
procedures were updated, and an information technology
governance program was developed to ensure compliance.
Regulation of Registered Investment Advisor Subsidiary. Our
subsidiary NDW is an investment advisor registered with the
SEC under the Investment Advisors Act of 1940. In this
capacity, NDW is subject to oversight and inspections by the
SEC. Among other things, registered investment advisors like
NDW must comply with certain disclosure obligations,
advertising and fee restrictions and requirements relating to
client suitability and custody of funds and securities. Registered
investment advisors are also subject to anti-fraud provisions
under both federal and state law.
CFTC Regulation. We also operate NFX, a designated contract
market under the Commodity Exchange Act that is subject to
regulatory oversight by the CFTC, an independent agency with
the mandate to regulate commodity futures and options markets
in the U.S.
As a designated contract market, NFX is required to comply
with 23 Core Principles as set forth in Section 5(d) of the
Commodity Exchange Act and with Part 38 of the CFTC’s
regulations. NFX is also subject to the requirements of Part 40
of the CFTC’s regulations with respect to the adoption of new
rules or rule amendments and the listing of new products.
In November 2019, we entered into an agreement to sell the
core assets of our NFX platform to a third-party.
The Dodd-Frank Wall Street Reform and Consumer Protection
Act also has resulted in increased CFTC regulation of our use
of certain regulated derivatives products, as well as the
operations of some of our subsidiaries outside the U.S. and their
customers.
Canadian Regulation
Regulation of Nasdaq Canada is performed by the Canadian
Securities Administrators, an umbrella organization of
Canada’s provincial and territorial securities regulators. As a
recognized exchange in Ontario, Nasdaq Canada must comply
with the terms and conditions of its exchange recognition order.
While exempt from exchange recognition in each jurisdiction
in Canada other than Ontario where Nasdaq Canada carries on
business, Nasdaq must comply with the terms and conditions
of an exemption order granted by the other jurisdictions.
Oversight of the exchange is performed by Nasdaq Canada’s
lead
the Ontario Securities Commission.
Additionally, Nasdaq Fixed Income provides access to
Canadian-based “Permitted Clients” for trading non-Canadian
fixed income securities and is subject to Canadian securities
regulations in connection with providing these services.
regulator,
Nasdaq Canada is subject to several national marketplace
related instruments which set out requirements for marketplace
operations, trading rules and managing electronic trading risk.
Exchange terms and conditions include but are not limited to,
requirements for, governance, regulation, rules and rulemaking,
fair access, conflict management and financial viability.
European Regulation
Regulation of our markets in the European Union and the
European Economic Area focuses on matters relating to
financial services, listing and trading of securities, clearing and
settlement of securities and commodities as well as issues
related to market abuse.
In July 2016, the European Union’s Market Abuse Regulation,
which is intended to prevent market abuse, entered into force.
MiFID II and MiFIR entered into force in January 2018 and
primarily affect our European trading businesses. Many of the
provisions of MiFID II and MiFIR are implemented through
technical standards drafted by the European Securities and
Markets Authority and approved by the European Commission.
In addition, in 2016, the European Union adopted legislation
on governance and control of the production and use of
benchmark indexes. The Benchmark Regulation applies in the
European Union from early 2018. However, due to transitional
clauses in the Benchmark Regulation, Nasdaq as a benchmark
provider, did not need to be in compliance with the Benchmark
Regulation until January 1, 2020 in relation to benchmarks
provided by Nasdaq’s European subsidiaries, or until January
1, 2022, in relation to benchmarks provided by non-European
Nasdaq entities. As the regulatory environment continues to
evolve and related opportunities arise, we intend to continue
developing our products and services to ensure that the
exchanges and clearinghouses that comprise Nasdaq Nordic
and Nasdaq Baltic maintain favorable liquidity and offer fair
and efficient trading.
The entities that operate trading venues in the Nordic and Baltic
countries are each subject to local regulations. As a result, we
have a strong local presence in each jurisdiction in which we
operate regulated businesses. The regulated entities have
decision-making power and can adopt policies and procedures
and retain resources to manage all operations subject to their
license. In Sweden, general supervision of the Nasdaq
Stockholm exchange is carried out by the SFSA, while Nasdaq
Clearing’s role as CCP in the clearing of derivatives is
supervised by the SFSA and overseen by the Swedish central
bank (Riksbanken). Additionally, as a function of the Swedish
two-tier supervisory model, certain surveillance in relation to
the exchange market is carried out by the Nasdaq Stockholm
exchange, through its surveillance function.
Nasdaq Stockholm’s exchange activities are regulated
primarily by the SSMA, which implements MiFID II into
Swedish law and which sets up basic requirements regarding
the board of the exchange and its share capital, and which also
outlines the conditions on which exchange licenses are issued.
The SSMA also provides that any changes to the exchange’s
articles of association following initial registration must be
approved by the SFSA. Nasdaq Clearing holds the license as a
CCP under EMIR.
With respect to ongoing operations, the SSMA requires
exchanges to conduct their activities in an honest, fair and
professional manner, and in such a way as to maintain public
confidence in the securities markets. When operating a
regulated market, an exchange must apply the principles of free
12
access (i.e., that each person which meets the requirements
established by law and by the exchange may participate in
trading), neutrality (i.e., that the exchange’s rules for the
regulated market are applied in a consistent manner to all those
who participate in trading) and transparency (i.e., that the
participants must be given speedy, simultaneous and correct
information concerning trading and that the general public must
be given the opportunity to access this information).
Additionally, the exchange operator must identify and manage
the risks that may arise in its operations, use secure technical
systems and identify and handle the conflicts of interest that
may arise between the exchange or its owners’ interests and the
interest in safeguarding effective risk management and secure
technical systems. Similar requirements are set up by EMIR in
relation to clearing operations.
The SSMA also contains the framework for both the SFSA’s
supervisory work in relation to exchanges and clearinghouses
and the surveillance to be carried out by the exchanges
themselves. The latter includes the requirement that an
exchange should have “an independent surveillance function
with sufficient resources and powers to meet the exchange’s
obligations.” That requires the exchange to, among other things,
supervise trading and price information, compliance with laws,
regulations and good market practice, participant compliance
with
instrument
compliance with relevant listing rules and the extent to which
issuers meet their obligation to submit regular financial
information to relevant authorities.
trading participation
financial
rules,
The regulatory environment in the other Nordic and Baltic
countries in which a Nasdaq entity has a trading venue is broadly
similar to the regulatory environment in Sweden. Since 2005,
there has been cooperation between the supervisory authorities
in Sweden, Iceland, Denmark and Finland, which looks to
safeguard effective and comprehensive supervision of the
exchanges comprising Nasdaq Nordic and the systems operated
by it, and to ensure a common supervisory approach. In 2019,
the supervisory authority in Norway joined this cooperation.
We operate a licensed exchange, Nasdaq Oslo ASA, in Norway
that trades and lists commodity derivatives. Although Norway
is not a member of the EU, as a result of the European Economic
Area, or EEA, agreement (agreement on the EEA entered into
between the EU and European Free Trade Association) the
regulatory environment is broadly similar to what applies in EU
member states. In addition, in January 2019 new legislation
entered into force in Norway mirroring the provisions of MiFID
II and MIFIR. As a result, the regulatory environment in
Norway is similar to Sweden. The Norwegian FSA supervises
the Norwegian exchange on an autonomous basis and the
Norwegian exchange has a separate market surveillance
function overseen by the Norwegian FSA.
Confidence in capital markets is paramount for trading to
function properly. Nasdaq Nordic carries out market
surveillance through an independent unit that is separate from
the business operations. The surveillance work is conceptually
organized into two functions: one for the review and admission
of listing applications and surveillance activities related to
13
issuers (issuer surveillance) and one for surveillance of trading
(trading surveillance). The real-time trading surveillance for the
Finnish, Icelandic, Danish and Swedish markets has been
centralized to Stockholm. In addition, there are special
personnel who carry out surveillance activities at Nasdaq Oslo
and each of the three Baltic exchanges. In Finland and Sweden,
decisions to list new companies on the main market are made
by listing committees that have external members in addition
to members from each respective exchange and in the other
countries the decision is made by the respective president of
the exchange.
If there is suspicion that a listed company or member has acted
in breach of exchange regulations, the matter is handled by the
respective surveillance department. Serious breaches are
considered by the respective disciplinary committee in
Denmark, Finland, Iceland and Sweden. Suspected insider
trading is reported to the appropriate authorities in the
respective country.
In the United Kingdom, The Nasdaq Stock Market and Nasdaq
Oslo ASA are each subject to regulation by the Financial
Conduct Authority as “Recognised Overseas Investment
Exchanges.” Nasdaq Clearing is registered as a recognized third
country CCP with the Bank of England under the temporary
recognition regime. The registration will come into effect on
December 31, 2020, at the end of the Brexit implementation
period and last for three years. We will be applying for
permanent recognition within six months of the end of this
implementation period.
Employees
As of December 31, 2019, Nasdaq had 4,361 employees.
Nasdaq Website and Availability of SEC Filings
We file periodic reports, proxy statements and other information
with the SEC. The SEC maintains a website that contains
information statements, and other
reports, proxy and
information regarding issuers that file electronically with the
SEC. The address of that site is http://www.sec.gov.
Our website is http://ir.nasdaq.com. Information on our website
is not a part of this Form 10-K. We make available free of charge
on our website, or provide a link to, our Forms 10-K, Forms
10-Q and Forms 8-K and any amendments to these documents,
that are filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC.
To access these filings, go to Nasdaq’s website and click on
“Financials” then click on “SEC Filings.”
Item 1A. Risk Factors
The risks and uncertainties described below are not the only
ones facing us. Additional risks and uncertainties not presently
known to us or that we currently believe to be immaterial may
also adversely affect our business. If any of the following risks
actually occur, our business, financial condition, or operating
results could be adversely affected.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
The industries we operate in are highly competitive.
Economic conditions and market factors, which are beyond
our control, may adversely affect our business and financial
condition.
Our business performance is impacted by a number of factors,
including general economic conditions, market volatility,
changes in investment patterns and priorities, and other factors
that are generally beyond our control. To the extent that global
or national economic conditions weaken and result in slower
growth or recessions, our business is likely to be negatively
impacted. Adverse market conditions could reduce customer
demand for our services and the ability of our customers, lenders
and other counterparties to meet their obligations to us. Poor
economic conditions may result in a reduction in the demand
for our products and services, including our market technology,
data, indexes and corporate solutions, a decline in trading
volumes or values and deterioration of the economic welfare
of our listed companies.
Trading volumes and values are driven primarily by general
market conditions and declines in trading volumes or values
may affect our market share and impact our pricing. In addition,
our Market Services businesses receive revenues from a
relatively small number of customers concentrated in the
financial industry, so any event that impacts one or more
customers or the financial industry in general could impact our
revenues.
The number of listings on our markets is primarily influenced
by factors such as investor demand, the global economy,
available sources of financing, and tax and regulatory policies.
Adverse conditions may jeopardize the ability of our listed
companies to comply with the continued listing requirements
of our exchanges, or reduce the number of issuers launching
IPOs.
Information Services revenues may be significantly affected by
global economic conditions. Professional subscriptions to our
data products are at risk if staff reductions occur in financial
services companies or if our customers consolidate, which
could result in significant reductions in our professional user
revenue or expose us to increased risks relating to dependence
on a smaller number of customers. In addition, adverse market
conditions may cause reductions in the number of non-
professional investors with investments in the market and in
ETP AUM tracking Nasdaq indexes.
There may be less demand for our Corporate Solutions or
Market Technology products if global economic conditions are
weak. Our customers historically cut back on purchases of new
services and technology when growth rates decline, thereby
reducing our opportunities to sell new products and services or
upgrade existing products and services.
A reduction in trading volumes or values, market share of
trading, the number of our listed companies, or demand for
Information Services, Market Technology or Corporate
Services products and services due to economic conditions or
other market factors could adversely affect our business,
financial condition and operating results.
We face significant competition in our Market Technology,
Information Services and Corporate Services businesses from
other market participants. We face intense competition from
other exchanges and markets for market share of trading activity
and listings. This competition includes both product and price
competition.
The liberalization and globalization of world markets has
resulted in greater mobility of capital, greater international
participation in local markets and more competition. As a result,
both in the U.S. and in other countries, the competition among
exchanges and other execution venues has become more
intense. Marketplaces in both Europe and the U.S. have also
merged to achieve greater economies of scale and scope.
Regulatory changes also have facilitated the entry of new
participants in the European Union that compete with our
European markets. The regulatory environment, both in the
U.S. and in Europe, is structured to maintain this environment
of intense competition. In addition, a high proportion of
business in the securities markets is becoming concentrated in
a smaller number of institutions and our revenue may therefore
become concentrated in a smaller number of customers.
We also compete globally with other regulated exchanges and
markets, ATSs, MTFs and other traditional and non-traditional
execution venues. Some of these competitors also are our
customers. In addition, competitors recently have launched, or
announced a plan to launch, new exchanges in the U.S.,
including an exchange established by a group of our customers.
Competitors may develop market trading platforms that are
more competitive than ours. Competitors may leverage data
more effectively or enter into strategic partnerships, mergers or
acquisitions that could make their trading, listings, clearing,
data or technology businesses more competitive than ours.
We face intense price competition in all areas of our business.
In particular, the trading industry is characterized by price
competition. We have in the past lowered prices, and in the U.S.,
increased rebates for trade executions to attempt to gain or
maintain market share. These strategies have not always been
successful and have at times hurt operating performance.
Additionally, we have also been, and may once again be,
required to adjust pricing to respond to actions by competitors
and new entrants, which could adversely impact operating
results. We also compete with respect to the pricing of data
products and with respect to products for pre-trade book data
and for post-trade last sale data. In addition, pricing in our
Corporate Services, Indexes and Market Technology businesses
is subject to competitive pressures.
If we are unable to compete successfully in the industries in
which we do business, our business, financial condition and
operating results will be adversely affected.
System limitations or failures could harm our business.
Our businesses depend on the integrity and performance of the
technology, computer and communications systems supporting
them. If new systems fail to operate as intended or our existing
14
systems cannot expand to cope with increased demand or
otherwise fail to perform, we could experience unanticipated
disruptions in service, slower response times and delays in the
introduction of new products and services. These consequences
could result in service outages, lower trading volumes or values,
financial losses, decreased customer satisfaction and regulatory
sanctions. Our markets and the markets that rely on our
technology have experienced systems failures and delays in the
past and could experience future systems failures and delays.
Although we currently maintain and expect to maintain multiple
computer facilities that are designed to provide redundancy and
back-up to reduce the risk of system disruptions and have
facilities in place that are expected to maintain service during
a system disruption, such systems and facilities may prove
inadequate. If trading volumes increase unexpectedly or other
unanticipated events occur, we may need to expand and upgrade
our technology, transaction processing systems and network
infrastructure. We do not know whether we will be able to
accurately project the rate, timing or cost of any volume
increases, or expand and upgrade our systems and infrastructure
to accommodate any increases in a timely manner.
While we have programs in place to identify and minimize our
exposure to vulnerabilities and work in collaboration with the
technology industry to share corrective measures with our
business partners, we cannot guarantee that such events will not
occur in the future. Any system issue that causes an interruption
in services, decreases the responsiveness of our services or
otherwise affects our services could impair our reputation,
damage our brand name and negatively impact our business,
financial condition and operating results.
We must continue to introduce new products, initiatives and
enhancements to maintain our competitive position.
We intend to launch new products and initiatives and continue
to explore and pursue opportunities to strengthen our business
and grow our company. We may spend substantial time and
money developing new products, initiatives and enhancements
to existing products. If these products and initiatives are not
successful, we may not be able to offset their costs, which could
have an adverse effect on our business, financial condition and
operating results.
In our technology operations, we have invested substantial
amounts in the development of system platforms, the rollout of
our platforms and the adoption of new technologies. Although
investments are carefully planned, there can be no assurance
that the demand for such platforms or technologies will justify
the related investments. If we fail to generate adequate revenue
from planned system platforms or the adoption of new
technologies, or if we fail to do so within the envisioned
timeframe, it could have an adverse effect on our results of
operations and financial condition. In addition, clients may
in anticipation of new products or
delay purchases
enhancements. Additionally, it is also possible that we may
allocate significant amounts of cash and other resources to
product technologies or business models for which market
demand is lower than anticipated. In addition, the introduction
of new products by competitors, the emergence of new industry
15
standards or the development of entirely new technologies to
replace existing product offerings could render our existing or
future products obsolete.
A decline in trading and clearing volumes or values or market
share will decrease our trading and clearing revenues.
Trading and clearing volumes and values are directly affected
by economic, political and market conditions, broad trends in
business and finance, unforeseen market closures or other
disruptions in trading, the level and volatility of interest rates,
inflation, changes in price levels of securities and the overall
level of investor confidence. In recent years, trading and
clearing volumes and values across our markets have fluctuated
significantly depending on market conditions and other factors
beyond our control. Current initiatives being considered by
regulators and governments could have a material adverse effect
on overall trading and clearing volumes or values. Because a
significant percentage of our revenues is tied directly to the
volume or value of securities traded and cleared on our markets,
it is likely that a general decline in trading and clearing volumes
or values would lower revenues and may adversely affect our
operating results if we are unable to offset falling volumes or
values through pricing changes. Declines in trading and clearing
volumes or values may also impact our market share or pricing
structures and adversely affect our business and financial
condition.
If our total market share in securities decreases relative to our
competitors, our venues may be viewed as less attractive
sources of liquidity. If our exchanges are perceived to be less
liquid, then our business, financial condition and operating
results could be adversely affected.
Since some of our exchanges offer clearing services in addition
to trading services, a decline in market share of trading could
lead to a decline in clearing revenues. Declines in market share
also could result in issuers viewing the value of a listing on our
exchanges as less attractive, thereby adversely affecting our
listing business. Finally, declines in market share of Nasdaq-
listed securities, or new SEC rules and regulations, could lower
The Nasdaq Stock Market’s share of tape pool revenues under
the consolidated data plans, thereby reducing the revenues of
our Market Data business.
Our role in the global marketplace may place us at greater
risk for a cyberattack.
Our systems and operations are vulnerable to damage or
interruption from security breaches. Some of these threats
include attacks from foreign governments, hacktivists, insiders
and criminal organizations. Foreign governments may seek to
obtain a foothold in U.S. critical infrastructure, hacktivists may
seek to deploy denial of service attacks to bring attention to
their cause, insiders may pose a risk by human error or malicious
activity and criminal organizations may seek to profit from
stolen data. Computer viruses and worms also continue to be a
threat with ransomware increasingly being used by criminals
to extort money. Given our position in the global securities
industry, we may be more likely than other companies to be a
direct target, or an indirect casualty, of such events.
While we continue to employ resources to monitor our systems
and protect our infrastructure, these measures may prove
insufficient depending upon the attack or threat posed. Any
system issue, whether as a result of an intentional breach,
collateral damage from a new virus or a non-malicious act,
could damage our reputation and cause us to lose customers,
experience lower trading volumes or values, incur significant
liabilities or otherwise have a negative impact on our business,
financial condition and operating results. Any system breach
may go undetected for an extended period of time. As
cybersecurity threats continue to increase in frequency and
sophistication, and as the domestic and international regulatory
and compliance structure related to information security, data
privacy and data usage becomes increasingly complex and
exacting, we may be required to devote significant additional
resources to strengthen our cybersecurity capabilities, and to
identify and remediate any security vulnerabilities, which could
adversely impact our business, financial condition and
operating results.
The success of our business depends on our ability to keep up
with rapid technological and other competitive changes
affecting our industry. Specifically, we must complete
development of, successfully implement and maintain
platforms that have the functionality, performance, capacity,
reliability and speed required by our business and our
regulators, as well as by our customers.
technology, evolving
The markets in which we compete are characterized by rapidly
industry and regulatory
changing
standards, frequent enhancements to existing products and
services, the adoption of new services and products and
changing customer demands. We may not be able to keep up
with rapid technological and other competitive changes
affecting our industry. For example, we must continue to
enhance our platforms to remain competitive as well as to
address our regulatory responsibilities, and our business will
be negatively affected if our platforms or the technology
solutions we sell to our customers fail to function as expected.
If we are unable to develop our platforms to include other
products and markets, or if our platforms do not have the
required functionality, performance, capacity, reliability and
speed required by our business and our regulators, as well as
by our customers, we may not be able to compete successfully.
Further, our failure to anticipate or respond adequately to
changes in technology and customer preferences or any
significant delays in product development efforts, could have
a material adverse effect on our business, financial condition
and operating results.
Our clearinghouse operations expose us to risks, including
credit or liquidity risks that may include defaults by clearing
members, or insufficiencies in margins or default funds.
We are subject to risks relating to our operation of a
clearinghouse, including counterparty and liquidity risks, risk
of defaults by clearing members and risks associated with
adequacy of the customer margin and of default funds. Our
clearinghouse operations expose us to counterparties with
differing risk profiles. We may be adversely impacted by the
financial distress or failure of a clearing member, which may
cause us negative financial impact, reputational harm or
regulatory consequences, including litigation or regulatory
enforcement actions.
In September 2018, a member of the Nasdaq Clearing
commodities market defaulted due to an inability to post
sufficient collateral to cover increased margin requirements for
the positions of the relevant member. For further discussion of
the default, see Note 16, “Clearing Operations.” There are no
assurances that similar defaults will not occur again, which
could result in substantial expenses. To the extent that our
regulatory capital and risk management policies are not
adequate to manage future financial and operational risks in our
clearinghouse, we may experience adverse consequences to our
operating results or ability to conduct our business.
We are exposed to credit risk from third parties, including
customers, counterparties and clearing agents.
We are exposed to credit risk from third parties, including
customers, counterparties and clearing agents. These parties
may default on their obligations to us due to bankruptcy, lack
of liquidity, operational failure or other reasons.
We clear or stand as riskless principal to a range of equity-
related and
fixed-income-related derivative products,
commodities and resale and repurchase agreements. We assume
the counterparty risk for all transactions that are cleared through
our markets and guarantee that our cleared contracts will be
honored. We enforce minimum financial and operational
criteria for membership eligibility, require members and
investors to provide collateral, and maintain established risk
policies and procedures to ensure that the counterparty risks are
properly monitored and proactively managed; however, none
of these measures provides absolute assurance against
experiencing
from defaults by our
losses
counterparties on their obligations. No guarantee can be given
that the collateral provided will at all times be sufficient.
Although we maintain clearing capital resources to serve as an
additional layer of protection to help ensure that we are able to
meet our obligations, these resources may not be sufficient.
financial
In addition, one of our broker-dealer subsidiaries, Execution
Access, has a clearing arrangement with the Industrial and
Commercial Bank of China Financial Services LLC, or ICBC.
As of December 31, 2019, we have contributed $15 million of
clearing deposits to ICBC in connection with this clearing
arrangement. Some of the trading activity in Execution Access
is cleared by ICBC through the Fixed Income Clearing
Corporation. Execution Access assumes the counterparty risk
of clients that do not clear through the Fixed Income Clearing
Corporation. Counterparty risk of clients exists for Execution
Access between the trade date and settlement date of the
individual transactions, which is at least one business day (or
more, if specified by the U.S. Treasury issuance calendar).
Counterparties that do not clear through the Fixed Income
Clearing Corporation are subject to a credit due diligence
process and may be required to post collateral, provide principal
letters, or provide other forms of credit enhancement to
Execution Access for the purpose of mitigating counterparty
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risk. Daily position trading limits are also enforced for such
counterparties. Although we believe that the potential for us to
be required to make payments under these arrangements is
mitigated through the pledged collateral and our risk
management policies, no guarantee can be provided that these
arrangements will at all times be sufficient.
We also have credit risk related to transaction and subscription-
based revenues that are billed to customers on a monthly or
quarterly basis, in arrears.
Credit losses such as those described above could adversely
affect our consolidated financial position and results of
operations.
Technology issues relating to our role as exclusive processor
for Nasdaq-listed stocks could affect our business.
Nasdaq, as technology provider to the UTP Operating
Committee, has implemented measures to enhance the
resiliency of the existing processor system. Nasdaq transferred
the processor technology platform to our INET platform and
this migration further enhanced the resiliency of the processor
systems. We further improved the systems' resiliency by adding
the UTP SnapShot service. However, if despite these
improvement measures, future outages occur or the processor
systems fail to function properly while we are operating the
systems, it could have an adverse effect on our business,
reputation and financial condition.
Stagnation or decline in the listings market could have an
adverse effect on our revenues.
The market for listings is dependent on the prosperity of
companies and the availability of risk capital. A stagnation or
decline in the number of new listings on The Nasdaq Stock
Market and the Nasdaq Nordic and Nasdaq Baltic exchanges
could cause a decrease in revenues for future years.
Furthermore, a prolonged decrease in the number of listings
could negatively impact the growth of our transactions
revenues. Our Corporate Solutions business is also impacted
by declines in the listings market or increases in acquisitions
activity as there will be fewer publicly-traded customers that
need our products.
RISKS RELATED TO TRANSACTIONAL ACTIVITIES
AND STRATEGIC RELATIONSHIPS
We may not be able to successfully integrate acquired
businesses, which may result in an inability to realize the
anticipated benefits of our acquisitions.
We must rationalize, coordinate and integrate the operations of
our acquired businesses. This process involves complex
technological, operational and personnel-related challenges,
which are time-consuming and expensive and may disrupt our
business. The difficulties, costs and delays that could be
encountered may include:
•
difficulties, costs or complications in combining the
companies’ operations, including technology platforms,
which could lead to us not achieving the synergies we
anticipate or customers not renewing their contracts with
us as we migrate platforms;
incompatibility of systems and operating methods;
reliance on, or provision of, transition services;
inability to use capital assets efficiently to develop the
business of the combined company;
difficulties of complying with government-imposed
regulations in the U.S. and abroad, which may be
conflicting;
resolving possible inconsistencies in standards, controls,
procedures
and
compensation structures;
and policies, business
cultures
the diversion of management’s attention from ongoing
business concerns and other strategic opportunities;
difficulties in operating businesses we have not operated
before;
difficulties of integrating multiple acquired businesses
simultaneously;
the retention of key employees and management;
the implementation of disclosure controls, internal controls
and financial reporting systems at non-U.S. subsidiaries to
enable us to comply with U.S. GAAP and U.S. securities
laws and regulations, including the Sarbanes Oxley Act of
2002, required as a result of our status as a reporting
company under the Exchange Act;
the coordination of geographically separate organizations;
the coordination and consolidation of ongoing and future
research and development efforts;
possible tax costs or inefficiencies associated with
integrating the operations of a combined company;
pre-tax restructuring and revenue investment costs;
the retention of strategic partners and attracting new
strategic partners; and
negative impacts on employee morale and performance as
a result of job changes and reassignments.
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Foreign acquisitions involve risks in addition to those
mentioned above, including those related to integration of
operations across different cultures and languages, our ability
to enforce contracts in various jurisdictions, currency risks and
the particular economic, political and regulatory risks
associated with specific countries. We may not be able to
address these risks successfully, or at all, without incurring
significant costs, delays or other operating problems that could
disrupt our business and have a material adverse effect on our
financial condition.
For these reasons, we may not achieve the anticipated financial
and strategic benefits from our acquisitions and strategic
initiatives. Any actual cost savings and synergies may be lower
than we expect and may take a longer time to achieve than we
17
anticipate, and we may fail to realize the anticipated benefits
of acquisitions.
We may be required to recognize impairments of our goodwill,
intangible assets or other long-lived assets in the future.
Our business acquisitions typically result in the recording of
goodwill and intangible assets, and the recorded values of those
assets may become impaired in the future. As of December 31,
2019, goodwill totaled $6.4 billion and intangible assets, net of
accumulated amortization,
totaled $2.2 billion. The
determination of the value of such goodwill and intangible
assets requires management to make estimates and assumptions
that affect our consolidated financial statements.
We assess goodwill and intangible assets, as well as other long-
lived assets, including equity method investments, equity
securities, and property and equipment, for potential
impairment on an annual basis or more frequently if indicators
of impairment arise. We estimate the fair value of such assets
by assessing many factors, including historical performance
and projected cash flows. Considerable management judgment
is necessary to project future cash flows and evaluate the impact
of expected operating and macroeconomic changes on these
cash flows. The estimates and assumptions we use are consistent
with our internal planning process. However, there are inherent
uncertainties in these estimates.
There was no impairment of goodwill for the years ended
December 31, 2019, 2018 and 2017, and there were no
indefinite-lived intangible asset impairment charges in 2019,
2018 and 2017.
We may experience future events that may result in asset
impairments. Future disruptions to our business, prolonged
economic weakness or significant declines in operating results
at any of our reporting units or businesses, may result in
impairment charges to goodwill, intangible assets or other long-
lived assets. A significant impairment charge in the future could
have a material adverse effect on our operating results.
For additional discussion of our goodwill, indefinite-lived
intangible assets and other long-lived assets, including related
Impairment,”
see “Goodwill and Related
impairment,
“Indefinite-Lived Intangible Assets and Related Impairment,”
and “Other Long-Lived Assets and Related Impairment,” of
“Critical Accounting Policies and Estimates,” of Item 7.
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and “Goodwill and
Indefinite-Lived Intangible Assets,” and “Valuation of Other
Long-Lived Assets,” of Note 2, “Summary of Significant
Accounting Policies,” Note 6, “Goodwill and Acquired
Intangible Assets,” Note 7, “Investments,” and Note 8,
“Property and Equipment, net,” to the consolidated financial
statements.
Acquisitions, dispositions, investments, joint ventures and
other
transactional activities may require significant
resources and/or result in significant unanticipated losses,
costs or liabilities.
Over the past several years, acquisitions have been significant
factors in our growth. We also may divest additional businesses
or assets in the future. Although we cannot predict our
transactional activities with complete accuracy, we believe that
additional acquisitions, divestments,
joint
ventures and other transactional activities will be important to
our strategy. Such transactions may be material in size and
scope. Many of the other potential purchasers of assets in our
industry have greater financial resources than we have.
Therefore, we cannot be sure that we will be able to complete
future transactions on terms favorable to us.
investments,
We also invest in startups through our Nasdaq Venture program
and hold minority interests in other entities. Given the size of
these investments, we do not have operational control of these
entities and may have limited visibility into risk management
practices. Thus, we may be subject to additional capital
requirements in certain circumstances and financial and
reputational risks if there are operational failures.
shareholders.
We may finance future transactions by issuing additional equity
and/or debt. The issuance of additional equity in connection
with any such transaction could be substantially dilutive to
existing
In addition, announcement or
implementation of future transactions by us or others could have
a material effect on the price of our common stock. The issuance
of additional debt could increase our leverage substantially. We
could face financial risks associated with incurring additional
debt, particularly if the debt results in significant incremental
leverage. Additional debt may reduce our liquidity, curtail our
access to financing markets, impact our standing with credit
rating agencies and increase the cash flow required for debt
service. Any incremental debt incurred to finance a transaction
could also place significant constraints on the operation of our
business.
Furthermore, any future transactions could entail a number of
additional risks, including:
problems with effective integration of operations;
the inability to maintain key pre-transaction business
relationships;
increased operating costs;
the inability to meet our target for return on invested capital;
increased debt obligations, which may adversely affect our
targeted debt ratios;
risks to the continued achievement of our strategic
direction;
risks associated with divesting employees, customers or
vendors when divesting businesses or assets;
declines in the value of investments;
exposure to unanticipated liabilities;
difficulties in realizing projected efficiencies, synergies
and cost savings; and
changes in our credit rating and financing costs.
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Charges to earnings resulting from acquisition, integration
and restructuring costs may materially adversely affect the
market value of our common stock.
In accordance with U.S. GAAP, we account for the completion
of our acquisitions using the acquisition method of accounting.
We allocate the total estimated purchase price to net tangible
and identifiable intangible assets based on their fair values as
of the date of completion of the acquisition and record the excess
of the purchase price over those fair values as goodwill. Our
financial results, including earnings per share, could be
adversely affected by a number of financial adjustments
including the following:
• we may incur additional amortization expense over the
estimated useful lives of certain of the intangible assets
acquired in connection with acquisitions during such
estimated useful lives;
• we may have additional depreciation expense as a result of
recording acquired tangible assets at fair value, in
accordance with U.S. GAAP, as compared to book value
as recorded;
•
to the extent the value of goodwill or intangible assets
becomes impaired, we may be required to incur material
charges relating to the impairment of those assets;
• we may incur additional costs from integrating our
acquisitions. The success of our acquisitions depends, in
part, on our ability to integrate these businesses into our
existing operations and realize anticipated cost savings,
revenue synergies and growth opportunities; and
• we may incur restructuring costs in connection with the
reorganization of any of our businesses.
RISKS RELATED TO LEGAL AND REGULATORY
MATTERS
We operate in a highly regulated industry and may be subject
to censures, fines and enforcement proceedings if we fail to
comply with regulatory obligations that can be ambiguous
and can change unexpectedly.
We operate in a highly regulated industry and are subject to
extensive regulation in the U.S., Europe and Canada. The
securities trading industry is subject to significant regulatory
oversight and could be subject to increased governmental and
public scrutiny in the future that can change in response to
global conditions and events.
Our ability to comply with complex and changing regulation is
largely dependent on our establishment and maintenance of
compliance, audit and reporting systems that can quickly adapt
and respond, as well as our ability to attract and retain qualified
compliance and other risk management personnel. While we
have policies and procedures to identify, monitor and manage
our risks and regulatory obligations, we cannot assure you that
our policies and procedures will always be effective or that we
will always be successful in monitoring or evaluating the risks
to which we are or may be exposed.
Our regulated markets are subject to audits, investigations,
administrative proceedings and enforcement actions relating to
compliance with applicable rules and regulations. Regulators
have broad powers to impose fines, penalties or censure, issue
cease-and-desist orders, prohibit operations, revoke licenses or
registrations and impose other sanctions on our exchanges,
broker-dealers and markets for violations of applicable
requirements.
For example, during 2016, the SFSA and the other Nordic
financial supervisory authorities conducted investigations of
cybersecurity processes at our Nordic exchanges and
clearinghouse. In December 2016, we were issued a $6 million
fine by the SFSA as a result of findings in connection with its
investigation. The SFSA’s conclusions related to governance
issues rather than systems and platform security. We have
appealed this decision and the final outcome is still pending.
In the future, we could be subject to regulatory investigations
or enforcement proceedings that could result in substantial
sanctions, including revocation of our operating licenses. Any
such investigations or proceedings, whether successful or
unsuccessful, could result in substantial costs, the diversion of
resources, including management time, and potential harm to
our reputation, which could have a material adverse effect on
our business, results of operations or financial condition. In
addition, our exchanges could be required to modify or
restructure their regulatory functions in response to any changes
in the regulatory environment, or they may be required to rely
on third parties to perform regulatory and oversight functions,
each of which may require us to incur substantial expenses and
may harm our reputation if our regulatory services are deemed
inadequate.
The regulatory framework under which we operate and new
regulatory requirements or new interpretations of existing
regulatory requirements could require substantial time and
resources for compliance, which could make it difficult and
costly for us to operate our business.
Under current U.S. federal securities laws, changes in the rules
and operations of our securities markets, including our pricing
structure, must be reviewed and in many cases explicitly
approved by the SEC. The SEC may approve, disapprove, or
recommend changes to proposals that we submit. In addition,
the SEC may delay either the approval process or the initiation
of the public comment process. Favorable SEC rulings and
interpretations can be challenged in and reversed by federal
courts of appeals, reducing or eliminating the value of such
prior interpretations. NFX, our futures exchange, is also
regulated by the CFTC and subject to a requirement to self-
certify changes to these rules by filing with the CFTC. Any
delay in approving changes, or the altering of any proposed
change, could have an adverse effect on our business, financial
condition and operating results.
We must compete not only with ATSs that are not subject to the
same SEC approval process but also with other exchanges that
may have lower regulation and surveillance costs than us. There
is a risk that trading will shift to exchanges that charge lower
19
fees because, among other reasons, they spend significantly less
on regulation.
material adverse effect on our business, financial condition and
operating results.
required
In 2016, the SEC approved a plan for Nasdaq and other
exchanges to establish a CAT, to improve regulators’ ability to
monitor trading activity. In addition to increased regulatory
obligations, implementation of a consolidated audit trail has
resulted in significant additional expenditures, including to
implement the new technology to meet any plan’s requirements.
Creating CAT has
and
implementation of complex and costly technology. This
development effort has been funded by the SROs (including
Nasdaq) in exchange for promissory notes that Nasdaq expects
to be repaid at such time that the SEC approves the assessment
of fees for the funding of CAT. The SEC could determine not
to approve the assessment of such fees in which case some or
all of the promissory notes would not be repaid. In addition, the
ongoing failure to timely launch or properly operate such
technology exposes Nasdaq and other exchanges to SEC fines.
the development
In addition, our registered broker-dealer subsidiaries are subject
to regulation by the SEC, FINRA and other SROs. These
subsidiaries are subject to regulatory requirements intended to
ensure their general financial soundness and liquidity, which
require that they comply with certain minimum capital
requirements. The SEC and FINRA impose rules that require
notification when a broker-dealer’s net capital falls below
certain predefined criteria, dictate the ratio of debt to equity in
the regulatory capital composition of a broker-dealer and
constrain the ability of a broker-dealer to expand its business
under certain circumstances. Additionally, the SEC’s Uniform
Net Capital Rule and FINRA rules impose certain requirements
that may have the effect of prohibiting a broker-dealer from
distributing or withdrawing capital and requiring prior notice
to the SEC and FINRA for certain withdrawals of capital. Any
failure to comply with these broker-dealer regulations could
have a material adverse effect on the operation of our business,
financial condition and operating results.
Our non-U.S. business is subject to regulatory oversight in all
the countries in which we operate regulated businesses, such
as exchanges, clearinghouses or central securities depositories.
In these countries, we have received authorization from the
relevant authorities to conduct our regulated business activities.
The authorities may issue regulatory fines or may ultimately
revoke our authorizations if we do not suitably carry out our
regulated business activities. The authorities are also entitled
to request that we adopt measures in order to ensure that we
continue to fulfill the authorities’ requirements. Additionally,
we are subject to the obligations under Regulation (EU)
2016/1011, compliance with which could be costly or cause a
change in our business practices.
Furthermore, certain of our customers operate in a highly
regulated industry. Regulatory authorities could impose
regulatory changes that could impact the ability of our
customers to use our exchanges. The loss of a significant
number of customers or a reduction in trading activity on any
of our exchanges as a result of such changes could have a
Regulatory changes or future court rulings may have an
adverse impact on our revenue from proprietary data
products.
Regulatory and legal developments could reduce the amount of
revenue that we earn from our proprietary data products. In the
U.S., we generally are required to file with the SEC to establish
or modify the fees that we charge for our data products. In recent
years, certain industry groups have objected to the ability of
exchanges to charge for certain data products.
In October 2018, the SEC determined that we had not
established that a fee for one of our data products was fair and
reasonable, and also directed us to establish a procedure for
reviewing other challenged fees. We have appealed both SEC
actions to a federal appeals court. If the results of appeals, or
further actions by the SEC, are detrimental to our U.S.
exchanges’ ability to charge for data products, there could be a
negative impact on our revenues. We cannot predict whether,
or in what form, any regulatory changes will be implemented,
or their potential impact on our business. A determination by
the SEC, for example, to link data fees to marginal costs, to take
a more active role in the data rate-setting process, or to reduce
the current levels of data fees could have an adverse effect on
our market data revenues.
In Canada, all new marketplace fees and changes to existing
fees, including trading and data fees, must be filed with and
approved by the Ontario Securities Commission. The Canadian
Securities Administrators adopted a Data Fees Methodology
that restricts the total amount of fees that can be charged by all
marketplaces to a reference benchmark. Currently, all
marketplaces are subject to annual reviews of their market data
fees tying market data revenues to pre- and post- trade market
share metrics. Permitted fee ranges are based on an interim
domestic benchmark that is subject to change to an international
benchmark, which could lower the permitted fees charged by
marketplaces, which could adversely impact our revenues.
Our European exchanges currently offer data products to
customers on a non-discriminatory and reasonable commercial
basis. The MiFID II/MiFIR rules entail that the price for
regulated data such as pre- and post-trade data shall be based
on cost plus a reasonable margin. However, these terms are not
clearly defined. There is a risk that a different interpretation of
these terms may influence the fees for European data products
adversely. In addition, any future actions by European Union
institutions could affect our ability to offer data products in the
same manner as today, thereby causing an adverse effect on our
market data revenues.
Regulatory changes and changes in market structure could
have a material adverse effect on our business.
Regulatory changes adopted by the SEC or other regulators of
our markets, and regulatory changes that our markets may adopt
in fulfillment of their regulatory obligations, could materially
affect our business operations. In recent years, there has been
increased regulatory and governmental focus on issues
20
affecting the securities markets, including market structure,
technological oversight and transaction fees. The SEC, FINRA
and the national securities exchanges have introduced several
initiatives to ensure the oversight, integrity and resilience of
markets.
Industry responses to the MiFID II and MiFIR rules, EU
Benchmark Regulation or other applicable rules could affect
our operations in Europe. Changes to the rules themselves could
also affect our operations in Europe. In addition, actions on any
of the specific regulatory issues currently under review in the
U.S. and Europe could have a material impact on our business.
for
the
With respect to our regulated businesses, our business model
can be severely impacted by policy decisions. For example, the
SEC has proposed an exchange transaction fee pilot program
that could result in future regulatory changes and we, along with
other stock exchanges, have challenged the SEC's order
adopting the program in a court action. Similarly, the SEC has
proposed possible changes to the governance of securities
information processors as well as regulations to modify the
infrastructure
and
dissemination of market data for exchange-listed national
market stocks, that if approved, may or may not adversely affect
our revenues. Our opponents in some markets are larger and
better funded and, if successful in influencing certain policies,
may successfully advocate for positions that adversely impact
our business. While we support regulatory efforts to review and
improve the structure, resilience and integrity of the markets,
these proposed regulatory changes and future reforms could
impose significant costs, including litigation costs, and other
obligations on the operation of our exchanges and processor
systems and have other impacts on our business.
consolidation
collection,
We are subject to litigation risks and other liabilities.
Many aspects of our business potentially involve substantial
liability risks. Although under current law we are immune from
private suits arising from conduct within our regulatory
authority and from acts and forbearances incident to the exercise
of our regulatory authority, this immunity only covers certain
of our activities in the U.S., and we could be exposed to liability
under national and local laws, court decisions and rules and
regulations promulgated by regulatory agencies.
Some of our other liability risks arise under the laws and
regulations relating to the tax, employment, intellectual
property, anti-money laundering, technology export, foreign
asset controls, foreign corrupt practices, employee labor and
employment areas, including anti-discrimination and fair-pay
laws and regulations.
Liability could also result from disputes over the terms of a
trade, claims that a system failure or delay cost a customer
money, claims we entered into an unauthorized transaction or
claims that we provided materially false or misleading
statements in connection with a securities transaction. As we
intend to defend any such litigation actively, significant legal
expenses could be incurred. Although we carry insurance that
may limit our risk of damages in some cases, we still may sustain
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uncovered losses or losses in excess of available insurance that
would affect our financial condition and results of operations.
We have self-regulatory obligations and also operate for-
profit businesses, and these two roles may create conflicts of
interest.
We have obligations to regulate and monitor activities on our
markets and ensure compliance with applicable law and the
rules of our markets by market participants and listed
companies. In the U.S., some have expressed concern about
potential conflicts of interest of “for-profit” markets performing
the regulatory functions of an SRO. We perform regulatory
functions and bear regulatory responsibility related to our listed
companies and our markets. Any failure by us to diligently and
fairly regulate our markets or to otherwise fulfill our regulatory
obligations could significantly harm our reputation, prompt
SEC scrutiny and adversely affect our business and reputation.
Our Nordic and Baltic exchanges monitor trading and
compliance with listing standards in accordance with the
European Union’s Market Abuse Regulation and other
applicable laws. The prime objective of such monitoring
activities is to promote confidence in the exchanges among the
general public and to ensure fair and orderly functioning
markets. The monitoring functions within the Nasdaq Nordic
and Nasdaq Baltic exchanges are the responsibility of the
surveillance departments or other surveillance personnel. The
surveillance departments or personnel are
to
strengthen the integrity of and confidence in these exchanges
and to avoid conflicts of interest. Any failure to diligently and
fairly regulate the Nordic and Baltic exchanges could
significantly harm our reputation, prompt scrutiny from
regulators and adversely affect our business and reputation.
intended
Laws and regulations regarding the handling of personal data
and information may affect our services or result in increased
costs, legal claims or fines against us.
Our business relies on the processing of data in many
jurisdictions and the movement of data, including personal data,
across national borders. Legal and contractual requirements
relating to the collection, storage, handling, use, disclosure,
transfer and security of personal data continue to evolve;
regulatory scrutiny and customer requirements in this area are
increasing around the world. Significant uncertainty exists as
privacy and data protection laws may be interpreted and applied
differently across jurisdictions and may create inconsistent or
conflicting requirements with privacy and other laws to which
we are subject.
Recently effective laws such as the European Union General
Data Protection Regulation, or GDPR, and the California
Consumer Privacy Act, or CCPA, can have application and
effect beyond their territorial limits, and require companies to
meet new requirements regarding the handling of personal data.
In addition to directly applying to certain Nasdaq business
activities, these laws impact many of our customers, which may
affect their requirements and decisions related to services that
we offer. Although we have implemented a program to address
privacy requirements, our efforts to comply with GDPR, CCPA
and other privacy and data protection laws may entail
substantial expenses, may divert resources from other
initiatives and projects, and could impact the services that we
offer. Furthermore, enforcement actions and investigations by
regulatory authorities, as well as third party litigation, related
to data security incidents and privacy violations continue to
increase. The enactment of more restrictive laws, rules or
regulations, future enforcement actions or investigations, or the
creation of new rights to pursue damages could impact us
through increased costs or restrictions on our business, and
noncompliance could result in regulatory penalties and
significant legal liability.
Changes in tax laws, regulations or policies could have a
material adverse effect on our financial results.
Like other corporations, we are subject to taxes at the federal,
state and local levels, as well as in non-U.S. jurisdictions.
Changes in tax laws, regulations or policies could result in us
having to pay higher taxes, which may reduce our net income,
or could adversely affect our ability to continue our capital
allocation program or effect strategic transactions in a tax-
favorable manner. In addition, such changes may increase the
cost of our offerings, which may cause our clients to reduce
their use of our services.
In addition, some of our subsidiaries are subject to tax in the
jurisdictions in which they are organized or operate. In
computing our tax obligation in these jurisdictions, we take
various tax positions. We cannot assure you that upon review
of these positions the applicable authorities will agree with our
positions. A successful challenge by a tax authority could result
in additional taxes imposed on our clients or our subsidiaries.
RISKS RELATED TO LIQUIDITY AND CAPITAL
RESOURCES
Our credit rating could increase the cost of our funding from
the capital markets.
Our debt is currently rated investment grade by two of the major
rating agencies. These rating agencies regularly evaluate us,
and their ratings of our long-term debt and commercial paper
are based on a number of factors, including our financial
strength and corporate development activity, as well as factors
not entirely within our control, including conditions affecting
our industry generally. There can be no assurance that we will
maintain our current ratings. Our failure to maintain those
ratings could reduce or eliminate our ability to issue commercial
paper and adversely affect the cost and other terms upon which
we are able to obtain funding and increase our cost of capital.
A reduction in credit ratings would also result in increases in
the cost of our commercial paper and other outstanding debt as
the interest rate on the outstanding amounts under our credit
facilities and our senior notes fluctuates based on our credit
ratings.
Our leverage limits our financial flexibility, increases our
exposure to weakening economic conditions and may
adversely affect our ability to obtain additional financing.
Our indebtedness as of December 31, 2019 was $3.4 billion.
We may borrow additional amounts by utilizing available
liquidity under our existing credit facilities or issuing short-
through our
term, unsecured commercial paper notes
commercial paper program.
Our leverage could:
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reduce funds available to us for operations and general
corporate purposes or for capital expenditures as a result
of the dedication of a substantial portion of our
consolidated cash flow from operations to the payment of
principal and interest on our indebtedness;
increase our exposure to a continued downturn in general
economic conditions;
place us at a competitive disadvantage compared with our
competitors with less debt;
affect our ability to obtain additional financing in the future
for refinancing
indebtedness, acquisitions, working
capital, capital expenditures or other purposes; and
increase our cost of debt and reduce or eliminate our ability
to issue commercial paper.
In addition, we must comply with the covenants in our credit
facilities. Among other things, these covenants restrict our
ability to incur additional indebtedness, grant liens on assets,
dispose of assets and make certain restricted payments. Failure
to meet any of the covenant terms of our credit facilities could
result in an event of default. If an event of default occurs, and
we are unable to receive a waiver of default, our lenders may
increase our borrowing costs, restrict our ability to obtain
additional borrowings and accelerate all amounts outstanding.
We will need to invest in our operations to maintain and grow
our business and to integrate acquisitions, and we may need
additional funds, which may not be readily available.
We depend on the availability of adequate capital to maintain
and develop our business. Although we believe that we can meet
our current capital requirements from internally generated
funds, cash on hand and borrowings under our revolving credit
facility and commercial paper program, if the capital and credit
markets experience volatility, access to capital or credit may
not be available on terms acceptable to us or at all. Limited
access to capital or credit in the future could have an impact on
our ability to refinance debt, maintain our credit rating, meet
our regulatory capital requirements, engage in strategic
initiatives, make acquisitions or strategic investments in other
companies, pay dividends, repurchase our stock or react to
changing economic and business conditions. If we are unable
to fund our capital or credit requirements, it could have an
adverse effect on our business, financial condition and
operating results.
In addition to our debt obligations, we will need to continue to
invest in our operations for the foreseeable future to integrate
acquired businesses and to fund new initiatives. If we do not
achieve the expected operating results, we will need to
reallocate our cash resources. This may include borrowing
22
additional funds to service debt payments, which may impair
our ability to make investments in our business or to integrate
acquired businesses.
•
any misconduct, fraudulent activity or theft by our
employees or other persons formerly or currently
associated with us.
Should we need to raise funds through issuing additional equity,
our equity holders will suffer dilution. Should we need to raise
funds through incurring additional debt, we may become
subject to covenants even more restrictive than those contained
in our credit facilities, the indentures governing our notes and
our other debt instruments. Furthermore, if adverse economic
conditions occur, we could experience decreased revenues from
our operations which could affect our ability to satisfy financial
and other restrictive covenants to which we are subject under
our existing indebtedness.
RISKS RELATED TO INTELLECTUAL PROPERTY
AND BRAND REPUTATION
Damage to our reputation or brand name could have a
material adverse effect on our businesses.
One of our competitive strengths is our strong reputation and
brand name. Various issues may give rise to reputational risk,
including issues relating to:
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to maintain the security of our data and systems;
the quality and reliability of our technology platforms and
systems;
the ability to fulfill our regulatory obligations;
the ability to execute our business plan, key initiatives or
new business ventures and the ability to keep up with
changing customer demand;
the representation of our business in the media;
the accuracy of our financial statements and other financial
and statistical information;
the accuracy of our financial guidance or other information
provided to our investors;
the quality of our corporate governance structure;
the quality of our products, including the reliability of our
transaction-based, corporate solutions and market
technology products, the accuracy of the quote and trade
information provided by our Market Data business and the
accuracy of calculations used by our Indexes business for
indexes and unit investment trusts;
the quality of our disclosure controls or internal controls
over financial reporting, including any failures in
supervision;
extreme price volatility on our markets;
any negative publicity surrounding our listed companies;
any negative publicity surrounding the use of our products
and/or services by our customers, including in connection
with emerging asset classes such as crypto assets; and
Damage to our reputation could cause some issuers not to list
their securities on our exchanges, as well as reduce the trading
volumes or values on our exchanges or cause us to lose
customers in our Market Data, Indexes, Corporate Solutions or
Market Technology businesses. This, in turn, may have a
material adverse effect on our business, financial condition and
operating results.
Failure to protect our intellectual property rights, or
allegations that we have infringed on the intellectual property
rights of others, could harm our brand-building efforts and
ability to compete effectively.
To protect our intellectual property rights, we rely on a
combination of trademark laws, copyright laws, patent laws,
trade secret protection, confidentiality agreements and other
contractual arrangements with our affiliates, clients, strategic
partners, employees and others. However, the efforts we have
taken to protect our intellectual property and proprietary rights
might not be sufficient, or effective, at stopping unauthorized
use of those rights. We may be unable to detect the unauthorized
use of, or take appropriate steps to enforce, our intellectual
property rights.
We have registered, or applied to register, our trademarks in the
United States and in over 50 foreign jurisdictions and have
pending U.S. and foreign applications for other trademarks. We
also maintain copyright protection on our branded materials and
pursue patent protection for software products, inventions and
other processes developed by us. We also hold a number of
patents, patent applications and licenses in the United States
and other foreign jurisdictions. However, effective trademark,
copyright, patent and trade secret protection might not be
available or cost-effective in every country in which our
services and products are offered. Moreover, changes in patent
law, such as changes in the law regarding patentable subject
matter, could also impact our ability to obtain patent protection
for our innovations. In particular, amendments to the U.S. patent
law may affect our ability to protect and defend our innovations.
There is also a risk that the scope of protection under our patents
may not be sufficient in some cases, or that existing patents may
be deemed invalid or unenforceable. Failure to protect our
intellectual property adequately could harm our brand and affect
our ability to compete effectively. Further, defending our
intellectual property rights could result in the expenditure of
significant financial and managerial resources.
Third parties may assert intellectual property rights claims
against us, which may be costly to defend, could require the
payment of damages and could limit our ability to use certain
technologies, trademarks or other intellectual property. Any
intellectual property claims, with or without merit, could be
expensive to litigate or settle and could divert management
resources and attention. Successful challenges against us could
require us to modify or discontinue our use of technology or
business processes where such use is found to infringe or violate
the rights of others, or require us to purchase licenses from third
23
parties, any of which could adversely affect our business,
financial condition and operating results.
RISKS RELATED TO OUR OPERATIONS AND
COMMON STOCK
We are a holding company that depends on cash flow from
our subsidiaries to meet our obligations, and any restrictions
on our subsidiaries’ ability to pay dividends or make other
payments to us may have a material adverse effect on our
results of operations and financial condition.
As a holding company, we require dividends and other
payments from our subsidiaries to meet cash requirements.
Minimum capital requirements mandated by regulatory
authorities having jurisdiction over some of our regulated
subsidiaries indirectly restrict the amount of dividends paid
upstream.
In addition, unremitted earnings of certain subsidiaries outside
of the U.S. are used to finance our international operations and
are considered to be indefinitely reinvested.
If our subsidiaries are unable to pay dividends and make other
payments to us when needed, we may be unable to satisfy our
obligations, which would have a material adverse effect on our
business, financial condition and operating results.
We may experience fluctuations in our operating results,
which may adversely affect the market price of our common
stock.
Our industry is risky and unpredictable and is directly affected
by many national and international factors beyond our control,
including:
•
•
•
•
•
•
•
•
economic, political and geopolitical market conditions;
natural disasters, terrorism, pandemics, war or other
catastrophes;
broad trends in finance and technology;
changes in price levels and volatility in the stock markets;
the level and volatility of interest rates;
changes in government monetary or tax policy;
the perceived attractiveness of the U.S. or European capital
markets; and
inflation.
Any one of these factors could have a material adverse effect
on our business, financial condition and operating results by
causing a substantial decline in the financial services markets
and reducing trading volumes or values.
Additionally, since borrowings under our credit facilities bear
interest at variable rates and commercial paper is issued at
prevailing interest rates, any increase in interest rates on debt
that we have not fixed using interest rate hedges will increase
our interest expense, reduce our cash flow or increase the cost
of future borrowings or refinancings. Other than variable rate
debt, we believe our business has relatively large fixed costs
and low variable costs, which magnifies the impact of revenue
fluctuations on our operating results. As a result, a decline in
our revenue may lead to a relatively larger impact on operating
results. A substantial portion of our operating expenses is related
to personnel costs, regulation and corporate overhead, none of
which can be adjusted quickly and some of which cannot be
adjusted at all. Our operating expense levels are based on our
expectations for future revenue. If actual revenue is below
management’s expectations, or if our expenses increase before
revenues do, both revenues less transaction-based expenses and
operating results would be materially and adversely affected.
Because of these factors, it is possible that our operating results
or other operating metrics may fail to meet the expectations of
stock market analysts and investors. If this happens, the market
price of our common stock may be adversely affected.
We rely on third parties to perform certain functions, and our
business could be adversely affected if these third parties fail
to perform as expected.
We rely on third parties for regulatory, data center, data storage,
data content, clearing and other services. To the extent that any
of our vendors or other
third-party service providers
experiences difficulties, materially changes their business
relationship with us or is unable for any reason to perform their
obligations, our business or our reputation may be materially
adversely affected.
We also rely on members of our trading community to maintain
markets and add liquidity. To the extent that any of our largest
members experiences difficulties, materially changes its
business relationship with us or is unable for any reason to
perform market making activities, our business or our
reputation may be materially adversely affected.
Our operational processes are subject to the risk of error,
which may result in financial loss or reputational damage.
We have instituted extensive controls to reduce the risk of error
inherent in our operations; however, such risk cannot
completely be eliminated. Our businesses are highly dependent
on our ability to process and report, on a daily basis, a large
number of transactions across numerous and diverse markets.
Some of our operations require complex processes, and the
introduction of new products or services or changes in processes
or reporting due to regulatory requirements may result in an
increased risk of errors for a period after implementation.
Additionally, the likelihood of such errors or vulnerabilities is
heightened as we acquire new products from third parties,
whether as a result of acquisitions or otherwise.
Data, other content or information that we distribute may
contain errors or be delayed, causing reputational harm. Use of
our products and services as part of the investment process
creates the risk that clients, or the parties whose assets are
managed by our clients, may pursue claims against us in the
event of such delay or error. Even with a favorable outcome,
litigation against us might unduly burden
significant
management, personnel, financial and other resources.
In addition, the sophisticated software we sell to our customers
may contain undetected errors or vulnerabilities, some of which
may be discovered only after delivery, or could fail to perform
24
for critical business
its intended purpose. Because our clients depend on our
solutions
functions, any service
interruptions, failures or other issues may result in lost or
delayed market acceptance and lost sales, or negative customer
experiences that could damage our reputation, resulting in the
loss of customers, loss of revenues and liability for damages,
which may adversely affect our business and financial results.
Climate change may have a long-term adverse impact on our
business.
While we seek to mitigate our business risks associated with
climate change by establishing robust environmental and
sustainability programs, there are inherent climate related risks
wherever our business is conducted. There is an increased focus
from our investors, clients, employees, and other stakeholders
concerning corporate citizenship and sustainability matters.
Access to clean water and reliable energy in the communities
where we conduct our business, whether for our offices, data
centers, vendors, clients or other stakeholders, is a priority. For
example, changes in weather where we operate may increase
the costs of powering and cooling our data centers or the
facilities
to operate our exchanges and
clearinghouses, develop our products or provide cloud-based
services. Climate related events, including extreme weather
events and their impact on the critical infrastructure in the
United States and elsewhere, have the potential to disrupt our
business or the business of our clients, create adverse market
conditions, including trading volatility beyond historical levels,
and adversely affect our business, reputation, financial
condition and operating results.
that we use
Uncertainty relating to the effects of the United Kingdom’s
exit from the European Union could cause uncertainty and
adversely impact our business.
We continue to evaluate the potential effect of the United
Kingdom’s departure from the European Union (commonly
referred to as Brexit) on our business operations and financial
results. The withdrawal of the United Kingdom from
membership in the European Union may cause unfavorable
consequences, including a deterioration of general economic
conditions, increased costs from re-imposition of tariffs on trade
between the United Kingdom and the European Union and
increased volatility of foreign exchange rates. Brexit could
adversely affect political, regulatory, or trading conditions in
the United Kingdom and in Europe and it could contribute to
instability in global political institutions and regulatory
agencies. Brexit could also lead to legal uncertainty and
differing laws and regulations between the United Kingdom
and the European Union. Brexit may also have adverse tax
effects on movement of products or activities between the
United Kingdom and the European Union.
Currently, we do not anticipate that Brexit will have a material
impact on our operations or our financial results. While we have
operations in the United Kingdom, these operations are limited
in scope and not material to our overall business.
However, we may be impacted if our customers in the United
Kingdom are subject to additional costs or restrictions in
25
accessing our products or services. In addition, the overall
impact of Brexit may create further global economic
uncertainty, which may adversely impact the activities of our
customers.
Failure to attract and retain key personnel may adversely
affect our ability to conduct our business.
Our future success depends, in large part, upon our ability to
attract and retain highly qualified and skilled professional
personnel that can learn and embrace new technologies.
Competition for key personnel in the various localities and
business segments in which we operate is intense. Our ability
to attract and retain key personnel, in particular senior officers
or technology personnel, will be dependent on a number of
factors,
including prevailing market conditions and
compensation packages offered by companies competing for
the same talent. There is no guarantee that we will have the
continued service of key employees who we rely upon to
execute our business strategy and identify and pursue strategic
opportunities and initiatives. In particular, we may have to incur
costs to replace senior officers or other key employees who
leave, and our ability to execute our business strategy could be
impaired if we are unable to replace such persons in a timely
manner.
Our non-U.S. business operates in various international
markets, particularly emerging markets that are subject to
greater political, economic and social uncertainties than
developed countries.
Our non-U.S. business operates in various international
markets, including but not limited to Northern Europe, the
Baltics, the Middle East, Africa and Asia. Therefore, our non-
U.S. operations are subject to the risk inherent in the
international environment. Political, economic or social events
or developments in one or more of our non-U.S. locations could
adversely affect our operations and financial results. Some
locations, such as Lithuania, India and the Philippines, may
increase risk. Some of these economies may be subject to
greater political, economic and social uncertainties than
countries with more developed institutional structures.
Unforeseen or catastrophic events could interrupt our critical
business functions. In addition, our U.S. and European
businesses are heavily concentrated in particular areas and
may be adversely affected by events in those areas.
We may incur losses as a result of unforeseen or catastrophic
events, such as terrorist attacks, natural disasters, pandemic,
extreme weather, fire, power loss, telecommunications failures,
human error, theft, sabotage and vandalism. Given our position
in the global capital markets, we may be more likely than other
companies to be a target for malicious disruption activities.
In addition, our U.S. and European business operations are
heavily concentrated in the U.S. East Coast, and Stockholm
respectively. Any event that impacts either of those geographic
areas could potentially affect our ability to operate our
businesses.
We have disaster recovery and business continuity plans and
capabilities for critical systems and business functions to
mitigate the risk of an interruption. Any interruption in our
critical business functions or systems could negatively impact
our financial condition and operating results. For example,
some colocation customers may lack adequate disaster recovery
solutions to avoid loss of trade flow from a sustained
interruption of our critical systems.
Because we have operations in numerous countries, we are
exposed to currency risk.
board of directors may determine not to declare future dividends
at all or to declare future dividends at a reduced amount.
Accordingly, there can be no guarantee that we will pay future
dividends to our stockholders.
Provisions of our certificate of incorporation, by-laws,
exchange rules (including provisions included to address SEC
concerns) and governing law restrict the ownership and
voting of our common stock. In addition, such provisions
could delay or prevent a change in control of us and entrench
current management.
We have operations in the U.S., the Nordic and Baltic countries,
the United Kingdom, Australia and many other foreign
countries. We therefore have significant exposure to exchange
rate movements between the Euro, Swedish Krona and other
foreign currencies towards the U.S. dollar. Significant inflation
or disproportionate changes in foreign exchange rates with
respect to one or more of these currencies could occur as a result
of general economic conditions, acts of war or terrorism,
changes in governmental monetary or tax policy, changes in
local interest rates or other factors. These exchange rate
differences will affect the translation of our non-U.S. results of
operations, interest expense and financial condition into U.S.
dollars as part of the preparation of our consolidated financial
statements.
If our risk management methods are not effective, our
business, reputation and financial results may be adversely
affected.
We utilize widely-accepted methods to identify, assess, monitor
and manage our risks, including oversight of risk management
by Nasdaq’s Global Risk Management Committee, which
comprises senior executives and has responsibility for regularly
reviewing risks and referring significant risks to the board of
directors or specific board committees. By definition, some risk
management methods require subjective evaluation of dynamic
information regarding markets, customers or other matters.
That variable information may not in all cases be accurate,
complete, up-to-date or properly evaluated. If we do not
successfully identify, assess, monitor or manage the risks to
which we are exposed, our business, reputation, financial
condition and operating results could be materially adversely
affected.
Decisions to declare future dividends on our common stock
will be at the discretion of our board of directors based upon
a review of relevant considerations. Accordingly, there can be
no guarantee that we will pay future dividends to our
stockholders.
Our board of directors regularly declares quarterly cash
dividend payments on our outstanding common stock. Future
declarations of quarterly dividends and the establishment of
future record and payment dates are subject to approval by
Nasdaq’s board of directors. The board’s determination to
declare dividends will depend upon our profitability and
financial condition, contractual restrictions, restrictions
imposed by applicable law and other factors that the board
deems relevant. Based on an evaluation of these factors, the
26
Our organizational documents place restrictions on the voting
rights of certain stockholders. The holders of our common stock
are entitled to one vote per share on all matters to be voted upon
by the stockholders except that no person may exercise voting
rights in respect of any shares in excess of 5% of the then
outstanding shares of our common stock. Any change to the 5%
voting limitation would require SEC approval.
In response to the SEC’s concern about a concentration of our
ownership, the rules of some of our exchange subsidiaries
include a prohibition on any member or any person associated
with a member of the exchange from beneficially owning more
than 20% of our outstanding voting interests. SEC consent
would be required before any investor could obtain more than
a 20% voting interest in us. The rules of some of our exchange
subsidiaries also require the SEC’s approval of any business
ventures with exchange members, subject to exceptions.
Our organizational documents contain provisions that may be
deemed to have an anti-takeover effect and may delay, deter or
prevent a change of control of us, such as a tender offer or
takeover proposal that might result in a premium over the
market price for our common stock. Additionally, certain of
these provisions make it more difficult to bring about a change
in the composition of our board of directors, which could result
in entrenchment of current management.
Our certificate of incorporation and by-laws:
•
•
•
do not permit stockholders to act by written consent;
require certain advance notice for director nominations and
actions to be taken at annual meetings; and
authorize the issuance of undesignated preferred stock, or
“blank check” preferred stock, which could be issued by
our board of directors without stockholder approval.
Section 203 of the Delaware General Corporation Law imposes
restrictions on mergers and other business combinations
between us and any holder of 15% or more (or, in some cases,
a holder who previously held 15% or more) of our common
stock. In general, Delaware law prohibits a publicly held
corporation from engaging in a “business combination” with
an “interested stockholder” for three years after the stockholder
becomes an interested stockholder, unless the corporation’s
board of directors and stockholders approve the business
combination in a prescribed manner.
Finally, many of the European countries where we operate
regulated entities require prior governmental approval before
an investor acquires 10% or greater of our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We conduct our business operations in leased facilities. We do
not own any real property. Our U.S. headquarters are located
in New York, New York, and our European headquarters are
located in Stockholm, Sweden. We also lease space in multiple
locations around the world, which are used for research and
development, sales and support, and administrative activities,
as well as for data centers and disaster preparedness facilities.
Generally, our properties are not allocated for use by a particular
segment. Instead, most of our properties are used by two or
more segments. We believe the facilities that we occupy are
adequate for the purposes for which they are currently used and
are well-maintained.
Item 3. Legal Proceedings
See “Legal and Regulatory Matters - Litigation,” of Note 19,
the
“Commitments, Contingencies and Guarantees,”
to
consolidated financial statements, which is incorporated herein
by reference.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock is listed on The Nasdaq Stock Market under
the ticker symbol “NDAQ.” As of February 13, 2020, we had
approximately 235 holders of record of our common stock.
Issuer Purchases of Equity Securities
Share Repurchase Program
See “Share Repurchase Program,” of Note 13, “Nasdaq
Stockholders’ Equity,” to the consolidated financial statements
for further discussion of our share repurchase program.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
* * * * * *
The following table summarizes the share repurchase activity of our common stock during the fiscal quarter ended December 31,
2019:
Period
October 2019
Share repurchase program
Employee transactions(1)
November 2019
Share repurchase program
Employee transactions(1)
December 2019
Share repurchase program
Employee transactions(1)
Total Quarter Ended December 31, 2019
Share repurchase program
Employee transactions(1)
____________
(a) Total Number of
Shares Purchased
(b) Average Price
Paid Per Share
(c) Total Number of
Shares Purchased as Part
of Publicly Announced
Plans or Programs
(d) Maximum Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans or
Programs (in millions)
— $
12,578
$
— $
$
1,110
—
98.24
—
99.23
— $
—
58,749
$
106.72
— $
—
72,437
$
105.13
— $
N/A
— $
N/A
— $
N/A
— $
N/A
632
N/A
632
N/A
632
N/A
632
N/A
N/A Not applicable.
(1) Represents shares surrendered to us to satisfy tax withholding obligations arising from the vesting of restricted stock and
PSUs issued to employees.
27
The following graph compares the total return of our common stock to the Nasdaq Composite Index, the S&P 500 and a peer group
selected by us for the past five years. We changed our peer group in 2019 to include a broader set of global exchanges with sizable
market capitalization. The new peer group, collectively referred to as the 2019 peer group, is comprised of the following companies:
PERFORMANCE GRAPH
• ASX Limited
• B3 S.A.1
• Bolsas Mexicana de Valores, S.A.B.
de C.V.1
• Deutsche Börse AG
• Euronext N.V.1
• Hong Kong Exchanges and Clearing
Limited1
• LSE
• Singapore Exchange Limited1
• TMX Group Limited
2019 Peer Group
• Cboe
• CME Group Inc.
• ICE
• Japan Exchange Group, Inc1
1 Denotes company added to new peer group in 2019.
The old peer group, collectively referred to as the 2018 peer group, was comprised of the following companies:
• ASX Limited
• Cboe
• CME Group Inc.
2018 Peer Group
• Deutsche Börse AG
• ICE
• LSE
• TMX Group Limited
The figures represented below assume an initial investment of $100 in the common stock or index at the closing price on
December 31, 2014 and the reinvestment of all dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Nasdaq, Inc., the Nasdaq Composite Index, the S&P 500, and a Peer Group
* $100 invested on 12/31/2014 in stock or index, including reinvestment of dividends.
Nasdaq, Inc.
Nasdaq Composite Index
S&P 500
2019 Peer Group
2018 Peer Group
Fiscal Year Ended December 31,
2014
2015
2016
2017
2018
2019
$
$
100
100
100
100
100
$
123
107
101
113
113
$
145
116
114
125
130
$
169
151
138
168
175
$
183
147
132
180
195
245
200
174
231
252
Copyright© 2020 Standard & Poor's, a division of S&P Global. All rights reserved.
28
Item 6. Selected Financial Data
The following tables present selected financial data and should
be read in conjunction with the consolidated financial
statements and notes thereto of Nasdaq and Management’s
Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Form 10-K. We
completed our acquisition of Cinnober in January 2019 and
several acquisitions and divestitures during the years ended
2015 through 2019. The financial results of such acquisitions
are included in our consolidated financial statements from the
respective acquisition dates. On January 1, 2019, we adopted
ASU 2016-02, “Leases,” or ASU 2016-02, and elected the
optional transition method to initially apply the standard at the
January 1, 2019 adoption date. As a result, we applied the new
lease standard prospectively to our leases existing or
commencing on or after January 1, 2019. Comparative periods
presented were not restated upon adoption. On January 1, 2018,
we adopted ASU 2014-09, “Revenue from Contracts with
Customers (Topic 606),” using the full retrospective method
which required restatement of our 2017 and 2016 financial
statements.
Selected Financial Data
2019
2018
2017
2016
2015
(in millions, except share and per share amounts)
Year Ended December 31,
$
4,262
(1,727)
$
4,277
(1,751)
$
3,948
(1,537)
$
3,704
(1,428)
3,403
(1,313)
2,535
1,518
1,017
774
4.69
4.63
1.85
$
$
$
2,526
1,498
1,028
458
2.77
2.73
1.70
$
$
$
2,411
1,420
991
729
4.38
4.30
1.46
$
$
$
2,276
1,440
836
106
0.64
0.63
1.21
$
$
$
2,090
1,370
720
428
2.56
2.50
0.90
Statements of Income Data:
Total revenues
Transaction-based expenses
Revenues less transaction-based
expenses
Total operating expenses
Operating income
Net income attributable to Nasdaq
Per share information:
Basic earnings per share
Diluted earnings per share
Cash dividends declared per common
share
Weighted-average common shares
outstanding for earnings per share:
$
$
$
$
Basic
Diluted
164,931,628
166,970,161
165,349,471
167,691,299
166,364,299
169,585,031
165,182,290
168,800,997
167,285,450
171,283,271
Balance Sheets Data:
Cash and cash equivalents and financial investments
Default funds and margin deposits
Goodwill
Total assets
Long-term debt
Total Nasdaq stockholders' equity
2019
2018
December 31,
2017
(in millions)
2016
2015
$
$
623
2,996
6,366
13,924
2,996
5,639
$
813
4,742
6,363
15,700
2,956
5,449
$
$
612
3,988
6,586
15,354
3,727
5,880
648
3,301
6,027
13,411
3,603
5,428
502
2,228
5,395
11,257
2,364
5,609
29
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis of the financial condition
and results of operations of Nasdaq should be read in
conjunction with our consolidated financial statements and
related notes included in this Form 10-K, as well as the
discussion under “Item 1A. Risk Factors.” For further
discussion of our growth strategy, products and services, and
competitive strengths, see “Item 1. Business.” Unless stated
otherwise, the comparisons presented in this discussion and
analysis refer to the year-over-year comparison of changes in
our financial condition and results of operations as of and for
the fiscal years ended December 31, 2019 and December 31,
2018. Discussion of fiscal year 2017 items and the year-over-
year comparison of changes in our financial condition and
results of operations as of and for the fiscal years ended
December 31, 2018 and December 31, 2017 can be found in
Part II, “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of our Annual
Report on Form 10-K for the fiscal year ended December 31,
2018, which was previously filed with the SEC on February 22,
2019.
Business Segments
We manage, operate and provide our products and services in
four business segments: Market Services, Corporate Services,
Information Services and Market Technology. See Note 1,
“Organization and Nature of Operations,” and Note 20,
“Business Segments,” to the consolidated financial statements
for further discussion of our reportable segments and
geographic data, as well as how management allocates
resources, assesses performance and manages these businesses
as four separate segments.
Sources of Revenues and Transaction-Based Expenses
See “Revenue Recognition and Transaction-Based Expenses,”
of Note 2, “Summary of Significant Accounting Policies,” to
the consolidated financial statements for further discussion of
our sources of revenues and transaction-based expenses.
30
Nasdaq’s Operating Results
Key Drivers
The following table includes key drivers for our Market Services, Corporate Services, Information Services and Market Technology
segments. In evaluating the performance of our business, our senior management closely evaluates these key drivers.
Market Services
Equity Derivative Trading and Clearing
U.S. equity options
Total industry average daily volume (in millions)
Nasdaq PHLX matched market share
The Nasdaq Options Market matched market share
Nasdaq BX Options matched market share
Nasdaq ISE Options matched market share
Nasdaq GEMX Options matched market share
Nasdaq MRX Options matched market share
Total matched market share executed on Nasdaq’s exchanges
Nasdaq Nordic and Nasdaq Baltic options and futures
Total average daily volume of options and futures contracts(1)
Cash Equity Trading
Total U.S.-listed securities
Total industry average daily share volume (in billions)
Matched share volume (in billions)
The Nasdaq Stock Market matched market share
Nasdaq BX matched market share
Nasdaq PSX matched market share
Total matched market share executed on Nasdaq’s exchanges
Market share reported to the FINRA/Nasdaq Trade Reporting Facility
Total market share(2)
Nasdaq Nordic and Nasdaq Baltic securities
Average daily number of equity trades executed on Nasdaq’s exchanges
Total average daily value of shares traded (in billions)
Total market share executed on Nasdaq’s exchanges
FICC
Fixed Income
U.S. fixed income volume ($ billions traded)
Total average daily volume of Nasdaq Nordic and Nasdaq Baltic fixed income
contracts
Commodities
Power contracts cleared (TWh)(3)
Corporate Services
IPOs
The Nasdaq Stock Market
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic
Total new listings
The Nasdaq Stock Market(4)
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic(5)
Number of listed companies
The Nasdaq Stock Market(6)
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic(7)
Information Services
Number of licensed ETPs
ETP AUM tracking Nasdaq indexes (in billions)
Market Technology
Order intake (in millions)(8)
Annualized recurring revenue, or ARR, (in millions)(9)
31
Year Ended December 31,
2019
2018
2017
17.5
15.9%
8.8%
0.2%
9.0%
4.2%
0.2%
38.3%
18.2
15.7%
9.4%
0.4%
8.8%
4.5%
0.1%
38.9%
14.7
17.3%
9.2%
0.7%
9.1%
5.2%
0.1%
41.6%
366,289
339,139
330,218
7.03
348.1
17.2%
1.7%
0.7%
19.6%
29.8%
49.4%
7.32
358.5
15.9%
2.8%
0.8%
19.5%
31.3%
50.8%
6.53
295.9
14.2%
3.1%
0.8%
18.1%
34.5%
52.6%
$
590,705
4.5
70.9%
$
618,579
5.6
67.0%
$
552,104
5.3
67.5%
$ 10,465
$ 15,983
$ 17,800
112,738
132,475
116,357
842
1,067
1,199
188
34
313
53
3,140
1,040
332
233
366
260
186
53
303
72
3,058
1,019
365
172
223
222
$
$
$
$
$
$
136
88
268
108
2,949
984
324
167
249
205
$
$
$
____________
(1)
(2)
Includes Finnish option contracts traded on Eurex.
Includes transactions executed on The Nasdaq Stock Market’s, Nasdaq BX’s and Nasdaq PSX’s systems plus trades reported
through the FINRA/Nasdaq Trade Reporting Facility.
(3) Transactions executed on Nasdaq Commodities or OTC and reported for clearing to Nasdaq Commodities measured by
Terawatt hours (TWh).
(4) New listings include IPOs, including those completed on a best efforts basis, issuers that switched from other listing venues,
closed-end funds and separately listed ETPs.
(5) New listings include IPOs and represent companies listed on the Nasdaq Nordic and Nasdaq Baltic exchanges and companies
on the alternative markets of Nasdaq First North.
(6) Number of total listings on The Nasdaq Stock Market at period end, including 412 ETPs as of December 31, 2019, 392 as of
December 31, 2018 and 373 as of December 31, 2017.
(7) Represents companies listed on the Nasdaq Nordic and Nasdaq Baltic exchanges and companies on the alternative markets
of Nasdaq First North.
(8) Total contract value of orders signed during the period.
(9) ARR is the annualized fourth quarter revenue of Market Technology support and SaaS subscription contracts. ARR is currently
one of our key performance metrics to assess the health and trajectory of our business. ARR does not have any standardized
definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should
be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those
items. ARR is not a forecast and the active contracts during the reporting period used in calculating ARR may or may not be
extended or renewed by our customers.
Financial Summary
* * * * * *
The following table summarizes our financial performance for the year ended December 31, 2019 when compared with the same
period in 2018 and for the year ended December 31, 2018 when compared with the same period in 2017. The comparability of
our results of operations between reported periods is impacted by our acquisition of Cinnober in January 2019, the divestiture of
the BWise enterprise governance, risk and compliance software platform in March 2019, the divestiture of the Public Relations
Solutions and Digital Media Services businesses in April 2018, and an increase in net income from unconsolidated investees. See
Note 4, “Acquisitions and Divestitures,” and “Equity Method Investments,” of Note 7, “Investments,” to the consolidated financial
statements for further discussion of these transactions. For a detailed discussion of our results of operations, see “Segment Operating
Results” below.
Year Ended December 31,
Percentage Change
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
(in millions, except per share amounts)
Revenues less transaction-based expenses
$
2,535
$
2,526
$
2,411
Operating expenses
Operating income
Interest expense
Gain on sale of investment security
Net gain on divestiture of businesses
Net income from unconsolidated investees
Income before income taxes
Income tax provision
Net income attributable to Nasdaq
Diluted earnings per share
Cash dividends declared per common share
_______
N/M
Not meaningful.
1,518
1,017
(124)
—
27
84
1,498
1,028
(150)
118
33
18
1,019
1,064
245
774
4.63
1.85
$
$
$
606
458
2.73
1.70
$
$
$
$
$
$
1,420
991
(143)
—
15
872
143
729
4.30
1.46
— (100.0)%
0.4 %
1.3 %
(1.1)%
(17.3)%
(18.2)%
366.7 %
(4.2)%
4.8 %
5.5 %
3.7 %
4.9 %
N/M
N/M
20.0 %
22.0 %
(59.6)% 323.8 %
69.0 %
69.6 %
8.8 %
(37.2)%
(36.5)%
16.4 %
In countries with currencies other than the U.S. dollar, revenues and expenses are translated using monthly average exchange rates.
Impacts on our revenues less transaction-based expenses and operating income associated with fluctuations in foreign currency
are discussed in more detail under “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.”
32
Segment Operating Results
The following table shows our revenues by segment, transaction-based expenses for our Market Services segment and total revenues
less transaction-based expenses:
Market Services
Transaction-based expenses
Market Services revenues less transaction-based expenses
Corporate Services
Information Services
Market Technology
Other revenues(1)
Total revenues less transaction-based expenses
Year Ended December 31,
Percentage Change
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
(in millions)
$
$
2,639
(1,727)
912
$
2,709
(1,751)
958
2,418
(1,537)
881
496
779
338
10
487
714
270
97
459
588
247
236
(2.6)%
(1.4)%
(4.8)%
1.8 %
9.1 %
25.2 %
12.0 %
13.9 %
8.7 %
6.1 %
21.4 %
9.3 %
(89.7)%
(58.9)%
$
2,535
$
2,526
$
2,411
0.4 %
4.8 %
____________
(1)
Includes the revenues from the BWise enterprise governance, risk and compliance software platform which was sold in March
2019 and the Public Relations Solutions and Digital Media Services businesses which were sold in April 2018. Prior to the
sale dates, these revenues were included in our Corporate Solutions business within our Corporate Services segment. See
“2019 Divestitures,” and “2018 Divestiture,” of Note 4, “Acquisitions and Divestitures,” to the consolidated financial
statements for further discussion.
The following charts show our Market Services, Corporate Services, Information Services, and Market Technology segments as
a percentage of our total revenues less transaction-based expenses of $2,535 million in 2019, $2,526 million in 2018 and $2,411
million in 2017:
33
34
MARKET SERVICES
The following table shows total revenues, transaction-based expenses, and total revenues less transaction-based expenses from
our Market Services segment:
Market Services Revenues:
Equity Derivative Trading and Clearing Revenues(1)
Transaction-based expenses:
Transaction rebates
Brokerage, clearance and exchange fees(1)
Equity derivative trading and clearing revenues
less transaction-based expenses
Cash Equity Trading Revenues(2)
Transaction-based expenses:
Transaction rebates
Brokerage, clearance and exchange fees(2)
Cash equity trading revenues less transaction-
based expenses
FICC Revenues
Transaction-based expenses:
Transaction rebates
Brokerage, clearance and exchange fees
FICC revenues less transaction-based expenses
Year Ended December 31,
Percentage Change
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
(in millions)
$
816
$
849
$
752
(3.9 )%
12.9 %
(477)
(47)
292
(506)
(44)
299
(450)
(43)
(5.7 )%
6.8 %
12.4 %
2.3 %
259
(2.3)%
15.4 %
1,462
1,476
1,279
(0.9 )%
15.4 %
(847)
(352)
263
70
(3)
(1)
66
(830)
(361)
285
92
(8)
(2)
82
(692)
(334)
2.0 %
(2.5 )%
19.9 %
8.1 %
253
(7.7)%
12.6 %
96
(23.9 )%
(4.2)%
(16)
(2)
78
291
881
(62.5 )%
(50.0 )%
(19.5)%
(0.3)%
(50.0)%
— %
5.1 %
0.3 %
(4.8)%
8.7 %
Trade Management Services Revenues
291
292
Total Market Services revenues less transaction-
based expenses
$
912
$
958
$
____________
(1)
(2)
Includes Section 31 fees of $43 million in 2019, $39 million in 2018, and $40 million in 2017. Section 31 fees are recorded
as equity derivative trading and clearing revenues with a corresponding amount recorded in transaction-based expenses.
Includes Section 31 fees of $337 million in 2019, $343 million in 2018, and $319 million in 2017. Section 31 fees are recorded
as cash equity trading revenues with a corresponding amount recorded in transaction-based expenses.
Equity Derivative Trading and Clearing Revenues
Equity derivative trading and clearing revenues and equity
derivative trading and clearing revenues less transaction-based
expenses decreased in 2019 compared with 2018, reflecting in
large part a significantly lower volume and volatility market
environment in the U.S. as compared to 2018. The decrease in
equity derivative trading and clearing revenues in 2019 was
primarily due to lower U.S. industry trading volumes and lower
overall U.S. matched market share executed on Nasdaq's
exchanges, partially offset by a higher U.S. gross capture rate
and higher Section 31 pass-through fee revenue. The decrease
in equity derivative trading and clearing revenues less
transaction-based expenses in 2019 was primarily due to lower
U.S. industry trading volumes and lower overall U.S. matched
market share executed on Nasdaq's exchanges, partially offset
by a higher U.S. net capture rate. The decreases in equity
derivative trading and clearing revenues and equity derivative
trading and clearing revenues less transaction-based expenses
also included an unfavorable impact from foreign exchange of
$3 million related to Nasdaq's Nordic exchanges.
Section 31 fees are recorded as equity derivative trading and
clearing revenues with a corresponding amount recorded as
transaction-based expenses. In the U.S., we are assessed these
fees from the SEC and pass them through to our customers in
the form of incremental fees. Pass-through fees can increase or
decrease due to rate changes by the SEC, our percentage of the
overall industry volumes processed on our systems, and
differences in actual dollar value of shares traded. Since the
amount recorded in revenues is equal to the amount recorded
as transaction-based expenses, there is no impact on our
revenues less transaction-based expenses. Section 31 fees
increased in 2019 compared with 2018 primarily due to higher
average SEC fee rates, partially offset by lower dollar value
traded on Nasdaq's exchanges.
35
Transaction rebates, in which we credit a portion of the per share
execution charge to the market participant, decreased in 2019
compared with 2018 primarily due to lower U.S. industry
trading volumes, a decrease in our overall U.S. matched market
share executed on Nasdaq's exchanges, and a decrease in the
U.S. rebate capture rate.
Brokerage, clearance and exchange fees increased in 2019
compared with 2018 primarily due to higher Section 31 pass-
through fees, as discussed above.
Cash Equity Trading Revenues
Cash equity trading revenues and cash equity trading revenues
less transaction-based expenses decreased in 2019 compared
with 2018 reflecting in large part the lower volume and volatility
market environment in the U.S. as compared to 2018 as
mentioned above in “Equity Derivative Trading and Clearing
Revenues.” The decrease in cash equity trading revenues in
2019 was primarily due to lower U.S. industry trading volumes
and lower Section 31 pass-through fee revenue, partially offset
by a higher U.S. gross capture rate.
The decrease in cash equity trading revenues less transaction-
based expenses in 2019 primarily reflects lower U.S. and
European industry trading volumes and a lower U.S. net capture
rate due to a particularly strong 2018 period, partially offset by
a higher European net capture rate.
The decreases in cash equity trading revenues and cash equity
trading revenues less transaction-based expenses also included
an unfavorable impact from foreign exchange of $7 million
related to Nasdaq's Nordic exchanges.
Similar to equity derivative trading and clearing, in the U.S. we
record Section 31 fees as cash equity trading revenues with a
corresponding amount recorded as transaction-based expenses.
We are assessed these fees from the SEC and pass them through
to our customers in the form of incremental fees. Since the
amount recorded as revenues is equal to the amount recorded
as transaction-based expenses, there is no impact on our
revenues less transaction-based expenses. Section 31 fees
decreased in 2019 compared with 2018 primarily due to lower
dollar value traded on Nasdaq’s exchanges, partially offset by
higher average SEC fee rates.
Transaction rebates increased in 2019 compared with 2018. For
The Nasdaq Stock Market, Nasdaq PSX and Nasdaq Canada
CXC, we credit a portion of the per share execution charge to
the market participant that provides the liquidity, and for Nasdaq
BX and Nasdaq Canada CX2, we credit a portion of the per
share execution charge to the market participant that takes the
liquidity. The increase in 2019 was primarily due to a higher
U.S. rebate capture rate, partially offset by lower U.S. industry
trading volumes.
Brokerage, clearance and exchange fees decreased in 2019
compared with 2018 primarily due to lower Section 31 pass-
through fees, as discussed above, and lower routing fees.
FICC Revenues
FICC revenues and FICC revenues less transaction-based
expenses decreased in 2019 compared with 2018 primarily due
to a decline in U.S. fixed income products revenues as well as
a decrease in European commodities products revenues due to
lower volumes and an unfavorable impact from foreign
exchange of $4 million.
Trade Management Services Revenues
Trade management services revenues decreased slightly in
2019 compared with 2018 primarily due to an unfavorable
impact from foreign exchange of $3 million, partially offset by
an increase in colocation and port connectivity revenues.
CORPORATE SERVICES
The following table shows revenues from our Corporate Services segment:
* * * * * *
Corporate Services:
Listing Services
Corporate Solutions
Total Corporate Services
Listing Services Revenues
Listing services revenues increased in 2019 compared with
2018 primarily due to higher listings revenues resulting from
an increase in the number of listed companies, partially offset
by the run-off of fees earned from U.S. listing of additional
shares and an unfavorable impact from foreign exchange of $5
million.
Year Ended December 31,
Percentage Change
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
(in millions)
$
$
296
200
496
$
$
290
197
487
$
$
267
192
459
2.1%
1.5%
1.8%
8.6%
2.6%
6.1%
Corporate Solutions Revenues
Corporate solutions revenues increased in 2019 compared with
2018 primarily due to an increase in both governance solutions
revenues and investor relations intelligence revenues, partially
offset by an unfavorable impact from foreign exchange of $2
million.
36
INFORMATION SERVICES
The following table shows revenues from our Information Services segment:
Year Ended December 31,
Percentage Change
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
(in millions)
$
$
398
223
158
779
$
$
390
206
118
714
$
$
369
171
48
588
2.1%
8.3%
33.9%
9.1%
5.7%
20.5%
145.8%
21.4%
Investment Data & Analytics Revenues
Investment data & analytics revenues increased in 2019
compared with 2018 primarily due to an increase in eVestment
revenues resulting from a $23 million purchase price
adjustment on deferred revenue in 2018, organic growth, and
the impact of our acquisition of Quandl.
Information Services:
Market Data
Index
Investment Data & Analytics
Total Information Services
Market Data Revenues
Market data revenues increased in 2019 compared with 2018
primarily due to new proprietary data sales, notably growth in
the Asia Pacific region, and higher U.S. tape revenues from
under-reported data usage. The increase was partially offset by
an unfavorable impact from foreign exchange of $4 million.
Index Revenues
Index revenues increased in 2019 compared with 2018
primarily due to higher average AUM in ETPs linked to Nasdaq
indexes and higher licensing revenues from futures trading
linked to the Nasdaq 100 Index.
MARKET TECHNOLOGY
The following table shows revenues from our Market Technology segment:
* * * * * *
Market Technology
Market Technology Revenues
Year Ended December 31,
Percentage Change
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
$
338
(in millions)
270
$
$
247
25.2%
9.3%
Market technology revenues increased in 2019 compared with 2018 primarily due to the inclusion of revenues associated with the
acquisition of Cinnober, an increase in the size and number of software delivery projects, an increase in SaaS surveillance revenues,
and higher change request revenues, partially offset by an unfavorable impact from foreign exchange of $6 million.
OTHER REVENUES
Other revenues include the revenues from the BWise enterprise governance, risk and compliance software platform, which was
sold in March 2019 and the revenues from the Public Relations Solutions and Digital Media Services businesses which were sold
in April 2018. Prior to the sale dates, these revenues were included in our Corporate Solutions business. See “2019 Divestitures,”
and “2018 Divestiture,” of Note 4, “Acquisitions and Divestitures,” to the consolidated financial statements for further discussion
of these divestitures.
37
Expenses
Operating Expenses
The following table shows our operating expenses:
Compensation and benefits
Professional and contract services
Computer operations and data communications
Occupancy
General, administrative and other
Marketing and advertising
Depreciation and amortization
Regulatory
Merger and strategic initiatives
Restructuring charges
Total operating expenses
_______
N/M Not meaningful.
Year Ended December 31,
Percentage Change
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
(in millions)
$
$
707
127
133
97
125
39
190
31
30
39
1,518
$
$
712
144
127
95
120
37
210
32
21
—
1,498
$
$
670
153
125
94
82
31
188
33
44
—
1,420
(0.7)%
(11.8)%
4.7 %
2.1 %
4.2 %
5.4 %
(9.5)%
(3.1)%
42.9 %
N/M
1.3 %
6.3 %
(5.9)%
1.6 %
1.1 %
46.3 %
19.4 %
11.7 %
(3.0)%
(52.3)%
— %
5.5 %
Compensation and benefits expense decreased in 2019
compared with 2018 primarily due to lower compensation costs
resulting from our 2019 and 2018 divestitures, lower
performance incentives, and a favorable impact from foreign
exchange of $17 million, partially offset by higher salary costs
and higher compensation expense from our 2019 and 2018
acquisitions.
Headcount increased to 4,361 employees as of December 31,
2019 from 4,099 as of December 31, 2018 primarily due to our
2019 acquisitions and growth in our Market Technology and
Investment Data & Analytics businesses, partially offset by our
2019 divestitures.
Professional and contract services expense decreased in 2019
compared with 2018 primarily due to our 2019 and 2018
divestitures, lower consulting costs, and a favorable impact
from foreign exchange of $3 million, partially offset by higher
litigation costs.
Computer operations and data communications expense
increased in 2019 compared with 2018 primarily due to higher
market data feed costs, partially offset by lower costs resulting
from our 2018 divestiture and a favorable impact from foreign
exchange of $2 million.
Occupancy expense increased in 2019 compared with 2018
mainly due to higher costs associated with additional facility
and rent costs resulting from expansion of our new U.S.
headquarters in New York and our 2019 and 2018 acquisitions,
partially offset by lower costs due to our 2018 divestiture and
a favorable impact from foreign exchange of $3 million.
General, administrative and other expense increased in 2019
compared with 2018 primarily due to a provision recorded for
notes receivable associated with the funding of technology
development for the CAT, a charge related to a tax reserve for
certain prior year examinations, and a charge for a make-whole
redemption price premium paid on the early extinguishment of
our 2020 Notes, partially offset by charges associated with the
clearing default which occurred in 2018, lower costs resulting
from our 2019 and 2018 divestitures, and a favorable impact
from foreign exchange of $2 million. The provision for notes
receivable is a consequence of changes to the CAT project, and
particularly the decision by Nasdaq and the other exchanges to
impair the value of the technology built by the original vendor,
who has been replaced. For further discussion of the clearing
default, see “Nasdaq Commodities Clearing Default,” of Note
16, “Clearing Operations,” to the consolidated financial
statements.
Marketing and advertising expense increased in 2019 compared
with 2018 primarily due to an increase in advertising spend.
Depreciation and amortization expense decreased in 2019
compared with 2018 primarily due to a decrease in amortization
expense recorded on capitalized software as a result of our 2019
restructuring plan, a decrease in amortization expense recorded
on intangible assets which became fully amortized, a decrease
in depreciation expense related to the divestiture of BWise, and
a favorable impact from foreign exchange of $3 million.
Partially offsetting these decreases was additional amortization
expense associated with acquired intangible assets. See Note
21, “Restructuring Charges,” to the consolidated financial
statements for further discussion of our 2019 restructuring plan
and charges associated with this plan.
Merger and strategic initiatives expense increased in 2019
compared with 2018. We have pursued various strategic
initiatives and completed acquisitions and divestitures in recent
years which have resulted in expenses which would not have
otherwise been incurred. These expenses generally include
integration costs, as well as legal, due diligence and other third
38
party transaction costs and will vary based on the size and
frequency of the activities described above.
statements for further discussion of our 2019 restructuring plan
and charges associated with this plan.
Restructuring charges were $39 million in 2019. See Note 21,
the consolidated financial
to
“Restructuring Charges,”
Non-operating Income and Expenses
The following table shows our non-operating income and expenses:
* * * * * *
Interest income
Interest expense
Net interest expense
Gain on sale of investment security
Net gain on divestiture of businesses
Other income
Net income from unconsolidated investees
Total non-operating income (expenses)
_______
N/M
Not meaningful.
Interest Expense
Year Ended December 31,
Percentage Change
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
(in millions)
10
$
(150)
(140)
118
33
7
18
36
$
$
$
10
(124)
(114)
—
27
5
84
2
$
$
7
(143)
(136)
— %
(17.3)%
(18.6)%
— (100.0)%
42.9 %
4.9 %
2.9 %
N/M
—
2
15
(119)
N/M
(18.2)%
250.0 %
(28.6)%
366.7 %
20.0 %
(94.4)% (130.3)%
Interest expense decreased in 2019 compared with 2018 primarily due to the refinancing of the 2020 Notes with the 2029 Notes
at a lower interest rate and lower outstanding debt obligations. See Note 10, “Debt Obligations,” to the consolidated financial
statements for further discussion of our debt obligations.
The following table shows our interest expense:
Interest expense on debt
Accretion of debt issuance costs and debt discount
Other fees
Interest expense
Year Ended December 31,
Percentage Change
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
(in millions)
140
$
$
135
7
3
6
2
115
6
3
(17.9)%
(14.3)%
— %
124
$
150
$
143
(17.3)%
$
$
3.7%
16.7%
50.0%
4.9%
* * * * * *
Gain on Sale of Investment Security
In December 2018, we recorded a pre-tax gain of $118 million
($93 million after tax) on the sale of an investment security. See
“Equity Securities,” of Note 7, “Investments,” to the
consolidated financial statements for further discussion.
Net Gain on Divestiture of Businesses
The net gain on divestiture of businesses in 2019 primarily
relates to our divestiture of BWise. See “2019 Divestitures,” of
Note 4, “Acquisitions and Divestitures,” to the consolidated
financial statements for further discussion.
The net gain on divestiture of businesses in 2018 relates to our
2018 divestiture. See “2018 Divestiture,” of Note 4,
“Acquisitions and Divestitures,” to the consolidated financial
statements for further discussion.
Net Income from Unconsolidated Investees
Net income from unconsolidated investees increased in 2019
compared with 2018 primarily due to income recognized from
our equity method investment in OCC. See “Equity Method
Investments,” of Note 7, “Investments,” to the consolidated
financial statements for further discussion.
39
Tax Matters
The following table shows our income tax provision and effective tax rate:
Income tax provision
Effective tax rate
Year Ended December 31,
Percentage Change
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
($ in millions)
$
245
$
606
$
143
(59.6)%
323.8%
24.0%
57.0%
16.4%
For further discussion of our tax matters, see Note 18, “Income Taxes,” to the consolidated financial statements.
* * * * * *
Non-GAAP Financial Measures
this non-GAAP
In addition to disclosing results determined in accordance with
U.S. GAAP, we also have provided non-GAAP net income
attributable to Nasdaq and non-GAAP diluted earnings per
share. Management uses
information
internally, along with U.S. GAAP information, in evaluating
our performance and in making financial and operational
decisions. We believe our presentation of these measures
provides investors with greater transparency and supplemental
data relating to our financial condition and results of operations.
In addition, we believe the presentation of these measures is
useful to investors for period-to-period comparisons of our
ongoing operating performance.
These measures are not in accordance with, or an alternative
to, U.S. GAAP, and may be different from non-GAAP measures
used by other companies. In addition, other companies,
including companies in our industry, may calculate such
measures differently, which reduces their usefulness as
comparative measures. Investors should not rely on any single
financial measure when evaluating our business. This non-
GAAP information should be considered as supplemental in
nature and is not meant as a substitute for our operating results
in accordance with U.S. GAAP. We recommend investors
review the U.S. GAAP financial measures included in this
Annual Report on Form 10-K, including our consolidated
financial statements and the notes thereto. When viewed in
conjunction with our U.S. GAAP results and the accompanying
reconciliation, we believe these non-GAAP measures provide
greater transparency and a more complete understanding of
factors affecting our business than U.S. GAAP measures alone.
We understand that analysts and investors regularly rely on non-
GAAP financial measures, such as non-GAAP net income
attributable to Nasdaq and non-GAAP diluted earnings per
share, to assess operating performance. We use non-GAAP net
income attributable to Nasdaq and non-GAAP diluted earnings
per share because they highlight trends more clearly in our
business that may not otherwise be apparent when relying solely
on U.S. GAAP financial measures, since these measures
eliminate from our results specific financial items that have less
bearing on our ongoing operating performance. Non-GAAP net
income attributable to Nasdaq for the periods presented below
is calculated by adjusting for the following items:
Amortization expense of acquired intangible assets: We
amortize intangible assets acquired in connection with various
acquisitions. Intangible asset amortization expense can vary
from period to period due to episodic acquisitions completed,
rather than from our ongoing business operations. As such, if
intangible asset amortization is included in performance
measures, it is more difficult to assess the day-to-day operating
performance of
the relative operating
performance of the businesses between periods, and the
earnings power of Nasdaq. Performance measures excluding
intangible asset amortization therefore provide investors with
a useful representation of our businesses’ ongoing activity in
each period.
the businesses,
Merger and strategic initiatives expense: We have pursued
various strategic initiatives and completed acquisitions and
divestitures in recent years that have resulted in expenses which
would not have otherwise been incurred. These expenses
generally include integration costs, as well as legal, due
diligence and other third party transaction costs. The frequency
and the amount of such expenses vary significantly based on
the size, timing and complexity of the transaction. Accordingly,
we exclude these costs for purposes of calculating non-GAAP
measures which provide a more meaningful analysis of
Nasdaq’s ongoing operating performance or comparisons in
Nasdaq’s performance between periods.
Restructuring charges: We initiated the transition of certain
technology platforms to advance our strategic opportunities as
a technology and analytics provider and continue the re-
alignment of certain business areas. See Note 21,
the consolidated financial
to
“Restructuring Charges,”
statements for further discussion of our 2019 restructuring plan.
Charges associated with this plan represent a fundamental shift
in our strategy and technology as well as executive re-alignment
and will be excluded for purposes of calculating non-GAAP
measures as they are not reflective of ongoing operating
performance or comparisons in Nasdaq's performance between
periods.
Net income from unconsolidated investee: See “OCC Capital
Plan,” of Note 7, “Investments,” to the consolidated financial
statements for further discussion. Our income on our investment
in OCC may vary significantly compared to prior years due to
the disapproval of the OCC's capital plan. Accordingly, we will
exclude this income from current and prior periods for purposes
of calculating non-GAAP measures which provide a more
meaningful analysis of Nasdaq’s ongoing operating
performance or comparisons in Nasdaq’s performance between
periods.
40
general, administrative and other expense in the
Consolidated Statements of Income; and
litigation costs which are recorded
in
certain
professional and contract services expense in the
Consolidated Statements of Income.
Significant tax items:
The non-GAAP adjustment to the income tax provision
included the tax impact of each non-GAAP adjustment and:
•
•
for 2019, a tax benefit of $10 million primarily related to
an adjustment to the 2018 federal and state tax returns and
a tax benefit of $10 million related to capital distributions
from the OCC. See “OCC Capital Plan,” of Note 7,
“Investments,” to the consolidated financial statements for
further discussion of our OCC investment.
for 2018, a net $7 million increase to tax expense due to a
remeasurement of unrecognized tax benefits (excluding
the reversal of certain Swedish tax benefits discussed
below) and the impact of state tax rate changes.
Additional adjustments included the following items:
•
for 2019 and 2018, excess tax benefits related to employee
share-based compensation to reflect the recognition of the
income tax effects of share-based awards when awards vest
or are settled. This item is subject to volatility and will vary
based on the timing of the vesting of employee share-based
compensation arrangements and fluctuation in our stock
price.
•
for 2018:
the impact of enacted U.S. tax legislation, which
related to the Tax Cuts and Jobs Act that was enacted
in December 2017. We recorded an increase to tax
expense of $290 million and a reduction to deferred
tax assets related to foreign currency translation as a
result of the finalization of the provisional estimate
related to this act; and
a reversal of certain Swedish tax benefits. See Note
18, “Income Taxes,” to the consolidated financial
statements for further discussion.
Clearing default loss: In 2018, we recorded a $31 million charge
related to a default of a Nasdaq Clearing commodities member
that occurred in September 2018. See “Nasdaq Commodities
Clearing Default,” of Note 16, “Clearing Operations,” to the
consolidated financial statements for further discussion of the
default. We have excluded the charge related to the default as
we believe it is non-recurring, as there has never been another
loss due to member default in our clearinghouse, and should be
excluded when evaluating the ongoing operating performance
of Nasdaq. Any expenses associated with the evaluation and
enhancement of processes and procedures will not be excluded
from our GAAP results.
Other significant items: We have excluded certain other charges
or gains, including certain tax items, that are the result of other
non-comparable events to measure operating performance. We
believe the exclusion of such amounts allows management and
investors to better understand the ongoing financial results of
Nasdaq.
For 2019, other significant items primarily included:
•
•
•
a provision for notes receivable associated with the funding
of technology development for the CAT which is recorded
in general, administrative and other expense in the
Consolidated Statements of Income;
a loss on extinguishment of debt which is recorded in
general, administrative and other expense
the
Consolidated Statements of Income; and
in
a net gain on divestiture of businesses which primarily
represents our pre-tax net gain of $27 million on the sale
of BWise;
•
other items:
a tax reserve for certain prior year examinations which
is recorded in general, administrative and other
expense in the Consolidated Statements of Income;
litigation costs which are recorded
certain
in
professional and contract services expense in the
Consolidated Statements of Income.
For 2018, other significant items primarily included:
•
•
a net gain on divestiture of businesses which represents our
pre-tax net gain of $33 million on the sale of the Public
Relations Solutions and Digital Media Services
businesses;
a gain on the sale of an investment security which
represents our pre-tax gain of $118 million on the sale of
our 5.0% ownership interest in LCH Group Holdings
Limited, or LCH;
•
other items:
charges related to uncertain positions pertaining to
sales and use tax and VAT which are recorded in
41
The following table shows reconciliations between U.S. GAAP net income attributable to Nasdaq and diluted earnings per
share and non-GAAP net income attributable to Nasdaq and diluted earnings per share:
Year Ended December 31, 2019
Year Ended December 31, 2018
Year Ended December 31, 2017
(in millions, except share and per share amounts)
Net
Income
Diluted Earnings Per
Share
Net
Income
Diluted Earnings Per
Share
Net
Income
Diluted Earnings Per
Share
U.S. GAAP net income attributable to
Nasdaq and diluted earnings per
share
$ 774
$
4.63
$ 458
$
2.73
$ 729
$
4.30
Non-GAAP adjustments:
Amortization expense of acquired
intangible assets
Merger and strategic initiatives
expense
Restructuring charges
Net income from unconsolidated
investee
Clearing default loss
Provision for notes receivable
Extinguishment of debt
Net gain on divestiture of businesses
Gain on sale of investment security
Other
Total non-GAAP adjustments
Adjustment to the income tax
provision to reflect non-GAAP
adjustments and other tax items
Excess tax benefits related to
employee share-based
compensation
Impact of enacted U.S. tax legislation
Reversal of certain Swedish tax
benefits
Total non-GAAP tax adjustments
Total non-GAAP adjustments, net
of tax
Non-GAAP net income attributable to
Nasdaq and diluted earnings per
share
Weighted-average common shares
outstanding for diluted earnings per
share
101
30
39
(82)
—
20
11
(27)
—
17
109
(43)
(5)
—
—
(48)
61
0.60
109
0.18
0.23
(0.49)
—
0.12
21
—
(16)
31
—
0.07
(0.16)
—
(33)
— (118)
17
0.11
0.66
11
0.65
0.13
—
(0.10)
0.18
—
—
(0.20)
(0.69)
0.10
0.07
92
44
—
(13)
—
—
10
—
—
3
136
0.54
0.26
—
(0.08)
—
—
0.06
—
—
0.02
0.80
(0.26)
6
0.03
(66)
(0.39)
(0.03)
—
—
(0.29)
0.37
(9)
290
41
328
339
(0.05)
1.73
0.24
1.95
2.02
(40)
(89)
—
(195)
(59)
(0.24)
(0.52)
—
(1.15)
(0.35)
$ 835
$
5.00
$ 797
$
4.75
$ 670
$
3.95
166,970,161
167,691,299
169,585,031
Liquidity and Capital Resources
Historically, we have funded our operating activities and met
our commitments through cash generated by operations,
augmented by the periodic issuance of our common stock and
debt. Currently, our cost and availability of funding remain
healthy.
In March 2019, we used net proceeds from the sale of
commercial paper and cash on hand to redeem all of our 2019
Notes. In April 2019, we issued the 2029 Notes and in May
2019, we primarily used the net proceeds from the 2029 Notes
to repay in full and terminate our 2020 Notes. In addition, in
June 2019, we used proceeds from issuances of commercial
paper to repay in full and terminate our 2016 Credit Facility,
and in February 2020, we issued the 2030 Notes. We will
primarily use the net proceeds from the 2030 Notes to redeem
the 2021 Notes and for other general corporate purposes. See
“1.75% Senior Unsecured Notes Due 2029,” “Early
Extinguishment of 5.55% Senior Unsecured Notes Due 2020,”
“Early Extinguishment of 2016 Credit Facility,” “0.875%
42
Senior Unsecured Notes Due 2030,” and “3.875% Senior
Unsecured Notes Due 2021,” of Note 10, “Debt Obligations,”
to the consolidated financial statements for further discussion.
We have the 2017 Credit Facility and a commercial paper
program, which enable us to borrow efficiently at reasonable
short-term interest rates. The commercial paper program is
supported by our 2017 Credit Facility. See “Commercial Paper
Program,” and “2017 Credit Facility,” of Note 10, “Debt
Obligations,” to the consolidated financial statements for
further discussion.
As of December 31, 2019, no amounts were outstanding on the
2017 Credit Facility. The $2 million balance represents
unamortized debt issuance costs. Of the $1 billion that is
available for borrowing, $392 million provides liquidity
support for the commercial paper program and for a letter of
credit. As such, as of December 31, 2019, the total remaining
amount available under the 2017 Credit Facility was $608
million, excluding the amounts that support the commercial
paper program and letter of credit.
As part of the purchase price consideration of a prior
acquisition, Nasdaq has contingent future obligations to issue
992,247 shares of Nasdaq common stock annually through
2027. See “Non-Cash Contingent Consideration,” of Note 19,
“Commitments, Contingencies and Guarantees,”
the
consolidated financial statements for further discussion.
to
In the near term, we expect that our operations and the
availability under our revolving credit commitment and
commercial paper program will provide sufficient cash to fund
our operating expenses, capital expenditures, debt repayments,
any share repurchases, and any dividends.
The value of various assets and liabilities, including cash and
cash equivalents, receivables, accounts payable and accrued
expenses, the current portion of long-term debt, and commercial
paper, can fluctuate from month to month. Working capital
(calculated as current assets less current liabilities) was $63
million as of December 31, 2019, compared with $(200) million
as of December 31, 2018, an increase of $263 million. Current
asset balance changes decreased working capital by $2,080
million, with decreases in default funds and margin deposits,
cash and cash equivalents, other current assets, and restricted
cash, partially offset by increases in receivables, net and
financial investments. Current liability balance changes
increased working capital by $2,343 million, due to decreases
in default funds and margin deposits, short-term debt, other
current liabilities, accounts payable and accrued expenses, and
accrued personnel costs, partially offset by increases in Section
31 fees payable to the SEC and deferred revenue.
Principal factors that could affect the availability of our
internally-generated funds include:
•
deterioration of our revenues in any of our business
segments;
•
•
changes in regulatory and working capital requirements;
and
an increase in our expenses.
Principal factors that could affect our ability to obtain cash from
external sources include:
•
•
•
•
•
operating covenants contained in our credit facilities that
limit our total borrowing capacity;
increases in interest rates under our credit facilities;
credit rating downgrades, which could limit our access to
additional debt;
a decrease in the market price of our common stock; and
volatility or disruption in the public debt and equity
markets.
The following sections discuss the effects of changes in our
financial assets, debt obligations,
regulatory capital
requirements, and cash flows on our liquidity and capital
resources.
Financial Assets
The following table summarizes our financial assets:
December 31, 2019
December 31, 2018
Cash and cash equivalents
$
Restricted cash
Financial investments
Total financial assets
$
(in millions)
332
$
30
291
653
$
545
41
268
854
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents includes all non-restricted cash in
banks and highly liquid investments with original maturities of
90 days or less at the time of purchase. The balance retained in
cash and cash equivalents is a function of anticipated or possible
short-term cash needs, prevailing interest rates, our investment
policy, and alternative investment choices. As of December 31,
2019, our cash and cash equivalents of $332 million were
primarily invested in bank deposits, money market funds and
commercial paper. In the long-term, we may use both internally
generated funds and external sources to satisfy our debt
obligations and other long-term liabilities. Cash and cash
equivalents as of December 31, 2019 decreased $213 million
from December 31, 2018, primarily due to:
•
•
•
•
•
•
•
•
•
repayments of debt obligations;
cash dividends paid on our common stock;
cash paid for acquisitions, net of cash and cash equivalents
acquired;
repurchases of our common stock; and
purchases of property and equipment, partially offset by;
net cash provided by operating activities;
proceeds from issuances of long-term debt, net of issuance
costs;
proceeds from the divestiture of a business; and
proceeds from commercial paper, net.
See “Cash Flow Analysis” below for further discussion.
43
Restricted cash is restricted from withdrawal due to contractual
or regulatory requirements or is not available for general use.
Restricted cash was $30 million as of December 31, 2019 and
$41 million as of December 31, 2018, a decrease of $11 million.
The decrease primarily relates to a decrease in cash pledged as
collateral. Restricted cash is classified as restricted cash in the
Consolidated Balance Sheets.
Repatriation of Cash
Our cash and cash equivalents held outside of the U.S. in various
foreign subsidiaries totaled $160 million as of December 31,
2019 and $367 million as of December 31, 2018. The remaining
balance held in the U.S. totaled $172 million as of December 31,
2019 and $178 million as of December 31, 2018.
Unremitted earnings of subsidiaries outside of the U.S. are used
to finance our international operations and are considered to be
indefinitely reinvested.
Share Repurchase Program
See “Share Repurchase Program,” of Note 13, “Nasdaq
Stockholders’ Equity,” to the consolidated financial statements
for further discussion of our share repurchase program.
Cash Dividends on Common Stock
The following table shows quarterly cash dividends paid per
common share on our outstanding common stock:
First quarter
Second quarter
Third quarter
Fourth quarter
Total
2019
2018
0.44
0.47
0.47
0.47
1.85
$
$
0.38
0.44
0.44
0.44
1.70
$
$
See “Cash Dividends on Common Stock,” of Note 13, “Nasdaq
Stockholders’ Equity,” to the consolidated financial statements
for further discussion of the dividends.
Financial Investments
Our financial
investments totaled $291 million as of
December 31, 2019 and $268 million as of December 31, 2018
and are primarily comprised of highly rated European
government debt securities. Of these securities, $169 million
as of December 31, 2019 and $166 million as of December 31,
2018 are assets primarily utilized to meet regulatory capital
requirements, mainly for our clearing operations at Nasdaq
Clearing. See Note 7, “Investments,” to the consolidated
financial statements for further discussion.
Debt Obligations
The following table summarizes our debt obligations by contractual maturity:
* * * * * *
Short-term debt:
Commercial paper
Senior unsecured floating rate notes
5.55% senior unsecured notes(1)
$400 million senior unsecured term loan facility
Total short-term debt
Long-term debt:
3.875% senior unsecured notes
$1 billion senior unsecured revolving credit facility
1.75% senior unsecured notes
4.25% senior unsecured notes
3.85% senior unsecured notes
1.75% senior unsecured notes
Total long-term debt
Total debt obligations
Maturity Date
December 31, 2019
December 31, 2018
(in millions)
Weighted-average
maturity of 13 days
Repaid March 2019
Repaid May 2019
Repaid June 2019
June 2021
April 2022
May 2023
June 2024
June 2026
March 2029
$
391
$
—
—
—
391
671
(2)
668
497
497
665
2,996
$
3,387
$
275
500
599
100
1,474
686
(4)
682
497
496
—
2,357
3,831
____________
(1) Balance was reclassified to short-term debt as of March 31, 2019.
In addition to the $1 billion senior unsecured revolving credit facility, we also have other credit facilities primarily related to our
Nasdaq Clearing operations in order to provide further liquidity. Other credit facilities, which are available in multiple currencies,
44
totaled $203 million as of December 31, 2019 and $234 million as of December 31, 2018, in available liquidity, of which $15
million was utilized as of December 31, 2019 and none of which was utilized as of December 31, 2018.
As of December 31, 2019, we were in compliance with the covenants of all of our debt obligations.
See Note 10, “Debt Obligations,” to the consolidated financial statements for further discussion of our debt obligations.
* * * * * *
Regulatory Capital Requirements
Clearing Operations Regulatory Capital Requirements
We are required to maintain minimum levels of regulatory
capital for the clearing operations of Nasdaq Clearing. The level
of regulatory capital required to be maintained is dependent
upon many factors,
including market conditions and
creditworthiness of the counterparty. As of December 31, 2019,
our required regulatory capital of $147 million is comprised of
highly rated European government debt securities that are
included in financial investments in the Consolidated Balance
Sheets.
Broker-Dealer Net Capital Requirements
Our broker-dealer subsidiaries, Nasdaq Execution Services,
Execution Access, NPM Securities, SMTX, and Nasdaq Capital
Markets Advisory, are subject to regulatory requirements
intended to ensure their general financial soundness and
liquidity. These requirements obligate these subsidiaries to
comply with minimum net capital requirements. As of
December 31, 2019, the combined required minimum net
capital totaled $1 million and the combined excess capital
totaled $48 million, substantially all of which is held in cash
and cash equivalents in the Consolidated Balance Sheets. The
required minimum net capital is included in restricted cash in
the Consolidated Balance Sheets.
Nordic and Baltic Exchange Regulatory Capital Requirements
The entities that operate trading venues in the Nordic and Baltic
countries are each subject to local regulations and are required
to maintain regulatory capital intended to ensure their general
financial soundness and liquidity. As of December 31, 2019,
our required regulatory capital of $33 million is invested in
European government debt securities that are included in
financial investments and restricted cash in the Consolidated
Balance Sheets.
Other Capital Requirements
We operate several other businesses which are subject to local
regulation and are required to maintain certain levels of
regulatory capital. As of December 31, 2019, other required
regulatory capital was $11 million and was primarily included
in restricted cash and financial investments in the Consolidated
Balance Sheets.
Cash Flow Analysis
The following table summarizes the changes in cash flows:
* * * * * *
Net cash provided by (used in):
(in millions)
Year Ended December 31,
Percentage Change
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents and
restricted cash
Net increase (decrease) in cash and cash equivalents and restricted
cash
Cash and cash equivalents and restricted cash at beginning of period
$ 963
$ 1,028
$ 909
(6.3)%
13.1 %
(240)
(937)
196
(1,027)
(890)
(53)
(222.4)%
(8.8)%
(122.0)%
1,837.7 %
(10)
(10)
15
— %
(166.7)%
(224)
586
187
399
586
(19)
418
$ 399
(219.8)% (1,084.2)%
46.9 %
(38.2)%
(4.5)%
46.9 %
Cash and cash equivalents and restricted cash at end of period
$ 362
$
Net Cash Provided by Operating Activities
Net cash provided by operating activities primarily consists of
net income adjusted for certain non-cash items such as:
depreciation and amortization expense of property and
equipment; amortization expense of acquired finite-lived
intangible assets which can be episodic, depending on the
timing and size of a related business combination; expense
associated with share-based compensation; and net income
from unconsolidated investees.
Net cash provided by operating activities is also impacted by
the effects of changes in operating assets and liabilities such as:
accounts receivable which is impacted by the timing of
customer billings and related collections from our customers;
accounts payable and accrued expenses due to timing of
payments; accrued personnel costs which are impacted by
employee performance targets and the timing of payments
45
related to employee bonus incentives; and Section 31 fees
payable to the SEC, which is impacted by the timing of
collections from customers and payments to the SEC.
Net cash provided by operating activities decreased $65 million
in 2019 compared with 2018. The decrease was primarily driven
by higher performance incentive payments made in 2019
compared with 2018 primarily due to prior year performance,
a decline in cash flows related to our 2019 and 2018 divestitures,
and payments made in 2019 associated with the capital relief
program, partially offset by cash flows from our 2019
acquisitions and growth in net income.
Net Cash Used in (Provided by) Investing Activities
Net cash used in investing activities for 2019 primarily relates
to $206 million of cash used for acquisitions, net of cash and
cash equivalents acquired, $127 million of purchases of
property and equipment, and $36 million of net purchases of
securities, partially offset by receipt of cash of $132 million
related to our 2019 divestitures.
Net cash provided by investing activities for 2018 primarily
relates to $286 million of cash received from our 2018
divestiture and $169 million of proceeds from the sale of an
investment security, partially offset by $111 million of
purchases of property and equipment, $101 million of cash used
for our 2018 acquisition, and $47 million of net purchases of
securities.
Net Cash Used in Financing Activities
Net cash used in financing activities for 2019 primarily relates
to $1,215 million in repayments of debt obligations, $305
million of dividend payments to our shareholders, and $200
million in repurchases of common stock, partially offset by
$680 million from proceeds related to long-term debt issuances
and $116 million in net borrowings of commercial paper.
Net cash used in financing activities for 2018 primarily relates
to $394 million in repurchases of common stock, $280 million
of dividend payments to our shareholders, $205 million of net
repayments of commercial paper, and $115 million of
repayments of debt obligations.
See Note 4, “Acquisitions and Divestitures,” to the consolidated
financial statements for further discussion of our acquisitions
and divestitures.
See Note 10, “Debt Obligations,” to the consolidated financial
statements for further discussion of our debt obligations.
See “Share Repurchase Program,” and “Cash Dividends on
Common Stock,” of Note 13, “Nasdaq Stockholders’ Equity,”
to the consolidated financial statements for further discussion
of our share repurchase program and cash dividends paid on
our common stock.
Contractual Obligations and Contingent Commitments
* * * * * *
Nasdaq has contractual obligations to make future payments under debt obligations by contract maturity, operating lease payments,
and other obligations. The following table shows these contractual obligations as of December 31, 2019.
Contractual Obligations
Total
Less than 1 year
1-3 years
3-5 years
More than 5
years
Payments Due by Period
Debt obligations by contract maturity(1)
Operating lease obligations(2)
Real estate obligations(3)
Purchase obligations(4)
Other obligations(5)
Total
(in millions)
$
3,847
$
481
$
508
128
54
9
4,546
$
$
77
—
26
9
593
$
827
113
12
28
—
980
$
1,278
$
78
27
—
—
1,383
$
$
1,261
240
89
—
—
1,590
____________
(1) Our debt obligations include both principal and interest obligations. As of December 31, 2019, an interest rate of 2.73% was
used to compute the amount of the contractual obligations for interest on the 2017 Credit Facility. All other debt obligations
were primarily calculated on a 360-day basis at the contractual fixed rate multiplied by the aggregate principal amount as of
December 31, 2019. See Note 10, “Debt Obligations,” to the consolidated financial statements for further discussion.
(2) Operating lease obligations represent our undiscounted operating lease liabilities as of December 31, 2019. See Note 17,
“Leases,” to the consolidated financial statements for further discussion of our leases.
(3) Real estate obligations include legally binding minimum lease payments for leases signed but not yet commenced.
(4) Purchase obligations primarily represent minimum outstanding obligations due under software license agreements.
(5) Other obligations primarily consist of potential future escrow agreement payments related to prior acquisitions.
46
Non-Cash Contingent Consideration
See “Non-Cash Contingent Consideration,” of Note 19,
the
“Commitments, Contingencies and Guarantees,”
consolidated financial statements for further discussion.
to
Off-Balance Sheet Arrangements
For discussion of off-balance sheet arrangements see:
• Note 16, “Clearing Operations,” to the consolidated
financial statements for further discussion of our non-cash
default fund contributions and margin deposits received
for clearing operations; and
• Note 19, “Commitments, Contingencies and Guarantees,”
to the consolidated financial statements for further
discussion of:
• Guarantees issued and credit facilities available;
• Other guarantees;
• Non-cash contingent consideration;
• Escrow agreements;
• Routing brokerage activities;
• Legal and regulatory matters; and
• Tax audits.
Quantitative and Qualitative Disclosures About Market
Risk
As a result of our operating, investing and financing activities,
we are exposed to market risks such as interest rate risk and
foreign currency exchange rate risk. We are also exposed to
credit risk as a result of our normal business activities.
We have implemented policies and procedures to measure,
manage, monitor and report risk exposures, which are reviewed
regularly by management and the board of directors. We
identify risk exposures and monitor and manage such risks on
a daily basis.
We perform sensitivity analyses to determine the effects of
market risk exposures. We may use derivative instruments
solely to hedge financial risks related to our financial positions
or risks that are incurred during the normal course of business.
We do not use derivative instruments for speculative purposes.
Interest Rate Risk
We are subject to the risk of fluctuating interest rates in the
normal course of business. Our exposure to market risk for
changes in interest rates relates primarily to our financial
investments and debt obligations which are discussed below.
Financial Investments
As of December 31, 2019, our investment portfolio was
primarily comprised of highly rated European government debt
securities, which pay a fixed rate of interest. These securities
are subject to interest rate risk and the fair value of these
securities will decrease if market interest rates increase. If
market interest rates were to increase immediately and
uniformly by 100 basis points from levels as of December 31,
2019, the fair value of this portfolio would have declined by $7
million.
Debt Obligations
As of December 31, 2019, substantially all of our debt
obligations are fixed-rate obligations. While changes in interest
rates will have no impact on the interest we pay on fixed-rate
obligations, we are exposed to changes in interest rates as a
result of the amounts outstanding from the sale of commercial
paper under our commercial paper program, which have
variable interest rates. As of December 31, 2019, we had
principal amounts outstanding of $391 million of commercial
paper. A hypothetical 100 basis points increase in interest rates
on our outstanding commercial paper would increase annual
interest expense by approximately $4 million based on
borrowings as of December 31, 2019.
47
Foreign Currency Exchange Rate Risk
We are subject to foreign currency exchange rate risk. Our primary transactional exposure to foreign currency denominated revenues
less transaction-based expenses and operating income for the years ended December 31, 2019 and 2018 are presented in the
following tables:
Year Ended December 31, 2019
Average foreign currency rate to the U.S. dollar
Percentage of revenues less transaction-based expenses
Percentage of operating income(1)
Impact of a 10% adverse currency fluctuation on revenues less
transaction-based expenses
Impact of a 10% adverse currency fluctuation on operating
income
Year Ended December 31, 2018
Average foreign currency rate to the U.S. dollar
Percentage of revenues less transaction-based expenses
Percentage of operating income
Euro
Swedish
Krona
Other
Foreign
Currencies
U.S. Dollar
Total
(in millions, except currency rate)
1.1193
0.1057
7.7%
13.9%
7.6 %
(4.3)%
#
5.0 %
(5.8)%
N/A
79.7%
96.2%
N/A
100.0%
100.0%
$
$
(19)
(14)
$
$
(19)
(4)
$
$
(13)
$ — $
(51)
(6)
$ — $
(24)
Euro
Swedish
Krona
Other
Foreign
Currencies
U.S. Dollar
Total
(in millions, except currency rate)
1.1800
0.1150
8.9%
11.3%
7.3 %
0.1 %
#
5.2 %
(7.0)%
N/A
78.6%
95.6%
N/A
100.0%
100.0%
Impact of a 10% adverse currency fluctuation on revenues less
transaction-based expenses
Impact of a 10% adverse currency fluctuation on operating
income
$
$
(23)
$
(18)
$
(13)
$ — $
(54)
(12)
$ — $
(7)
$ — $
(19)
____________
(1)
#
N/A Not applicable.
The decrease in 2019 percentage of operating income in Swedish Krona is primarily driven by costs associated with our
2019 restructuring plan. See Note 21, “Restructuring Charges,” to the consolidated financial statements for further
discussion of our 2019 restructuring plan.
Represents multiple foreign currency rates.
Our investments in foreign subsidiaries are exposed to volatility
in currency exchange rates through translation of the foreign
subsidiaries’ net assets or equity to U.S. dollars. Substantially
all of our foreign subsidiaries operate in functional currencies
other than the U.S. dollar. The financial statements of these
subsidiaries are translated into U.S. dollars for consolidated
reporting using a current rate of exchange, with net gains or
losses recorded in accumulated other comprehensive loss
within stockholders’ equity in the Consolidated Balance Sheets.
Our primary exposure to net assets in foreign currencies as of
December 31, 2019 is presented in the following table:
$
Swedish Krona(1)
Norwegian Krone
Canadian Dollar
British Pound
Euro
Australian Dollar
Net Assets
Impact of a 10%
Adverse Currency
Fluctuation
(in millions)
$
3,247
174
120
222
33
105
(325)
(17)
(12)
(22)
(3)
(11)
____________
(1)
Includes goodwill of $2,397 million and intangible
assets, net of $600 million.
Credit Risk
Credit risk is the potential loss due to the default or deterioration
in credit quality of customers or counterparties. We are exposed
to credit risk from third parties, including customers,
48
counterparties and clearing agents. These parties may default
on their obligations to us due to bankruptcy, lack of liquidity,
operational failure or other reasons. We limit our exposure to
credit risk by evaluating the counterparties with which we make
investments and execute agreements. For our investment
portfolio, our objective is to invest in securities to preserve
principal while maximizing yields, without significantly
increasing risk. Credit risk associated with investments is
minimized substantially by ensuring that these financial assets
are placed with governments which have investment grade
ratings, well-capitalized financial institutions and other
creditworthy counterparties.
Our subsidiary, Nasdaq Execution Services, may be exposed to
credit risk due to the default of trading counterparties in
connection with the routing services it provides for our trading
customers. System trades in cash equities routed to other market
centers for members of our cash equity exchanges are routed
by Nasdaq Execution Services for clearing to the NSCC. In this
function, Nasdaq Execution Services is to be neutral by the end
of the trading day, but may be exposed to intraday risk if a trade
extends beyond the trading day and into the next day, thereby
leaving Nasdaq Execution Services susceptible to counterparty
risk in the period between accepting the trade and routing it to
the clearinghouse. In this interim period, Nasdaq Execution
Services is not novating like a clearing broker but instead is
subject to the short-term risk of counterparty failure before the
clearinghouse enters the transaction. Once the clearinghouse
officially accepts the trade for novation, Nasdaq Execution
Services is legally removed from trade execution risk.
However, Nasdaq has membership obligations to NSCC
independent of Nasdaq Execution Services’ arrangements.
Pursuant to the rules of the NSCC and Nasdaq Execution
Services’ clearing agreement, Nasdaq Execution Services is
liable for any losses incurred due to a counterparty or a clearing
agent’s failure to satisfy its contractual obligations, either by
making payment or delivering securities. Adverse movements
in the prices of securities that are subject to these transactions
can increase our credit risk. However, we believe that the risk
of material loss is limited, as Nasdaq Execution Services’
customers are not permitted to trade on margin and NSCC rules
limit counterparty risk on self-cleared transactions by
establishing credit limits and capital deposit requirements for
all brokers that clear with NSCC. Historically, Nasdaq
Execution Services has never incurred a liability due to a
customer’s failure to satisfy its contractual obligations as
counterparty to a system trade. Credit difficulties or insolvency,
or the perceived possibility of credit difficulties or insolvency,
of one or more larger or visible market participants could also
result in market-wide credit difficulties or other market
disruptions.
Execution Access is an introducing broker which operates the
trading platform for our Fixed Income business to trade in U.S.
Treasury securities. Execution Access has a clearing
arrangement with Industrial and Commercial Bank of China
Financial Services LLC, or ICBC. As of December 31, 2019,
we have contributed $15 million of clearing deposits to ICBC
in connection with this clearing arrangement. These deposits
are recorded in other current assets in our Consolidated Balance
Sheets. Some of the trading activity in Execution Access is
cleared by ICBC through the Fixed Income Clearing
Corporation, with ICBC acting as agent. Execution Access
assumes the counterparty risk of clients that do not clear through
the Fixed Income Clearing Corporation. Counterparty risk of
clients exists for Execution Access between the trade date and
settlement date of the individual transactions, which is at least
one business day (or more, if specified by the U.S. Treasury
issuance calendar). Counterparties that do not clear through the
Fixed Income Clearing Corporation are subject to a credit due
diligence process and may be required to post collateral, provide
principal letters, or provide other forms of credit enhancement
to Execution Access for the purpose of mitigating counterparty
risk. Daily position trading limits are also enforced for such
counterparties.
We have credit risk related to transaction and subscription-
based revenues that are billed to customers on a monthly or
quarterly basis, in arrears. Our potential exposure to credit
losses on these transactions is represented by the receivable
balances in our Consolidated Balance Sheets. We review and
evaluate changes
the status of our counterparties’
creditworthiness. Credit losses such as those described above
could adversely affect our consolidated financial position and
results of operations.
in
On January 1, 2020, we adopted ASU 2016-13, “Measurement
of Credit Losses on Financial Instruments.” See “Financial
Instruments - Credit Losses,” of “Recent Accounting
Pronouncements,” of Note 2, “Summary of Significant
Accounting Policies,” to the consolidated financial statements
for further discussion. This ASU changes the impairment model
for certain financial instruments. The new model is a forward
looking expected loss model and applies to financial assets
subject to credit losses and measured at amortized cost and
certain off-balance sheet credit exposures. This includes loans,
held-to-maturity debt securities, loan commitments, financial
guarantees and trade receivables.
We also are exposed to credit risk through our clearing
operations with Nasdaq Clearing. See Note 16, “Clearing
Operations,” to the consolidated financial statements for further
discussion. Our clearinghouse holds material amounts of
clearing member cash deposits which are held or invested
primarily to provide security of capital while minimizing credit,
market and liquidity risks. While we seek to achieve a
reasonable rate of return, we are primarily concerned with
preservation of capital and managing the risks associated with
these deposits. As the clearinghouse may pass on interest
revenues (minus costs) to the members, this could include
negative or reduced yield due to market conditions. The
following is a summary of the risks associated with these
deposits and how these risks are mitigated.
• Credit Risk. When the clearinghouse has the ability to hold
cash collateral at a central bank, the clearinghouse utilizes
its access to the central bank system to minimize credit risk
exposures. When funds are not held at a central bank, we
seek to substantially mitigate credit risk by ensuring that
49
•
•
•
investments are primarily placed
government and supranational debt instruments.
in highly rated
Liquidity Risk. Liquidity risk is the risk a clearinghouse
may not be able to meet its payment obligations in the right
currency, in the right place and the right time. To mitigate
this risk, the clearinghouse monitors liquidity requirements
closely and maintains funds and assets in a manner which
minimizes the risk of loss or delay in the access by the
clearinghouse to such funds and assets. For example,
holding funds with a central bank where possible or
investing in highly liquid government or supranational
debt instruments serves to reduce liquidity risks.
Interest Rate Risk. Interest rate risk is the risk that interest
rates rise causing the value of purchased securities to
decline. If we were required to sell securities prior to
maturity, and interest rates had risen, the sale of the
securities might be made at a loss relative to the latest
market price. Our clearinghouse seeks to manage this risk
by making short term investments of members' cash
deposits. In addition, the clearinghouse investment
guidelines allow for direct purchases or repurchase
agreements of high quality sovereign debt (for example,
European government and U.S. Treasury securities),
supranational debt
central bank certificates and
instruments with short dated maturities.
Security Issuer Risk. Security issuer risk is the risk that an
issuer of a security defaults on its payment when the
security matures. This risk is mitigated by limiting
allowable investments and collateral under reverse
repurchase agreements
to high quality sovereign,
government agency or supranational debt instruments.
Critical Accounting Policies and Estimates
in
The preparation of financial statements and related disclosures
in conformity with U.S. GAAP requires management to make
judgments, assumptions, and estimates that affect the amounts
reported
the consolidated financial statements and
accompanying notes. Note 2, “Summary of Significant
Accounting Policies,” to the consolidated financial statements
describes the significant accounting policies and methods used
in the preparation of the consolidated financial statements. The
accounting policies described below are significantly affected
by critical accounting estimates. Such accounting policies
require significant judgments, assumptions, and estimates used
in the preparation of the consolidated financial statements, and
actual results could differ materially from the amounts reported
based on these policies.
Revenue Recognition
Corporate Services Revenues
Listing Services Revenues
Listing services revenues primarily include annual renewal fees
and initial listing fees. Annual renewal fees do not require any
judgments or assumptions by management as these amounts
are recognized ratably over the following 12-month period.
However, the initial listing fee is allocated to multiple
50
performance obligations including initial and subsequent listing
services and corporate solutions services (when a company
qualifies to receive these services under the applicable Nasdaq
rule), as well as a customer's material right to renew the option
to list on our exchanges.
In performing this allocation, the standalone selling price of the
performance obligations is based on the initial and annual listing
fees and the standalone selling price of the corporate solutions
services is based on its market value. All listing fees are billed
upfront and the identified performance obligations are satisfied
over time since the customer receives and consumes the benefit
as Nasdaq provides the listing service. The amount of revenue
related to the corporate solutions services performance
obligation is recognized ratably over a two-year period, which
is based on contract terms, with the remaining revenue
recognized ratably over six years which is based on our
historical listing experience and projected future listing
duration.
Market Technology Revenues
We enter into long-term contracts with customers to develop
customized technology solutions, license the right to use
software and provide support and other services to our
customers which results in these contracts containing multiple
performance obligations. We allocate the contract transaction
price to each performance obligation using our best estimate of
the standalone selling price of each distinct good or service in
the contract. In instances where standalone selling price is not
directly observable, such as when we do not sell the product or
service separately, we determine the standalone selling price
predominantly through an expected cost plus a margin
approach.
We generally recognize revenue over time as our customers
simultaneously receive and consume the benefits provided by
our performance because our customer controls the asset for
which we are creating, our performance does not create an asset
with alternative use, and we have a right to payment for
performance completed to date. For these services, we
recognize revenue over time using costs incurred to date relative
to total estimated costs at completion to measure progress
toward satisfying our performance obligation. Incurred costs
represent work performed, which corresponds with, and
thereby depicts, the transfer of control to the customer.
Accounting for our long-term contracts requires judgment
relative to assessing risks and their impact on the estimate of
revenues and costs. Our estimates are impacted by factors such
as the potential for schedule and technical issues, productivity,
and the complexity of work performed. When adjustments in
estimated total contract costs are required, any changes in the
estimated revenues from prior estimates are recognized in the
current period for the effect of such change. If estimates of total
costs to be incurred on a contract exceed estimates of total
revenues, a provision for the entire estimated loss on the
contract is recorded in the period in which the loss is determined.
For further discussion related to recognition of these fees, see
“Revenue From Contracts with Customers - Revenue
Recognition - Corporate Services - Listing Services,” and
“Revenue From Contracts with Customers - Revenue
Recognition - Market Technology,” of Note 2, “Summary of
Significant Accounting Policies,” to the consolidated financial
statements.
Goodwill and Related Impairment
Goodwill represents the excess of purchase price over the value
assigned to the net assets, including identifiable intangible
assets, of a business acquired. Goodwill is allocated to our
reporting units based on the assignment of the fair values of
each reporting unit of the acquired company. We test goodwill
for impairment at the reporting unit level annually, or in interim
periods if certain events occur indicating that the carrying
amount may be impaired, such as changes in the business
climate, poor indicators of operating performance or the sale
or disposition of a significant portion of a reporting unit. For
purposes of performing our goodwill impairment test, our five
reporting units are the Market Services segment, the two
businesses comprising the Corporate Services segment: Listing
Services and Corporate Solutions, the Information Services
segment, and the Market Technology segment. We test for
impairment during the fourth quarter of our fiscal year using
an October 1 measurement date. When testing goodwill for
impairment, we have the option of first performing a qualitative
assessment to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount
as the basis to determine if it is necessary to perform a
quantitative goodwill impairment test. In performing a
qualitative assessment, we consider the extent to which
unfavorable events or circumstances identified, such as changes
in economic conditions, industry and market conditions or
company specific events, could affect the comparison of the
reporting unit’s fair value with its carrying amount. If we choose
not to complete a qualitative assessment for a given reporting
unit, or if the initial assessment indicates that it is more likely
than not that the carrying amount of a reporting unit exceeds
its estimated fair value, a quantitative test is required.
When assessing goodwill for impairment, our decision to
perform a qualitative impairment assessment for a reporting
unit in a given year is influenced by a number of factors,
including but not limited to, the size of the reporting unit’s
goodwill, the significance of the excess of the reporting unit’s
estimated fair value over its carrying amount at the last
quantitative assessment date, and the amount of time in between
quantitative fair value assessments.
The quantitative goodwill impairment test consists of two steps
performed at the reporting unit level.
• The first step compares the estimated fair value of each
reporting unit to its corresponding carrying amount,
including goodwill. The fair value of each reporting unit
is estimated using a combination of discounted cash flow
valuation, which incorporates assumptions regarding
future growth rates, terminal values, and discount rates, as
well as guideline public company valuations, incorporating
relevant trading multiples of comparable companies and
other factors. The estimates and assumptions used consider
historical performance and are consistent with the
•
assumptions used in determining future profit plans for
each reporting unit, which are approved by our board of
directors. If the reporting unit’s estimated fair value
exceeds its estimated carrying amount, goodwill is not
impaired.
If the first step results in the carrying amount exceeding
the fair value of the reporting unit, then a second step must
be completed in order to determine the amount of goodwill
impairment that should be recorded, if any. In the second
step, the implied fair value of the reporting unit’s goodwill
is determined by allocating the reporting unit’s fair value
to all of its assets and liabilities other than goodwill in a
manner similar to a purchase price allocation. The implied
fair value of the goodwill that results from the application
of this second step is then compared to the carrying amount
of the goodwill and an impairment charge is recorded for
any difference.
On January 1, 2020, we adopted ASU 2017-04, “Simplifying
the Test for Goodwill Impairment,” or ASU 2017-04. See
“Goodwill,” of “Recent Accounting Pronouncements,” of Note
2, “Summary of Significant Accounting Policies,” to the
consolidated financial statements for further discussion.
The following table presents the balances of goodwill for our
reportable segments at the time of our 2019 annual impairment
test:
Market Services
Corporate Services
Information Services
Market Technology
October 1, 2019
(in millions)
3,292
439
2,238
263
6,232
$
$
In 2019, we performed a qualitative goodwill impairment test
for all reporting units, as the excesses of their fair values over
their respective carrying amounts at the time of the last
quantitative test in 2017 were significant. In conducting the
qualitative assessment, we evaluated the performance of each
of these reporting units since the last quantitative test, as well
as future financial projections to determine if there were any
changes in the key inputs used to determine the fair values of
each reporting unit. We also considered the qualitative factors
in FASB Accounting Standards Codification Topic 350,
“Intangibles–Goodwill and Other,” as well as other relevant
events and circumstances. Based on the results of the qualitative
assessment for each reporting unit, we concluded based on a
predominance of positive indicators and the weight of such
indicators that the fair values of our reporting units are more
likely than not greater than their respective carrying amounts
and as a result, quantitative analyses were not needed. No
goodwill impairment was recorded in 2019, 2018 and 2017.
Although we believe our estimates of fair value are reasonable,
the determination of certain valuation inputs is subject to
management’s judgment. Changes in these inputs could
materially affect the results of our impairment review. If our
51
forecasts of cash flows or other key inputs are negatively revised
in the future, the estimated fair value of each reporting unit
would be adversely impacted, potentially leading to an
impairment in the future that could materially affect our
operating results.
Subsequent to our annual impairment test, no indications of
impairment were identified.
Indefinite-Lived Intangible Assets and Related Impairment
Intangible assets deemed to have indefinite useful lives,
primarily exchange and clearing registrations, are not amortized
but instead are tested for impairment at least annually and more
frequently whenever events or changes in circumstances
indicate that the fair value of the asset may be less than its
carrying amount. Similar to goodwill impairment testing, we
test for impairment of indefinite-lived intangible assets during
the fourth quarter of our fiscal year using an October 1
measurement date and may first perform a qualitative
assessment, considering similar factors as discussed above in
the goodwill impairment discussion, to determine if it is more
likely than not that the fair value of the indefinite-lived
intangible asset is less than its carrying amount. If we elect to
perform or are required to perform a quantitative assessment,
the test consists of a comparison of the fair value of the
indefinite-lived intangible asset to its carrying amount as of the
impairment testing date. If the carrying amount of the
indefinite-lived intangible asset exceeds its fair value, an
impairment charge is recorded for the difference. The fair value
of indefinite-lived intangible assets is primarily determined on
the basis of estimated discounted value, using the Greenfield
Approach for exchange and clearing registrations and licenses
and the relief from royalty approach or excess earnings
approach for trade names, both of which incorporate
assumptions regarding future revenue projections and discount
rates. During our annual indefinite-lived intangible asset
impairment test during the fourth quarter of 2019, we performed
a qualitative test as the excess fair value of each individual
indefinite-lived intangible asset over its respective carrying
amount at the time of the last quantitative test in 2017 was
significant. Based on the results of the qualitative assessment,
we concluded based on a predominance of positive indicators
and the weight of such indicators that the fair values of our
indefinite-lived intangible assets are more likely than not
greater than their respective carrying amounts and as a result,
quantitative analyses were not needed. There were no
indefinite-lived intangible asset impairment charges in 2019,
2018 and 2017.
Subsequent to our annual indefinite-lived impairment test, no
indications of impairment were identified.
Other Long-Lived Assets and Related Impairment
We review our other long-lived assets, such as finite-lived
intangible assets, equity method investments and equity
securities, as well as property and equipment, for potential
impairment when there is evidence that events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. The carrying amount of an asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the
asset. Fair value of finite-lived intangible assets and property
and equipment is based on various valuation techniques. We
evaluate our equity method investments for other-than-
temporary declines in value by considering a variety of factors
such as the earnings capacity of the investment and the fair
value of the investment compared to its carrying amount. In
addition, for investments where the market value is readily
determinable, we consider the underlying stock price as an
additional factor. For equity securities, when assessing
investments in private companies for impairment, we consider
such factors as, among others, the share price from the investee's
latest financing round, the performance of the investee in
relation to its own operating targets, the investee's liquidity and
cash position, and general market conditions. Any required
impairment loss is measured as the amount by which the
carrying amount of the asset exceeds its fair value and is
recorded as a reduction in the carrying amount of the related
asset and a charge to operating results.
No material impairments were recorded to reduce the carrying
value of our finite-lived intangible assets, equity method
investments or equity securities during 2019, 2018 or 2017.
We recorded pre-tax, non-cash property and equipment asset
impairment charges of $24 million in 2019. The asset
impairment charge in 2019 primarily related to capitalized
software that was retired and is included in restructuring charges
in the Consolidated Statements of Income for 2019. See Note
21, “Restructuring Charges,” to the consolidated financial
statements for a discussion of our 2019 restructuring plan. There
were no other material impairments of property and equipment
recorded in 2019, 2018 or 2017.
Income Taxes
Estimates and judgments are required in the calculation of
certain tax liabilities and in the determination of the
recoverability of certain deferred tax assets, which arise from
net operating loss carryforwards, tax credit carryforwards and
temporary differences between the tax and financial statement
recognition of revenue and expense. Our deferred tax assets are
reduced by a valuation allowance if it is more likely than not
that some portion or all of the recorded deferred tax assets will
not be realized in future periods. Management is required to
determine whether a tax position is more likely than not to be
sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits of
the position. Once it is determined that a position meets the
recognition thresholds, the position is measured to determine
the amount of benefit to be recognized in the consolidated
financial statements.
In assessing the need for a valuation allowance, we consider all
available evidence including past operating results, the
existence of cumulative losses in the most recent fiscal years,
estimates of future taxable income and the feasibility of tax
planning strategies. In the event that we change our
determination as to the amount of deferred tax assets that can
be realized, we will adjust our valuation allowance with a
52
corresponding impact to the provision for income taxes in the
period in which such determination is made.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
In addition, the calculation of our tax liabilities involves
uncertainties in the application of tax regulations in the U.S.
and other tax jurisdictions. We recognize potential liabilities for
anticipated tax audit issues in such jurisdictions based on our
estimate of whether, and the extent to which, additional taxes
and interest may be due. While we believe that our tax liabilities
reflect the probable outcome of identified tax uncertainties, it
is reasonably possible that the ultimate resolution of any tax
matter may be greater or less than the amount accrued. If events
occur and the payment of these amounts ultimately proves
unnecessary, the reversal of the liabilities would result in tax
benefits being recognized in the period when we determine the
liabilities are no longer necessary. If our estimate of tax
liabilities proves to be less than the ultimate assessment, a
further charge to expense would result.
Recent Accounting Pronouncements
See “Recent Accounting Pronouncements,” of Note 2,
“Summary of Significant Accounting Policies,”
the
consolidated financial statements for further discussion of
recently adopted accounting pronouncements
that are
applicable to Nasdaq.
to
Information about quantitative and qualitative disclosures
about market risk is incorporated herein by reference from
“Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Quantitative and
Qualitative Disclosures About Market Risk.”
Item 8. Financial Statements and Supplementary Data
statements,
Nasdaq’s consolidated
including
financial
Consolidated Balance Sheets as of December 31, 2019 and
2018, Consolidated Statements of Income for the years ended
December 31, 2019, 2018 and 2017, Consolidated Statements
of Comprehensive Income for the years ended December 31,
2019, 2018 and 2017, Consolidated Statements of Changes in
Stockholders' Equity for the years ended December 31, 2019,
2018 and 2017, Consolidated Statements of Cash Flows for the
years ended December 31, 2019, 2018 and 2017 and notes to
our consolidated financial statements, together with a report
thereon of Ernst & Young LLP, dated February 25, 2020, are
attached hereto as pages F-1 through F-49 and incorporated by
reference herein.
Summarized Quarterly Financial Data (Unaudited)
* * * * * *
Total revenues
Transaction-based expenses
Revenues less transaction-based expenses
Total operating expenses
Operating income
Net income attributable to Nasdaq
Basic earnings per share
Diluted earnings per share
Cash dividends declared per common share
Total revenues
Transaction-based expenses
Revenues less transaction-based expenses
Total operating expenses
Operating income
Net income (loss) attributable to Nasdaq
Basic earnings (loss) per share
Diluted earnings (loss) per share
Cash dividends declared per common share
1st Qtr
2019
2nd Qtr
3rd Qtr
2019
2019
4th Qtr
2019
(in millions, except per share amounts)
1,039
(405)
634
359
275
247
1.49
1.48
0.44
$
$
$
$
$
1,061
(438)
623
367
256
174
1.05
1.04
0.47
$
$
$
$
$
1,096
(464)
632
406
226
150
0.91
0.90
0.47
$
$
$
$
$
1,065
(419)
646
386
260
202
1.23
1.21
0.47
1st Qtr
2018
2nd Qtr
3rd Qtr
2018
2018
4th Qtr
2018
(in millions, except per share amounts)
1,151
(485)
666
393
273
177
1.06
1.05
0.82
$
$
$
$
$
1,027
(412)
615
346
269
162
0.98
$
$
$
0.97
$
— $
964
(364)
600
354
246
163
0.99
0.97
0.44
$
$
$
$
$
1,136
(491)
645
404
241
(44)
(0.27)
(0.27)
0.44
$
$
$
$
$
$
$
$
$
$
53
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure controls and procedures. Nasdaq’s management, with the participation of Nasdaq’s President and Chief Executive
Officer, and Executive Vice President, Corporate Strategy and Chief Financial Officer, has evaluated the effectiveness of Nasdaq’s
disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of the end of the
period covered by this report. Based upon that evaluation, Nasdaq’s President and Chief Executive Officer and Executive Vice
President, Corporate Strategy and Chief Financial Officer, have concluded that, as of the end of such period, Nasdaq’s disclosure
controls and procedures are effective.
Changes in internal control over financial reporting. During the quarter ended June 30, 2019, we implemented a new enterprise
resource planning, or ERP, system, by transitioning certain of our operations, including the general ledger, to the new ERP
system. We have modified our existing controls infrastructure, as well as added other processes and internal controls, to adapt to
our new ERP system and to take advantage of the increased functionality of the new system.
There have been no changes in Nasdaq’s internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f)
under the Exchange Act) that occurred during the quarter ended December 31, 2019 that have materially affected, or are reasonably
likely to materially affect, Nasdaq’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for the preparation and integrity of the consolidated financial statements appearing in the reports that
we file with the SEC. The consolidated financial statements were prepared in conformity with U.S. generally accepted accounting
principles and include amounts based on management’s estimates and judgments.
Management is also responsible for establishing and maintaining adequate internal control over Nasdaq’s financial reporting.
Although there are inherent limitations in the effectiveness of any system of internal control over financial reporting, we maintain
a system of internal control that is designed to provide reasonable assurance as to the fair and reliable preparation and presentation
of the consolidated financial statements, as well as to safeguard assets from unauthorized use or disposition that could have a
material effect on the financial statements.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) (2013 framework). This evaluation included review of the documentation of controls, evaluation
of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based
on its assessment, our management believes that, as of December 31, 2019, our internal control over financial reporting is effective.
Ernst & Young LLP, an independent registered public accounting firm, has issued an attestation report on Nasdaq’s internal control
over financial reporting, which is included herein.
54
To the Shareholders and the Board of Directors of Nasdaq, Inc.
Report of Independent Registered Public Accounting Firm
Opinion on Internal Control over Financial Reporting
We have audited Nasdaq, Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, Nasdaq, Inc. (the Company) maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, and the related consolidated
statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the
period ended December 31, 2019, and the related notes and our report dated February 25, 2020 expressed an unqualified opinion
thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
New York, New York
February 25, 2020
55
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information about Nasdaq’s directors, as required by Item 401 of Regulation S-K, is incorporated by reference from the discussion
under the caption “Board of Directors-Proposal I: Election of Directors” in Nasdaq’s Proxy Statement. Information about Nasdaq’s
executive officers, as required by Item 401 of Regulation S-K, is incorporated by reference from the discussion under the caption
“Other Items-Executive Officers” in the Proxy Statement. Information about Section 16 reports, as required by Item 405 of
Regulation S-K, is incorporated by reference from the discussion under the caption “Other Items-Delinquent Section 16(a) Reports”
in the Proxy Statement. Information about Nasdaq’s code of ethics, as required by Item 406 of Regulation S-K, is incorporated by
reference from the discussion under the caption “Our Ethical Culture” in the Proxy Statement. Information about Nasdaq’s
nomination procedures, audit committee and audit committee financial experts, as required by Items 407(c)(3), 407(d)(4) and
407(d)(5) of Regulation S-K, is incorporated by reference from the discussions under the headings “Board of Directors-Proposal
I: Election of Directors” and “Board of Directors-Board Committees” in the Proxy Statement.
Item 11. Executive Compensation
Information about Nasdaq’s director and executive compensation, as required by Items 402, 407(e)(4) and 407(e)(5) of Regulation
S-K, is incorporated by reference from the discussions under the headings “Board of Directors-Director Compensation” and
“Named Executive Officer Compensation” in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information about security ownership of certain beneficial owners and management, as required by Item 403 of Regulation S-K,
is incorporated by reference from the discussion under the heading “Other Items-Security Ownership of Certain Beneficial Owners
and Management” in the Proxy Statement.
Equity Compensation Plan Information
Nasdaq’s Equity Plan provides for the issuance of our equity securities to our officers and other employees, directors and consultants.
In addition, nearly all employees of Nasdaq and its subsidiaries are eligible to participate in the ESPP at 85.0% of the fair market
value of our common stock on the price calculation date. Employees in certain of our locations are ineligible due to local securities
laws and regulations. In jurisdictions where participation in the ESPP is permitted, all of our employees may participate. The
Equity Plan and the ESPP have been approved previously by our stockholders. The following table sets forth information regarding
outstanding options and shares reserved for future issuance under all of Nasdaq’s compensation plans as of December 31, 2019.
Plan Category
Equity compensation plans approved by
stockholders
Equity compensation plans not approved by
stockholders
Total
____________
Number of shares
to be issued upon exercise
of outstanding options,
warrants and rights(a)(1)
Weighted-average
exercise price of
outstanding options,
warrants and rights(b)
Number of shares
remaining available
for future issuance under
equity
compensation plans
(excluding shares
reflected in column(a))(c)
379,102
$
—
379,102
$
54.32
—
54.32
12,082,402 (2)
—
12,082,402 (2)
(1) The amounts in this column include only the number of shares to be issued upon exercise of outstanding options, warrants
and rights. As of December 31, 2019, we also had 2,601,458 shares to be issued upon vesting of outstanding restricted stock
and PSUs.
(2) This amount includes 10,427,582 shares of common stock that may be awarded pursuant to the Equity Plan and 1,654,820
shares of common stock that may be issued pursuant to the ESPP.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information about certain relationships and related transactions, as required by Item 404 of Regulation S-K, is incorporated herein
by reference from the discussion under the heading “Other Items-Certain Relationships and Related Transactions” in the Proxy
Statement. Information about director independence, as required by Item 407(a) of Regulation S-K, is incorporated herein by
reference from the discussion under the heading “Board of Directors-Proposal I: Election of Directors” in the Proxy Statement.
56
Item 14. Principal Accounting Fees and Services
Information about principal accounting fees and services, as required by Item 9(e) of Schedule 14A, is incorporated herein by
reference from the discussion under the heading “Audit Committee Matters-Annual Evaluation and 2020 Selection of Independent
Auditors” in the Proxy Statement.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
See “Index to Consolidated Financial Statements.”
(a)(2) Financial Statement Schedules
All schedules are omitted because they are not applicable or the required information is included in the consolidated financial
statements or notes.
(a)(3) Exhibits
Exhibit Number
Exhibit Index
Purchase Agreement, dated as of April 1, 2013, among Nasdaq, Inc. (f/k/a The NASDAQ OMX Group, Inc.),
BGC Partners, Inc., BGC Holdings, L.P., BGC Partners, L.P., and, solely for purposes of certain sections thereof,
Cantor Fitzgerald, L.P. (incorporated herein by reference to Exhibit 2.1 to the Quarterly Report on Form 10-Q for
the quarter ended June 30, 2013 filed on August 8, 2013).
Amended and Restated Certificate of Incorporation of Nasdaq (incorporated herein by reference to Exhibit 3.1 to
the Current Report on Form 8-K filed on January 28, 2014).
Certificate of Elimination of Nasdaq’s Series A Convertible Preferred Stock (incorporated herein by reference to
Exhibit 3.1.1 to the Current Report on Form 8-K filed on January 28, 2014).
Certificate of Amendment of Nasdaq’s Amended and Restated Certificate of Incorporation (incorporated herein
by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on November 19, 2014).
Certificate of Amendment of Nasdaq’s Amended and Restated Certificate of Incorporation (incorporated herein
by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on September 8, 2015).
Nasdaq’s By-Laws (incorporated herein by reference to Exhibit 3.2 to the Current Report on Form 8-K filed on
November 21, 2016).
Form of Common Stock certificate (incorporated herein by reference to Exhibit 4.1 to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 2015 filed on November 4, 2015).
Stockholders’ Agreement, dated as of February 27, 2008, between Nasdaq, Inc. (f/k/a The NASDAQ OMX Group,
Inc.) and Borse Dubai Limited (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form
8-K filed on March 3, 2008).
First Amendment to Stockholders’ Agreement, dated as of February 19, 2009, between Nasdaq, Inc. (f/k/a The
NASDAQ OMX Group, Inc.) and Borse Dubai Limited (incorporated herein by reference to Exhibit 4.10.1 to the
Annual Report on Form 10-K for the year ended December 31, 2008 filed on February 27, 2009).
Registration Rights Agreement, dated as of February 27, 2008, among Nasdaq, Inc. (f/k/a The NASDAQ OMX
Group, Inc.), Borse Dubai Limited and Borse Dubai Nasdaq Share Trust (incorporated herein by reference to
Exhibit 10.3 to the Current Report on Form 8-K filed on March 3, 2008).
First Amendment to Registration Rights Agreement, dated as of February 19, 2009, among Nasdaq, Inc. (f/k/a
The NASDAQ OMX Group, Inc.), Borse Dubai Limited and Borse Dubai Nasdaq Share Trust (incorporated herein
by reference to Exhibit 4.11.1 to the Annual Report on Form 10-K for the year ended December 31, 2008 filed
on February 27, 2009).
Stockholders’ Agreement, dated as of December 16, 2010, between Nasdaq, Inc. (f/k/a The NASDAQ OMX
Group, Inc.) and Investor AB (incorporated herein by reference to Exhibit 4.12 to the Annual Report on Form 10-
K for the year ended December 31, 2010 filed on February 24, 2011).
Indenture, dated as of June 7, 2013, between Nasdaq, Inc. (f/k/a The NASDAQ OMX Group, Inc.) and Wells
Fargo Bank, National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Current Report
on Form 8-K filed on June 10, 2013).
2.1
3.1
3.1.1
3.1.2
3.1.3
3.2
4.1
4.2
4.2.1
4.3
4.3.1
4.4
4.5
57
First Supplemental Indenture, dated as of June 7, 2013, among Nasdaq, Inc. (f/k/a The NASDAQ OMX Group,
Inc.), Wells Fargo Bank, National Association, as Trustee, Deutsche Bank AG, London Branch, as paying agent,
and Deutsche Bank Luxembourg S.A., as registrar and transfer agent (incorporated herein by reference to Exhibit
4.2 to the Current Report on Form 8-K filed on June 10, 2013).
Second Supplemental Indenture, dated as of May 29, 2014, among Nasdaq, Inc. (f/k/a The NASDAQ OMX Group,
Inc.) and Wells Fargo Bank, National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to
the Current Report on Form 8-K filed on May 30, 2014).
Third Supplemental Indenture, dated as of May 20, 2016, among Nasdaq, Inc., Wells Fargo Bank, National
Association, as Trustee, and HSBC Bank USA, National Association, as paying agent and as registrar and transfer
agent (incorporated herein by reference to the Current Report on Form 8-K filed on May 23, 2016).
Fifth Supplemental Indenture, dated as of September 22, 2017, among Nasdaq, Inc. and Wells Fargo Bank,
National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form
8-K filed on September 22, 2017).
Sixth Supplemental Indenture, dated as of April 1, 2019, among Nasdaq, Inc., Wells Fargo Bank, National
Association, as Trustee, and HSBC Bank USA, National Association, as paying agent and as registrar and transfer
agent (incorporated by reference to Exhibit 4.2 to the Form 8-A filed on April 1, 2019).
Registration Rights Agreement, dated as of June 28, 2013, by and among Nasdaq, Inc. (f/k/a The NASDAQ OMX
Group, Inc.), BGC Partners, Inc., BGC Holdings, L.P. and BGC Partners, L.P. (incorporated herein by reference
to Exhibit 10.1 to the Current Report on Form 8-K filed on July 1, 2013).
Description of Securities.
Amended and Restated Board Compensation Policy, effective on April 23, 2019 (incorporated herein by reference
to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 filed on August 5,
2019).*
Nasdaq Executive Corporate Incentive Plan, effective as of January 1, 2015 (incorporated herein by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed on May 11, 2015).*
Nasdaq, Inc. Equity Incentive Plan (as amended and restated as of April 24, 2018) (incorporated herein by reference
to Exhibit 10.1 to the Form S-8 filed on May 25, 2018).*
Form of Nasdaq Non-Qualified Stock Option Award Certificate (incorporated herein by reference to Exhibit 10.3
to the Annual Report on Form 10-K for the year ended December 31, 2010 filed on February 24, 2011).*
Form of Nasdaq Restricted Stock Unit Award Certificate (employees) (incorporated herein by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 filed on August 5,
2019).*
Form of Nasdaq Restricted Stock Unit Award Certificate (directors) (incorporated herein by reference to
Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 filed on August 5,
2019).*
Form of Nasdaq One-Year Performance Share Unit Agreement (incorporated herein by reference to Exhibit
10.4 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 filed on August 5, 2019).*
Form of Nasdaq Three-Year Performance Share Unit Agreement (incorporated herein by reference to Exhibit
10.5 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 filed on August 5, 2019).*
Form of Nasdaq Continuing Obligations Agreement (incorporated herein by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 filed on May 10, 2017).*
4.6
4.7
4.8
4.9
4.10
4.11
4.12
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Amended and Restated Supplemental Executive Retirement Plan, dated as of December 17, 2008 (incorporated
herein by reference to Exhibit 10.6 to the Annual Report on Form 10-K for the year ended December 31, 2008
filed on February 27, 2009).*
Amendment No. 1 to Amended and Restated Supplemental Executive Retirement Plan, effective as of
December 31, 2008 (incorporated herein by reference to Exhibit 10.6.1 to the Annual Report on Form 10-K for
the year ended December 31, 2008 filed on February 27, 2009).*
Nasdaq Supplemental Employer Retirement Contribution Plan, dated as of December 17, 2008 (incorporated
herein by reference to Exhibit 10.7 to the Annual Report on Form 10-K for the year ended December 31, 2008
filed on February 27, 2009).*
Employment Agreement between Nasdaq and Adena Friedman, made and entered into on November 14, 2016
and effective as of January 1, 2017 (incorporated herein by reference to Exhibit 10.10 to the Annual Report on
Form 10-K for the year ended December 31, 2016 filed on March 1, 2017).*
10.10
10.10.1
10.11
10.12
58
Nonqualified Stock Option Award Certificate to Adena T. Friedman from Nasdaq, Inc. in connection with grant
made on January 3, 2017 (incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-
Q for the quarter ended September 30, 2017 filed on November 7, 2017).*
Employment Offer Letter, dated as of May 10, 2016, between Nasdaq, Inc. and Michael Ptasznik (incorporated
herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017
filed on May 10, 2017).*
Employment Agreement between Nasdaq and Bradley J. Peterson, dated August 1, 2016 (incorporated herein by
reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 filed
on November 8, 2016).*
Employment Offer Letter, dated as of April 30, 2019, between Nasdaq, Inc. and Lauren B. Dillard
(incorporated herein by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 2019 filed on August 5, 2019).*
Nasdaq Change in Control Severance Plan for Executive Vice Presidents and Senior Vice Presidents, effective
November 26, 2013 (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
on November 29, 2013).*
Credit Agreement, dated as of April 25, 2017, among Nasdaq, Inc., the various lenders from time to time party
thereto, Bank of America, N.A., as administrative agent and an issuing bank, and the other financial institutions
party thereto (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on
April 26, 2017).
Form of Commercial Paper Dealer Agreement between Nasdaq, Inc., as Issuer, and the Dealer party thereto
(incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on April 26, 2017).
Statement regarding computation of per share earnings (incorporated herein by reference from Note 14 to the
consolidated financial statements under Part II, Item 8 of this Form 10-K).
List of all subsidiaries.
Consent of Ernst & Young LLP.
Powers of Attorney.
Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(“Sarbanes-Oxley”).
Certification of Executive Vice President, Corporate Strategy and Chief Financial Officer pursuant to Section 302
of Sarbanes-Oxley.
Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley.
The following materials from the Nasdaq, Inc. Annual Report on Form 10-K for the year ended December 31,
2019, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as
of December 31, 2019 and December 31, 2018; (ii) Consolidated Statements of Income for the years ended
December 31, 2019, 2018 and 2017; (iii) Consolidated Statements of Comprehensive Income for the years ended
December 31, 2019, 2018 and 2017; (iv) Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 2019, 2018 and 2017; (v) Consolidated Statements of Cash Flows for the years ended
December 31, 2019, 2018 and 2017; and (vi) notes to consolidated financial statements.
Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101.
10.13
10.14
10.15
10.16
10.17
10.18
10.19
11
21.1
23.1
24.1
31.1
31.2
32.1
101
104
____________
* Management contract or compensatory plan or arrangement.
† Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K.
(b) Exhibits:
See Item 15(a)(3) above.
(c) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required information is included in the consolidated
financial statements or notes.
Item 16. Form 10-K Summary
None.
59
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 25, 2020.
SIGNATURES
Nasdaq, Inc.
(Registrant)
By:
Name:
Title:
/s/ Adena T. Friedman
Adena T. Friedman
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated as of February 25, 2020.
Name
Title
/s/ Adena T. Friedman
Adena T. Friedman
President and Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Michael Ptasznik
Michael Ptasznik
/s/ Ann M. Dennison
Ann M. Dennison
*
Michael R. Splinter
*
Melissa M. Arnoldi
*
Charlene T. Begley
*
Steven D. Black
*
Essa Kazim
*
Thomas A. Kloet
*
John D. Rainey
*
Jacob Wallenberg
*
Lars R. Wedenborn
*
Alfred W. Zollar
Executive Vice President, Corporate Strategy and Chief Financial Officer
(Principal Financial Officer)
Senior Vice President and Controller
(Principal Accounting Officer)
Chairman of the Board
Director
Director
Director
Director
Director
Director
Director
Director
Director
* Pursuant to Power of Attorney
By:
/s/ John A. Zecca
John A. Zecca
Attorney-in-Fact
60
Nasdaq, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of Nasdaq, Inc. and its subsidiaries are presented herein on the page indicated:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Nasdaq, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Nasdaq, Inc. (the Company) as of December 31, 2019 and
2018, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for
each of the three years in the period ended December 31, 2019 and the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated February 25, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for Leases in
2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842).
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
F-2
Description of
the Matter
Market Technology Revenue Recognition
As described in Notes 3 and 9 to the consolidated financial statements, the Company enters into long-term
market technology contracts with customers to develop customized technology solutions, license the right to
use software, and provide support and other services which results in these contracts containing multiple
performance obligations. The Company recorded market technology deferred revenue of $66 million as of
December 31, 2019 and recognized $338 million in revenue for the year ended December 31, 2019. The Company
allocates the contract transaction price to each performance obligation using their best estimate of the standalone
selling price of each distinct good or service in the respective market technology contract. In instances where
standalone selling price is not directly observable, such as when a product or service is not sold separately, the
Company determines the standalone selling price predominantly through an expected cost plus a margin
approach. The Company recognizes revenue over time using costs incurred to date relative to total estimated
costs at completion to measure progress toward satisfying the performance obligation. Auditing the Company’s
calculation of the standalone selling price and timing of revenue recognition was complex and involved a high
degree of subjective auditor judgment because of the significant management judgment required to develop
the estimates. The standalone selling price is based on an estimate of total project costs, ongoing monitoring
of completion of performance obligations and establishing margins for goods or services where a standalone
selling price is not directly observable.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the
Company's processes with respect to estimates that impact the timing and measurement of revenue recognition.
For example, we tested controls over the allocation of contract transaction price to performance obligations,
including management’s review of the estimated margin used when applying the cost plus an estimated margin
to determine the standalone selling price. We also evaluated the design and tested the operating effectiveness
of controls over the completeness and accuracy of the data utilized to measure the estimate and recognize the
revenue in the appropriate period.
We performed substantive audit procedures that included, among other things, evaluating the significant
assumptions and the accuracy and completeness of the underlying data used in management’s calculation.
Specifically, we inspected certain customer contracts, including contract modifications, and tested
management’s determination of the standalone selling price and its allocation to performance obligations in
accordance with the cost plus a margin approach, including comparing the margin assumptions to actual margins
earned on completed contracts. We also tested the accuracy of the revenue recognized in the current period by
inspecting reports relating to the hours recorded on a project. We evaluated the adequacy of the Company’s
disclosures in notes 3 and 9 to the consolidated financial statements related to market technology revenue
recognition.
We have served as the Company’s auditor since 1986.
New York, New York
February 25, 2020
F-3
Nasdaq, Inc.
Consolidated Balance Sheets
(in millions, except share and par value amounts)
December 31, 2019
December 31, 2018
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Financial investments
Receivables, net
Default funds and margin deposits
Other current assets
Total current assets
Property and equipment, net
Goodwill
Intangible assets, net
Operating lease assets
Other non-current assets
Total assets
Liabilities
Current liabilities:
Accounts payable and accrued expenses
Section 31 fees payable to SEC
Accrued personnel costs
Deferred revenue
Other current liabilities
Default funds and margin deposits
Short-term debt
Total current liabilities
Long-term debt
Deferred tax liabilities, net
Operating lease liabilities
Other non-current liabilities
Total liabilities
Commitments and contingencies
Equity
Nasdaq stockholders’ equity:
Common stock, $0.01 par value, 300,000,000 shares authorized, shares issued:
171,075,011 at December 31, 2019 and 170,709,425 at December 31, 2018; shares
outstanding: 165,094,440 at December 31, 2019 and 165,165,104 at December 31, 2018
Additional paid-in capital
Common stock in treasury, at cost: 5,980,571 shares at December 31, 2019 and
5,544,321 shares at December 31, 2018
Accumulated other comprehensive loss
Retained earnings
Total Nasdaq stockholders’ equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
F-4
$
$
$
$
$
$
332
30
291
422
2,996
219
4,290
384
6,366
2,249
346
289
13,924
148
132
188
211
161
2,996
391
4,227
2,996
552
331
179
8,285
2
2,632
(336)
(1,686)
5,027
5,639
$
13,924
$
545
41
268
384
4,742
390
6,370
376
6,363
2,300
—
291
15,700
198
109
199
194
253
4,742
875
6,570
2,956
501
—
224
10,251
2
2,716
(297)
(1,530)
4,558
5,449
15,700
Nasdaq, Inc.
Consolidated Statements of Income
(in millions, except per share amounts)
Revenues:
Market Services
Corporate Services
Information Services
Market Technology
Other revenues
Total revenues
Transaction-based expenses:
Transaction rebates
Brokerage, clearance and exchange fees
Revenues less transaction-based expenses
Operating expenses:
Compensation and benefits
Professional and contract services
Computer operations and data communications
Occupancy
General, administrative and other
Marketing and advertising
Depreciation and amortization
Regulatory
Merger and strategic initiatives
Restructuring charges
Total operating expenses
Operating income
Interest income
Interest expense
Gain on sale of investment security
Net gain on divestiture of businesses
Other income
Net income from unconsolidated investees
Income before income taxes
Income tax provision
Net income attributable to Nasdaq
Per share information:
Basic earnings per share
Diluted earnings per share
Cash dividends declared per common share
Years Ended December 31,
2019
2018
2017
$
$
$
$
$
2,639
496
779
338
10
4,262
(1,327)
(400)
2,535
707
127
133
97
125
39
190
31
30
39
1,518
1,017
10
(124)
—
27
5
84
1,019
245
774
4.69
4.63
1.85
$
$
$
$
$
$
2,709
487
714
270
97
4,277
2,418
459
588
247
236
3,948
(1,344)
(407)
2,526
(1,158)
(379)
2,411
712
144
127
95
120
37
210
32
21
—
1,498
1,028
10
(150)
118
33
7
18
1,064
606
458
2.77
2.73
1.70
$
$
$
$
670
153
125
94
82
31
188
33
44
—
1,420
991
7
(143)
—
—
2
15
872
143
729
4.38
4.30
1.46
See accompanying notes to consolidated financial statements.
F-5
Nasdaq, Inc.
Consolidated Statements of Comprehensive Income
(in millions)
Net income
Other comprehensive income (loss):
Foreign currency translation gains (losses)
Income tax expense(1)
Foreign currency translation, net
Employee benefit plan adjustment gains (losses)
Employee benefit plan income tax (benefit) expense
Employee benefit plan, net
Total other comprehensive income (loss), net of tax(2)
Comprehensive income attributable to Nasdaq
Years Ended December 31,
2019
2018
2017
$
774
$
458
$
729
(122)
(31)
(153)
(4)
1
(3)
(240)
(11)
(251)
9
(9)
—
(156)
618
$
(251)
207
$
$
214
(96)
118
(2)
1
(1)
117
846
____________
(1) Primarily relates to the tax effect of unrealized gains on Euro denominated notes.
(2) Excludes a reclassification impact of $417 million from accumulated other comprehensive income to retained earnings within
stockholders' equity in the Consolidated Statements of Changes in Stockholders' Equity for stranded tax effects related to the
Tax Cuts and Jobs Act.
See accompanying notes to consolidated financial statements.
F-6
Nasdaq, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(in millions)
Common stock
Additional paid-in capital
Beginning balance
Share repurchase program
Share-based compensation
Stock option exercises, net
Other issuances of common stock, net
Ending balance
Common stock in Treasury, at Cost
Beginning balance
Other employee stock activity
Ending balance
Accumulated Other Comprehensive Loss
Beginning balance
Other comprehensive income (loss)
Reclassification impact of Tax Reform
Ending balance
Retained Earnings
Beginning balance
Net income
Reclassification impact of Tax Reform
Cash dividends declared per common share
Ending balance
Year Ended December 31,
2019
2018
2017
Shares
165
$
2
Shares
167
$
2
Shares
167
$
2
(2)
1
0
0
0
2,716
(200)
79
2
35
2,632
(297)
(39)
(336)
(1,530)
(156)
—
(1,686)
4,558
774
—
(305)
5,027
(5)
2
0
0
0
3,024
(394)
69
3
14
2,716
(247)
(50)
(297)
(862)
(251)
(417)
(1,530)
3,963
458
417
(280)
4,558
(3)
2
1
0
(1)
3,104
(203)
70
24
29
3,024
(176)
(71)
(247)
(979)
117
—
(862)
3,477
729
—
(243)
3,963
Issuance of Nasdaq common stock related to a prior
acquisition
1
—
1
—
1
—
Total Stockholders' Equity
165
$
5,639
165
$
5,449
167
$
5,880
See accompanying notes to consolidated financial statements.
F-7
Nasdaq, Inc.
Consolidated Statements of Cash Flows
(in millions)
Year Ended December 31,
2019
2018
2017
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
774
$
458
$
Depreciation and amortization
Share-based compensation
Deferred income taxes
Reversal of certain Swedish tax benefits
Net gain on divestiture of businesses
Gain on sale of investment security
Non-cash restructuring charges
Net income from unconsolidated investees
Other reconciling items included in net income
Net change in operating assets and liabilities, net of effects of divestiture and acquisitions:
Receivables, net
Other assets
Accounts payable and accrued expenses
Section 31 fees payable to SEC
Accrued personnel costs
Deferred revenue
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of securities
Proceeds from sales and redemptions of securities
Proceeds from divestiture of businesses, net
Proceeds from sale of investment security
Acquisition of businesses, net of cash and cash equivalents acquired
Purchases of property and equipment
Other investing activities
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from (repayments of) commercial paper, net
Repayments of debt obligations
Payment of debt extinguishment cost
Proceeds from issuances of long-term debt, net of issuance costs
Repurchases of common stock
Dividends paid
Proceeds received from employee stock activity and other issuances
Payments related to employee shares withheld for taxes
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents and restricted cash
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of period
Cash and cash equivalents and restricted cash at end of period
Supplemental Disclosure Cash Flow Information
Cash paid for:
Interest
Income taxes, net of refund
190
79
35
—
(27)
—
25
(84)
19
(42)
(173)
(49)
23
(9)
(15)
217
963
(579)
543
132
11
(206)
(127)
(14)
(240)
116
(1,215)
(11)
680
(200)
(305)
37
(39)
(937)
(10)
(224)
586
362
120
205
$
$
$
210
69
301
41
(33)
(118)
—
(18)
15
(35)
(40)
33
(19)
37
7
120
1,028
(421)
374
286
169
(75)
(111)
(26)
196
(205)
(115)
—
—
(394)
(280)
17
(50)
(1,027)
(10)
187
399
586
148
221
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.
729
188
70
7
—
—
—
—
(15)
25
11
(30)
(12)
20
(41)
(29)
(14)
909
(392)
424
—
—
(776)
(144)
(2)
(890)
480
(708)
(9)
648
(203)
(243)
53
(71)
(53)
15
(19)
418
399
129
154
F-8
Nasdaq, Inc.
Notes to Consolidated Financial Statements
1. Organization and Nature of Operations
Nasdaq is a global technology company serving the capital
markets and other industries. Our diverse offerings of data,
analytics, software and services enables clients to optimize and
execute their business vision with confidence.
We manage, operate and provide our products and services in
four business segments: Market Services, Corporate Services,
Information Services and Market Technology.
Market Services
Our Market Services segment includes our Equity Derivative
Trading and Clearing, Cash Equity Trading, FICC and Trade
Management Services businesses. We operate multiple
exchanges and other marketplace facilities across several asset
classes, including derivatives, commodities, cash equity, debt,
structured products and ETPs. In addition, in some countries
where we operate exchanges, we also provide broker services,
clearing, settlement and central depository services. In October
2019, we sold the Nordic Fund Market, an electronic mutual
fund service which was a small unit of our Broker Services
business and in November 2019, we sold NFX’s futures
exchange business to a third party which acquired the core assets
of NFX, including the portfolio of open interest in NFX
contracts. Customers on the platform are migrating their open
interest to other exchanges. Also, in January 2020, management
commenced an orderly wind-down of our broker services
operations business. We expect this wind-down to continue
through the second quarter of 2021.
Our transaction-based platforms provide market participants
with the ability to access, process, display and integrate orders
and quotes. The platforms allow the routing and execution of
buy and sell orders as well as the reporting of transactions,
providing fee-based revenues.
For further discussion of our Market Services businesses, see
“Products and Services,” of “Item 1. Business.”
Corporate Services
Our Corporate Services segment includes our Listing Services
and Corporate Solutions businesses.
Our Listing Services business includes our U.S. and European
Listing Services businesses. We operate a variety of listing
platforms around the world to provide multiple global capital
raising solutions for private and public companies. Our main
listing markets are The Nasdaq Stock Market and the Nasdaq
Nordic and Nasdaq Baltic exchanges. Through Nasdaq First
North, our Nordic and Baltic operations also offer alternative
marketplaces for smaller companies and growth companies.
Our Listing Services business also includes NPM, which
provides liquidity solutions for private companies and private
funds.
We are continuing to grow our recently launched U.S. Corporate
Bond exchange for the listing and trading of corporate bonds.
F-9
This exchange operates pursuant to The Nasdaq Stock Market
exchange license and is powered by NFF.
As of December 31, 2019, there were 3,140 total listings on
The Nasdaq Stock Market, including 412 ETPs. The combined
market capitalization was approximately $14.9 trillion. In
Europe, the Nasdaq Nordic and Nasdaq Baltic exchanges,
together with Nasdaq First North, were home to 1,040 listed
companies with a combined market capitalization of
approximately $1.6 trillion.
Our Corporate Solutions business includes our Investor
Relations Intelligence and Governance Solutions businesses,
which serve both public and private companies and
organizations. Our public company clients can be companies
listed on our exchanges or other U.S. and global exchanges. We
help organizations enhance their ability to understand and
expand their global shareholder base and improve corporate
governance through our suite of advanced technology,
analytics, and consultative services. In October 2019, Nasdaq
acquired CBE, a provider of corporate governance and
compliance solutions for boards of directors, CEOs, corporate
secretaries and general counsels. Nasdaq combined CBE with
its Nasdaq Governance Solutions business, which includes
board portal and collaboration technology solutions. We expect
the combination will enhance Nasdaq's position as a leading
provider of technology, research, insights and consultative
services designed to advance governance excellence and
collaboration at organizations worldwide.
For further discussion of our Corporate Services businesses,
see “Products and Services,” of “Item 1. Business.”
In March 2019, we sold our BWise enterprise governance, risk
and compliance software platform and in April 2018, we sold
our Public Relations Solutions and Digital Media Services
businesses. See Note 4, “Acquisitions and Divestitures,” for
further discussion.
As of December 31, 2018, BWise was classified as held for
sale. See Note 5, “Assets and Liabilities Held for Sale,” for
further discussion.
For segment reporting purposes, we have included the revenues
and expenses of BWise and the Public Relations Solutions and
Digital Media Services businesses in corporate items. These
businesses were part of the Corporate Solutions business, within
our Corporate Services segment, prior to the date of sale. For
discussion of business segments, see Note 20, “Business
Segments.”
Information Services
Our Information Services segment includes our Market Data,
Index and Investment Data & Analytics businesses.
Our Market Data business sells and distributes historical and
real-time quote and trade information to the sell-side, the buy-
side, retail online brokers, proprietary trading shops, other
venues, internet portals and data distributors. Our market data
products enhance transparency of market activity within our
exchanges and provide critical information to professional and
non-professional investors globally.
Our Index business develops and licenses Nasdaq-branded
indexes, associated derivatives, and financial products and also
provides custom calculation services for third-party clients. As
of December 31, 2019, we had 332 ETPs licensed to Nasdaq’s
indexes which had $233 billion in AUM.
Our Investment Data & Analytics business is a leading content
and analytics cloud-based solutions provider used by asset
managers, investment consultants and asset owners to help
facilitate better investment decisions.
For further discussion of our Information Services businesses,
see “Products and Services,” of “Item 1. Business.”
necessary for a fair statement of the results. These adjustments
are of a normal recurring nature. All significant intercompany
accounts and
in
consolidation.
transactions have been eliminated
Certain prior year amounts have been reclassified to conform
to the current year presentation.
Use of Estimates
The preparation of consolidated financial statements in
conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts and
the disclosure of contingent amounts in the consolidated
financial statements and accompanying notes. Actual results
could differ from those estimates.
Market Technology
Foreign Currency
Our Market Technology segment is a leading global technology
solutions provider and partner
to exchanges, clearing
organizations, central securities depositories, regulators, banks,
brokers, buy-side firms and corporate businesses. Our Market
Technology business is the sales channel for our complete
global offering to other marketplaces. In January 2019, we
acquired Cinnober, a Swedish financial technology provider to
brokers, exchanges and clearinghouses worldwide.
and
settlement,
surveillance
Market Technology provides technology solutions for trading,
clearing,
information
dissemination to markets with wide-ranging requirements,
from the leading markets in the U.S., Europe and Asia to
emerging markets in the Middle East, Latin America, and
Africa. Our marketplace solutions can handle a wide array of
assets, including cash equities, equity derivatives, currencies,
interest-bearing securities, commodities, energy
various
products and digital currencies, and are currently powering
more than 100 marketplaces in more than 50 countries. Market
Technology also provides market surveillance services to
broker-dealer firms worldwide, as well as risk management
solutions.
For further discussion of our Market Technology business, see
“Products and Services,” of “Item 1. Business.”
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
in
The consolidated financial statements are prepared
accordance with U.S. GAAP and include the accounts of
Nasdaq, its wholly-owned subsidiaries and other entities in
which Nasdaq has a controlling financial interest. When we do
not have a controlling interest in an entity but exercise
significant influence over the entity’s operating and financial
policies, such investment is accounted for under the equity
method of accounting. We recognize our share of earnings or
losses of an equity method investee based on our ownership
percentage. See “Equity Method Investments,” of Note 7,
“Investments,” for further discussion of our equity method
investments.
The accompanying consolidated financial statements reflect all
adjustments which are, in the opinion of management,
Foreign denominated assets and liabilities are remeasured into
the functional currency at exchange rates in effect at the balance
sheet date and recorded through the income statement. Gains
or losses resulting from foreign currency transactions are
remeasured using the rates on the dates on which those elements
are recognized during the period, and are included in general,
administrative and other expense
the Consolidated
Statements of Income.
in
Translation gains or losses resulting from translating our
subsidiaries’ financial statements from the local functional
currency to the reporting currency, net of tax, are included in
accumulated other comprehensive loss within stockholders’
equity in the Consolidated Balance Sheets. Assets and liabilities
are translated at the balance sheet date while revenues and
expenses are translated at the date the transaction occurs or at
an applicable average rate.
Cash and Cash Equivalents
Cash and cash equivalents include all non-restricted cash in
banks and highly liquid investments with original maturities of
90 days or less at the time of purchase. Such equivalent
investments included in cash and cash equivalents in the
Consolidated Balance Sheets were $135 million as of
December 31, 2019 and $198 million as of December 31, 2018.
Cash equivalents are carried at cost plus accrued interest, which
approximates fair value due to the short maturities of these
investments.
Restricted Cash
Current restricted cash, which was $30 million as of
December 31, 2019 and $41 million as of December 31, 2018,
is restricted from withdrawal due to a contractual or regulatory
requirement or not available for general use and is classified as
restricted cash in the Consolidated Balance Sheets. As of
December 31, 2019 and 2018, current restricted cash primarily
includes restricted cash held for our trading and clearing
businesses.
Receivables, net
Our receivables are concentrated with our member firms,
market data distributors, listed companies and corporate
F-10
solutions and market technology customers. Receivables are
shown net of a reserve for uncollectible accounts. The reserve
for bad debts is maintained at a level that management believes
to be sufficient to absorb estimated losses in the accounts
receivable portfolio. The reserve is increased by the provision
for bad debts which is charged against operating results and
decreased by the amount of charge-offs, net of recoveries. The
provision for bad debts is included in general, administrative
and other expense in the Consolidated Statements of Income.
The amount charged against operating results is based on
several factors including, but not limited to, the length of time
a receivable is past due and our historical experience with the
particular customer. In circumstances where a specific
customer’s inability to meet its financial obligations is known
(i.e., bankruptcy filings), we record a specific provision for bad
debts against amounts due to reduce the receivable to the
amount we reasonably believe will be collected. Accounts
receivable are written-off against the reserve for bad debts when
collection efforts cease. Due to changing economic, business
and market conditions, we review the reserve for bad debts
monthly and make changes to the reserve through the provision
for bad debts as appropriate. If circumstances change (i.e.,
higher than expected defaults or an unexpected material adverse
change in a major customer’s ability to pay), our estimates of
recoverability could be reduced by a material amount. The total
reserve netted against receivables in the Consolidated Balance
Sheets was $9 million as of December 31, 2019, $13 million as
of December 31, 2018 and $9 million as of December 31, 2017.
The changes in the balance between periods was immaterial.
Investments
Purchases and sales of investment securities are recognized on
settlement date.
Financial investments
Financial investments are primarily comprised of short-term
investments with maturities greater than 90 days. These
investments are bought principally to meet regulatory capital
requirements mainly for our clearing operations at Nasdaq
Clearing. These investments are classified as trading securities
as they are generally sold in the near term. Changes in fair value
of trading securities are included in other income in the
Consolidated Statements of Income. Debt securities that are
classified as available-for-sale investment securities are
primarily comprised of commercial paper and are carried at fair
value with unrealized gains and losses, net of tax, reported in
accumulated other comprehensive loss within stockholders’
equity in the Consolidated Balance Sheets. Realized gains and
losses on these securities are included in earnings upon
disposition of the securities using the specific identification
method. In addition, realized losses are recognized when
management determines that a decline in value is other than
temporary, which requires judgment regarding the amount and
timing of recovery. For financial investments that are classified
as available-for-sale securities, we also consider the extent to
which cost exceeds fair value, the duration of that difference,
management’s judgment about the issuer’s current and
prospective financial condition, as well as our intent and ability
to hold the security until recovery of the unrealized losses.
Fair value of both trading and available-for-sale investment
securities is generally obtained from third party pricing sources.
When available, quoted market prices are used to determine fair
value. If quoted market prices are not available, fair values are
estimated using pricing models with observable market inputs.
The inputs to the valuation models vary by the type of security
being priced but are typically benchmark yields, reported
trades, broker-dealer quotes, and prices of similar assets.
Pricing models generally do not entail material subjectivity
because the methodologies employed use inputs observed from
active markets. See “Fair Value Measurements,” below for
further discussion of fair value measures.
Equity Securities
Investments in equity securities with readily determinable fair
values (other than those accounted for under the equity method
or those that result in consolidation of the investee) are
measured at fair value and any changes in fair value are
recognized in other income in the Consolidated Statements of
Income.
Equity investments without readily determinable fair values are
accounted for under the measurement alternative, under which
investments are measured at cost, less any impairment, plus or
minus changes resulting from observable price changes in
orderly transactions for the identical or a similar investment of
the same issuer on a prospective basis. We assess relevant
transactions that occur on or before the balance sheet date to
identify observable price changes, and we regularly monitor
these investments to evaluate whether there is an indication that
the investment is impaired, based on the share price from the
investee's latest financing round, the performance of the
investee in relation to its own operating targets, the investee's
liquidity and cash position, and general market conditions. If a
qualitative assessment indicates that the security is impaired,
Nasdaq will estimate the fair value of the security, and if the
fair value is less than the carrying amount of the security,
recognize an impairment loss in net income equal to the
difference in the period the impairment occurs. See Note 7,
“Investments,” for further discussion of our equity securities.
For the years ended December 31, 2019, 2018 and 2017, no
material impairment charges were recorded on our equity
securities and there were no upward or downward adjustments
recorded.
Our investments in equity securities are included in other non-
current assets in the Consolidated Balance Sheets, as we intend
to hold these investments for more than one year.
Equity Method Investments
In general, the equity method of accounting is used when we
own 20% to 50% of the outstanding voting stock of a company
or when we are able to exercise significant influence over the
operating and financial policies of a company. We have certain
investments in which we have determined that we have
significant influence and as such account for the investments
F-11
under the equity method of accounting. We record our pro-rata
share of earnings or losses each period and record any dividends
as a reduction in the investment balance. We evaluate our equity
method investments for other-than-temporary declines in value
by considering a variety of factors such as the earnings capacity
of the investment and the fair value of the investment compared
to its carrying amount. In addition, for investments where the
market value is readily determinable, we consider the
underlying stock price. If the estimated fair value of the
investment is less than the carrying amount and management
considers the decline in value to be other than temporary, the
excess of the carrying amount over the estimated fair value is
recognized in net income in the period the impairment occurs.
See Note 7, “Investments,” for further discussion of our equity
method investments.
No material impairments were recorded to reduce the carrying
value of our equity method investments in 2019, 2018 or 2017.
Default Funds and Margin Deposits
Nasdaq Clearing members’ cash contributions are included in
default funds and margin deposits in the Consolidated Balance
Sheets as both a current asset and a current liability. These
balances may fluctuate over time due to changes in the amount
of deposits required and whether members choose to provide
cash or non-cash contributions. Non-cash contributions include
highly rated government debt securities that must meet specific
criteria approved by Nasdaq Clearing. Non-cash contributions
are pledged assets that are not recorded in the Consolidated
Balance Sheets as Nasdaq Clearing does not take legal
ownership of these assets and the risks and rewards remain with
the clearing members.
Derivative Financial Instruments and Hedging Activities
Non-Designated Derivatives
We use foreign exchange forward contracts to manage foreign
currency exposure of intercompany loans, accounts receivable,
accounts payable and other balance sheet items. These contracts
are not designated as hedges for financial reporting purposes.
The change in fair value of these contracts is recognized in
general, administrative and other expense in the Consolidated
Statements of Income and offsets the foreign currency
exposure.
As of December 31, 2019 and 2018, the fair value amounts of
our derivative instruments were immaterial.
Net Investment Hedges
Net assets of our foreign subsidiaries are exposed to volatility
in foreign currency exchange rates. We may utilize net
investment hedges to offset the translation adjustment arising
from re-measuring our investment in foreign subsidiaries.
Our 2021, 2023, 2029, and 2030 Notes have been designated
as a hedge of our net investment in certain foreign subsidiaries
to mitigate the foreign exchange risk associated with certain
investments in these subsidiaries. Any increase or decrease
related to the remeasurement of the 2021, 2023, 2029, and 2030
Notes into U.S. dollars is recorded in accumulated other
comprehensive loss within stockholders’ equity in the
Consolidated Balance Sheets. See “3.875% Senior Unsecured
Notes Due 2021,” “1.75% Senior Unsecured Notes Due 2023,”
“1.75% Senior Unsecured Notes Due 2029,” and “0.875%
Senior Unsecured Notes Due 2030,” of Note 10, “Debt
Obligations,” for further discussion.
Property and Equipment, net
Property and equipment, including leasehold improvements,
are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are recognized
using the straight-line method over the estimated useful lives
of the related assets, which range from 10 to 40 years for
buildings and improvements, 2 to 5 years for data processing
equipment, and 5 to 10 years for furniture and equipment.
We develop systems solutions for both internal and external
use. Certain costs incurred in connection with developing or
obtaining internal use software are capitalized. In addition,
certain costs of computer software to be sold, leased, or
otherwise marketed as a separate product or as part of a product
or process are capitalized beginning when a product’s
technological feasibility has been established and ending when
a product is available for general release. Technological
feasibility is established upon completion of a detailed program
design or, in its absence, completion. Prior to reaching
technological feasibility, all costs are charged to expense.
Unamortized capitalized costs are included in data processing
equipment and software, within property and equipment, net in
the Consolidated Balance Sheets. Capitalized software costs
are amortized on a straight-line basis over the estimated useful
lives of the software, generally 5 to 10 years. Amortization of
these costs is included in depreciation and amortization expense
in the Consolidated Statements of Income.
Leasehold improvements are amortized using the straight-line
method over the shorter of their estimated useful lives or the
remaining term of the related lease.
See Note 8, “Property and Equipment, net,” for further
discussion.
Leases
On January 1, 2019, we adopted ASU 2016-02 and elected the
optional transition method to initially apply the standard at the
January 1, 2019 adoption date. As a result, we applied the new
lease standard prospectively to our leases existing or
commencing on or after January 1, 2019. Comparative periods
presented were not restated upon adoption. Similarly, new
disclosures under the standard were made for periods beginning
January 1, 2019, and not for prior comparative periods. Prior
periods will continue to be reported under guidance in effect
prior to January 1, 2019. In addition, we elected the package of
practical expedients permitted under the transition guidance
within the standard, which among other things, allowed us to
not reassess contracts to determine if they contain leases, lease
classification and initial direct costs. Adoption of the new
standard resulted in the recording of operating lease assets
of $384 million, a lease liability of $425 million, as well as the
elimination of deferred rent and sublease reserves of $41 million
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as of January 1, 2019. The standard did not impact our
statements of income and had no impact on our cash flows.
At contract inception, we determine whether a contract is or
contains a lease. As of December 31, 2019, we have operating
leases which are primarily real estate leases for our U.S. and
European headquarters and for general office space. These
leases have varying lease terms with remaining maturities
ranging from 3 months to 17 years. Operating lease balances
are included in operating lease assets, other current liabilities,
and operating lease liabilities in our Consolidated Balance
Sheets as of December 31, 2019. As of December 31, 2019, we
do not have any finance leases.
Operating lease assets represent our right to use an underlying
asset for the lease term and lease liabilities represent our
obligation to make lease payments arising from the lease.
Operating lease assets and liabilities are recognized at
commencement date based on the present value of lease
payments over the lease term. Since our leases do not provide
an implicit rate, we use our incremental borrowing rate based
on the estimated rate of interest for collateralized borrowing
over a similar term of the lease payments at commencement
date in determining the present value of lease payments. The
operating lease asset also includes any lease payments made
and excludes lease incentives. Our lease terms include options
to extend or terminate the lease when we are reasonably certain
that we will exercise that option. Lease expense for lease
payments is recognized on a straight-line basis over the lease
term. Certain of our lease agreements include rental payments
adjusted periodically for inflation based on an index or rate.
These payments are included in the initial measurement of the
operating lease liability and operating lease asset. However,
rental payments that are based on a change in an index or a rate
are considered variable lease payments and are expensed as
incurred.
lease agreements with
lease and non-lease
We have
components, which are accounted for as a single performance
obligation to the extent that the timing and pattern of transfer
are similar for the lease and non-lease components and the lease
component qualifies as an operating lease. We do not recognize
lease liabilities and operating lease assets for leases with a term
of 12 months or less. We recognize these lease payments on a
straight-line basis over the lease term.
See Note 17, “Leases,” for further discussion.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill represents the excess of purchase price over the value
assigned to the net assets, including identifiable intangible
assets, of a business acquired. Goodwill is assessed for
impairment annually in the fourth quarter of our fiscal year
using an October 1 measurement date, or more frequently if
conditions exist that indicate that the asset may be impaired,
such as changes in the business climate, poor indicators of
operating performance or the sale or disposition of a significant
portion of a reporting unit. When testing goodwill for
impairment, we have the option of first performing a qualitative
assessment to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount
as the basis to determine if it is necessary to perform a
quantitative goodwill
test. When assessing
impairment
goodwill for impairment, our decision to perform a qualitative
impairment assessment for a reporting unit in a given year is
influenced by a number of factors, including but not limited to,
the size of the reporting unit’s goodwill, the significance of the
excess of the reporting unit’s estimated fair value over its
carrying amount at the last quantitative assessment date, and
the amount of time in between quantitative fair value
assessments.
In performing a qualitative assessment, we consider the extent
to which unfavorable events or circumstances identified, such
as changes in economic, industry and market conditions or
company specific events, could affect the comparison of the
reporting unit’s fair value with its carrying amount. If we choose
not to complete a qualitative assessment for a given reporting
unit, or if the initial assessment indicates that it is more likely
than not that the carrying amount of a reporting unit exceeds
its estimated fair value, a quantitative test is required.
The quantitative goodwill test consists of two steps:
• The first step compares the fair value of each reporting unit
with its carrying amount, including goodwill. If the
reporting unit’s fair value exceeds its carrying amount,
goodwill is not impaired.
If the fair value of a reporting unit is less than its carrying
amount, the second step of the goodwill test is performed
to measure the amount of impairment, if any. An
impairment is equal to the excess of the carrying amount
of goodwill over its fair value.
•
On January 1, 2020, we adopted ASU 2017-04. See “Goodwill,”
of “Recent Accounting Pronouncements,” below for further
discussion.
We also evaluate indefinite-lived intangible assets for
impairment annually in the fourth quarter of our fiscal year
using an October 1 measurement date, or more frequently
whenever events or changes in circumstances indicate that the
fair value of the asset may be less than its carrying amount.
Such evaluation includes determining the fair value of the asset
and comparing the fair value of the asset with its carrying
amount. If the fair value of the indefinite-lived intangible asset
is less than its carrying amount, an impairment charge is
recognized in an amount equal to the difference.
For indefinite-lived intangible assets impairment testing, we
also have the option to first perform a qualitative assessment to
determine whether it is more likely than not that the fair value
of an indefinite-lived intangible asset is less than the carrying
amount. If, after assessing
totality of events or
circumstances, we determine that it is more likely than not that
the fair value of an indefinite-lived intangible asset is less than
its carrying amount, then we must perform additional testing
of the asset. Otherwise, we conclude that no impairment is
indicated and further testing is not performed.
the
There was no impairment of goodwill for the years ended
December 31, 2019, 2018 and 2017 and there were no
F-13
indefinite-lived intangible asset impairment charges in 2019,
2018 and 2017. Disruptions to our business and events, such as
extended economic weakness or unexpected significant
declines in operating results of any of our reporting units or
businesses, may result in goodwill or indefinite-lived intangible
asset impairment charges in the future.
Valuation of Other Long-Lived Assets
We review our other long-lived assets, such as finite-lived
intangible assets and property and equipment, for potential
impairment when there is evidence that events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. The carrying amount of an asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the
asset. Fair value of finite-lived intangible assets and property
and equipment is based on various valuation techniques. Any
required impairment loss is measured as the amount by which
the carrying amount of the asset exceeds its fair value and is
recorded as a reduction in the carrying amount of the related
asset and a charge to operating results.
We recorded pre-tax, non-cash property and equipment asset
impairment charges of $24 million in 2019. See Note 8,
“Property and Equipment, net,” for a discussion of this charge.
There were no other material impairments of finite-lived
intangible assets or property and equipment recorded in 2019,
2018 or 2017.
listings, market
solutions and
technology, corporate
information services contracts. Deferred revenue is the only
significant contract asset or liability as of December 31, 2019.
See Note 9, “Deferred Revenue,” for our discussion of deferred
revenue balances, activity, and expected timing of recognition.
See “Revenue Recognition” below for further descriptions of
our revenue contracts.
Sales commissions earned by our sales force are considered
incremental and recoverable costs of obtaining a contract with
a customer. These costs are deferred and amortized on a straight-
line basis over the period of benefit that we have determined to
be the contract term or estimated service period. Sales
commissions for renewal contracts are deferred and amortized
on a straight-line basis over the related contractual renewal
period. Amortization expense is included in compensation and
benefits expense in the Consolidated Statements of Income. The
balance of deferred costs and related amortization expense are
not material to our consolidated financial statements. Sales
commissions are expensed when incurred if contract durations
are one year or less. Sales taxes are excluded from transaction
prices.
Certain judgments and estimates were used in the identification
and timing of satisfaction of performance obligations and the
related allocation of transaction price and are discussed below.
We believe that these represent a faithful depiction of the
transfer of services to our customers.
Revenue Recognition and Transaction-Based Expenses
Revenue Recognition
Revenue From Contracts With Customers
Our revenue recognition policies under Topic 606 are described
in the following paragraphs.
Contract Balances
Substantially all of our revenues are considered to be revenues
from contracts with customers. The related accounts receivable
balances are recorded in our Consolidated Balance Sheets as
receivables which is net of allowance for doubtful accounts of
$9 million as of December 31, 2019 and $13 million as of
December 31, 2018. The changes in the balance between
periods were immaterial. We do not have obligations for
warranties, returns or refunds to customers.
For the majority of our contracts with customers, except for our
market technology and listings services contracts, our
performance obligations are short-term in nature and there is
no significant variable consideration.
We do not have revenues recognized from performance
obligations that were satisfied in prior periods. We do not
provide disclosures about transaction price allocated to
unsatisfied performance obligations if contract durations are
less than one year. For contract durations that are one-year or
greater, we do not have a material portion of transaction price
allocated to unsatisfied performance obligations that are not
included in deferred revenue other than for our market
technology contracts which are discussed below under “Market
Technology.” Deferred revenue primarily represents our
contract liabilities related to our fees for annual and initial
Our primary revenue contract classifications are described
below. Although we may discuss additional revenue details in
our “Management's Discussion and Analysis of Financial
Condition and Results of Operations,” the categories below best
represent those that depict similar economic characteristics of
the nature, amount, timing and uncertainty of our revenues and
cash flows.
Market Services
Transaction-Based Trading and Clearing
Transaction-based
includes equity
trading and clearing
derivative trading and clearing, cash equity trading and FICC
revenues. Nasdaq charges transaction fees for trades executed
on our exchanges, as well as on orders that are routed to and
executed on other market venues. Nasdaq charges clearing fees
for contracts cleared with Nasdaq Clearing.
In the U.S., transaction fees are based on trading volumes for
trades executed on our U.S. exchanges and in Europe,
transaction fees are based on the volume and value of traded
and cleared contracts. In Canada, transaction fees are based on
trading volumes for trades executed on our Canadian exchange.
Nasdaq satisfies its performance obligation for trading services
upon the execution of a customer trade and clearing services
when a contract is cleared, as trading and clearing transactions
are substantially complete when they are executed and we have
no further obligation to the customer at that time. Transaction-
based trading and clearing fees can be variable and are based
on trade volume tiered discounts. Transaction revenues, as well
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as any tiered volume discounts, are calculated and billed
monthly in accordance with our published fee schedules. In the
U.S., we also pay liquidity payments to customers based on our
published fee schedules. We use these payments to improve the
liquidity on our markets and therefore recognize those
payments as a cost of revenue.
The majority of our FICC trading and clearing customers are
charged transaction fees, as discussed above, which are based
on the volume and value of traded and cleared contracts. We
also enter into annual fixed contracts with customers trading
U.S. Treasury securities. The customers are charged an annual
fixed fee which is billed per the agreement, on a monthly or
quarterly basis. Revenues earned on fixed contracts are
recognized over time on a ratable basis over the contract period
beginning on the date that our service is made available to the
customer since the customer receives and consumes the benefit
as Nasdaq provides the service.
For U.S. equity derivative trading, we credit a portion of the
per share execution charge to the market participant that
provides the liquidity. For U.S. cash equity trading, for Nasdaq
and Nasdaq PSX, we credit a portion of the per share execution
charge to the market participant that provides the liquidity and
for Nasdaq BX, we credit a portion of the per share execution
charge to the market participant that takes the liquidity. We
record these credits as transaction rebates that are included in
transaction-based expense in the Consolidated Statements of
Income. These transaction rebates are paid on a monthly basis
and the amounts due are included in accounts payable and
accrued expenses in the Consolidated Balance Sheets.
In the U.S., we pay Section 31 fees to the SEC for supervision
and regulation of securities markets. We pass these costs along
to our customers through our equity derivative trading and
clearing fees and our cash equity trading fees. We collect the
fees as a pass-through charge from organizations executing
eligible trades on our options exchanges and our cash equity
platforms and we recognize these amounts in transaction-based
expenses when incurred. Section 31 fees received are included
in cash and cash equivalents in the Consolidated Balance Sheets
at the time of receipt and, as required by law, the amount due
to the SEC is remitted semiannually and recorded as Section
31 fees payable to the SEC in the Consolidated Balance Sheets
until paid. Since the amount recorded as revenues is equal to
the amount recorded as transaction-based expenses, there is no
impact on our revenues less transaction-based expenses. As we
hold the cash received until payment to the SEC, we earn interest
income on the related cash balances.
Under our Limitation of Liability Rule and procedures, we may,
subject to certain caps, provide compensation for losses directly
resulting from our systems’ actual failure to correctly process
an order, quote, message or other data into our platform. We do
not record a liability for any potential claims that may be
submitted under the Limitation of Liability Rule unless they
meet the provisions required in accordance with U.S. GAAP.
As such, losses arising as a result of the rule are accrued and
charged to expense only if the loss is probable and estimable.
Trade Management Services
We provide market participants with a wide variety of
alternatives for connecting to and accessing our markets for a
fee. We also offer market participants colocation services,
whereby we charge firms for cabinet space and power to house
their own equipment and servers within our data centers. These
participants are charged monthly fees for cabinet space,
connectivity and support in accordance with our published fee
schedules. These fees are recognized on a monthly basis when
the performance obligation is met. We also earn revenues from
annual and monthly exchange membership and registration
fees. Revenues for providing access to our markets, colocation
services and monthly exchange membership and registration
fees are recognized on a monthly basis as the service is provided.
Revenues from annual fees for exchange membership and
registration fees are recognized ratably over the following 12-
month period since the customer receives and consumes the
benefit as Nasdaq provides the service. We also offer broker
services to financial participants in the Nordic market primarily
offering technology and customized securities administration
solutions. Such services and solutions primarily consist of
flexible back-office systems, which allow customers to
efficiently manage safekeeping, settlement and corporate
actions and reporting, and include connectivity to exchanges
and central securities depositories. Revenues from broker
services are based on a fixed basic fee for administration or
licensing, maintenance and operations, and an incremental fee
depending on the number of transactions completed. Broker
services revenues are generally billed and recognized monthly.
As previously noted,
in January 2020, management
commenced an orderly wind-down of this broker services
operations business. We expect this wind-down to continue
through the second quarter of 2021.
Corporate Services
Listing Services
Listing services revenues primarily include initial listing fees
and annual renewal fees. Under Topic 606, the initial listing fee
is allocated to multiple performance obligations including
initial and subsequent listing services and corporate solutions
services (when a company qualifies to receive these services
under the applicable Nasdaq rule), as well as a customer's
material right to renew the option to list on our exchanges. In
performing this allocation, the standalone selling price of the
performance obligations is based on the initial and annual listing
fees and the standalone selling price of the corporate solutions
services is based on its market value. All listing fees are billed
upfront and the identified performance obligations are satisfied
over time since the customer receives and consumes the benefit
as Nasdaq provides the listing service. The amount of revenue
related to the corporate solutions services performance
obligation is recognized ratably over a two-year period, which
is based on contract terms, with the remaining revenue
recognized ratably over six years which is based on our
historical listing experience and projected future listing
duration.
F-15
In the U.S., annual renewal fees are charged based on the
number of outstanding shares of companies listed in the U.S.
at the end of the prior year and are recognized ratably over the
following 12-month period since the customer receives and
consumes the benefit as Nasdaq provides the service. European
annual renewal fees, which are received from companies listed
on our Nasdaq Nordic and Nasdaq Baltic exchanges and Nasdaq
First North, are directly related to the listed companies’ market
capitalization on a trailing 12-month basis and are recognized
ratably over the following 12-month period since the customer
receives and consumes the benefit as Nasdaq provides the
service.
Corporate Solutions
Our Corporate Solutions business includes our Investor
Relations Intelligence and Governance Solutions businesses,
which serve both public and private companies and
organizations.
As of December 31, 2019, corporate solutions revenues
primarily include subscription and transaction-based income
from our investor relations intelligence and governance
solutions products and services. Subscription-based revenues
earned are recognized over time on a ratable basis over the
contract period beginning on the date that our service is made
available to the customer since the customer receives and
consumes the benefit as Nasdaq provides the service. Generally,
fees are billed in advance and the contract provides for
automatic renewal. As part of subscription agreements,
customers can also be charged usage fees based upon actual
usage of the services provided. Revenues from usage fees are
recognized at a point in time when the service is provided.
Information Services
Market Data
Market data revenues are earned from U.S. and European
proprietary market data products. In the U.S., we also earn
revenues from U.S. shared tape plans.
We earn revenues primarily based on the number of data
subscribers and distributors of our data. Market data revenues
are subscription-based and are recognized on a monthly basis.
For U.S. tape plans, revenues are collected monthly based on
published fee schedules and distributed quarterly to the U.S.
exchanges based on a formula required by Regulation NMS
that takes into account both trading and quoting activity.
Revenues are presented on a net basis as we are acting as an
agent in this arrangement.
Market Data Revenue Sharing
The most significant component of market data revenues
recorded on a net basis is the UTP Plan revenue sharing in the
U.S. All indicators of principal versus agent reporting under
U.S. GAAP have been considered in analyzing the appropriate
presentation of the revenue sharing. However, the following are
the primary indicators of net reporting:
• We are the administrator for the plan, in addition to being
a participant in the plan. In our unique role as administrator,
we facilitate the collection and dissemination of revenues
on behalf of the plan participants. As a participant, we share
in the net distribution of revenues according to the plan on
the same terms as all other plan participants.
• The operating committee of the plan, which is comprised
of representatives from each of the participants, including
us solely in our capacity as a plan participant, is responsible
for setting the level of fees to be paid by distributors and
subscribers and taking action in accordance with the
provisions of the plan, subject to SEC approval.
• Risk of loss on the revenue is shared equally among plan
participants according to the plan.
The exchanges that comprise Nasdaq Nordic and Nasdaq Baltic
do not have any material market data revenue sharing
agreements.
Index
We develop and license Nasdaq branded indexes, associated
derivatives and financial products as part of our Global Index
Family. We also provide index data products and custom
calculation services for third-party clients. Revenues primarily
include license fees from these branded indexes, associated
derivatives and financial products in the U.S. and abroad. We
primarily have two types of license agreements: transaction-
based licenses and asset-based licenses. Transaction-based
licenses are generally renewable agreements. Customers are
charged based on transaction volume or a minimum contract
amount, or both. If a customer is charged based on transaction
volume, we recognize revenue when the transaction occurs. If
a customer is charged based on a minimum contract amount,
we recognize revenue on a pro-rata basis over the licensing term
since the customer receives and consumes the benefit as Nasdaq
provides the service. Asset-based licenses are also generally
renewable agreements. Customers are charged based on a
percentage of AUM for licensed products, per the agreement,
on a monthly or quarterly basis. These revenues are recognized
over the term of the license agreement since the customer
receives and consumes the benefit as Nasdaq provides the
service. Revenue from index data subscriptions are recognized
on a monthly basis.
Investment Data & Analytics
Investment data & analytics revenues are earned from
investment content and analytics products. We earn revenues
primarily based on the number of content and analytics
subscribers and distributors.
Subscription agreements are generally annual in term, payable
in advance, and provide for automatic renewal. Subscription-
based revenues are recognized over time on a ratable basis over
the contract period beginning on the date that our service is
made available to the customer since the customer receives and
consumes the benefit as Nasdaq provides the service.
Market Technology
Market Technology provides technology solutions for trading,
clearing,
information
dissemination, as well as risk management solutions. Revenues
surveillance
settlement,
and
F-16
primarily consist of software, license and support revenues,
change request revenues, and SaaS revenues.
In our Market Technology business, we enter into long-term
contracts with customers to develop customized technology
solutions, license the right to use software, and provide support
and other services to our customers. We also enter into
agreements to modify the system solutions sold by Nasdaq after
delivery has occurred. In addition, we enter into subscription
agreements which allow customers to connect to our servers to
access our software.
Our long-term contracts with customers to develop customized
technology solutions, license the right to use software and
provide support and other services to our customers have
multiple performance obligations. The performance obligations
are generally: (i) software license and installation service and
(ii) software support. We have determined that the software
license and installation service are not distinct as the license
and the customized installation service are inputs to produce
the combined output, a functional and integrated software
system.
For contracts with multiple performance obligations, we
allocate the contract transaction price to each performance
obligation using our best estimate of the standalone selling price
of each distinct good or service in the contract. In instances
where standalone selling price is not directly observable, such
as when we do not sell the product or service separately, we
determine the standalone selling price predominantly through
an expected cost plus a margin approach.
Contract modifications are routine in the performance of our
contracts. Contracts are often modified to account for changes
in contract specifications or requirements. In most instances,
contract modifications are for goods and services that are not
distinct, and, therefore, are accounted for as part of the existing
contract.
For our long-term contracts, payments are generally made
throughout the contract life and can be dependent on either
reaching certain milestones or paid upfront in advance of the
service period depending on the stage of the contract. For
subscription agreements, contract payment terms can be
quarterly, annually or monthly, in advance. For all other
contracts, payment terms vary.
We generally recognize revenue over time as our customers
simultaneously receive and consume the benefits provided by
our performance because our customer controls the asset for
which we are creating, our performance does not create an asset
with alternative use, and we have a right to payment for
performance completed to date. For these services, we
recognize revenue over time using costs incurred to date relative
to total estimated costs at completion to measure progress
toward satisfying our performance obligation. Incurred costs
represent work performed, which corresponds with, and
thereby depicts, the transfer of control to the customer. Contract
costs generally include labor and direct overhead. For software
support and update services, and for subscription agreements
which allow customers to connect to our servers to access our
software, we generally recognize revenue ratably over the
service period beginning on the date our service is made
available to the customer since the customer receives and
consumes the benefit consistently over the period as Nasdaq
provides the services.
Accounting for our long-term contracts requires judgment
relative to assessing risks and their impact on the estimate of
revenues and costs. Our estimates are impacted by factors such
as the potential for schedule and technical issues, productivity,
and the complexity of work performed. When adjustments in
estimated total contract costs are required, any changes in the
estimated revenues from prior estimates are recognized in the
current period for the effect of such change. If estimates of total
costs to be incurred on a contract exceed estimates of total
revenues, a provision for the entire estimated loss on the
contract is recorded in the period in which the loss is determined.
Other Revenues
Other revenues include the revenues from the BWise enterprise
governance, risk and compliance software platform, which was
sold in March 2019 and revenues from the Public Relations
Solutions and Digital Media Services businesses which were
sold in April 2018. Prior to the sale dates, these revenues were
included in our Corporate Solutions business and were both
subscription and transaction-based revenues.
Earnings Per Share
We present both basic and diluted earnings per share. Basic
earnings per share is computed by dividing net income
attributable to Nasdaq by the weighted-average number of
common shares outstanding for the period. Diluted earnings per
share is computed by dividing net income attributable to Nasdaq
by the weighted-average number of common shares and
common share equivalents outstanding during the period and
reflects the assumed conversion of all dilutive securities, which
primarily consist of employee stock options, restricted stock,
and PSUs. Common share equivalents are excluded from the
computation in periods for which they have an anti-dilutive
effect. Stock options for which the exercise price exceeds the
average market price over the period are anti-dilutive and,
accordingly, are excluded from the calculation. PSUs, which
are considered contingently issuable, are included in the
computation of dilutive earnings per share on a weighted
average basis when management determines the applicable
performance criteria would have been met if the performance
period ended as of the date of the relevant computation. See
Note 14, “Earnings Per Share,” for further discussion.
Pension and Post-Retirement Benefits
Pension and other post-retirement benefit plan information for
financial reporting purposes is developed using actuarial
valuations. We assess our pension and other post-retirement
benefit plan assumptions on a regular basis. In evaluating these
assumptions, we consider many factors, including evaluation
of the discount rate, expected rate of return on plan assets,
mortality rate, healthcare cost trend rate, retirement age
assumption, our historical assumptions compared with actual
results and analysis of current market conditions and asset
F-17
allocations. See Note 11, “Retirement Plans,” for further
discussion.
Discount rates used for pension and other post-retirement
benefit plan calculations are evaluated annually and modified
to reflect the prevailing market rates at the measurement date
of a high-quality fixed-income debt instrument portfolio that
would provide the future cash flows needed to pay the benefits
included in the benefit obligations as they come due. Actuarial
assumptions are based upon management’s best estimates and
judgment.
represents our
long-term assessment of
The expected rate of return on plan assets for our U.S. pension
plans
return
expectations which may change based on significant shifts in
economic and financial market conditions. The long-term rate
of return on plan assets is derived from return assumptions based
on targeted allocations for various asset classes. While we
consider the pension plans’ recent performance and other
economic growth and inflation factors, which are supported by
long-term historical data, the return expectations for the
targeted asset categories represent a long-term prospective
return.
Share-Based Compensation
Nasdaq uses the fair value method of accounting for share-based
awards. Share-based awards, or equity awards, include stock
options, restricted stock, and PSUs. The fair value of stock
options are estimated using the Black-Scholes option-pricing
model. The fair value of restricted stock awards and PSUs, other
than PSUs granted with market conditions, is determined based
on the grant date closing stock price less the present value of
future cash dividends. We estimate the fair value of PSUs
granted with market conditions using a Monte Carlo simulation
model at the date of grant.
We generally recognize compensation expense for equity
awards on a straight-line basis over the requisite service period
of the award, taking into account an estimated forfeiture rate.
Granted but unvested shares are generally forfeited upon
termination of employment.
Excess tax benefits or expense related to employee share-based
payments, if any, are recognized as income tax benefit or
expense in the Consolidated Statements of Income when the
awards vest or are settled.
Nasdaq also has an ESPP that allows eligible employees to
purchase a limited number of shares of our common stock at
six-month intervals, called offering periods, at 85.0% of the
lower of the fair market value on the first or the last day of each
offering period. The 15.0% discount given to our employees is
included in compensation and benefits expense in the
Consolidated Statements of Income.
See Note 12, “Share-Based Compensation,” for further
discussion of our share-based compensation plans.
Merger and Strategic Initiatives
We incur incremental direct merger and strategic initiative costs
relating to various completed and potential acquisitions,
divestitures, and other strategic opportunities. These costs
include outside advisor fees, and other external costs directly
related to proposed or closed transactions. We also incur
integration costs primarily related to employee termination
costs, and professional services costs incurred relating to the
integrations. As of December 31, 2019, all planned integrations
for our 2018 and 2017 acquisitions have been completed.
Fair Value Measurements
the
Fair value is defined as the price that would be received from
selling an asset or paid to transfer a liability, or the exit price,
in an orderly transaction between market participants at the
measurement date. When determining
fair value
measurements for assets and liabilities required or permitted to
be either recorded or disclosed at fair value, we consider the
principal or most advantageous market in which we would
transact, and we also consider assumptions that market
participants would use when pricing the asset or liability. Fair
value measurement establishes a hierarchy of valuation
techniques based on whether the inputs to those valuation
techniques are observable or unobservable. Observable inputs
reflect market data obtained from independent sources, while
unobservable inputs reflect Nasdaq’s market assumptions.
These two types of inputs create the following fair value
hierarchy:
• Level 1-Quoted prices for identical instruments in active
markets.
• Level 2-Quoted prices for similar instruments in active
markets; quoted prices for identical or similar instruments
in markets that are not active; and model-derived
valuations whose
inputs are observable or whose
significant value drivers are observable.
• Level 3-Instruments whose significant value drivers are
unobservable.
This hierarchy requires the use of observable market data when
available.
See Note 15, “Fair Value of Financial Instruments,” for further
discussion.
Tax Matters
We use the asset and liability method to determine income taxes
on all transactions recorded in the consolidated financial
statements. Deferred tax assets (net of valuation allowances)
and deferred tax liabilities are presented net by jurisdiction as
either a non-current asset or liability in our Consolidated
Balance Sheets, as appropriate. Deferred tax assets and
liabilities are determined based on differences between the
financial statement carrying amounts and the tax basis of
existing assets and liabilities (i.e., temporary differences) and
are measured at the enacted rates that will be in effect when
these differences are realized. If necessary, a valuation
allowance is established to reduce deferred tax assets to the
amount that is more likely than not to be realized.
In order to recognize and measure our unrecognized tax
benefits, management determines whether a tax position is more
likely than not to be sustained upon examination, including
resolution of any related appeals or litigation processes, based
F-18
on the technical merits of the position. Once it is determined
that a position meets the recognition thresholds, the position is
measured to determine the amount of benefit to be recognized
in the consolidated financial statements. Interest and/or
penalties related to income tax matters are recognized in income
tax expense.
Assets Held for Sale
We classify assets or disposal groups as held for sale in the
period in which all of the following criteria are met:
• management commits to a plan to sell;
•
the asset or disposal group is available for immediate sale
in its present condition subject only to terms that are usual
and customary for sales of such assets or disposal groups;
an active program to locate a buyer and other actions
required to complete the plan to sell have been initiated;
the sale is probable within one year;
the asset or disposal group is being actively marketed for
sale at a price that is reasonable in relation to its current
fair value; and
•
•
•
•
it is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn.
Assets and disposal groups classified as held for sale are
measured at the lower of their carrying amount or fair value
less costs to sell. Any loss resulting from this measurement is
recognized in the period in which the held for sale criteria are
met. Conversely, gains are not recognized until the date of sale.
The fair value of an asset less any costs to sell is assessed each
reporting period it remains classified as held for sale, and any
change in fair value is reported as an adjustment to the carrying
value of the asset, except that increases in fair value are limited
to prior decreases recorded. Assets are not depreciated or
amortized while they are classified as held for sale. See Note
5, “Assets and Liabilities Held For Sale,” for further discussion
of our assets held for sale.
Subsequent Events
We have evaluated subsequent events through the issuance date
of this Annual Report on Form 10-K.
F-19
Recent Accounting Pronouncements
Accounting
Standard
Income Taxes
In December
2019, the FASB
issued ASU
2019-12,
“Simplifying the
Accounting for
Income Taxes.”
Goodwill
In January 2017,
the FASB issued
ASU 2017-04,
“Simplifying the
Test for Goodwill
Impairment.”
Financial
Instruments -
Credit Losses
In June 2016, the
FASB issued
ASU 2016-13,
“Measurement of
Credit Losses on
Financial
Instruments.”
Description
This ASU simplifies the accounting for
income taxes by eliminating certain
exceptions related to the approach for
intraperiod
the
methodology for calculating income
taxes in an interim period, and the
recognition of deferred tax liabilities for
outside basis differences. It also clarifies
and simplifies other aspects of the
accounting for income taxes.
allocation,
tax
impairment
This ASU simplifies how an entity is
required to test goodwill for impairment
and removes the second step of the
goodwill
test, which
required a hypothetical purchase price
allocation if the fair value of a reporting
unit is less than its carrying amount.
Goodwill impairment will now be
measured using the difference between
the carrying amount and the fair value
of the reporting unit and the loss
recognized should not exceed the total
amount of goodwill allocated to that
reporting unit. The amendments in this
ASU should be applied on a prospective
basis.
sheet
off-balance
This ASU changes the impairment
model for certain financial instruments.
The new model is a forward looking
expected loss model and applies to
financial assets subject to credit losses
and measured at amortized cost and
certain
credit
exposures. This includes loans, held-to-
maturity
loan
commitments, financial guarantees and
trade receivables. For available-for-sale
debt securities with unrealized losses,
credit losses are measured in a manner
similar to previous accounting, except
losses are recognized as
that
allowances rather than reductions in the
amortized cost of the securities.
securities,
debt
the
Effective Date
January 1,
2021, with
early adoption
permitted in
any annual or
interim period
for which
financial
statements
have not yet
been issued or
made
available for
issuance. We
early adopted
this standard
as of October
1, 2019.
January 1,
2020.
Effect on the Financial Statements or Other Significant
Matters
There was no impact to the financial statements or
our disclosures as a result of the adoption of this
standard.
We adopted this standard on January 1, 2020. We
do not anticipate a material impact on our
consolidated financial statements at the time of
adoption of this new standard as the carrying
amounts of our reporting units have been less than
their corresponding fair values in recent years.
However, changes in future projections, market
conditions and other factors may cause a change in
the excess of fair value of our reporting units over
their corresponding carrying amounts.
January 1,
2020.
We adopted this standard on January 1, 2020 using
the modified retrospective transition method. We
recorded an immaterial non-cash cumulative effect
adjustment to retained earnings on our opening
consolidated balance sheet as of January 1, 2020.
F-20
3. Revenue From Contracts With Customers
Disaggregation of Revenue
The following tables summarize the disaggregation of revenue by major product and service and by segment for the years ended
December 31, 2019, 2018 and 2017:
Market Services
Corporate
Services
Information
Services
Market
Technology
Other
Revenues
Consolidated
Year Ended December 31, 2019
$
— $
— $
— $
— $
(in millions)
$
912
$
496
$
779
$
338
$
$
2,535
Market Services
Corporate
Services
Information
Services
Market
Technology
Other
Revenues
Consolidated
Year Ended December 31, 2018
(in millions)
$
— $
— $
— $
— $
Transaction-based trading and clearing, net
$
Trade management services
Listing services
Corporate solutions
Market data
Index
Investment data & analytics
Market technology
Other revenues
Revenues less transaction-based expenses
Transaction-based trading and clearing, net
$
Trade management services
Listing services
Corporate solutions
Market data
Index
Investment data & analytics
Market technology
Other revenues
Revenues less transaction-based expenses
Transaction-based trading and clearing, net
$
Trade management services
Listing services
Corporate solutions
Market data
Index
Investment data & analytics
Market technology
Other revenues
Revenues less transaction-based expenses
621
291
—
—
—
—
—
—
—
666
292
—
—
—
—
—
—
—
590
291
—
—
—
—
—
—
—
—
296
200
—
—
—
—
—
—
—
—
398
223
158
—
—
—
—
—
—
—
—
338
—
—
290
197
—
—
—
—
—
—
—
—
390
206
118
—
—
—
—
—
—
—
—
270
—
—
267
192
—
—
—
—
—
—
—
—
369
171
48
—
—
—
—
—
—
—
—
247
—
—
—
—
—
—
—
—
10
10
—
—
—
—
—
—
—
97
97
—
—
—
—
—
—
—
236
236
$
958
$
487
$
714
$
270
$
$
2,526
Market Services
Corporate
Services
Information
Services
Market
Technology
Other
Revenues
Consolidated
Year Ended December 31, 2017
(in millions)
$
— $
— $
— $
— $
621
291
296
200
398
223
158
338
10
666
292
290
197
390
206
118
270
97
590
291
267
192
369
171
48
247
236
$
881
$
459
$
588
$
247
$
F-21
$
2,411
For the year ended December 31, 2019, approximately 65.1% of Market Services revenues were recognized at a point in time and
34.9% were recognized over time. For the year ended December 31, 2018, approximately 63.6% of Market Services revenues
were recognized at a point in time and 36.4% were recognized over time. For the year ended December 31, 2017, approximately
62.7% Market Services revenues were recognized at a point in time and 37.3% recognized over time. Substantially all revenues
from the Corporate Services, Information Services and Market Technology segments were recognized over time for the years
ended December 31, 2019, 2018 and 2017.
* * * * * *
Contract Balances
Substantially all of our revenues are considered to be revenues
from contracts with customers. The related accounts receivable
balances are recorded in our Consolidated Balance Sheets as
receivables which are net of allowance for doubtful accounts
of $9 million as of December 31, 2019 and $13 million as of
December 31, 2018. The changes in the balance between
periods were immaterial. We do not have obligations for
warranties, returns or refunds to customers.
For the majority of our contracts with customers, except for our
market technology and listings services contracts, our
performance obligations are short-term in nature and there is
no significant variable consideration.
We do not have revenues recognized from performance
obligations that were satisfied in prior periods. We do not
provide disclosures about transaction price allocated to
unsatisfied performance obligations if contract durations are
less than one year. Excluding our market technology contracts,
for contract durations that are one-year or greater, materially
all of the transaction price allocated to unsatisfied performance
obligations is included in deferred revenue. For our market
technology contracts, the portion of transaction price allocated
to unsatisfied performance obligations is shown in the table
below. Deferred revenue primarily represents our contract
liabilities related to our fees for annual and initial listings,
market technology, corporate solutions and information
services contracts. Deferred revenue is the only significant
contract asset or liability as of December 31, 2019. See Note 9,
“Deferred Revenue,” for our discussion on deferred revenue
balances, activity, and expected timing of recognition.
Transaction Price Allocated to Remaining Performance Obligations
* * * * * *
As stated above, for contract durations that are one-year or greater, we do not have a material portion of transaction price allocated
to unsatisfied performance obligations that are not included in deferred revenue other than for our market technology contracts.
For our market technology contracts, the following table summarizes the amount of the transaction price allocated to performance
obligations that are unsatisfied as of December 31, 2019:
2020
2021
2022
2023
2024
2025 and thereafter
Total
(in millions)
320
235
108
74
56
94
887
$
$
Market technology deferred revenue, as discussed in Note 9, “Deferred Revenue,” represents consideration received that is yet to
be recognized as revenue for unsatisfied performance obligations.
4. Acquisitions and Divestitures
2019 Acquisitions and Divestitures
We completed various acquisitions and divestitures in 2019. The financial results of each transaction are included in our consolidated
financial statements from the date of each acquisition or divestiture.
2019 Divestitures
Divestiture of BWise
In March 2019, we sold our BWise enterprise governance, risk and compliance software platform, which was part of our Corporate
Solutions business within our Corporate Services segment, to SAI Global and recognized a pre-tax gain on the sale of $27 million,
net of disposal costs ($20 million after tax). The pre-tax gain is included in net gain on divestiture of businesses in the Consolidated
Statements of Income for the year ended December 31, 2019.
F-22
As of December 31, 2018, the assets and liabilities of BWise were held for sale. See Note 5, “Assets and Liabilities Held For Sale,”
for further discussion.
Divestiture of Nordic Fund Market
In October 2019, we sold the Nordic Fund Market, an electronic mutual fund service which was a small part of our Broker Services
business.
2019 Acquisitions
Acquisition of Cinnober
Cinnober
$
219
$
18
$
(19) $
74
$
146
Purchase
Consideration
Total Net Assets
Acquired
Total Net Deferred
Tax Liability
Acquired
Intangible Assets
Goodwill
(in millions)
In January 2019, we acquired Cinnober, a Swedish financial
technology provider to brokers, exchanges and clearinghouses
worldwide for $219 million. Cinnober is part of our Market
Technology segment.
Nasdaq used cash on hand to fund this acquisition.
The amounts in the table above represent the final allocation of
the purchase price. The allocation of the purchase price was
subject to revision during the measurement period, a period not
to exceed 12 months from the acquisition date. Adjustments to
the provisional values, which may include tax and other
estimates, during the measurement period are recorded in the
reporting period in which the adjustment amounts are
determined. In 2019, we recorded a measurement period
adjustment of $4 million which resulted in a decrease to net
assets acquired and an increase in goodwill and a measurement
period adjustment of $5 million which resulted in a decrease to
acquired intangible assets and an increase in goodwill. These
adjustments relate to new information obtained during the
period regarding the acquisition date fair values of an acquired
equity investment and an acquired customer relationship
intangible asset. These adjustments did not result in an impact
to our Consolidated Statements of Income. The allocation of
the purchase price for Cinnober was finalized in December
2019.
See “Intangible Assets” below for further discussion of
intangible assets acquired in the Cinnober acquisition.
Acquisition of Center for Board Excellence
In October 2019, we acquired CBE, a provider of corporate
governance and compliance solutions for boards of directors,
CEOs, corporate secretaries and general counsels. CBE is part
of our Corporate Services segment.
2018 Acquisition and Divestiture
We completed an acquisition and a divestiture in 2018.
Financial results of each transaction are included in our
consolidated financial statements from the date of the
acquisition or divestiture.
2018 Acquisition
Acquisition of Quandl
In November 2018, we acquired Quandl, Inc., a provider of
alternative and core financial data. Quandl is part of our
Information Services segment.
Nasdaq used issuances of commercial paper to fund this
acquisition.
2018 Divestiture
In April 2018, we sold our Public Relations Solutions and
Digital Media Services businesses, which were part of our
Corporate Solutions business, to West Corporation and
recognized a pre-tax net gain on the sale of $33 million, net of
disposal costs ($14 million after tax), which includes a post-
closing working capital adjustment of $8 million ($5 million
after tax) recorded in September 2018. The total net pre-tax gain
is included in net gain on divestiture of businesses in the
Consolidated Statements of Income for 2018.
Intangible Assets
The following table presents the details of the customer
relationships intangible asset at the date of acquisition for
Cinnober which was the significant acquired intangible asset
for this acquisition. All acquired intangible assets with finite
lives are amortized using the straight-line method.
Customer relationships (in millions)
$
Discount rate used
Estimated average useful life
Customer Relationships
67
9.5%
13 years
Customer relationships represent the non-contractual and
contractual relationships with customers.
Methodology
Customer relationships were valued using the income approach,
specifically an excess earnings method. The excess earnings
method examines the economic returns contributed by the
identified tangible and intangible assets of a company, and then
isolates the excess return that is attributable to the intangible
asset being valued.
F-23
Discount Rate
The discount rates used reflect the amount of risk associated
with the hypothetical cash flows for the customer relationships
relative to the overall business. In developing a discount rate
for the customer relationships, we estimated a weighted-
average cost of capital for the overall business and we employed
this rate when discounting the cash flows. The resulting
discounted cash flows were then tax-effected at the applicable
statutory rate.
Receivables, net
Property and equipment, net
Goodwill(1)
Intangible assets, net(2)
Other assets
Total assets held for sale(3)
For our acquisition of Cinnober, a discounted tax amortization
benefit was added to the fair value of the assets under the
assumption that the customer relationships would be amortized
for tax purposes over a period of 5 years.
Deferred tax liabilities
Deferred revenue
Other current liabilities
Estimated Useful Life
Total liabilities held for sale(4)
$
$
$
$
December 31, 2018
(in millions)
13
10
47
16
3
89
4
12
4
20
____________
(1) The assignment of goodwill was based on the relative fair
value of the disposal group and the portion of the remaining
reporting unit.
(2) Primarily represents customer relationships.
(3) Included in other current assets in the Consolidated
Balance Sheets as of December 31, 2018.
(4)
Included in other current liabilities in the Consolidated
Balance Sheets as of December 31, 2018.
We estimate the useful life based on the historical behavior of
the customers and a parallel analysis of the customers using the
excess earnings method.
Pro Forma Results and Acquisition-Related Costs
The consolidated financial statements for the years ended
December 31, 2019, 2018 and 2017 include the financial results
of the above acquisitions from the date of each acquisition. Pro
forma financial results have not been presented since these
acquisitions both individually and in the aggregate were not
material to our financial results.
Acquisition-related costs for the transactions described above
were expensed as incurred and are included in merger and
strategic initiatives expense in the Consolidated Statements of
Income.
5. Assets and Liabilities Held For Sale
In 2018, we decided to sell BWise, our enterprise governance,
risk and compliance software platform and this business was
recorded as held for sale as of December 31, 2018. BWise was
part of our Corporate Solutions business within our Corporate
Services segment.
We determined that we met all of the criteria to classify the
assets and liabilities of BWise as held for sale. The disposal of
BWise did not represent a strategic shift that would have a major
effect on our operations and financial results and was, therefore,
not classified as discontinued operations. As a result of this
classification, the assets and liabilities of this business were
recorded at the lower of their carrying amount or fair value less
costs to sell.
In March 2019, we completed the sale of BWise and recognized
a pre-tax gain on the sale of $27 million, net of disposal costs
($20 million after tax). See “2019 Divestitures,” of Note 4,
“Acquisitions and Divestitures,” for further discussion.
Major Classes of Assets and Liabilities Held For Sale
The carrying amounts of the major classes of assets and
liabilities that were classified as held for sale at December 31,
2018 were as follows:
F-24
6. Goodwill and Acquired Intangible Assets
Goodwill
The following table presents the changes in goodwill by business segment during the year ended December 31, 2019:
Market
Services
Corporate
Services
Information
Services
(in millions)
Market
Technology
Total
Balance at December 31, 2018
$
3,430
$
455
$
2,333
$
Goodwill acquired
Measurement period adjustments
Sale of business
Foreign currency translation adjustment
—
—
(16)
(72)
Balance at December 31, 2019
$
3,342
$
10
—
—
(5)
460
$
—
—
—
(50)
2,283
$
145
137
9
—
(10)
281
$
$
6,363
147
9
(16)
(137)
6,366
The goodwill acquired for Corporate Services shown above
relates to our acquisition of CBE and the goodwill acquired for
Market Technology relates to our acquisition of Cinnober. See
“2019 Acquisitions,” of Note 4, “Acquisitions and
Divestitures,” for further discussion of these acquisitions. As
of December 31, 2019, the amount of goodwill that is expected
to be deductible for tax purposes in future periods related to
Cinnober is $141 million.
For further discussion of the measurement period adjustments
of $9 million shown above, see “2019 Acquisitions,” of Note
4, “Acquisitions and Divestitures.” These adjustments are
included
in our Consolidated Balance Sheets as of
December 31, 2019.
The sale of business relates to the sale of the Nordic Fund
Market, which was a small unit of our Broker Services business.
Goodwill represents the excess of purchase price over the value
assigned to the net assets, including identifiable intangible
assets, of a business acquired. Goodwill is allocated to our
reporting units based on the assignment of the fair values of
each reporting unit of the acquired company. We test goodwill
for impairment at the reporting unit level annually, or in interim
periods if certain events occur indicating that the carrying
amount may be impaired, such as changes in the business
climate, poor indicators of operating performance or the sale
or disposition of a significant portion of a reporting unit. There
was no impairment of goodwill for the years ended
December 31, 2019 and 2018; however, events such as
extended economic weakness or unexpected significant
declines in operating results of any of our reporting units or
businesses may result in goodwill impairment charges in the
future.
F-25
Acquired Intangible Assets
The following table presents details of our total acquired intangible assets, both finite- and indefinite-lived:
December 31, 2019
December 31, 2018
Gross
Amount
Accumulated
Amortization
(in millions)
Net Amount
Gross
Amount
Accumulated
Amortization
(in millions)
Net Amount
Finite-Lived Intangible Assets
Technology
Customer relationships
Other
Foreign currency translation adjustment
Total finite-lived intangible assets
Indefinite-Lived Intangible Assets
Exchange and clearing registrations
Trade names
Licenses
Foreign currency translation adjustment
Total indefinite-lived intangible assets
Total intangible assets
$
$
$
$
121
52
(198)
1,232
2,750
Amortization expense for acquired finite-lived intangible assets
was $101 million for the year ended December 31, 2019, $109
million for the year ended December 31, 2018, and $92 million
for the year ended December 31, 2017. Amortization expense
decreased in 2019 primarily due to certain assets becoming fully
amortized in the fourth quarter of 2018, partially offset by
additional amortization expense associated with acquired
intangible assets in 2019. These amounts are included in
depreciation and amortization expense in the Consolidated
Statements of Income.
The estimated future amortization expense (excluding the
impact of foreign currency translation adjustments of $104
million as of December 31, 2019) of acquired finite-lived
intangible assets as of December 31, 2019 is as follows:
2020
2021
2022
2023
2024
2025 and thereafter
Total
(in millions)
$
105
104
100
98
97
617
$
1,121
$
63
$
1,596
18
(159)
1,518
$
(19) $
(532)
(5)
55
(501) $
44
$
54
$
1,064
13
(104)
1,017
$
1,532
17
(149)
1,454
$
(15) $
(456)
(2)
64
(409) $
39
1,076
15
(85)
1,045
1,257
$
— $
1,257
$
1,257
$
— $
1,257
121
52
(198)
1,232
2,249
$
$
122
52
(176)
1,255
2,709
—
—
—
$
$
— $
(409) $
122
52
(176)
1,255
2,300
—
—
—
$
$
— $
(501) $
7. Investments
The following table presents the details of our investments:
December 31,
2019
December 31,
2018
(in millions)
291
$
—
291
156
49
$
$
$
259
9
268
135
44
$
$
$
$
Trading securities
Available-for-sale investment
securities
Financial investments
Equity method investments
Equity securities
Financial Investments
Trading Securities
Trading securities, which are included in financial investments
in the Consolidated Balance Sheets, are primarily comprised of
highly rated European government debt securities, time
deposits and highly rated corporate debt, of which $169 million
as of December 31, 2019 and $166 million as of December 31,
2018, are assets primarily utilized to meet regulatory capital
requirements, mainly for our clearing operations at Nasdaq
Clearing.
Available-for-Sale Investment Securities
As of December 31, 2018, available-for-sale investment
securities, which are included in financial investments in the
Consolidated Balance Sheets, were primarily comprised of
commercial paper. As of December 31, 2019 and 2018, the
F-26
cumulative unrealized gains and losses on these securities were
immaterial.
Equity Method Investments
As of December 31, 2019 and 2018, our equity method
investments primarily included our equity interest in OCC.
The carrying amounts of our equity method investments are
included in other non-current assets in the Consolidated
Balance Sheets. No material impairments were recorded to
reduce the carrying value of our equity method investments for
the years ended December 31, 2019, 2018 or 2017.
Net income recognized from our equity interest in the earnings
and losses of these equity method investments was $84 million
for the year ended December 31, 2019, $18 million for the year
ended December 31, 2018, and $15 million for the year ended
December 31, 2017.
The change for the year ended December 31, 2019 compared
with the same period in 2018 is primarily due to an increase in
income recognized from our investment in OCC. Following the
disapproval of the OCC capital plan in February 2019,
described below, OCC suspended customer rebates and
dividends to owners, including the unpaid dividend on 2018
results which Nasdaq expected to receive in March 2019. We
were not able to determine the impact of the disapproval of the
OCC capital plan on OCC's 2018 net income until March 2019,
when OCC's 2018 financial statements were made available to
us. As a result, in March 2019, we recognized an additional $36
million of income relating to our share of OCC's net income for
the year ended December 31, 2018. We also recognized our
share of OCC's net income of $48 million for the year ended
December 31, 2019.
OCC Capital Plan
In March 2015, OCC implemented a capital plan under which
the options exchanges that are OCC’s stockholders contributed
$150 million of new equity capital to OCC, committed to make
future replenishment capital contributions under certain
circumstances, and received commitments regarding future
dividend payments and related matters. Nasdaq PHLX and ISE
each contributed $30 million of new equity capital under the
OCC capital plan. OCC adopted specific policies with respect
to fees, customer refunds and stockholder dividends, which
envisioned an annual dividend equal to the portion of OCC’s
after-tax income that exceeded OCC’s capital requirements
after payment of refunds to OCC’s clearing members (such
refunds were generally 50% of the portion of OCC’s pre-tax
income that exceeded OCC’s capital requirements). In 2018,
2017 and 2016, OCC disbursed annual dividends under the
capital plan and Nasdaq, as the beneficial owner of shares held
by Nasdaq PHLX and ISE, received $13 million in 2018 and
$10 million in 2017.
In February 2016, after the SEC approved the rule change
establishing the OCC capital plan, certain industry participants
appealed that approval in the U.S. Court of Appeals. In February
2019, on remand from the Court of Appeals, the SEC
disapproved the OCC rule change that established the capital
plan. OCC began a phased return of capital contributed under
the capital plan, and we received $44 million in February 2019,
and the remaining $16 million in November 2019. As a result
of the SEC's disapproval of the rule change, we are also released
from any future capital replenishment obligations under the
2015 capital plan.
Equity Securities
The carrying amounts of our equity securities are included in
other non-current assets in the Consolidated Balance Sheets.
We elected the measurement alternative for primarily all of our
equity securities as they do not have a readily determinable fair
value. No material adjustments were made to the carrying value
of our equity securities during the years ended December 31,
2019, 2018 and 2017. As of December 31, 2019 and 2018, our
equity securities represent various strategic investments made
through our corporate venture program and as of December
2019, also include investments acquired through various
acquisitions.
In December 2018, we sold our 5.0% ownership interest in LCH
for $169 million in cash. As a result of the sale, we recognized
a pre-tax gain of $118 million ($93 million after tax). The gain
is included in gain on sale of investment security in the
Consolidated Statements of Income for the year ended
December 31, 2018.
8. Property and Equipment, net
The following table presents our major categories of property
and equipment, net:
Data processing equipment and
software
Furniture, equipment and leasehold
improvements
Total property and equipment
Less: accumulated depreciation and
amortization
Year Ended December 31,
2019
2018
(in millions)
$
565
$
526
305
870
274
800
(486)
(424)
Total property and equipment, net
$
384
$
376
Depreciation and amortization expense for property and
equipment was $89 million for the year ended December 31,
2019, $101 million for the year ended December 31, 2018, and
$96 million for the year ended December 31, 2017. These
amounts are included in depreciation and amortization expense
in the Consolidated Statements of Income.
In 2019, we recorded pre-tax, non-cash property and equipment
asset impairment charges of $24 million related to capitalized
software that was retired. This charge is included in
restructuring charges in the Consolidated Statements of
Income. See Note 21, “Restructuring Charges,” for a discussion
of our 2019 restructuring plan. There were no other material
impairments of property and equipment recorded in 2019, 2018
or 2017.
F-27
As of December 31, 2019 and 2018, we did not own any real
estate properties.
9. Deferred Revenue
* * * * * *
Deferred revenue represents consideration received that is yet to be recognized as revenue. The changes in our deferred revenue
during the year ended December 31, 2019 are reflected in the following table:
Initial Listing
Revenues
Annual
Listings
Revenues
Corporate
Solutions
Revenues
Information
Services
Revenues
Market
Technology
Revenues
(1)
Other
Total
Balance at December 31, 2018
$
66
$
Deferred revenue billed in the current
period, net of recognition
Revenue recognized that was included
in the beginning of the period
Translation adjustment
Balance at December 31, 2019
$
30
(26)
(1)
69
$
4
2
(4)
—
2
$
$
36
41
(36)
—
41
$
(in millions)
$
80
$
75
$
20
$
281
62
(59)
(1)
82
$
34
(40)
(3)
66
9
178
(13)
(2)
14
$
(178)
(7)
274
$
____________
(1) Primarily includes deferred revenue from listing of additional shares fees. In the U.S., these fees will continue to run-off as
a result of the implementation of our all-inclusive annual fee. Listing of additional shares fees are included in our Listing
Services business.
As of December 31, 2019, we estimate that our deferred revenue will be recognized in the following years:
Fiscal year ended:
2020
2021
2022
2023
2024 and thereafter
Total
Initial Listing
Revenues
Annual
Listings
Revenues
Corporate
Solutions
Revenues
Information
Services
Revenues
Market
Technology
Revenues
(1)
Other
Total
(in millions)
$
$
26
19
11
8
5
69
$
$
2
—
—
—
—
2
$
$
39
2
—
—
—
41
$
$
80
2
—
—
—
82
$
$
54
12
—
—
—
66
$
$
10
3
1
—
—
14
$
$
211
38
12
8
5
274
____________
(1)
Other primarily includes revenues from U.S. listing of additional shares fees which are included in our Listing Services
business.
The timing of recognition of our deferred market technology revenues is primarily dependent upon the completion of customization
and any significant modifications made pursuant to existing market technology contracts. As such, as it relates to market technology
revenues, the timing represents our best estimate.
F-28
10. Debt Obligations
The following table presents the changes in the carrying amount of our debt obligations during the year ended December 31, 2019:
December 31,
2018
Additions
Payments,
Accretion
and Other
December 31,
2019
Short-term debt:
Commercial paper
$
Senior unsecured floating rate notes repaid on March 22, 2019
5.55% senior unsecured notes repaid on May 1, 2019(1)
$400 million senior unsecured term loan facility repaid on June
28, 2019 (average interest rate of 4.00% for the period January
1, 2019 through June 28, 2019)
Total short-term debt
Long-term debt:
3.875% senior unsecured notes due June 7, 2021
4.25% senior unsecured notes due June 1, 2024
1.75% senior unsecured notes due May 19, 2023
3.85% senior unsecured notes due June 30, 2026
1.75% senior unsecured notes due March 28, 2029
$1 billion senior unsecured revolving credit facility due April 25,
2022
Total long-term debt
Total debt obligations
(in millions)
$
4,678
$
—
—
—
4,678
—
—
—
—
665
15
680
275
500
599
100
1,474
686
497
682
496
—
(4)
2,357
$
3,831
$
5,358
$
(4,562) $
(500)
(599)
(100)
(5,761)
(15)
—
(14)
1
—
391
—
—
—
391
671
497
668
497
665
(13)
(41)
(5,802) $
(2)
2,996
3,387
____________
(1) Balance was reclassified to short-term debt as of March 31, 2019.
Commercial Paper Program
Our U.S. dollar commercial paper program is supported by our
2017 Credit Facility which provides liquidity support for the
repayment of commercial paper issued through the commercial
paper program. See “2017 Credit Facility” below for further
discussion of our 2017 Credit Facility. The effective interest
rate of commercial paper issuances fluctuates as short term
interest rates and demand fluctuate. The fluctuation of these
rates due to market conditions may impact our interest expense.
As of December 31, 2019, commercial paper notes in the table
above reflect the aggregate principal amount, less the
unamortized discount which is being accreted through interest
expense over the life of the applicable notes. The original
maturities of these notes range from 17 days to 45 days and as
of December 31, 2019, the weighted-average maturity is 13
days with the weighted-average effective interest rate being
2.05% per annum.
Senior Unsecured Notes
Our senior unsecured notes were all issued at a discount. As a
result of the discount, the proceeds received from each issuance
were less than the aggregate principal amount. As of
December 31, 2019, the amounts in the table above reflect the
aggregate principal amount, less the unamortized debt discount
and the unamortized debt issuance costs which are being
accreted through interest expense over the life of the applicable
notes. For our Euro denominated notes, the “Payments,
Accretion and Other” column also includes the impact of
foreign currency translation. Our senior unsecured notes are
general unsecured obligations of ours and rank equally with all
of our existing and future unsubordinated obligations and they
are not guaranteed by any of our subsidiaries. The senior
unsecured notes were issued under indentures that, among other
things, limit our ability to consolidate, merge or sell all or
substantially all of our assets, create liens, and enter into sale
and leaseback transactions.
Upon a change of control triggering event (as defined in the
various note indentures), the terms require us to repurchase all
or part of each holder’s notes for cash equal to 101% of the
aggregate principal amount purchased plus accrued and unpaid
interest, if any.
Senior Unsecured Floating Rate Notes
In March 2019, we used net proceeds from the sale of
commercial paper and cash on hand and repaid all of our 2019
Notes.
Nasdaq issued the 2019 Notes in September 2017. The 2019
Notes paid interest quarterly in arrears at a rate equal to the
three-month U.S. dollar LIBOR as determined at the beginning
of each quarterly period plus 0.39% per annum until March 22,
2019.
Early Extinguishment of 5.55% Senior Unsecured Notes Due
2020
Nasdaq issued the 2020 Notes in January 2010. The 2020 Notes
paid interest semiannually at a rate of 5.55% per annum.
F-29
In May 2019, we primarily used the net proceeds from the 2029
Notes to repay in full and terminate our 2020 Notes. For further
discussion of the 2029 Notes, see “1.75% Senior Unsecured
Notes Due 2029” below. In connection with the early
extinguishment of the 2020 Notes, we recorded a charge of $11
million, which primarily included a make-whole redemption
price premium. This charge
in general,
is
the Consolidated
administrative and other expense
Statements of Income for the year ended December 31, 2019.
included
in
3.875% Senior Unsecured Notes Due 2021
In February 2020, we issued a redemption notice to redeem all
€600 million aggregate principal amount outstanding of our
2021 Notes, in accordance with the redemption provisions in
the indenture governing the 2021 Notes. Upon completion of
the redemption, no 2021 Notes will remain outstanding.
Nasdaq issued the 2021 Notes in June 2013. The 2021 Notes
pay interest annually at a rate of 3.875% per annum.
Nasdaq will primarily use the net proceeds from the sale of the
2030 Notes to redeem the 2021 Notes and for other general
corporate purposes. For further discussion of the 2030 Notes,
see “0.875% Senior Unsecured Notes Due 2030” below.
The 2021 Notes were designated as a hedge of our net
investment in certain foreign subsidiaries to mitigate the foreign
exchange risk associated with certain investments in these
subsidiaries. The decrease in the carrying amount of $15 million
noted in the “Payments, Accretion and Other” column in the
table above primarily reflects the translation of the 2021 Notes
into U.S. dollars and is recorded in accumulated other
comprehensive
the
Consolidated Balance Sheets as of December 31, 2019.
loss within stockholders’ equity in
4.25% Senior Unsecured Notes Due 2024
In May 2014, Nasdaq issued the 2024 Notes. The 2024 Notes
pay interest semiannually at a rate of 4.25% per annum until
June 1, 2024 and such rate may vary with Nasdaq’s debt rating
up to a rate not to exceed 6.25%.
1.75% Senior Unsecured Notes Due 2023
In May 2016, Nasdaq issued the 2023 Notes. The 2023 Notes
pay interest annually at a rate of 1.75% per annum until May 19,
2023 and such rate may vary with Nasdaq’s debt rating up to a
rate not to exceed 3.75%.
The 2023 Notes have been designated as a hedge of our net
investment in certain foreign subsidiaries to mitigate the foreign
exchange rate risk associated with certain investments in these
subsidiaries. The decrease in the carrying amount of $14 million
noted in the “Payments, Accretion and Other” column in the
table above primarily reflects the translation of the 2023 Notes
into U.S. dollars and is recorded in accumulated other
comprehensive loss within stockholders’ equity in the
Consolidated Balance Sheets as of December 31, 2019.
3.85% Senior Unsecured Notes Due 2026
In June 2016, Nasdaq issued the 2026 Notes. The 2026 Notes
pay interest semiannually at a rate of 3.85% per annum until
June 30, 2026 and such rate may vary with Nasdaq’s debt rating
up to a rate not to exceed 5.85%.
1.75% Senior Unsecured Notes Due 2029
In April 2019, Nasdaq issued the 2029 Notes. The 2029 Notes
pay interest annually in arrears, beginning on March 28, 2020
at a rate of 1.75% per annum until March 28, 2029 and such
rate may vary with Nasdaq’s debt rating up to a rate not to exceed
3.75%. The 2029 Notes may be redeemed by Nasdaq at any
time, subject to a make-whole amount. The proceeds from the
2029 Notes, approximately $665 million after deducting the
underwriting discount and expenses of the offering, were
primarily used to redeem the 2020 Notes. For further discussion
of the 2020 Notes, see “Early Extinguishment of 5.55% Senior
Unsecured Notes Due 2020” above.
The 2029 Notes have been designated as a hedge of our net
investment in certain foreign subsidiaries to mitigate the foreign
exchange risk associated with certain investments in these
subsidiaries. The translation impact of the 2029 Notes into U.S.
dollars was immaterial as of December 31, 2019.
0.875% Senior Unsecured Notes Due 2030
In February 2020, Nasdaq issued the 2030 Notes. The 2030
Notes pay interest annually in arrears, beginning on February
13, 2021 and may be redeemed by Nasdaq at any time, subject
to a make-whole amount. The proceeds from the 2030 Notes,
approximately $648 million after deducting the underwriting
discount and expenses of the offering, will primarily be used to
redeem the 2021 Notes and for other general corporate
purposes. For further discussion of the 2021 Notes, see “3.875%
Senior Unsecured Notes Due 2021” above.
The 2030 Notes have been designated as a hedge of our net
investment in certain foreign subsidiaries to mitigate the foreign
exchange risk associated with certain investments in these
subsidiaries.
Credit Facilities
Early Extinguishment of 2016 Credit Facility
In March 2016, Nasdaq entered into the 2016 Credit Facility.
Under our 2016 Credit Facility, borrowings bore interest on the
principal amount outstanding at a variable interest rate based
on either the LIBOR or the base rate (or other applicable rate
with respect to non-dollar borrowings), plus an applicable
margin that varied with Nasdaq’s debt rating.
In June 2019, we used proceeds from issuances of commercial
paper to repay in full and terminate our 2016 Credit Facility.
2017 Credit Facility
In April 2017, Nasdaq entered into the 2017 Credit Facility. The
2017 Credit Facility consists of a $1 billion five-year revolving
credit facility (with sublimits for non-dollar borrowings,
swingline borrowings and letters of credit), which replaced a
former credit facility. Nasdaq intends to use funds available
under the 2017 Credit Facility for general corporate purposes
and to provide liquidity support for the repayment of
commercial paper issued through the commercial paper
F-30
program. Nasdaq is permitted to repay borrowings under our
2017 Credit Facility at any time in whole or in part, without
penalty.
As of December 31, 2019, no amounts were outstanding on the
2017 Credit Facility. The $2 million balance represents
unamortized debt issuance costs which are being accreted
through interest expense over the life of the credit facility. Of
the $1 billion that is available for borrowing, $392 million
provides liquidity support for the commercial paper program
and for a letter of credit. As such, as of December 31, 2019, the
total remaining amount available under the 2017 Credit Facility
was $608 million excluding the amounts that support the
commercial paper program and
letter of credit. See
“Commercial Paper Program” above for further discussion of
our commercial paper program.
Under our 2017 Credit Facility, borrowings under the revolving
credit facility and swingline borrowings bear interest on the
principal amount outstanding at a variable interest rate based
on either the LIBOR or the base rate (as defined in the credit
agreement) (or other applicable rate with respect to non-dollar
borrowings), plus an applicable margin that varies with
Nasdaq’s debt rating. We are charged commitment fees of
0.125% to 0.4%, depending on our credit rating, whether or not
amounts have been borrowed. These commitment fees are
included in interest expense and were not material for both the
years ended December 31, 2019 and 2018.
The 2017 Credit Facility contains financial and operating
covenants. Financial covenants include a minimum interest
expense coverage ratio and a maximum leverage ratio.
Operating covenants include, among other things, limitations
on Nasdaq’s ability to incur additional indebtedness, grant liens
on assets, dispose of assets and make certain restricted
payments. The facility also contains customary affirmative
covenants, including access to financial statements, notice of
defaults and certain other material events, maintenance of
properties and insurance, and events of default, including cross-
defaults to our material indebtedness.
The 2017 Credit Facility includes an option for Nasdaq to
increase the available aggregate amount by up to $500 million,
subject to the consent of the lenders funding the increase and
certain other conditions.
Other Credit Facilities
We also have credit facilities primarily related to our Nasdaq
Clearing operations in order to provide further liquidity. These
credit facilities, which are available in multiple currencies,
totaled $203 million as of December 31, 2019 and $234 million
as of December 31, 2018 in available liquidity, of which $15
million was utilized as of December 31, 2019 and none of which
was utilized as of December 31, 2018.
Debt Covenants
As of December 31, 2019, we were in compliance with the
covenants of all of our debt obligations.
Transition from LIBOR
Nasdaq is currently evaluating the impact of the transition from
LIBOR as an interest rate benchmark to other potential
alternative reference rates. Currently, Nasdaq has debt
instruments in place that reference LIBOR-based rates. As of
December 31, 2019, we do not have material risk exposure to
LIBOR through our outstanding debt instruments. The
transition from LIBOR is estimated to take place in 2021 and
Nasdaq will continue to actively assess the related opportunities
and risks involved in this transition.
11. Retirement Plans
Defined Contribution Savings Plan
We sponsor a 401(k) Plan for U.S. employees. Employees are
immediately eligible to make contributions to the plan and are
also eligible for an employer contribution match at an amount
equal to 100.0% of the first 6.0% of eligible employee
contributions. Savings plan expense included in compensation
and benefits expense in the Consolidated Statements of Income
was $13 million for the year ended December 31, 2019, $14
million for the year ended December 31, 2018, and $13 million
for the year ended December 31, 2017.
Pension and Supplemental Executive Retirement Plans
We maintain non-contributory, defined-benefit pension plans,
non-qualified SERPs for certain senior executives and other
post-retirement benefit plans for eligible employees in the U.S.,
collectively referred to as the Nasdaq Benefit Plans. Our
pension plans and SERPs are frozen. Future service and salary
for all participants do not count toward an accrual of benefits
under the pension plans and SERPs. Most employees outside
the U.S. are covered by local retirement plans or by applicable
social laws. Benefits under social laws are generally expensed
in the periods in which the costs are incurred. The total expense
for these plans is included in compensation and benefits expense
in the Consolidated Statements of Income and was $20 million
for the year ended December 31, 2019, $22 million for the year
ended December 31, 2018, and $21 million for the year ended
December 31, 2017.
Nasdaq recognizes the funded status of the Nasdaq Benefit
Plans, measured as the difference between the fair value of the
plan assets and the benefit obligation, in the Consolidated
Balance Sheets. The fair value of our U.S. defined-benefit
pension plans' assets was $110 million as of December 31, 2019
and $94 million as of December 31, 2018 and the benefit
obligation was $110 million as of December 31, 2019 and $94
million as of December 31, 2018. As a result, the U.S. defined-
benefit pension plans are fully funded as of December 31, 2019
and 2018. During 2019, we did not make any contributions to
our U.S. defined-benefit pension plans and contributed $22
million in 2018. For our SERP and other post-retirement benefit
plans, the net underfunded liability was $33 million as of
December 31, 2019 and $28 million as of December 31, 2018.
The underfunded liability for the above plans is included in
accrued personnel costs and other non-current liabilities in the
Consolidated Balance Sheets. The plan assets of the Nasdaq
Benefit Plans are invested per target allocations adopted by
F-31
Nasdaq’s Pension and 401(k) Committee and are primarily
invested in collective fund investments that have underlying
investments in fixed income securities. The collective fund
investments are valued at net asset value which is a practical
expedient to estimate fair value.
Accumulated Other Comprehensive Loss
As of December 31, 2019, accumulated other comprehensive
loss for the Nasdaq Benefit Plans was $25 million reflecting an
unrecognized net loss of $32 million, partially offset by an
income tax benefit of $7 million, primarily due to our pension
plans.
Estimated Future Benefit Payments
We expect to make the following benefit payments to
participants in the next ten fiscal years under the Nasdaq Benefit
Plans:
In addition to the above, we recorded excess tax benefits of $5
million in 2019, $9 million in 2018 and $40 million in 2017.
The benefit was included in income tax expense.
Common Shares Available Under Our Equity Plan
As of December 31, 2019, we had approximately 10.4 million
shares of common stock authorized for future issuance under
our Equity Plan.
Restricted Stock
We grant restricted stock to most active employees. The grant
date fair value of restricted stock awards is based on the closing
stock price at the date of grant less the present value of future
cash dividends. Restricted stock awards granted generally vest
25.0% on the second anniversary of the grant date, 25.0% on
the third anniversary of the grant date, and 50.0% on the fourth
anniversary of the grant date.
Pension
SERP
Post-
retirement
Total
Summary of Restricted Stock Activity
Fiscal Year Ended:
(in millions)
$
— $ 15
The following table summarizes our restricted stock activity for
the years ended December 31, 2019, 2018 and 2017:
2020
2021
2022
2023
2024
$
$
8
6
7
7
8
2025 through 2029
40
7
2
2
2
2
9
$ 76
$ 24
$
—
—
—
—
1
1
8
9
9
10
50
$ 101
12. Share-Based Compensation
We have a share-based compensation program for employees
and non-employee directors. Share-based awards granted under
this program include stock options, restricted stock (consisting
of restricted stock units), and PSUs. For accounting purposes,
we consider PSUs to be a form of restricted stock.
Summary of Share-Based Compensation Expense
Unvested balances at
December 31, 2016
Granted
Vested
Forfeited
Unvested balances at
December 31, 2017
Granted
Vested
Forfeited
Unvested balances at
December 31, 2018
The following table shows the total share-based compensation
expense resulting from equity awards and the 15.0% discount
for the ESPP for the years ended December 31, 2019, 2018 and
2017 in the Consolidated Statements of Income:
Granted
Vested
Forfeited
Restricted Stock
Number of Awards
Weighted-Average
Grant Date Fair
Value
$
2,560,578
$
737,864
(1,102,823) $
(207,119) $
1,988,500
550,544
$
$
(702,832) $
(252,837) $
1,583,375
605,033
$
$
(548,588) $
(153,064) $
45.92
67.48
38.56
52.29
57.34
81.66
48.64
63.86
68.62
85.03
61.45
73.99
Share-based compensation
expense before income taxes
Income tax benefit
Share-based compensation
expense after income taxes
Year Ended December 31,
2019
2018
2017
(in millions)
$
79
$ 69
$
70
(21)
(19)
(29)
$
58
$ 50
$
41
Unvested balances at
December 31, 2019
1,486,756
$
77.38
As of December 31, 2019, $58 million of total unrecognized
compensation cost related to restricted stock is expected to be
recognized over a weighted-average period of 1.7 years.
PSUs
PSUs are based on performance measures that impact the
amount of shares that each recipient will receive upon vesting.
We have two performance-based long-term PSU programs for
certain officers, a one-year performance-based program and a
three-year cumulative performance-based program that focuses
on TSR.
F-32
The following weighted-average assumptions were used to
determine the weighted-average fair values of the PSU awards
granted under the three-year PSU program:
Weighted-average risk free interest
rate(1)
Expected volatility(2)
Weighted-average grant date share
price
Weighted-average fair value at grant
date
Year Ended December 31,
2019
2018
2.26%
16.5%
2.36%
18.7%
$89.00
$ 86.24
$97.65
$116.86
____________
(1) The risk-free interest rate for periods within the expected
life of the award is based on the U.S. Treasury yield curve
in effect at the time of grant.
(2) We use historic volatility for PSU awards issued under the
three-year PSU program, as implied volatility data could
not be obtained for all the companies in the peer groups
used for relative performance measurement within the
program.
In addition, the annual dividend assumption utilized in the
Monte Carlo simulation model is based on Nasdaq’s dividend
yield at the date of grant.
One-Year PSU Program
The grant date fair value of PSUs under the one-year
performance-based program is based on the closing stock price
at the date of grant less the present value of future cash
dividends. Under this program, an eligible employee receives
a target grant of PSUs, but may receive from 0.0% to 150.0%
of the target amount granted, depending on the achievement of
performance measures. These awards vest ratably on an annual
basis over a three-year period commencing with the end of the
one-year performance period. Compensation cost is recognized
over the performance period and the three-year vesting period
based on the probability that such performance measures will
be achieved, taking into account an estimated forfeiture rate.
During 2019, grants of PSUs with a one-year performance
period exceeded the applicable performance parameters. As a
result, an additional 26,780 units above the original target were
granted in the first quarter of 2020.
Three-Year PSU Program
Under the three-year performance-based program, each eligible
individual receives PSUs, subject to market conditions, with a
three-year cumulative performance period that vest at the end
of the performance period. Compensation cost is recognized
over the three-year performance period, taking into account an
estimated forfeiture rate, regardless of whether the market
condition is satisfied, provided that the requisite service period
has been completed. Performance will be determined by
comparing Nasdaq’s TSR to two peer groups, each weighted
50.0%. The first peer group consists of exchange companies,
and the second peer group consists of all companies in the S&P
500. Nasdaq’s relative performance ranking against each of
these groups will determine the final number of shares delivered
to each individual under the program. The payout under this
program will be between 0.0% and 200.0% of the number of
PSUs granted and will be determined by Nasdaq’s overall
performance against both peer groups. However, if Nasdaq’s
TSR is negative for the three-year performance period,
regardless of TSR ranking, the payout will not exceed 100.0%
of the number of PSUs granted. We estimate the fair value of
PSUs granted under the three-year PSU program using the
Monte Carlo simulation model, as these awards contain a
market condition.
Grants of PSUs that were issued in 2017 with a three-year
performance period exceeded the applicable performance
parameters. As a result, an additional 43,684 units above the
original target were granted in the first quarter of 2020 and are
fully vested upon issuance.
F-33
Summary of PSU Activity
The following table summarizes our PSU activity for the years
ended December 31, 2019, 2018 and 2017:
PSUs
One-Year Program
Three-Year Program
Weighted-
Average
Grant
Date Fair
Value
Number of
Awards
Number of
Awards
Weighted-
Average
Grant
Date Fair
Value
performance goal for 2019 was met, resulting in the settlement
of 89,606 stock options, the final one-third of the grant. There
were no stock option awards granted during the years ended
December 31, 2019 and 2018.
The weighted-average grant date fair value for the 2017 grant
was $66.68. We estimated the fair value of this stock option
award using the Black-Scholes valuation model using the
following assumptions:
378,766
$ 52.55
1,314,668 $ 63.18
Expected volatility
Expected life (in years)
Weighted-average risk free interest rate
Dividend yield
6
2.1%
25.6%
1.92%
Unvested
balances at
December
31, 2016
Granted(1)
Vested
Forfeited
Unvested
balances at
December
31, 2017
Granted(1)
Forfeited
Unvested
balances at
December
31, 2018
Granted(1)
Vested
Forfeited
Unvested
balances at
December
31, 2019
____________
(1)
Vested
(170,257) $ 58.49
(655,204) $ 64.08
197,075
$ 65.51
(202,073) $ 49.93
(40,764) $ 55.92
803,712
$ 55.57
(1,079,925) $ 42.83
(28,497) $ 87.86
333,004
$ 61.39
1,009,958 $ 78.18
177,831
$ 80.97
484,075
$ 90.92
(26,347) $ 61.83
(1,079) $ 81.57
314,231
$ 74.01
837,750
$ 96.57
179,599
$ 83.56
397,553
$ 96.55
(147,984) $ 70.64
(431,751) $ 93.25
(28,595) $ 75.43
(6,101) $103.29
317,251
$ 80.87
797,451
$ 98.31
Includes target awards granted and certain additional
awards granted based on overachievement of performance
parameters.
As of December 31, 2019, $11 million of total unrecognized
compensation cost related to the one-year PSU program is
expected to be recognized over a weighted-average period of
1.4 years. For the three-year PSU program, $29 million of total
unrecognized compensation cost is expected to be recognized
over a weighted-average period of 1.3 years.
Stock Options
In January 2017 and in connection with her appointment, our
CEO received 268,817 performance-based non-qualified stock
options which vested one-third annually over a three-year
period, with each vesting contingent upon the achievement of
annual performance parameters. Compensation cost equal to
the grant date fair value is recognized over the vesting period.
On February 25, 2020, Nasdaq's management compensation
committee and board of directors determined that the
F-34
Our computation of expected life was based on an estimate of
the average length of time between option grant and exercise.
The interest rate for periods within the expected life of the award
was based on the U.S. Treasury yield curve in effect at the time
of grant. Our computation of expected volatility was an estimate
of the future upward/downward fluctuations in the underlying
share price. We used Nasdaq's historical volatility for the
trailing 6-year period as of the grant date. Our computation of
dividend yield was based on annualized dividends expressed as
a percentage of share price.
Summary of Stock Option Activity
A summary of stock option activity for the years ended
December 31, 2019, 2018 and 2017 is as follows:
Number of
Stock Options
Weighted-
Average
Exercise
Price
Outstanding at December 31, 2016
1,406,371
$ 22.32
Granted
Exercised
Forfeited
268,817
(1,102,830)
(978)
66.68
21.98
21.33
Outstanding at December 31, 2017
571,380
$ 43.84
Exercised
Forfeited
Outstanding at December 31, 2018
Exercised
Forfeited
(118,094)
24.44
(4,320)
448,966
26.11
$ 49.25
(69,699)
(165)
20.84
25.28
Outstanding at December 31, 2019
379,102
$ 54.32
Exercisable at December 31, 2019
289,496
$ 50.50
We received net cash proceeds of $2 million from the exercise
of 69,699 stock options for the year ended December 31, 2019,
received net cash proceeds of $3 million from the exercise of
118,094 stock options for the year ended December 31, 2018
and received net cash proceeds of $24 million from the exercise
of 1,102,830 stock options for the year ended December 31,
2017.
The following table summarizes significant ranges of outstanding and exercisable stock options as of December 31, 2019:
Range of Exercise Prices
$ 18.67 - $ 25.28
$ 66.68
Total
Number of
Stock Options
110,285
268,817
379,102
Outstanding
Exercisable
Weighted-
Average
Remaining
Contractual
Term (in
years)
1.04
7.01
5.27
Weighted-
Average
Exercise
Price
$
$
24.20
66.68
54.32
$
$
Aggregate
Intrinsic
Value (in
millions)
Number of
Stock Options
Weighted-
Average
Remaining
Contractual
Term (in
years)
9
11
20
110,285
179,211
289,496
1.04
7.01
4.73
Weighted-
Average
Exercise
Price
$ 24.20
66.68
$ 50.50
$
$
Aggregate
Intrinsic
Value (in
millions)
9
7
16
The aggregate intrinsic value in the above table represents the total pre-tax intrinsic value (i.e., the difference between our closing
stock price on December 31, 2019 of $107.10 and the exercise price, times the number of shares), which would have been received
by the option holders had the option holders exercised their stock options on that date. This amount can change based on the fair
market value of our common stock. The total number of in-the-money stock options exercisable as of December 31, 2019 was 0.3
million and the weighted-average exercise price was $50.50. As of December 31, 2018, 0.3 million outstanding stock options were
exercisable and the weighted-average exercise price was $37.51.
The total pre-tax intrinsic value of stock options exercised was $6 million during 2019, $7 million during 2018, and $54 million
during 2017.
* * * * * *
ESPP
We have an ESPP under which approximately 1.7 million shares
of our common stock have been reserved for future issuance as
of December 31, 2019. Under our ESPP, employees may
purchase shares having a value not exceeding 10.0% of their
annual compensation, subject to applicable annual Internal
Revenue Service limitations. We record compensation expense
related to the 15.0% discount that is given to our employees.
The following table summarizes employee activity and
expenses associated with the ESPP for the years ended
December 31, 2019, 2018 and 2017.
reduction to Nasdaq stockholders’ equity and included in
common stock in treasury, at cost in the Consolidated Balance
Sheets. Shares repurchased under our share repurchase program
are currently retired and canceled and are therefore not included
in the common stock in treasury balance. When treasury shares
are reissued, they are recorded at the average cost of the treasury
shares acquired. We held 5,980,571 shares of common stock in
treasury as of December 31, 2019 and 5,544,321 shares as of
December 31, 2018, most of which are related to shares of our
common stock withheld for the settlement of employee tax
withholding obligations arising from the vesting of restricted
stock and PSUs.
Year Ended December 31,
Share Repurchase Program
As of December 31, 2019, the aggregate authorized amount
under the existing share repurchase program, which includes
an additional $500 million authorized by the board in October
2019, is $632 million.
These purchases may be made from time to time at prevailing
market prices in open market purchases, privately-negotiated
transactions, block purchase techniques or otherwise, as
determined by our management. The purchases are primarily
funded from existing cash balances. The share repurchase
program may be suspended, modified or discontinued at any
time. The share repurchase program has no defined expiration
date.
2019
2018
2017
Number of shares
purchased
Weighted-average price of
shares purchased
229,172
205,785
235,859
$ 73.79
$ 66.79
$ 58.26
Compensation expense
$
4
$
3
$
3
13. Nasdaq Stockholders’ Equity
Common Stock
As of December 31, 2019, 300,000,000 shares of our common
stock were authorized, 171,075,011 shares were issued and
165,094,440 shares were outstanding. The holders of common
stock are entitled to one vote per share, except that our certificate
of incorporation limits the ability of any person to vote in excess
of 5.0% of the then-outstanding shares of Nasdaq common
stock.
Common Stock in Treasury, at Cost
We account for the purchase of treasury stock under the cost
method with the shares of stock repurchased reflected as a
F-35
The following is a summary of our share repurchase activity,
reported based on settlement date, for the year ended
December 31, 2019 and 2018:
Number of shares of
common stock
repurchased
Year Ended December 31,
2019
2018
2,053,855
4,508,426
Average price paid per share
Total purchase price (in
millions)
$
$
97.37
200
$
$
87.43
394
As discussed above in “Common Stock in Treasury, at Cost,”
shares repurchased under our share repurchase program are
currently retired and cancelled.
Other Repurchases of Common Stock
During the year ended December 31, 2019, we repurchased
436,250 shares of our common stock in settlement of employee
tax withholding obligations arising from the vesting of
restricted stock and PSUs.
Preferred Stock
Our certificate of incorporation authorizes the issuance of
30,000,000 shares of preferred stock, par value $0.01 per share,
issuable from time to time in one or more series. As of
December 31, 2019 and 2018, no shares of preferred stock were
issued or outstanding.
Cash Dividends on Common Stock
During 2019, our board of directors declared the following cash dividends:
* * * * * *
Declaration Date
Dividend Per
Common
Share
Record Date
Total Amount Paid
Payment Date
(in millions)
January 29, 2019
April 23, 2019
July 23, 2019
October 22, 2019
$
0.44 March 15, 2019
0.47
June 14, 2019
0.47 September 13, 2019
0.47 December 13, 2019
$
$
73 March 29, 2019
77
June 28, 2019
78 September 27, 2019
77 December 27, 2019
305
The total amount paid of $305 million was recorded in retained earnings in the Consolidated Balance Sheets at December 31,
2019.
In January 2020, the board of directors approved a regular quarterly cash dividend of $0.47 per share on our outstanding common
stock. The dividend is payable on March 27, 2020 to shareholders of record at the close of business on March 13, 2020. The
estimated amount of this dividend is $78 million. Future declarations of quarterly dividends and the establishment of future record
and payment dates are subject to approval by the board of directors.
Our board of directors maintains a dividend policy with the intention to provide stockholders with regular and growing dividends
over the long term as earnings and cash flow grow.
F-36
14. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Numerator:
Year Ended December 31,
2019
2018
2017
(in millions, except share and per share amounts)
Net income attributable to common shareholders
$
774
$
458
$
729
Denominator:
Weighted-average common shares outstanding for basic earnings per share
164,931,628
165,349,471
166,364,299
Weighted-average effect of dilutive securities:
Employee equity awards(1)
Contingent issuance of common stock(2)
1,679,922
1,988,610
2,861,892
358,611
353,218
358,840
Weighted-average common shares outstanding for diluted earnings per share
166,970,161
167,691,299
169,585,031
Basic and diluted earnings per share:
Basic earnings per share
Diluted earnings per share
$
$
4.69
4.63
$
$
2.77
2.73
$
$
4.38
4.30
____________
(1) PSUs, which are considered contingently issuable, are included in the computation of dilutive earnings per share on a weighted
average basis when management determines that the applicable performance criteria would have been met if the performance
period ended as of the date of the relevant computation.
(2) See “Non-Cash Contingent Consideration,” of Note 19, “Commitments, Contingencies and Guarantees,” for further discussion.
Securities that were not included in the computation of diluted earnings per share because their effect was antidilutive were
immaterial for the years ended December 31, 2019, 2018 and 2017.
15. Fair Value of Financial Instruments
The following tables present our financial assets and financial liabilities that are measured at fair value on a recurring basis as of
December 31, 2019 and 2018.
Assets at Fair Value
Debt securities:
European government
Time deposits
Corporate
State owned enterprises and
municipalities
Swedish mortgage bonds
December 31, 2019
December 31, 2018
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
(in millions)
(in millions)
$
157
$
157
$ — $ — $
134
$
134
$ — $ —
57
34
24
19
—
—
—
—
57
34
24
19
—
—
—
—
30
41
14
40
—
—
—
—
30
41
14
40
—
—
—
—
Total debt securities
$
291
$
157
$
134
$ — $
259
$
134
$
125
$ —
Available-for-sale investment securities:
Commercial paper
Total assets at fair value
Liabilities at Fair Value
$ — $ — $ — $ — $
$ — $
$
$
157
134
291
$
9
268
$ — $
$
134
$
9
134
$ —
$ —
Other financial instruments
$ — $ — $ — $ — $
Total liabilities at fair value
$ — $ — $ — $ — $
112
112
$ — $
$ — $
112
112
$ —
$ —
F-37
Liabilities at Fair Value
Our Level 2 other financial instruments at December 31, 2018
liability associated with Nasdaq Clearing's
include a
requirement to fulfill the settlement of certain contracts of a
defaulted member. The fair value of this guarantee was $112
million as of December 31, 2018 and is included in other current
liabilities in the Consolidated Balance Sheets. Collateral of
$112 million as of December 31, 2018 was recorded in other
current assets which offsets this liability. See Note 16, “Clearing
Operations,” for further discussion of default fund contributions
and margin deposits.
Financial Instruments Not Measured at Fair Value on a
Recurring Basis
Some of our financial instruments are not measured at fair value
on a recurring basis but are recorded at amounts that
approximate fair value due to their liquid or short-term nature.
Such financial assets and financial liabilities include: cash and
cash equivalents, restricted cash, receivables, net, certain other
current assets, accounts payable and accrued expenses,
Section 31 fees payable to SEC, accrued personnel costs,
commercial paper and certain other current liabilities.
Our investment in OCC is accounted for under the equity
method of accounting. We have elected the measurement
alternative for the majority of our equity securities, which
primarily represent various strategic investments made through
our corporate venture program. See “Equity Method
Investments,” and “Equity Securities,” of Note 7,
“Investments,” for further discussion.
We also consider our debt obligations to be financial
instruments. The fair value of our debt obligations, utilizing
discounted cash flow analyses for our floating rate debt and
prevailing market rates for our fixed rate debt, was $3.6 billion
as of December 31, 2019 and $3.9 billion as of December 31,
2018. The discounted cash flow analyses are based on
borrowing rates currently available to us for debt with similar
terms and maturities. The fair value of our commercial paper
approximates the carrying value since the rates of interest on
this short-term debt approximate market rates as of
December 31, 2019. Our commercial paper and our fixed rate
and floating rate debt are categorized as Level 2 in the fair value
hierarchy.
For further discussion of our debt obligations, see Note 10,
“Debt Obligations.”
Non-Financial Assets Measured at Fair Value on a Non-
Recurring Basis
Our non-financial assets, which include goodwill, intangible
assets, and other long-lived assets, are not required to be carried
at fair value on a recurring basis. Fair value measures of non-
financial assets are primarily used in the impairment analysis
of these assets. Any resulting asset impairment would require
that the non-financial asset be recorded at its fair value. Nasdaq
uses Level 3 inputs to measure the fair value of the above assets
on a non-recurring basis. As of December 31, 2019 and 2018,
there were no non-financial assets measured at fair value on a
non-recurring basis.
16. Clearing Operations
Nasdaq Clearing
Nasdaq Clearing is authorized and supervised under EMIR as
a multi-asset clearinghouse by the SFSA. Such authorization is
effective for all member states of the European Union and
certain other non-member states that are part of the European
Economic Area, including Norway. The clearinghouse acts as
the CCP for exchange and OTC trades in equity derivatives,
fixed income derivatives, resale and repurchase contracts,
power derivatives, emission allowance derivatives, and seafood
derivatives.
Through our clearing operations in the financial markets, which
include the resale and repurchase market, the commodities
markets, and the seafood market, Nasdaq Clearing is the legal
counterparty for, and guarantees the fulfillment of, each
contract cleared. These contracts are not used by Nasdaq
Clearing for the purpose of trading on its own behalf. As the
legal counterparty of each transaction, Nasdaq Clearing bears
the counterparty risk between the purchaser and seller in the
contract. In its guarantor role, Nasdaq Clearing has precisely
equal and offsetting claims to and from clearing members on
opposite sides of each contract, standing as the CCP on every
contract cleared. In accordance with the rules and regulations
of Nasdaq Clearing, default fund and margin collateral
requirements are calculated for each clearing member’s
positions in accounts with the CCP. See “Default Fund
Contributions and Margin Deposits” below for further
discussion of Nasdaq Clearing’s default fund and margin
requirements.
Nasdaq Clearing maintains four member sponsored default
funds: one related to financial markets, one related to
commodities markets, one related to the seafood market, and a
mutualized fund. Under this structure, Nasdaq Clearing and its
clearing members must contribute to the total regulatory capital
related to the clearing operations of Nasdaq Clearing. This
structure applies an initial separation of default fund
contributions for the financial, commodities and seafood
markets in order to create a buffer for each market’s
counterparty risks. Simultaneously, a mutualized default fund
provides capital efficiencies to Nasdaq Clearing’s members
with regard to total regulatory capital required. See “Default
Fund Contributions” below for further discussion of Nasdaq
Clearing’s default fund. Power of assessment and a liability
waterfall also have been implemented. See “Power of
Assessment” and “Liability Waterfall” below for further
discussion. These requirements align risk between Nasdaq
Clearing and its clearing members.
Nasdaq Commodities Clearing Default
In September 2018, a member of the Nasdaq Clearing
commodities market defaulted due to inability to post sufficient
collateral to cover increased margin requirements for the
positions of the relevant member, which had experienced losses
due to sharp adverse movements in the Nordic - German power
F-38
market spread. Nasdaq Clearing followed default procedures
and offset the future market risk on the defaulting member’s
positions. The default resulted in an initial loss of $133 million.
In accordance with the liability waterfall, the first $8 million of
the loss was allocated to Nasdaq Clearing’s junior capital and
the remainder was allocated on a pro-rata basis to the
commodities clearing members’ default funds. In September
2018, these funds were replenished.
In December 2018, we initiated a capital relief program. The
capital relief program was a voluntary program open to each
commodities default fund participant; each such participant
who agreed to the capital relief program received a proportion
of the funds made available under the capital relief program as
reflected by their proportionate share of the aggregate of the
clearing members' default fund replenishments. As of
December 31, 2019, we have disbursed substantially all of the
$23 million offered through the program. In addition to the
capital relief program, we are pursuing recovery of assets from
the defaulted member which will be allocated back to default
fund participants.
As a result of the default, a liability of $112 million as of
December 31, 2018 was recorded in other current liabilities and
collateral of $112 million as of December 31, 2018 was
recorded in other current assets in the Consolidated Balance
Sheets in order to allow Nasdaq Clearing to fulfill the settlement
of certain contracts of the defaulted member arising from the
default management process. We had established mitigating
positions. As of December 31, 2019, these contracts and
mitigating positions have either expired or were sold to a third
party together with associated collateral. The collateral and
liability were previously included in default funds and margin
deposits.
Default Fund Contributions and Margin Deposits
As of December 31, 2019, clearing member default fund
contributions and margin deposits were as follows:
December 31, 2019
Cash
Contributions
Non-Cash
Contributions
Total
Contributions
(in millions)
Default fund
contributions
Margin deposits
Total
$
$
387
$
183
$
2,609
3,544
570
6,153
2,996
$
3,727
$
6,723
Of the total default fund contributions of $570 million, Nasdaq
Clearing can utilize $458 million as capital resources in the
event of a counterparty default. The remaining balance of $112
million pertains to member posted surplus balances.
Our clearinghouse holds material amounts of clearing member
cash deposits which are held or invested primarily to provide
security of capital while minimizing credit, market and liquidity
risks. While we seek to achieve a reasonable rate of return, we
are primarily concerned with preservation of capital and
managing the risks associated with these deposits.
Clearing member cash contributions are maintained in demand
deposits held at central banks and large, highly rated financial
institutions or secured through direct investments, primarily
central bank certificates and European government debt
securities with original maturities of 90 days or less, reverse
repurchase agreements, supranationals and state owned
enterprise debt securities. Investments in reverse repurchase
agreements are secured with highly rated government securities
with maturity dates that range from 7 days to 10 days. The
carrying value of these securities approximates their fair value
due to the short-term nature of the instruments and reverse
repurchase agreements.
Nasdaq Clearing has invested the total cash contributions of
$2,996 million as of December 31, 2019 and $4,742 million on
as of December 31, 2018, in accordance with its investment
policy as follows:
December 31,
2019
December 31,
2018
(in millions)
Demand deposits
$
1,328
$
3,094
Central bank certificates
European government debt
securities
Reverse repurchase agreements
Supranationals and state owned
enterprise debt securities
896
508
116
148
1,017
380
166
85
Total
$
2,996
$
4,742
In the investment activity related to default fund and margin
contributions, we are exposed to counterparty risk related to
reverse repurchase agreement transactions, which reflect the
risk that the counterparty might become insolvent and, thus, fail
to meet its obligations to Nasdaq Clearing. We mitigate this risk
by only engaging in transactions with high credit quality reverse
repurchase agreement counterparties and by limiting the
acceptable collateral under the reverse repurchase agreement
to high quality issuers, primarily government securities and
other securities explicitly guaranteed by a government. The
value of the underlying security is monitored during the lifetime
of the contract, and in the event the market value of the
underlying security falls below the reverse repurchase amount,
our clearinghouse may require additional collateral or a reset
of the contract.
Default Fund Contributions
Required contributions to the default funds are proportional to
the exposures of each clearing member. When a clearing
member is active in more than one market, contributions must
be made to all markets’ default funds in which the member is
active. Clearing members’ eligible contributions may include
cash and non-cash contributions. Cash contributions received
are held in cash or invested by Nasdaq Clearing, in accordance
with its investment policy, either in highly rated government
debt securities, time deposits, central bank certificates or
reverse repurchase agreements with highly rated government
debt securities as collateral. Nasdaq Clearing maintains and
F-39
manages all cash deposits related to margin collateral. All risks
and rewards of collateral ownership, including interest, belong
to Nasdaq Clearing. Clearing members’ cash contributions are
included in default funds and margin deposits in the
Consolidated Balance Sheets as both a current asset and a
current liability. Non-cash contributions include highly rated
government debt securities that must meet specific criteria
approved by Nasdaq Clearing. Non-cash contributions are
pledged assets that are not recorded in the Consolidated Balance
Sheets as Nasdaq Clearing does not take legal ownership of
these assets and the risks and rewards remain with the clearing
members. These balances may fluctuate over time due to
changes in the amount of deposits required and whether
members choose to provide cash or non-cash contributions.
Assets pledged are held at a nominee account in Nasdaq
Clearing’s name for the benefit of the clearing members and
are immediately accessible by Nasdaq Clearing in the event of
a default. In addition
to clearing members’ required
contributions to the liability waterfall, Nasdaq Clearing is also
required to contribute capital to the liability waterfall and
overall regulatory capital as specified under its clearinghouse
rules. As of December 31, 2019, Nasdaq Clearing committed
capital totaling $147 million to the liability waterfall and overall
regulatory capital, in the form of government debt securities,
which are recorded as financial investments in the Consolidated
Balance Sheets. The combined regulatory capital of the clearing
members and Nasdaq Clearing is intended to secure the
obligations of a clearing member exceeding such member’s
own margin and default fund deposits and may be used to cover
losses sustained by a clearing member in the event of a default.
Margin Deposits
Nasdaq Clearing requires all clearing members to provide
collateral, which may consist of cash and non-cash
contributions, to guarantee performance on the clearing
members’ open positions, or initial margin. In addition, clearing
members must also provide collateral to cover the daily margin
call if needed. See “Default Fund Contributions” above for
further discussion of cash and non-cash contributions.
Similar to default fund contributions, Nasdaq Clearing
maintains and manages all cash deposits related to margin
collateral. All risks and rewards of collateral ownership,
including interest, belong to Nasdaq Clearing and are recorded
in revenues. These cash deposits are recorded in default funds
and margin deposits in the Consolidated Balance Sheets as both
a current asset and a current liability. Pledged margin collateral
is not recorded in our Consolidated Balance Sheets as all risks
and rewards of collateral ownership, including interest, belong
to the counterparty. Assets pledged are held at a nominee
account in Nasdaq Clearing’s name for the benefit of the
clearing members and are immediately accessible by Nasdaq
Clearing in the event of a default.
Nasdaq Clearing marks to market all outstanding contracts and
requires payment from clearing members whose positions have
lost value. The mark-to-market process helps identify any
clearing members that may not be able to satisfy their financial
obligations in a timely manner allowing Nasdaq Clearing the
ability to mitigate the risk of a clearing member defaulting due
to exceptionally large losses. In the event of a default, Nasdaq
Clearing can access the defaulting member’s margin and default
fund deposits to cover the defaulting member’s losses.
Regulatory Capital and Risk Management Calculations
Nasdaq Clearing manages risk through a comprehensive
counterparty risk management framework, which is comprised
of policies, procedures, standards and financial resources. The
level of regulatory capital is determined in accordance with
Nasdaq Clearing’s regulatory capital policy, as approved by the
SFSA. Regulatory capital calculations are continuously
updated through a proprietary capital-at-risk calculation model
that establishes the appropriate level of capital.
As mentioned above, Nasdaq Clearing is the legal counterparty
for each contract cleared and thereby guarantees the fulfillment
of each contract. Nasdaq Clearing accounts for this guarantee
as a performance guarantee. We determine the fair value of the
performance guarantee by considering daily settlement of
contracts and other margining and default fund requirements,
the risk management program, historical evidence of default
payments, and the estimated probability of potential default
payouts. The calculation is determined using proprietary risk
management software that simulates gains and losses based on
historical market prices, extreme but plausible market
scenarios, volatility and other factors present at that point in
time for those particular unsettled contracts. Based on this
analysis, excluding any liability related to the Nasdaq
commodities clearing default (see discussion above), the
estimated liability was nominal and no liability was recorded
as of December 31, 2019.
Power of Assessment
To further strengthen the contingent financial resources of the
clearinghouse, Nasdaq Clearing has power of assessment that
provides the ability to collect additional funds from its clearing
members to cover a defaulting member’s remaining obligations
up to the limits established under the terms of the clearinghouse
rules. The power of assessment corresponds to 100.0% of the
clearing member’s aggregate contribution to the financial,
commodities and seafood markets’ default funds.
Liability Waterfall
The liability waterfall is the priority order in which the capital
resources would be utilized in the event of a default where the
defaulting clearing member’s collateral would not be sufficient
to cover the cost to settle its portfolio. If a default occurs and
the defaulting clearing member’s collateral, including cash
deposits and pledged assets, is depleted, then capital is utilized
in the following amount and order:
•
•
junior capital contributed by Nasdaq Clearing, which
totaled $34 million as of December 31, 2019;
a loss sharing pool related only to the financial market that
is contributed to by clearing members and only applies if
the defaulting member’s portfolio includes interest rate
swap products;
F-40
•
•
specific market default fund where the loss occurred (i.e.,
the financial, commodities, or seafood market), which
includes capital contributions of the clearing members on
a pro-rata basis;
senior capital contributed to each specific market by
Nasdaq Clearing, calculated
in accordance with
clearinghouse rules, which totaled $21 million as of
December 31, 2019; and
• mutualized default
includes capital
contributions of the clearing members on a pro-rata basis.
fund, which
If additional funds are needed after utilization of the liability
waterfall, then Nasdaq Clearing will utilize its power of
assessment and additional capital contributions will be required
by non-defaulting members up to the limits established under
the terms of the clearinghouse rules.
In addition to the capital held to withstand counterparty defaults
described above, Nasdaq Clearing also has committed capital
of $92 million to ensure that it can handle an orderly wind-down
of its operation, and that it is adequately protected against
investment, operational, legal, and business risks.
Market Value of Derivative Contracts Outstanding
The following table includes the market value of derivative
contracts outstanding prior to netting:
December 31, 2019
(in millions)
Commodity and seafood options, futures
and forwards(1)(2)(3)
Fixed-income options and futures(1)(2)
Stock options and futures(1)(2)
Index options and futures(1)(2)
Total
$
$
267
602
114
65
1,048
____________
(1) We determined the fair value of our option contracts using
standard valuation models that were based on market-
based observable inputs including implied volatility,
interest rates and the spot price of the underlying
instrument.
(2) We determined the fair value of our futures contracts based
upon quoted market prices and average quoted market
yields.
(3) We determined the fair value of our forward contracts using
standard valuation models that were based on market-
based observable inputs including LIBOR rates and the
spot price of the underlying instrument.
Derivative Contracts Cleared
The following table includes the total number of derivative
contracts cleared through Nasdaq Clearing for the years ended
December 31, 2019 and 2018:
Commodity and seafood
options, futures and
forwards(1)(2)
Fixed-income options and
futures
Stock options and futures
Index options and futures
Total
____________
December 31, 2019
December 31, 2018
542,557
1,649,912
21,464,522
23,777,980
47,595,114
93,380,173
22,839,794
24,978,684
49,038,297
98,506,687
(1) The total volume in cleared power related to commodity
contracts was 842 Terawatt hours (TWh) for the year ended
December 31, 2019 and 1,067 TWh for the year ended
December 31, 2018.
(2) As discussed elsewhere in this Form 10-K, in November
2019, Nasdaq sold the core assets of NFX to a third-party
and the freight contracts with open interest are being
migrated from NFX to other exchanges.
The outstanding contract value of resale and repurchase
agreements was $0.3 billion as of December 31, 2019 and $0.5
billion as of December 31, 2018. The total number of contracts
cleared was 6,627,103 for the year ended December 31, 2019
and was 9,223,246 for the year ended December 31, 2018.
17. Leases
As discussed in “Leases,” of Note 2, “Summary of Significant
Accounting Policies,” effective January 1, 2019, we adopted
ASU 2016-02 using the optional transition method. As a result,
we applied the new lease standard prospectively to our leases
existing or commencing on or after January 1, 2019.
Comparative periods presented were not restated upon
adoption. Similarly, new disclosures under the standard were
made for periods beginning January 1, 2019, and not for prior
comparative periods. Prior periods will continue to be reported
under guidance in effect prior to January 1, 2019.
F-41
We have operating leases which are primarily real estate leases
for our U.S. and European headquarters and for general office
space. The following table provides supplemental balance sheet
information related to Nasdaq's operating leases:
Leases
Balance Sheet Classification
The following table provides information related to Nasdaq's
lease term and discount rate:
December 31,
2019
(in millions)
Weighted-average remaining lease term
(in years)
Weighted-average discount rate
December 31, 2019
10.4
4.6%
Assets:
Operating lease
assets
Liabilities:
Current lease
liabilities
Operating lease assets
$
346
The following table provides supplemental cash flow
information related to Nasdaq's operating leases:
Other current
liabilities
Non-current lease
liabilities
Operating lease
liabilities
Total lease liabilities
$
$
61
331
392
The following table summarizes Nasdaq's lease cost:
Year Ended
December 31, 2019
(in millions)
Cash paid for amounts included in the
measurement of operating lease
liabilities
Lease assets obtained in exchange for
new operating lease liabilities
$
$
78
26
Operating lease cost(1)
Variable lease cost
Sublease income
Total lease cost
Year Ended
December 31, 2019
(in millions)
Disclosures Related to Periods Prior to the Adoption of ASU
2016-02 are as follows:
$
$
79
23
(5)
97
Rental expense for operating leases was $82 million in 2018
and $83 million in 2017, which are net of immaterial amounts
of sublease income. As of December 31, 2018, future minimum
lease payments under non-cancelable operating leases, which
are net of immaterial sublease income, were as follows:
____________
(1)
Includes short-term lease cost, which was immaterial.
The following table reconciles the undiscounted cash flows for
each of the first five years and total of the remaining years to
the operating lease liabilities recorded in our consolidated
balance sheet.
December 31, 2019
(in millions)
$
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: interest(1)
Present value of lease liabilities(2)
____________
(1) Calculated using the interest rate for each lease.
(2)
Includes the current portion of $61 million.
$
77
67
46
43
35
240
508
(116)
392
Total lease payments in the above table exclude $128 million
of legally binding minimum lease payments for leases signed
but not yet commenced primarily related to the expansion of
our world headquarters. These leases will commence in 2020
with a lease term of 16 years.
Year ending December 31:
(in millions)
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
18. Income Taxes
$
$
75
69
62
44
42
345
637
The Tax Cuts and Jobs Act was enacted in December 2017 and
included a number of changes to previous U.S. tax laws that
impacted Nasdaq, most notably a reduction of the U.S.
corporate income tax rate from 35 percent to 21 percent for tax
years beginning after December 31, 2017. We recognized a non-
cash provisional tax benefit of $89 million for the year ended
December 31, 2017, substantially all of which reflects the
estimated impact associated with the remeasurement of our net
U.S. deferred tax liability at the lower U.S. federal corporate
income tax rate. In accordance with Staff Accounting Bulletin
No.118, during the fourth quarter of 2018, we completed our
accounting for the tax effects of the act, finalizing our analysis
of the act and subsequent guidance issued by the U.S. Internal
Revenue Service. As a result, we recorded a $290 million non-
cash tax charge, reducing deferred tax assets relating to foreign
currency translation.
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Income Before Income Tax Provision
The following table presents the domestic and foreign
components of income before income tax provision:
Year Ended December 31,
2019
2018
2017
(in millions)
$
$
691
328
$
636
428
556
316
Domestic
Foreign
Income before income tax
provision
$ 1,019
$ 1,064
$
872
Income Tax Provision
Federal income tax provision
at the statutory rate
State income tax provision, net
of federal effect
Change in deferred taxes due
to U.S. tax law changes
Excess tax benefits related to
employee share-based
compensation
Year Ended December 31,
2019
2018
2017
21.0 % 21.0 % 35.0 %
4.1 % 3.7 % 2.6 %
— % 27.0 % (9.9)%
(0.5)% (0.7)% (4.0)%
Non-U.S. subsidiary earnings
0.3 % 0.1 % (6.0)%
Tax credits and deductions
(0.2)% (0.2)% (1.0)%
The income tax provision consists of the following amounts:
Change in unrecognized tax
Year Ended December 31,
2019
2018
2017
(in millions)
benefits
Other, net
(0.1)% 4.7 % (0.8)%
(0.6)% 1.4 % 0.5 %
Actual income tax provision
24.0 % 57.0 % 16.4 %
Current income taxes
provision:
Federal
State
Foreign
Total current income taxes
provision
Deferred income taxes
provision (benefit):
Federal
State
Foreign
Total deferred income
taxes provision
$
120
$
103
$
40
50
210
27
7
1
35
56
146
305
185
116
—
301
606
The majority of the decrease in our effective tax rate in 2019
compared to 2018 and the increase in our effective tax rate in
2018 compared to 2017 was the result of the remeasurement of
our U.S. deferred tax inventory from the Tax Cuts and Jobs Act.
The higher effective tax rate in 2018 was also impacted by the
reversal of certain Swedish tax benefits recorded in prior years.
The effective tax rate may vary from period to period depending
on, among other factors, the geographic and business mix of
earnings and losses. These same and other factors, including
history of pre-tax earnings and losses, are taken into account in
assessing the ability to realize deferred tax assets.
Deferred Income Taxes
The temporary differences, which give rise to our deferred tax
assets and (liabilities), consisted of the following:
51
17
68
136
(16)
24
(1)
7
Total income tax provision $
245
$
$
143
We have determined that undistributed earnings of certain non-
U.S. subsidiaries will be reinvested for an indefinite period of
time. We have both the intent and ability to indefinitely reinvest
these earnings. As of December 31, 2019, the cumulative
amount of undistributed earnings in these subsidiaries is $260
million. Given our intent to reinvest these earnings for an
indefinite period of time, we have not accrued a deferred tax
liability on these earnings. A determination of an unrecognized
deferred tax liability related to these earnings is not practicable.
A reconciliation of the income tax provision, based on the U.S.
federal statutory rate, to our actual income tax provision for the
years ended December 31, 2019, 2018 and 2017 is as follows:
F-43
$ 175
$ 98
Ending balance
December 31,
2019
2018
(in millions)
$ 10
$ 19
4
2
32
6
101
20
175
—
23
4
33
17
—
25
121
(23)
Deferred tax assets:
Deferred revenues
Foreign net operating loss
State net operating loss
Compensation and benefits
Federal benefit of uncertain tax positions
Operating lease liabilities
Other
Gross deferred tax assets
Less: valuation allowance
Total deferred tax assets, net of valuation
allowance
Deferred tax liabilities:
Amortization of software development
costs and depreciation
(42)
(41)
Amortization of acquired intangible assets
(495)
(498)
Investments
Unrealized gains
Operating lease assets
Other
Gross deferred tax liabilities
Net deferred tax liabilities
Reported as:
Non-current deferred tax assets(1)
Deferred tax liabilities, net
Net deferred tax liabilities
(37)
(31)
(89)
(32)
(34)
—
—
(22)
(726)
(595)
$ (551) $ (497)
$
1
$
4
(552)
(501)
$ (551) $ (497)
____________
(1) Included in other non-current assets in the Consolidated
Balance Sheets.
As of December 31, 2019, we did not recognize a valuation
allowance against Nasdaq’s deferred tax assets. Based on all
available positive and negative evidence, we believe the sources
of future taxable income are sufficient to realize the entire
deferred tax asset inventory. The valuation allowance as of
December 31, 2018, is related to net operating losses, or NOLs,
in the United Kingdom and the Netherlands, which were
recorded on entities that were divested or liquidated in 2019.
As of December 31, 2019, Nasdaq has deferred tax assets
associated with NOLs in U.S. state and local and non-U.S.
jurisdictions with the following expiration dates:
Jurisdiction
Amount
Expiration Date
Foreign NOL
State NOL
(in millions)
$
4 No expiration
2 2025-2036
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
Beginning balance
Additions as a result of tax positions
taken in prior periods
Additions as a result of tax positions
taken in the current period
Reductions related to settlements with
taxing authorities
Reductions as a result of lapses of the
applicable statute of limitations
Year Ended December 31,
2019
2018
2017
(in millions)
$ 52
$ 45
$ 48
10
1
28
6
2
5
(10)
(23) —
(5)
(4)
(10)
$ 48
$ 52
$ 45
We had $48 million of unrecognized tax benefits as of
December 31, 2019, $52 million as of December 31, 2018, and
$45 million as of December 31, 2017 which, if recognized in
the future, would affect our effective tax rate. Nasdaq does not
believe that our unrecognized tax benefits will materially
change over the next 12 months.
We recognize interest and/or penalties related to income tax
matters in the provision for income taxes in our Consolidated
Statements of Income, which were $3 million for the year ended
December 31, 2019, $2 million for 2018, and $1 million for
2017. Accrued interest and penalties, net of tax effect were $12
million as of December 31, 2019 and $10 million as of
December 31, 2018.
Tax Audits
Nasdaq and its eligible subsidiaries file a consolidated U.S.
federal income tax return and applicable state and local income
tax returns and non-U.S. income tax returns. We are subject to
examination by federal, state and local, and foreign tax
authorities. Federal income tax returns for the years 2008
through 2016 are currently under examination by the Internal
Revenue Service and we are subject to examination by the
Internal Revenue Service for 2017 and 2018. Several state tax
returns are currently under examination by the respective tax
authorities for the years 2007 through 2018. Non-U.S. tax
returns are subject to examination by the respective tax
authorities for the years 2013 through 2018. We regularly assess
the likelihood of additional assessments by each jurisdiction
and have established tax reserves that we believe are adequate
in relation to the potential for additional assessments.
Examination outcomes and the timing of examination
settlements are subject to uncertainty. Although the results of
such examinations may have an impact on our unrecognized
tax benefits, we do not anticipate that such impact will be
material to our consolidated financial position or results of
operations. We do not expect to settle any material tax audits
in the next twelve months.
The Swedish Tax Agency disallowed certain interest expense
deductions for the years 2013 - 2018. We appealed this decision
F-44
to the Lower Administrative Court which denied our appeal in
2018. During 2018, we further appealed to the Administrative
Court of Appeal, however, we were no longer able to assert that
we were more than likely to be successful and, as such, we
recorded a related tax expense. In November 2019, the
Administrative Court of Appeal upheld the disallowance of
these deductions. As we have not recognized any benefits
related to the disallowed deductions and we have paid the
related assessments from the Swedish Tax Agency, the decision
of the Administrative Court of Appeal does not impact our
consolidated financial statements.
19. Commitments, Contingencies and Guarantees
Guarantees Issued and Credit Facilities Available
In addition to the default fund contributions and margin
collateral pledged by clearing members discussed in Note 16,
“Clearing Operations,” we have obtained financial guarantees
and credit facilities which are guaranteed by us through counter
indemnities, to provide further liquidity related to our clearing
businesses. Financial guarantees issued to us totaled $11 million
as of December 31, 2019 and $12 million as of December 31,
2018. As discussed in “Other Credit Facilities,” of Note 10,
“Debt Obligations,” we also have credit facilities primarily
related to our Nasdaq Clearing operations, which are available
in multiple currencies, and totaled $203 million as of
December 31, 2019 and $234 million as of December 31, 2018,
in available liquidity, of which $15 million was utilized as of
December 31, 2019 and none of which was utilized as of
December 31, 2018.
Execution Access is an introducing broker which operates the
trading platform for our Fixed Income business to trade in U.S.
securities. Execution Access has a clearing
Treasury
arrangement with Industrial and Commercial Bank of China
Financial Services LLC, or ICBC. As of December 31, 2019,
we have contributed $15 million of clearing deposits to ICBC
in connection with this clearing arrangement. These deposits
are recorded in other current assets in our Consolidated Balance
Sheets. Some of the trading activity in Execution Access is
cleared by ICBC through the Fixed Income Clearing
Corporation, with ICBC acting as agent. Execution Access
assumes the counterparty risk of clients that do not clear through
the Fixed Income Clearing Corporation. Counterparty risk of
clients exists for Execution Access between the trade date and
the settlement date of the individual transactions, which is at
least one business day (or more, if specified by the U.S. Treasury
issuance calendar). Counterparties that do not clear through the
Fixed Income Clearing Corporation are subject to a credit due
diligence process and may be required to post collateral, provide
principal letters, or provide other forms of credit enhancement
to Execution Access for the purpose of mitigating counterparty
risk. Daily position trading limits are also enforced for such
counterparties.
We believe that the potential for us to be required to make
payments under these arrangements is mitigated through the
pledged collateral and our risk management policies.
Accordingly, no contingent liability is recorded in the
Consolidated Balance Sheets for these arrangements. However,
no guarantee can be provided that these arrangements will at
all times be sufficient.
Other Guarantees
Through our clearing operations in the financial markets,
Nasdaq Clearing is the legal counterparty for, and guarantees
the performance of, its clearing members. See Note 16,
“Clearing Operations,” for further discussion of Nasdaq
Clearing performance guarantees.
We have provided a guarantee related to lease obligations for
The Nasdaq Entrepreneurial Center, Inc., which is a not-for-
profit organization designed to convene, connect and engage
aspiring and current entrepreneurs. This entity is not included
in the consolidated financial statements of Nasdaq.
We believe that the potential for us to be required to make
payments under these arrangements is unlikely. Accordingly,
no contingent liability is recorded in the Consolidated Balance
Sheets for the above guarantees.
Non-Cash Contingent Consideration
As part of the purchase price consideration of a prior
acquisition, we have agreed to future annual issuances of
992,247 shares of Nasdaq common stock which approximated
certain tax benefits associated with the transaction. Such
contingent future issuances of Nasdaq common stock will be
issued annually through 2027 if Nasdaq’s total gross revenues
equal or exceed $25 million in each such year. The contingent
future issuances of Nasdaq common stock are subject to anti-
dilution protections and acceleration upon certain events.
Escrow Agreements
In connection with prior acquisitions, we entered into escrow
agreements to secure the payment of post-closing adjustments
and to ensure other closing conditions. As of December 31,
2019, these escrow agreements provide for future payment by
us of up to an aggregate of $9 million, which is included in other
current liabilities in the Consolidated Balance Sheets.
Routing Brokerage Activities
One of our broker-dealer subsidiaries, Nasdaq Execution
Services, provides a guarantee to securities clearinghouses and
exchanges under its standard membership agreements, which
require members to guarantee the performance of other
members. If a member becomes unable to satisfy its obligations
to a clearinghouse or exchange, other members would be
required to meet its shortfalls. To mitigate these performance
risks, the exchanges and clearinghouses often require members
to post collateral, as well as meet certain minimum financial
standards. Nasdaq Execution Services’ maximum potential
liability under these arrangements cannot be quantified.
However, we believe that the potential for Nasdaq Execution
Services to be required to make payments under these
arrangements is unlikely. Accordingly, no contingent liability
is recorded in the Consolidated Balance Sheets for these
arrangements.
F-45
connectivity. We have defeated two challenges in federal
appeals court pertaining to market data and an additional
challenge at the administrative level within the SEC. However,
in October 2018, the SEC reversed that administrative decision
and found that Nasdaq had not met a burden of demonstrating
that certain challenged fees were fair and reasonable; we
estimate that this decision will reduce our annual revenues by
approximately $1 million. Nasdaq has appealed this decision
to the U.S. Court of Appeals for the District of Columbia Circuit.
In addition, the SEC remanded a series of additional challenges
to market data and connectivity fees back to Nasdaq for further
consideration. Nasdaq has also appealed this decision to the
U.S. Court of Appeals for the District of Columbia Circuit. We
are unable to predict the outcome or the timing of the ultimate
resolution of these matters.
Other Matters
Except as disclosed above and in prior reports filed under the
Exchange Act, we are not currently a party to any litigation or
proceeding that we believe could have a material adverse effect
on our business, consolidated financial condition, or operating
results. However, from time to time, we have been threatened
with, or named as a defendant in, lawsuits or involved in
regulatory proceedings.
In the normal course of business, Nasdaq discusses matters with
its regulators raised during regulatory examinations or
otherwise subject to their inquiries. Management believes that
censures, fines, penalties or other sanctions that could result
from any ongoing examinations or inquiries will not have a
material impact on its consolidated financial position or results
of operations. However, we are unable to predict the outcome
or the timing of the ultimate resolution of these matters, or the
potential fines, penalties or injunctive or other equitable relief,
if any, that may result from these matters.
Tax Audits
We are engaged in ongoing discussions and audits with taxing
authorities on various tax matters, the resolutions of which are
uncertain. Currently, there are matters that may lead to
assessments, some of which may not be resolved for several
years. Based on currently available information, we believe we
have adequately provided for any assessments that could result
from those proceedings where it is more likely than not that we
will be assessed. We review our positions on these matters as
they progress. See “Tax Audits,” of Note 18, “Income Taxes,”
for further discussion.
Legal and Regulatory Matters
Litigation
As previously disclosed, we are named as one of many
defendants in City of Providence v. BATS Global Markets, Inc.,
et al., 14 Civ. 2811 (S.D.N.Y.), which was filed on April 18,
2014 in the United States District Court for the Southern District
of New York. The district court appointed lead counsel, who
filed an amended complaint on September 2, 2014. The
amended complaint names as defendants seven national
exchanges, as well as Barclays PLC, which operated a private
alternative trading system. On behalf of a putative class of
securities traders, the plaintiffs allege that the defendants
engaged in a scheme to manipulate the markets through high-
frequency trading; the amended complaint asserts claims
against us under Section 10(b) of the Exchange Act and Rule
10b-5, as well as under Section 6(b) of the Exchange Act. The
plaintiffs seek injunctive and monetary relief of an unspecified
amount. We filed a motion to dismiss the amended complaint
on November 3, 2014. In response, the plaintiffs filed a second
amended complaint on November 24, 2014, which names the
same defendants and alleges essentially the same violations.
We then filed a motion to dismiss the second amended
complaint on January 23, 2015. On August 26, 2015, the district
court entered an order dismissing the second amended
complaint in its entirety. The plaintiffs appealed the judgment
of dismissal to the United States Court of Appeals for the Second
Circuit (although opting not to appeal the dismissal with respect
to Barclays PLC or the dismissal of claims under Section 6(b)
of the Exchange Act). On December 19, 2017, the Second
Circuit issued an opinion vacating the district court’s judgment
of dismissal and remanding to the district court for further
proceedings. On May 18, 2018, the exchanges filed a motion
to dismiss the amended complaint, raising issues not addressed
in the proceedings to date. On May 28, 2019, the district court
denied the exchanges’ renewed motion to dismiss. On June 17,
2019, the exchanges filed a motion to certify the district court’s
order for immediate review by the Second Circuit and on July
16, 2019, the district court denied the motion. Given the
preliminary nature of the proceedings, we are unable to estimate
what, if any, liability may result from this litigation. However,
we believe that the claims are without merit and will continue
to litigate vigorously.
Nasdaq Commodities Clearing Default
During September 2018, a clearing member of Nasdaq
Clearing's commodities market was declared in default. We
have been cooperating fully with the SFSA in the associated
regulatory audits. While we are currently unable to predict the
final outcome of this matter, it could include penalties, such as
a fine. We do not expect this matter will have a material impact
on our consolidated financial statements. See “Nasdaq
Commodities Clearing Default,” of Note 16, “Clearing
Operations,” for further information on this event.
SEC Decisions
In recent years, certain industry groups have challenged the
level of fees that U.S. exchanges charge for market data and
F-46
20. Business Segments
We manage, operate and provide our products and services in four business segments: Market Services, Corporate Services,
Information Services and Market Technology. See Note 1, “Organization and Nature of Operations,” for further discussion of our
reportable segments.
Our management allocates resources, assesses performance and manages these businesses as four separate segments. We evaluate
the performance of our segments based on several factors, of which the primary financial measure is operating income. Results
of individual businesses are presented based on our management accounting practices and structure. Our chief operating decision
maker does not review total assets or statements of income below operating income by segments as key performance metrics;
therefore, such information is not presented below.
The following table presents certain information regarding our business segments for the years ended December 31, 2019, 2018
and 2017:
Year Ended December 31, 2019
Total revenues
Transaction-based expenses
Revenues less transaction-based expenses
Depreciation and amortization
Operating income (loss)
Purchase of property and equipment
Year Ended December 31, 2018
Total revenues
Transaction-based expenses
Revenues less transaction-based expenses
Depreciation and amortization
Operating income (loss)
Purchase of property and equipment
Year Ended December 31, 2017
Total revenues
Transaction-based expenses
Revenues less transaction-based expenses
Depreciation and amortization
Operating income (loss)
Purchase of property and equipment
Market
Services
Corporate
Services
Information
Services
Market
Technology
Corporate
Items
Consolidated
$
$
$
$
$
$
2,639
(1,727)
912
74
516
30
2,709
(1,751)
958
95
544
28
2,418
(1,537)
881
95
481
59
$
$
$
496
—
496
34
178
27
487
—
487
36
155
29
459
—
459
40
149
41
(in millions)
$
$
$
$
779
—
779
52
490
30
714
—
714
51
460
17
588
—
588
26
418
10
$
$
$
338
—
338
30
54
40
270
—
270
21
34
37
247
—
247
14
57
34
$
$
$
10
—
10
—
(221)
—
97
—
97
7
(165)
—
236
—
236
13
(114)
—
4,262
(1,727)
2,535
190
1,017
127
4,277
(1,751)
2,526
210
1,028
111
3,948
(1,537)
2,411
188
991
144
Certain amounts are allocated to corporate items in our
management reports as we believe they do not contribute to a
meaningful evaluation of a particular segment's ongoing
operating performance. These items, which are shown in the
table below, include the following:
managers or when making decisions to allocate resources.
Therefore, we believe performance measures excluding
intangible asset amortization expense provide management
with a useful representation of our segments' ongoing activity
in each period.
Amortization expense of acquired intangible assets: We
amortize intangible assets acquired in connection with various
acquisitions. Intangible asset amortization expense can vary
from period to period due to episodic acquisitions completed,
rather than from our ongoing business operations. As such, if
intangible asset amortization is included in performance
measures, it is more difficult to assess the day-to-day operating
performance of the segments, and the relative operating
performance of the segments between periods. Management
does not consider intangible asset amortization expense for the
purpose of evaluating the performance of our segments or their
Merger and strategic initiatives expense: We have pursued
various strategic initiatives and completed acquisitions and
divestitures in recent years that have resulted in expenses which
would not have otherwise been incurred. These expenses
generally include integration costs, as well as legal, due
diligence and other third party transaction costs. The frequency
and the amount of such expenses vary significantly based on
the size, timing and complexity of the transaction. Management
does not consider merger and strategic initiatives expense for
the purpose of evaluating the performance of our segments or
their managers or when making decisions to allocate resources.
F-47
Therefore, we believe performance measures excluding merger
and strategic initiatives expense provide management with a
useful representation of our segments' ongoing activity in each
period.
Restructuring charges: In September 2019, we initiated a
restructuring plan. See Note 21, “Restructuring Charges,” for
a discussion of the plan. We believe performance measures
excluding restructuring charges provide management with a
useful representation of our segments' ongoing activity in each
period.
Clearing default loss: For 2018, we recorded a $31 million
charge related to a default of a Nasdaq Clearing commodities
member that occurred in September 2018. See “Nasdaq
Commodities Clearing Default,” of Note 16, “Clearing
Operations,” for further discussion of the default. We have
included this charge as we believe it is non-recurring, as there
has never been another loss due to member default in our
clearinghouse, and should be excluded when evaluating the
ongoing operating performance of the Market Services
segment. Any expenses associated with the evaluation and
enhancement of processes and procedures relating to our
clearing business will be reflected within the Market Services
segment.
2019 and 2018 divestitures: We have included in corporate
items the revenues and expenses of BWise and the Public
Relations Solutions and Digital Media Services businesses
which were part of the Corporate Solutions business within our
Corporate Services segment as BWise was sold in March 2019
and the Public Relations Solutions and Digital Media Services
businesses were sold in April 2018. See “2019 Divestitures,”
and “2018 Divestiture,” of Note 4, “Acquisitions and
Divestitures,” for further discussion.
Other significant items: We have included certain other charges
or gains in corporate items, to the extent we believe they should
be excluded when evaluating
the ongoing operating
performance of each individual segment. For 2019, other
significant items included loss on extinguishment of debt, a
provision for notes receivable associated with the funding of
technology development for the CAT, and a tax reserve for
certain prior year examinations which are recorded in general,
the Consolidated
administrative and other expense
Statements of Income, and certain litigation costs which are
recorded in professional and contract services expense in the
Consolidated Statements of Income. For 2018, other significant
items included certain litigation costs which are recorded in
professional and contract services expense in the Consolidated
Statements of Income and charges related to uncertain positions
pertaining to sales and use tax and VAT which are recorded in
general, administrative and other expense in the Consolidated
Statements of Income. For 2017, other significant items
included loss on extinguishment of debt which is recorded in
general, administrative and other expense in the Consolidated
Statements of Income.
in
Accordingly, we do not allocate these costs for purposes of
disclosing segment results because they do not contribute to a
meaningful evaluation of a particular segment’s ongoing
operating performance.
A summary of our corporate items is as follows:
* * * * * *
Revenues - divested businesses
Expenses:
Amortization expense of acquired intangible assets
Merger and strategic initiatives expense
Restructuring charges
Clearing default loss
Provision for notes receivable
Extinguishment of debt
Expenses - divested businesses
Other
Total expenses
Operating loss
Year Months Ended December 31,
2019
2018
2017
$
10
(in millions)
$
97
$
236
101
30
39
—
20
11
8
22
109
21
—
31
—
—
83
18
231
(221) $
262
(165) $
$
92
44
—
—
—
10
200
4
350
(114)
For further discussion of our segments’ results, see “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations-Segment Operating Results.”
F-48
The following table presents a summary of the 2019
restructuring plan charges in the Consolidated Statements of
Income for the year ended December 31, 2019 which primarily
consisted of asset impairment charges mainly related to
capitalized software that was retired.
Year Ended December 31, 2019
(in millions)
Asset impairments
$
Severance and employee-related
costs
Accelerated depreciation
Contract terminations
Consulting services
Other
Total restructuring charges
$
24
8
2
2
2
1
39
Geographic Data
The following table presents total revenues and property and
equipment, net by geographic area for 2019, 2018 and 2017.
Revenues are classified based upon the location of the customer.
Property and equipment information is based on the physical
location of the assets.
Total
Revenues
Property and
Equipment,
Net
(in millions)
$
$
$
$
$
$
3,409
853
4,262
3,379
898
4,277
3,081
867
3,948
$
$
$
$
$
$
250
134
384
224
152
376
247
153
400
2019:
United States
All other countries
Total
2018:
United States
All other countries
Total
2017:
United States
All other countries
Total
Our property and equipment, net for all other countries
primarily includes assets held in Sweden. No single customer
accounted for 10.0% or more of our revenues in 2019, 2018 and
2017.
21. Restructuring Charges
In September 2019, we initiated the transition of certain
technology platforms to advance the company's strategic
opportunities as a technology and analytics provider and
continue the re-alignment of certain business areas. In
connection with these restructuring efforts, we are retiring
certain elements of our marketplace infrastructure and
technology product offerings as we implement NFF and other
technologies internally and externally. This represents a
fundamental shift in our strategy and technology as well as
executive re-alignment. As a result of these actions, we expect
to incur $70 million to $80 million in pre-tax charges over a
two year period related primarily to non-cash items such as asset
impairments, accelerated depreciation as well as third-party
consulting costs. Severance and employee-related charges also
will be incurred. Restructuring charges are recorded on
restructuring plans that have been committed to by management
and are, in part, based upon management’s best estimates of
future events.
F-49
Exhibit 4.12
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Nasdaq, Inc. (the “Company”) has five classes of securities registered under Section 12 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”):
(1)
(2)
(3)
(4)
(5)
Common Stock, par value $0.01 per share (“Common Stock”);
0.875% Senior Notes due 2030;
1.75% Senior Notes due 2029;
1.750% Senior Notes due 2023; and
3.875% Senior Notes due 2021.
As used in this summary, the terms “Nasdaq,” “the Company,” “we,” “our,” and “us” refer
solely to Nasdaq, Inc. and not its subsidiaries, unless otherwise specified.
Description of Common Stock
The following is a description of the material terms and provisions relating to our common
stock. Because it is a summary, the following description is not complete and is subject to and
qualified in its entirety by reference to our Amended and Restated Certificate of Incorporation, as
amended, or Certificate, and by-laws, and provisions of Delaware law which define the rights of
our stockholders.
The holders of our common stock are entitled to one vote per share on all matters to be voted
upon by the stockholders except that no person may exercise voting rights in respect of any shares
in excess of 5% of the then outstanding shares of our Common Stock. Subject to certain additional
conditions, this limitation does not apply to persons exempted from this limitation by our Board of
Directors prior to the time such person owns more than 5.0% of the then-outstanding shares of our
common stock.
At any meeting of our stockholders, a majority of the votes entitled to be cast will constitute
a quorum for such meeting.
Holders of common stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by our board of directors out of funds legally available for them. In the
event of our liquidation, dissolution, or winding-up, the holders of our common stock are entitled
to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights
of preferred stock, if any, then outstanding. Our common stock has no preemptive or conversion
1
rights or other subscription rights. There are no redemption or sinking fund provisions applicable
to our common stock. All outstanding shares of common stock are fully paid and non-assessable.
Future dividends, if any, will be determined by our board of directors.
Certain Provisions of our Certificate and By-Laws
Some provisions of our r Certificate and by-laws, which provisions are summarized below,
may be deemed to have an anti-takeover effect and may delay, defer, or prevent a tender offer or
takeover attempt that a stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by stockholders.
Advance Notice Requirements for Stockholder Proposals and Directors Nominations
Our by-laws provide that stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders,
must provide timely notice in writing. To be timely, a stockholder’s notice must be delivered to or
mailed and received at our principal executive offices not less than 90 nor more than 120 days prior
to the anniversary date of the immediately preceding annual meeting of stockholders; provided,
that in the event that the annual meeting is called for a date that is not within 30 days before or 70
days after such anniversary date, notice by the shareholder in order to be timely must be received
not earlier than 120 days prior to the meeting and not later than the later of 90 days prior to the
meeting and the close of business on the 10th day following the date on which notice of the date
of the annual meeting was first publicly announced by Nasdaq. In the case of a special meeting of
stockholders called for the purpose of electing directors, notice by the stockholder in order to be
timely must be received not earlier than 120 days prior to the meeting and not later than the later
of 90 days prior to the meeting or the close of business on the 10th day following the day on which
public disclosure of the date of the special meeting and our nominees was first made. In addition,
our by-laws specify certain requirements as to the form and content of a stockholder’s notice. These
provisions may preclude stockholders from bringing matters before an annual meeting of
stockholders or from making nominations for directors at an annual or special meeting of
stockholders.
Proxy Access
Our by-laws include a proxy access provision that permits a stockholder, or a group of
stockholders, owning at least three percent of our outstanding shares of common stock continuously
for at least three years to nominate and include in the proxy materials for an annual meeting of
stockholders director nominees constituting up to the greater of two individuals and 25% of the
total number of directors then in office, provided that the stockholder(s) and nominee(s) satisfy the
requirements specified in the by-laws.
Stockholder Action
Our Certificate provides that stockholders are not entitled to act by written consent in lieu of
a meeting.
2
Right to Call Special Meeting
Our by-laws provide that stockholders representing 15% or more of our outstanding shares
can convene a special meeting of shareholders.
Amendments; Vote Requirements
The General Corporation Law of the State of Delaware provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s
certificate of incorporation, unless a corporation’s certificate of incorporation requires a greater
percentage. Our Certificate imposes majority voting requirements in connection with stockholder
amendments to the by-laws and in connection with the amendment of certain provisions of the
Certificate, including those provisions of the Certificate relating to the limitations on voting rights
of certain persons, removal of directors and prohibitions on stockholder action by written consent.
Authorized But Unissued Shares
The authorized but unissued shares of our common stock will be available for future issuance
without stockholder approval in most cases. These additional shares may be utilized for a variety
of corporate purposes, including future public or private offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares
of our common stock could render more difficult, or discourage, an attempt to obtain control of us
by means of a proxy contest, tender offer, merger or otherwise.
Delaware Business Combination Statute
We are organized under Delaware law. Delaware law generally prohibits a publicly-held or
widely-held corporation from engaging in a “business combination” with an “interested
stockholder” for three years after the stockholder becomes an interested stockholder. An “interested
stockholder” is a person who, together with affiliates and associates, owns (or, in some cases, within
three years, did own) directly or indirectly 15% or more of the corporation’s outstanding voting
stock. A “business combination” includes a merger, asset sale or other transaction that results in a
financial benefit to the interested stockholder. However, Delaware law does not prohibit these
business combinations if:
1. before the stockholder becomes an interested stockholder, the corporation’s board approved
either the business combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
2. after the transaction that results in the stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of the corporation’s outstanding voting stock
(excluding certain shares); or
3
3.
the corporation’s board approves the business combination and the holders of at least two-
thirds of the corporation’s outstanding voting stock that the interested stockholder does
not own authorize the business combination at a meeting of stockholders.
Stockholders’ Agreements
On December 16, 2010, we entered into a stockholders’ agreement with Investor AB. We
are obligated by the terms of the stockholders’ agreement to nominate and generally use best
efforts to cause the election to our board of directors one individual designated by Investor AB,
subject to certain conditions.
On February 27, 2008, we entered into a stockholders’ agreement with Borse Dubai
Limited, or Borse Dubai, which was amended on February 19, 2009. Subject to certain
conditions, we are obligated by the terms of the stockholders’ agreement to nominate and
generally use best efforts to cause the election to our board of directors one individual designated
by Borse Dubai.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Computershare. Its address is
480 Washington Boulevard, Jersey City, New Jersey 07310 and its telephone number is (800)
736-3001.
Listing
Our common stock is listed on The Nasdaq Stock Market under the trading symbol
“NDAQ.”
4
Description of the 0.875% Senior Notes Due 2030
The 0.875% Senior Notes due 2030 (the “2030 Notes”) were issued under an indenture,
dated as of June 7, 2013 (the “base indenture”) between Nasdaq, Inc. and Wells Fargo Bank, National
Association, as trustee (the “Trustee”) and a seventh supplemental indenture dated as of February
13, 2020 (the “supplemental indenture” and, together with the base indenture, the “indenture”).
The indenture is publicly available at www.sec.gov.
We issued €600 million aggregate principal amount of the 2030 Notes on February 13, 2020.
This summary is subject to, and qualified in its entirety by reference to, all the provisions
of the 2030 Notes and the indenture, including definitions of certain terms used therein.
General
The 2030 Notes:
• are senior unsecured obligations of ours;
• rank equally in right of payment with all of our other senior unsecured indebtedness from
time to time outstanding, commercial paper issuances and indebtedness under our credit
facility;
• are structurally subordinated in right of payment to all existing and future obligations of
our subsidiaries, including claims with respect to trade payables; and
• are effectively subordinated in right of payment to all of our existing and future secured
indebtedness and other secured obligations to the extent of the value of the collateral
securing any such indebtedness and other obligations.
The 2030 Notes were issued in minimum denominations of €100,000 and integral multiples
of €1,000 in excess thereof.
Principal, Maturity and Interest
The 2030 Notes will bear interest at a rate of 0.875% per year. Interest on the Notes is payable
annually in arrears on February 13 of each year, beginning on February 13, 2021, and will be
computed on the basis of the actual number of days in the period for which interest is being calculated
and the actual number of days from and including the last date on which interest was paid on the
2030 Notes (or the settlement date if no interest has been paid or duly provided for on the 2030
Notes), to but excluding the next date on which interest is paid or duly provided for. This payment
convention is referred to as ACTUAL/ACTUAL (ICMA) as defined in the rulebook of the
International Capital Market Association. Interest on the 2030 Notes will accrue from and including
the settlement date and will be paid to holders of record on the day immediately prior to the applicable
interest payment date.
5
The 2030 Notes will mature on February 13, 2030. On the maturity date of the 2030 Notes,
the holders will be entitled to receive 100% of the principal amount of such 2030 Notes. The 2030
2030 Notes will not have the benefit of any sinking fund.
If any interest payment date, redemption date or maturity date falls on a day that is not a
business day, then the relevant payment may be made on the next succeeding business day and no
interest will accrue because of such delayed payment. With respect to the 2030 Notes, when we use
the term “business day” we mean any day except a Saturday, a Sunday or a day on which banking
institutions in the applicable place of payment are authorized or required by law, regulation or
executive order to close.
Claims against the Company for payment of principal, interest and additional amounts, if
any, on the 2030 Notes will become void unless presentment for payment is made (where so required
under the indenture) within, in the case of principal and additional amounts, if any, a period of ten
years or, in the case of interest, a period of five years, in each case from the applicable original date
of payment therefor.
Euro Notes—Issuance in Euros
Initial holders of the 2030 Notes paid for the 2030 Notes in euros, and principal, premium,
if any, and interest payments and additional amounts, if any, in respect of the 2030 Notes will be
payable in euros. If, on or after the date of this prospectus supplement, the euro is unavailable to
us due to the imposition of exchange controls or other circumstances beyond our control or the euro
is no longer used by the then member states of the European Monetary Union that have adopted
the euro as their currency or for the settlement of transactions by public institutions within the
international banking community, then all payments in respect of the 2030 Notes will be made in
U.S. dollars until the euro is again available to us or so used.
The amount payable on any date in euros will be converted to U.S. dollars on the basis of
the most recently available market exchange rate for euros as determined by us in our sole discretion.
Any payment in respect of the 2030 Notes so made in U.S. dollars will not constitute an event of
default under the indenture or the 2030 Notes. Neither the trustee nor the paying agent will be
responsible for obtaining exchange rates, effecting conversions or otherwise handling
redenominations.
Ranking
The 2030 Notes are general unsecured obligations of ours and will rank equally with all of
our existing and future unsubordinated obligations.
Holders of any secured indebtedness and other secured obligations of the Company will
have claims that are prior to your claims as holders of the 2030 Notes, to the extent of the value of
the assets securing such indebtedness and other obligations, in the event of any bankruptcy,
liquidation or similar proceeding.
Further Issues
The 2030 Notes constituted a separate series of debt securities under the indenture, limited
to €600 million. Under the indenture, we may, without the consent of the holders of the 2030 Notes,
6
issue additional 2030 Notes of the same or a different series from time to time in the future in an
unlimited aggregate principal amount; provided that if any such additional 2030 Notes are not
fungible with the 2030 Notes offered hereby (or any other tranche of additional 2030 Notes) for
U.S. federal income tax purposes, then such additional 2030 Notes will have different ISIN and/or
Common Code numbers than the Notes offered hereby (and any such other tranche of additional
2030 Notes). The 2030 Notes and any additional 2030 Notes of the same series would rank equally
and ratably and would be treated as a single class for all purposes under the indenture. This means
that, in circumstances where the indenture provides for the holders of debt securities of any series
to vote or take any action, any of the outstanding 2030 Notes, as well as any additional 2030 Notes
that we may issue by reopening such series, will vote or take action as a single class.
Redemption
Optional Redemption
The 2030 Notes will be redeemable, in whole at any time or in part from time to time, at
our option, at a redemption price (the “make-whole redemption price”) equal to the greater of (i)
100% of the principal amount of the 2030 Notes and (ii) as determined by the Quotation Agent (as
defined below), the sum of the present values of the remaining scheduled payments of principal
and interest on the 2030 Notes (exclusive of interest accrued and unpaid as of the date of redemption),
discounted to the date of redemption on an annual basis (ACTUAL/ACTUAL (ICMA)) at the Bund
Rate (as defined below), plus 20 basis points, plus accrued and unpaid interest thereon to the date
of redemption. However, if the redemption date is after a record date and on or prior to a
corresponding interest payment date, the interest will be paid on the redemption date to the holder
of record on the record date.
Notwithstanding the foregoing, at any time on or after November 13, 2029 (three months
before their maturity date), the 2030 Notes will be redeemable, in whole or in part, at our option
and at any time or from time to time, at a redemption price equal to 100% of the principal amount
of the 2030 Notes to be redeemed plus accrued and unpaid interest thereon to, but excluding, the
date of redemption.
Notice of any redemption will be mailed at least 30 days, but not more than 60 days, before
the redemption date to each registered holder of 2030 Notes to be redeemed. Once notice of
redemption is mailed, the 2030 Notes called for redemption will become due and payable on the
redemption date and at the applicable redemption price, plus accrued and unpaid interest to, but not
including, the redemption date. Unless we default in payment of the redemption price, on and after
the redemption date, interest will cease to accrue on the 2030 Notes (or portion thereof) to be
redeemed on such redemption date.
“Bund Rate” means, with respect to any redemption date, the rate per annum equal to the
annual equivalent yield to maturity of the Comparable German Bund Issue, assuming a price for
the Comparable German Bund Issue (expressed as a percentage of its principal amount) equal to
the Comparable German Bund Price for such redemption date.
“Comparable German Bund Issue” means that German Bundesanleihe security selected by
the Quotation Agent as having a maturity comparable to the remaining term of the 2030 Notes to
be redeemed that would be utilized, at the time of selection and in accordance with customary
7
financial practice, in pricing new issues of corporate notes of comparable maturity to the remaining
term of the Notes.
“Comparable German Bund Price” means, with respect to any redemption date, (i) the
average of four Reference German Bund Dealer Quotations for such redemption date, after excluding
the highest and lowest such Reference German Bund Dealer Quotations or (ii) if the Quotation
Agent obtains fewer than four such Reference German Bund Dealer Quotations, the average of all
such quotations.
“Quotation Agent” means a Reference German Bund Dealer appointed by us.
“Reference German Bund Dealer” means any dealer of German Bundesanleihe securities
selected by us in good faith.
“Reference German Bund Dealer Quotations” means, with respect to each Reference
German Bund Dealer and any redemption date, the average, as determined by us, of the bid and
asked prices for the Comparable German Bund Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Quotation Agent by such Reference German Bund Dealer
at 3:30 p.m., Frankfurt, Germany time, on the third business day preceding such redemption date.
If we elect to redeem less than all of the 2030 Notes, and such 2030 Notes are at the time
represented by a global note, then the depositary will select by lot the particular interests to be
redeemed. If we elect to redeem less than all of the 2030 Notes, and any of such 2030 Notes are
not represented by a global note, then the trustee will select the particular 2030 Notes to be redeemed
in a manner it deems appropriate and fair (and the depositary will select by lot the particular interests
in any global note to be redeemed).
We may at any time, and from time to time, purchase the 2030 Notes at any price or prices
in the open market or otherwise.
Repurchase upon Change of Control Triggering Event
If a Change of Control Triggering Event (as defined below) occurs with respect to the 2030
Notes, unless we have exercised our right to redeem the 2030 Notes, we will be required to make
an offer to repurchase all or, at the holder’s option, any part (equal to €100,000 or any integral
multiple of €1,000 in excess thereof) of each holder’s 2030 Notes pursuant to the offer described
below (the “Change of Control Offer”).
In the Change of Control Offer, we will be required to offer payment in cash equal to 101%
of the aggregate principal amount of 2030 Notes repurchased plus accrued and unpaid interest, if
any, on the 2030 Notes repurchased to, but not including, the date of purchase (the “Change of
Control Payment”).
“Change of Control” means the occurrence of any of the following: (1) the direct or indirect
sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in
one or a series of related transactions, of all or substantially all of the assets of us and our Subsidiaries
taken as a whole to any Person or group of related Persons for purposes of Section 13(d) of the
Exchange Act (a “Group”) other than us or one of our subsidiaries; (2) the approval by the holders
of our common stock of any plan or proposal for our liquidation or dissolution; (3) the consummation
of any transaction (including, without limitation, any merger or consolidation) the result of which
8
is that any Person or Group becomes the beneficial owner, directly or indirectly, of more than 50%
of the then outstanding number of shares of our Voting Stock; or (4) the first day on which a majority
of the members of our board of directors are not Continuing Directors.
Notwithstanding the foregoing, a transaction will not be deemed to involve a Change of
Control if (1) we become a direct or indirect wholly owned subsidiary of a holding company and
(2)(A) the direct or indirect holders of the Voting Stock of such holding company immediately
following that transaction are substantially the same as the holders of our Voting Stock immediately
prior to that transaction or (B) immediately following that transaction no Person or Group (other
than a holding company satisfying the requirements of this sentence) is the beneficial owner, directly
or indirectly of more than 50% of the Voting Stock of such holding company.
“Change of Control Triggering Event” means the occurrence of both a Change of Control
and a Below Investment Grade Rating Event (as such term is defined in the indenture) occurring
in respect of that Change of Control.
“Continuing Directors” means, as of any date of determination, any member of our board
of directors who (1) was a member of our board of directors on the date of the issuance of the 2030
Notes; or (2) was nominated or approved for election, elected or appointed to our board of directors
with the approval of a majority of the Continuing Directors who were members of our board of
directors at the time of such nomination, approval, election or appointment (either by a specific
vote or by approval of the proxy statement issued by us in which such member was named as a
nominee for election as a director).
“Person” means any individual, firm, limited liability company, corporation, partnership,
association, joint venture, tribunal, trust, government or political subdivision or agency or
instrumentality thereof, or any other entity or organization and includes a “person” as used in
Section 13(d)(3) of the Exchange Act.
“Voting Stock” of any specified Person as of any date means the capital stock of such Person
that is at the time entitled to vote generally in the election of the board of directors of such Person.
The definition of “Change of Control” includes a phrase relating to the sale, transfer,
conveyance or other disposition of “all or substantially all” of our consolidated assets. There is no
precise, established definition of the phrase “substantially all” under applicable law. Accordingly,
your ability to require us to purchase your 2030 Notes as a result of the sale, transfer, conveyance
or other disposition of less than all of our assets may be uncertain.
Certain Covenants
The indenture contains, among others, restrictive covenants regarding (i) our ability to
consolidate or merge with another entity or to sell, transfer or otherwise convey all or substantially
all of our assets to another entity, (ii) create or permit certain significant subsidiaries to create or
permit to exist certain liens and (iii) certain sale and lease-back transactions involving certain
subsidiaries.
Events of Default
Holders of the 2030 Notes will have specified rights if an Event of Default (as defined below)
occurs. The term “Event of Default” in respect of the 2030 Notes means any of the following:
9
(1) we do not pay interest on any of the 2030 Notes within 30 days of its due date;
(2) we fail to pay the principal (or premium, if any) of any 2030 Note, when such principal
becomes due and payable, at maturity, upon acceleration, upon redemption or otherwise;
(3) we fail to comply with certain covenants under the indenture;
(4) we remain in breach of a covenant or warranty in respect of the indenture or 2030 Notes
(other than a covenant included in the indenture solely for the benefit of debt securities
of another series) for 90 days after we receive a written notice of default, which notice
must be sent by either the trustee or holders of at least 25% in principal amount of the
outstanding 2030 Notes;
(5) we file for bankruptcy, or other events of bankruptcy, insolvency or reorganization
specified in the indenture;
(6) we default on any indebtedness of ours or of a significant subsidiary having an aggregate
amount of at least $150,000,000, constituting a default either of payment of principal
when due and payable or which results in acceleration of the indebtedness unless the
default has been cured or waived or the indebtedness discharged in full within 60 days
after we have been notified of the default by the trustee or holders of at least 25% of the
outstanding 2030 Notes; or
(7) one or more final judgments for the payment of money in an aggregate amount in excess
of $150,000,000 above available insurance or indemnity coverage shall be rendered
against us or any significant subsidiary and the same shall remain undischarged for a
period of 60 consecutive days during which execution shall not be effectively stayed.
If an Event of Default (other than an Event of Default specified in clause (5) above) with respect
to the 2030 Notes has occurred, the trustee or the holders of at least 25% in principal amount of the
2030 Notes may declare the entire unpaid principal amount of (and premium, if any), and all the
accrued interest on, the Notes to be due and immediately payable. This is called a declaration of
acceleration of maturity. There is no action on the part of the trustee or any holder of the 2030 Notes
required for such declaration if the Event of Default is the Company’s bankruptcy, insolvency or
reorganization. Holders of a majority in principal amount of the 2030 Notes may also waive certain
past defaults under the indenture with respect to the 2030 Notes on behalf of all of the holders of
the 2030 Notes. A declaration of acceleration of maturity may be canceled, under specified
circumstances, by the holders of at least a majority in principal amount of the 2030 Notes and the
trustee.
Except in cases of default, where the trustee has special duties, the trustee is not required to take
any action under the indenture at the request of holders unless the holders offer the trustee protection
from expenses and liability satisfactory to the trustee. If an indemnity satisfactory to the trustee is
10
provided, the holders of a majority in principal amount of 2030 Notes may direct the time, method
and place of conducting any lawsuit or other formal legal action seeking any remedy available to
the trustee. The trustee may refuse to follow those directions in certain circumstances specified in
the indenture. No delay or omission in exercising any right or remedy will be treated as a waiver
of the right, remedy or Event of Default.
Modification of the Indenture and Waiver of Rights of Holders
Under certain circumstances, we can make changes to the indenture and the 2030 Notes. Some
types of changes require the approval of each holder of 2030 Notes, some require approval by a
vote of a majority of the holders of the 2030 Notes, and some changes do not require any approval
at all.
11
Description of the 1.75% Senior Notes Due 2029
The 1.75% Senior Notes due 2029 (the “2029 Notes”) were issued under an indenture, dated
as of June 7, 2013 (the “base indenture”) between Nasdaq, Inc. and Wells Fargo Bank, National
Association, as trustee (the “Trustee”) and a sixth supplemental indenture dated as of April 1, 2019
(the “supplemental indenture” and, together with the base indenture, the “indenture”). The indenture
is publicly available at www.sec.gov.
We issued €600 million aggregate principal amount of the 2029 Notes on April 1, 2019.
This summary is subject to, and qualified in its entirety by reference to, all the provisions of
the 2029 Notes and the indenture, including definitions of certain terms used therein.
General
The 2029 Notes:
•
•
•
•
are senior unsecured obligations;
rank equally in right of payment with all of our other senior unsecured indebtedness
from time to time outstanding, commercial paper issuances and indebtedness under
our 2017 credit facility;
are structurally subordinated in right of payment to all existing and future obligations
of our subsidiaries, including claims with respect to trade payables; and
are effectively subordinated in right of payment to all of our existing and future secured
indebtedness and other secured obligations to the extent of the value of the collateral
securing any such indebtedness and other obligations.
The 2029 Notes were issued in minimum denominations of €100,000 and integral multiples
of €1,000 in excess thereof.
Principal, Maturity and Interest
The 2029 Notes bear interest at a rate of 1.75% per year. Interest on the 2029 Notes is payable
annually in arrears on of each year, beginning on March 28, 2020, and is computed on the basis of
the actual number of days in the period for which interest is being calculated and the actual number
of days from and including the last date on which interest was paid on the 2029 Notes (or the
settlement date if no interest has been paid or duly provided for on the 2029 Notes), to but excluding
the next date on which interest is paid or duly provided for. This payment convention is referred to
as ACTUAL/ACTUAL (ICMA) as defined in the rulebook of the International Capital Market
Association. Interest on the 2029 Notes accrues from and including the settlement date and will be
paid to holders of record on the day immediately prior to the applicable interest payment date.
The 2029 Notes will mature on March 28, 2029. On the maturity date of the 2029 Notes, the
holders will be entitled to receive 100% of the principal amount of such 2029 Notes. The 2029
Notes will not have the benefit of any sinking fund.
12
If any interest payment date, redemption date or maturity date falls on a day that is not a
business day, then the relevant payment may be made on the next succeeding business day and no
interest will accrue because of such delayed payment. With respect to the 2029 Notes, when we use
the term “business day” we mean any day except a Saturday, a Sunday or a day on which banking
institutions in the applicable place of payment are authorized or required by law, regulation or
executive order to close.
Claims against the Company for payment of principal, interest and additional amounts, if any,
on the 2029 Notes will become void unless presentment for payment is made (where so required
under the indenture) within, in the case of principal and additional amounts, if any, a period of ten
years or, in the case of interest, a period of five years, in each case from the applicable original date
of payment therefor.
Euro Notes—Issuance in Euros
Initial holders of the 2029 Notes paid for the 2029 Notes in euros, and principal, premium,
if any, and interest payments and additional amounts, if any, in respect of the Notes will be payable
in euros. If the euro is unavailable to us due to the imposition of exchange controls or other
circumstances beyond our control or the euro is no longer used by the then member states of the
European Monetary Union that have adopted the euro as their currency or for the settlement of
transactions by public institutions within the international banking community, then all payments
in respect of the 2029 Notes will be made in U.S. dollars until the euro is again available to us or
so used.
The amount payable on any date in euros will be converted to U.S. dollars on the basis of
the most recently available market exchange rate for euros as determined by us in our sole discretion.
Any payment in respect of the 2029 Notes so made in U.S. dollars will not constitute an event of
default under the indenture or the 2029 Notes. Neither the trustee nor the paying agent will be
responsible for obtaining exchange rates, effecting conversions or otherwise handling
redenominations.
Interest Rate Adjustment
The interest rate payable on the 2029 Notes will be subject to adjustment from time to time if
either Moody’s or S&P, or, in either case, any substitute rating agency downgrades (or subsequently
upgrades) the credit rating assigned to the 2029 Notes.
Ranking
The 2029 Notes are general unsecured obligations of ours and rank equally with all of our
existing and future unsubordinated obligations.
Holders of any secured indebtedness and other secured obligations of the Company will have
claims that are prior to claims as holders of the 2029 Notes, to the extent of the value of the assets
securing such indebtedness and other obligations, in the event of any bankruptcy, liquidation or
similar proceeding.
Further Issues
13
The 2029 Notes constituted a separate series of debt securities under the indenture, limited to
€600 million. Under the indenture, we may, without the consent of the holders of the 2029 Notes,
issue additional 2029 Notes of the same or a different series from time to time in the future in an
unlimited aggregate principal amount; provided, that, if any such additional 2029 Notes are not
fungible with the 2029 Notes (or any other tranche of additional 2029 Notes) for U.S. federal income
tax purposes, then such additional 2029 Notes will have different ISIN and/or Common Code
numbers than the 2029 Notes (and any such other tranche of additional 2029 Notes). The 2029
Notes and any additional 2029 Notes of the same series would rank equally and ratably and would
be treated as a single class for all purposes under the indenture. This means that, in circumstances
where the indenture provides for the holders of debt securities of any series to vote or take any
action, any of the outstanding 2029 Notes, as well as any additional 2029 Notes that we may issue
by reopening such series, will vote or take action as a single class.
Redemption
Optional Redemption
The 2029 Notes will be redeemable, in whole at any time or in part from time to time, at our
option, at a redemption price (the “make-whole redemption price”) equal to the greater of (i) 100%
of the principal amount of the 2029 Notes, and (ii) as determined by the Quotation Agent (as defined
below), the sum of the present values of the remaining scheduled payments of principal and interest
on the 2029 Notes (exclusive of interest accrued and unpaid as of the date of redemption), discounted
to the date of redemption on an annual basis (ACTUAL/ACTUAL (ICMA)) at the Bund Rate (as
defined below), plus 30 basis points, plus accrued and unpaid interest thereon to the date of
redemption. However, if the redemption date is after a record date and on or prior to a corresponding
interest payment date, the interest will be paid on the redemption date to the holder of record on
the record date.
Notwithstanding the foregoing, at any time on or after December 28, 2028 (three months before
their maturity date), the 2029 Notes will be redeemable, in whole or in part, at our option and at
any time or from time to time, at a redemption price equal to 100% of the principal amount of the
2029 Notes to be redeemed plus accrued and unpaid interest thereon to, but excluding, the date of
redemption.
Notice of any redemption will be mailed at least 30 days, but not more than 60 days, before
the redemption date to each registered holder of 2029 Notes to be redeemed. Once notice of
redemption is mailed, the 2029 Notes called for redemption will become due and payable on the
redemption date and at the applicable redemption price, plus accrued and unpaid interest to, but not
including, the redemption date. Unless we default in payment of the redemption price, on and after
the redemption date, interest will cease to accrue on the 2029 Notes (or portion thereof) to be
redeemed on such redemption date.
“Bund Rate” means, with respect to any redemption date, the rate per annum equal to the
annual equivalent yield to maturity of the Comparable German Bund Issue, assuming a price for
the Comparable German Bund Issue (expressed as a percentage of its principal amount) equal to
the Comparable German Bund Price for such redemption date.
14
“Comparable German Bund Issue” means that German Bundesanleihe security selected by
the Quotation Agent as having a maturity comparable to the remaining term of the Notes to be
redeemed that would be utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate notes of comparable maturity to the remaining term of
the Notes.
“Comparable German Bund Price” means, with respect to any redemption date, (i) the average
of four Reference German Bund Dealer Quotations for such redemption date, after excluding the
highest and lowest such Reference German Bund Dealer Quotations, or (ii) if the Quotation Agent
obtains fewer than four such Reference German Bund Dealer Quotations, the average of all such
quotations.
“Quotation Agent” means a Reference German Bund Dealer appointed by us.
“Reference German Bund Dealer” means any dealer of German Bundesanleihe securities
selected by us in good faith.
“Reference German Bund Dealer Quotations” means, with respect to each Reference German
Bund Dealer and any redemption date, the average, as determined by us, of the bid and asked prices
for the Comparable German Bund Issue (expressed in each case as a percentage of its principal
amount) quoted in writing to the Quotation Agent by such Reference German Bund Dealer at 3:30
p.m., Frankfurt, Germany time, on the third business day preceding such redemption date.
If we elect to redeem less than all of the 2029 Notes, and such 2029 Notes are at the time
represented by a global note, then the depositary will select by lot the particular interests to be
redeemed. If we elect to redeem less than all of the 2029 Notes, and any of such 2029 Notes are
not represented by a global note, then the trustee will select the particular 2029 Notes to be redeemed
in a manner it deems appropriate and fair (and the depositary will select by lot the particular interests
in any global note to be redeemed).
We may at any time, and from time to time, purchase the 2029 Notes at any price or prices in
the open market or otherwise.
Repurchase upon Change of Control Triggering Event
If a Change of Control Triggering Event (as defined below) occurs with respect to the 2029
Notes, unless we have exercised our right to redeem the 2029 Notes, we are required to make an
offer to repurchase all or, at the holder’s option, any part (equal to €100,000 or any integral multiple
of €1,000 in excess thereof) of each holder’s 2029 Notes pursuant to the offer described below (the
“Change of Control Offer”).
In the Change of Control Offer, we will be required to offer payment in cash equal to 101%
of the aggregate principal amount of 2029 Notes repurchased plus accrued and unpaid interest, if
any, on the Notes repurchased to, but not including, the date of purchase (the “Change of Control
Payment”).
15
“Change of Control” means the occurrence of any of the following: (1) the direct or indirect
sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in
one or a series of related transactions, of all or substantially all of the assets of us and our Subsidiaries
taken as a whole to any Person or group of related Persons for purposes of Section 13(d) of the
Exchange Act (a “Group”) other than us or one of our subsidiaries; (2) the approval by the holders
of our common stock of any plan or proposal for our liquidation or dissolution; (3) the consummation
of any transaction (including, without limitation, any merger or consolidation) the result of which
is that any Person or Group becomes the beneficial owner, directly or indirectly, of more than 50%
of the then outstanding number of shares of our Voting Stock; or (4) the first day on which a majority
of the members of our board of directors are not Continuing Directors.
Notwithstanding the foregoing, a transaction will not be deemed to involve a Change of Control
if (1) we become a direct or indirect wholly owned Subsidiary of a holding company and (2)(A)
the direct or indirect holders of the Voting Stock of such holding company immediately following
that transaction are substantially the same as the holders of our Voting Stock immediately prior to
that transaction or (B) immediately following that transaction no Person or Group (other than a
holding company satisfying the requirements of this sentence) is the beneficial owner, directly or
indirectly of more than 50% of the Voting Stock of such holding company.
“Change of Control Triggering Event” means the occurrence of both a Change of Control and
a Below Investment Grade Rating Event (as such term is defined in the indenture) occurring in
respect of that Change of Control.
“Continuing Directors” means, as of any date of determination, any member of our board of
directors who (1) was a member of our board of directors on the date of the issuance of the Notes;
or (2) was nominated or approved for election, elected or appointed to our board of directors with
the approval of a majority of the Continuing Directors who were members of our board of directors
at the time of such nomination, approval, election or appointment (either by a specific vote or by
approval of the proxy statement issued by us in which such member was named as a nominee for
election as a director).
“Person” means any individual, firm, limited liability company, corporation, partnership,
association, joint venture, tribunal, trust, government or political subdivision or agency or
instrumentality thereof, or any other entity or organization and includes a “person” as used in
Section 13(d)(3) of the Exchange Act.
“Voting Stock” of any specified Person as of any date means the capital stock of such Person
that is at the time entitled to vote generally in the election of the board of directors of such Person.
The definition of “Change of Control” includes a phrase relating to the sale, transfer,
conveyance or other disposition of “all or substantially all” of our consolidated assets. There is no
precise, established definition of the phrase “substantially all” under applicable law. Accordingly,
the ability to require us to purchase 2029 Notes as a result of the sale, transfer, conveyance or other
disposition of less than all of our assets may be uncertain.
16
Certain Covenants
The indenture contains, among others, restrictive covenants regarding (i) our ability to
consolidate or merge with another entity or to sell, transfer or otherwise convey all or substantially
all of our assets to another entity; (ii) create or permit certain significant subsidiaries to create or
permit to exist certain liens and (iii) certain sale and lease-back transactions involving certain
subsidiaries.
Events of Default
Holders of the 2029 Notes will have specified rights if an Event of Default (as defined below)
occurs. The term “Event of Default” in respect of the Notes means any of the following:
(1) we do not pay interest on any of the Notes within 30 days of its due date;
(2) we fail to pay the principal (or premium, if any) of any Note, when such principal becomes
due and payable, at maturity, upon acceleration, upon redemption or otherwise;
(3) failure by us to comply with the covenants under the indenture;
(4) we remain in breach of a covenant or warranty in respect of the indenture or 2029 Notes
(other than a covenant included in the indenture solely for the benefit of debt securities of
another series) for 90 days after we receive a written notice of default, which notice must
be sent by either the trustee or holders of at least 25% in principal amount of the outstanding
2029 Notes;
(5) we file for bankruptcy, or other events of bankruptcy, insolvency or reorganization specified
in the indenture;
(6) we default on any indebtedness of ours or of a significant subsidiary having an aggregate
amount of at least $150,000,000, constituting a default either of payment of principal when
due and payable or which results in acceleration of the indebtedness unless the default has
been cured or waived or the indebtedness discharged in full within 60 days after we have
been notified of the default by the trustee or holders of at least 25% of the outstanding
2029 Notes; or
(7) one or more final judgments for the payment of money in an aggregate amount in excess
of $150,000,000 above available insurance or indemnity coverage shall be rendered against
us or any significant subsidiary and the same shall remain undischarged for a period of 60
consecutive days during which execution shall not be effectively stayed.
If an Event of Default (other than an Event of Default specified in clause (5) above) with respect
to the 2029 Notes has occurred, the Trustee or the holders of at least 25% in principal amount of
17
the 2029 Notes may declare the entire unpaid principal amount of (and premium, if any), and all
the accrued interest on, the Notes to be due and immediately payable. This is called a declaration
of acceleration of maturity. There is no action on the part of the trustee or any holder of the 2029
Notes required for such declaration if the Event of Default is the Company’s bankruptcy, insolvency
or reorganization. Holders of a majority in principal amount of the Notes may also waive certain
past defaults under the indenture with respect to the 2029 Notes on behalf of all of the holders of
the 2029 Notes. A declaration of acceleration of maturity may be canceled, under specified
circumstances, by the holders of at least a majority in principal amount of the 2029 Notes and the
trustee.
Except in cases of default, where the trustee has special duties, the trustee is not required to
take any action under the indenture at the request of holders unless the holders offer the trustee
protection from expenses and liability satisfactory to the trustee. If an indemnity satisfactory to the
trustee is provided, the holders of a majority in principal amount of 2029 Notes may direct the time,
method and place of conducting any lawsuit or other formal legal action seeking any remedy
available to the trustee. The trustee may refuse to follow those directions in certain circumstances
specified in the indenture. No delay or omission in exercising any right or remedy will be treated
as a waiver of the right, remedy or Event of Default.
Before holders of the 2029 Notes are allowed to bypass the trustee and bring a lawsuit or other
formal legal action or take other steps to enforce their rights or protect their interests relating to the
2029 Notes, the following must occur:
•
such holders must give the trustee written notice that an Event of Default has occurred and
remains uncured;
• holders of at least 25% in principal amount of the 2029 Notes must make a written request
that the trustee take action because of the default and must offer the Trustee indemnity
satisfactory to the trustee against the cost and other liabilities of taking that action; and
•
the trustee must have failed to take action for 60 days after receipt of the notice and offer
of indemnity.
Holders are, however, entitled at any time to bring a lawsuit for the payment of money due on
the 2029 Notes on or after the due date.
Modification of the Indenture and Waiver of Rights of Holders
Under certain circumstances, we can make changes to the indenture and the 2029 Notes. Some
types of changes require the approval of each holder of 2029 Notes, some require approval by a
vote of a majority of the holders of the 2029 Notes, and some changes do not require any approval
at all.
18
Description of the 1.750% Senior Notes Due 2023
The 1.750% Senior Notes due 2023 (the “2023 Notes”) were issued under an indenture, dated
as of June 7, 2013 (the “base indenture”) between Nasdaq, Inc. and Wells Fargo Bank, National
Association, as trustee (the “Trustee”) and a third supplemental indenture dated as of May 20, 2016
(the “supplemental indenture” and, together with the base indenture, the “indenture”).
We issued €600 million aggregate principal amount of the 2023 Notes on May 17, 2016.
This summary is subject to, and qualified in its entirety by reference to, all the provisions of
the 2023 Notes and the indenture, including definitions of certain terms used therein.
General
The 2023 Notes:
•
•
•
•
are senior unsecured obligations of ours;
rank equally with all of our other senior unsecured indebtedness from time to time
outstanding, all indebtedness under our senior credit facility and our term loan credit
agreement;
are structurally subordinated to all existing and future obligations of our subsidiaries,
including claims with respect to trade payables; and
are effectively subordinated in right of payment to all of our existing and future secured
indebtedness and other secured obligations to the extent of the collateral securing any
such indebtedness and other obligations.
The 2023 Notes were issued in minimum denominations of €100,000 and integral multiples
of €1,000 in excess thereof.
Principal, Maturity and Interest
The 2023 Notes bear interest at a rate of 1.750% per year. Interest on the 2023 Notes is payable
annually in arrears on May 19 of each year, beginning on May 19, 2017, and is computed on the
basis of the actual number of days in the period for which interest is being calculated and the actual
number of days from and including the last date on which interest was paid on the 2023 Notes (or
the settlement date if no interest has been paid or duly provided for on the 2023 Notes), to but
excluding the next date on which interest is paid or duly provided for. This payment convention is
referred to as ACTUAL/ACTUAL (ICMA) as defined in the rulebook of the International Capital
Market Association. Interest on the 2023 Notes accrues from and including the settlement date and
will be paid to holders of record on the day immediately prior to the applicable interest payment
date.
The 2023 Notes mature on May 19, 2023. On the maturity date of the 2023 Notes, the holders
will be entitled to receive 100% of the principal amount of such 2023 Notes. The 2023 Notes will
not have the benefit of any sinking fund.
19
If any interest payment date, redemption date or maturity date falls on a day that is not a
business day, then the relevant payment may be made on the next succeeding business day and no
interest will accrue because of such delayed payment. With respect to the Notes, when we use the
term “business day” we mean any day except a Saturday, a Sunday or a day on which banking
institutions in the applicable place of payment are authorized or required by law, regulation or
executive order to close.
Claims against the Company for payment of principal, interest and additional amounts, if any,
on the 2023 Notes will become void unless presentment for payment is made (where so required
under the indenture) within, in the case of principal and additional amounts, if any, a period of ten
years or, in the case of interest, a period of five years, in each case from the applicable original date
of payment therefor.
Interest Rate Adjustment
The interest rate payable on the 2023 Notes will be subject to adjustment from time to time if
either Moody’s or S&P, or, in either case, any substitute rating agency downgrades (or subsequently
upgrades) the credit rating assigned to the 2023 Notes.
Ranking
The 2023 Notes are general unsecured obligations of ours and rank equally with all of our
existing and future unsubordinated obligations.
Holders of any secured indebtedness and other secured obligations of the Company will have
claims that are prior to claims as holders of the 2023 Notes, to the extent of the value of the assets
securing such indebtedness and other obligations, in the event of any bankruptcy, liquidation or
similar proceeding.
Further Issues
The Notes constitute a separate series of debt securities under the indenture, initially limited
to €600 million. Under the indenture, we may, without the consent of the holders of the 2023 Notes,
issue additional 2023 Notes of the same or a different series from time to time in the future in an
unlimited aggregate principal amount; provided, that, if any such additional 2023 Notes are not
fungible with the 2023 Notes offered hereby (or any other tranche of additional Notes) for U.S.
federal income tax purposes, then such additional 2023 Notes will have different ISIN and/or
Common Code numbers than the 2023 Notes (and any such other tranche of additional 2023 Notes).
The 2023 Notes and any additional 2023 Notes of the same series would rank equally and ratably
and would be treated as a single class for all purposes under the indenture. This means that, in
circumstances where the indenture provides for the holders of debt securities of any series to vote
or take any action, any of the outstanding 2023 Notes, as well as any additional 2023 Notes that we
may issue by reopening such series, will vote or take action as a single class.
20
Redemption
Optional Redemption
The 2023 Notes will be redeemable, in whole or in part from time to time, at our option, at a
redemption price (the “make-whole redemption price”) equal to the greater of (i) 100% of the
principal amount of the 2023 Notes, and (ii) as determined by the Quotation Agent (as defined
below), the sum of the present values of the remaining scheduled payments of principal and interest
on the Notes (exclusive of interest accrued and unpaid as of the date of redemption), discounted to
the date of redemption on an annual basis (ACTUAL/ACTUAL (ICMA)) at the Bund Rate (as
defined below), plus 30 basis points, plus accrued and unpaid interest thereon to the date of
redemption. However, if the redemption date is after a record date and on or prior to a corresponding
interest payment date, the interest will be paid on the redemption date to the holder of record on
the record date. \
Notwithstanding the foregoing, at any time on or after February 19, 2023 (three months before
their maturity date), the 2023 Notes will be redeemable, as a whole or in part, at our option and at
any time or from time to time, at a redemption price equal to 100% of the principal amount of the
2023 Notes to be redeemed plus accrued and unpaid interest thereon to, but excluding, the date of
redemption.
Notice of any redemption will be mailed at least 30 days, but not more than 60 days, before
the redemption date to each registered holder of 2023 Notes to be redeemed. Once notice of
redemption is mailed, the 2023 Notes called for redemption will become due and payable on the
redemption date and at the applicable redemption price, plus accrued and unpaid interest to, but not
including, the redemption date. Unless we default in payment of the redemption price, on and after
the redemption date, interest will cease to accrue on the 2023 Notes (or portion thereof) to be
redeemed on such redemption date.
“Bund Rate” means, with respect to any redemption date, the rate per annum equal to the
annual equivalent yield to maturity of the Comparable German Bund Issue, assuming a price for
the Comparable German Bund Issue (expressed as a percentage of its principal amount) equal to
the Comparable German Bund Price for such redemption date.
“Comparable German Bund Issue” means that German Bundesanleihe security selected by
the Quotation Agent as having a maturity comparable to the remaining term of the 2023 Notes to
be redeemed that would be utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate notes of comparable maturity to the remaining
term of the Notes.
“Comparable German Bund Price” means, with respect to any redemption date, (i) the average
of four Reference German Bund Dealer Quotations for such redemption date, after excluding the
highest and lowest such Reference German Bund Dealer Quotations, or (ii) if the Quotation Agent
obtains fewer than four such Reference German Bund Dealer Quotations, the average of all such
quotations.
“Quotation Agent” means a Reference German Bund Dealer appointed by us.
21
“Reference German Bund Dealer” means any dealer of German Bundesanleihe securities
selected by us in good faith.
“Reference German Bund Dealer Quotations” means, with respect to each Reference German
Bund Dealer and any redemption date, the average, as determined by us, of the bid and asked prices
for the Comparable German Bund Issue (expressed in each case as a percentage of its principal
amount) quoted in writing to the Quotation Agent by such Reference German Bund Dealer at 3:30
p.m., Frankfurt, Germany time, on the third business day preceding such redemption date.
If we elect to redeem less than all of the 2023 Notes, and such 2023 Notes are at the time
represented by a global note, then the depositary will select by lot the particular interests to be
redeemed. If we elect to redeem less than all of the 2023 Notes, and any of such 2023 Notes are
not represented by a global note, then the trustee will select the particular 2023 Notes to be redeemed
in a manner it deems appropriate and fair (and the depositary will select by lot the particular interests
in any global note to be redeemed).
We may at any time, and from time to time, purchase the 2023 Notes at any price or prices in
the open market or otherwise.
Repurchase upon Change of Control Triggering Event
If a Change of Control Triggering Event (as defined below) occurs with respect to the 2023
Notes, unless we have exercised our right to redeem the 2023 Notes, we will be required to make
an offer to repurchase all or, at the holder’s option, any part (equal to €100,000 or any integral
multiple of €1,000 in excess thereof) of each holder’s 2023 Notes pursuant to the offer described
below (the “Change of Control Offer”).
In the Change of Control Offer, we will be required to offer payment in cash equal to 101%
of the aggregate principal amount of 2023 Notes repurchased plus accrued and unpaid interest, if
any, on the 2023 Notes repurchased to, but not including, the date of purchase (the “Change of
Control Payment”).
“Change of Control” means the occurrence of any of the following: (1) the direct or indirect
sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in
one or a series of related transactions, of all or substantially all of the assets of us and our Subsidiaries
taken as a whole to any Person or group of related Persons for purposes of Section 13(d) of the
Exchange Act (a “Group”) other than us or one of our Subsidiaries; (2) the approval by the holders
of our common stock of any plan or proposal for our liquidation or dissolution; (3) the consummation
of any transaction (including, without limitation, any merger or consolidation) the result of which
is that any Person or Group becomes the beneficial owner, directly or indirectly, of more than 50%
of the then outstanding number of shares of our Voting Stock; or (4) the first day on which a majority
of the members of our board of directors are not Continuing Directors.
Notwithstanding the foregoing, a transaction will not be deemed to involve a Change of Control
if (1) we become a direct or indirect wholly owned Subsidiary of a holding company and (2)(A) the
direct or indirect holders of the Voting Stock of such holding company immediately following that
22
transaction are substantially the same as the holders of our Voting Stock immediately prior to that
transaction or (B) immediately following that transaction no Person or Group (other than a holding
company satisfying the requirements of this sentence) is the beneficial owner, directly or indirectly
of more than 50% of the Voting Stock of such holding company.
“Change of Control Triggering Event” means the occurrence of both a Change of Control and
a Below Investment Grade Rating (as such term is defined in the indenture) event occurring in
respect of that Change of Control.
“Continuing Directors” means, as of any date of determination, any member of our board of
directors who (1) was a member of our board of directors on the date of the issuance of the 2023
Notes; or (2) was nominated or approved for election, elected or appointed to our board of directors
with the approval of a majority of the Continuing Directors who were members of our board of
directors at the time of such nomination, approval, election or appointment (either by a specific
vote or by approval of the proxy statement issued by us in which such member was named as a
nominee for election as a director).
“Person” means any individual, firm, limited liability company, corporation, partnership,
association, joint venture, tribunal, trust, government or political subdivision or agency or
instrumentality thereof, or any other entity or organization and includes a “person” as used in
Section 13(d)(3) of the Exchange Act.
“Voting Stock” of any specified Person as of any date means the capital stock of such Person
that is at the time entitled to vote generally in the election of the board of directors of such Person.
The definition of “Change of Control” includes a phrase relating to the sale, transfer,
conveyance or other disposition of “all or substantially all” of our consolidated assets. There is no
precise, established definition of the phrase “substantially all” under applicable law. Accordingly,
the ability to require us to purchase 2023 Notes as a result of the sale, transfer, conveyance or other
disposition of less than all of our assets may be uncertain.
Certain Covenants
The indenture contains, among others, restrictive covenants regarding (i) our ability to
consolidate or merge with another entity or to sell, transfer or otherwise convey all or substantially
all of our assets to another entity; (ii) create or permit certain significant subsidiaries to create or
permit to exist certain liens and (iii) certain sale and lease-back transactions involving certain
subsidiaries.
Events of Default
Holders of the 2023 Notes will have specified rights if an Event of Default (as defined below)
occurs.
The term “Event of Default” in respect of the 2023 Notes means any of the following:
(1) we do not pay interest on any of the 2023 Notes within 30 days of its due date;
23
(2) we fail to pay the principal (or premium, if any) of any 2023 Note, when such principal
becomes due and payable, at maturity, upon acceleration, upon redemption or otherwise;
(3) failure by us to comply with our covenant obligations;
(4) we remain in breach of a covenant or warranty in respect of the indenture or 2023
Notes (other than a covenant included in the indenture solely for the benefit of debt securities
of another series) for 90 days after we receive a written notice of default, which notice must
be sent by either the trustee or holders of at least 25% in principal amount of the outstanding
2023 Notes;
(5) we file for bankruptcy, or other events of bankruptcy, insolvency or reorganization
specified in the indenture;
(6) we default on any indebtedness of ours or of a significant subsidiary having an
aggregate amount of at least $150,000,000, constituting a default either of payment of principal
when due and payable or which results in acceleration of the indebtedness unless the default
has been cured or waived or the indebtedness discharged in full within 60 days after we have
been notified of the default by the trustee or holders of at least 25% of the outstanding 2023
Notes; or
(7) one or more final judgments for the payment of money in an aggregate amount in
excess of $150,000,000 above available insurance or indemnity coverage shall be rendered
against us or any significant subsidiary and the same shall remain undischarged for a period
of 60 consecutive days during which execution shall not be effectively stayed.
If an Event of Default (other than an Event of Default specified in clause (5) above) with
respect to the 2023 Notes has occurred, the trustee or the holders of at least 25% in principal amount
of the 2023 Notes may declare the entire unpaid principal amount of (and premium, if any), and all
the accrued interest on, the Notes to be due and immediately payable. This is called a declaration
of acceleration of maturity. There is no action on the part of the trustee or any holder of the 2023
Notes required for such declaration if the Event of Default is the Company’s bankruptcy, insolvency
or reorganization. Holders of a majority in principal amount of the 2023 Notes may also waive
certain past defaults under the indenture with respect to the 2023 Notes on behalf of all of the holders
of the Notes. A declaration of acceleration of maturity may be canceled, under specified
circumstances, by the holders of at least a majority in principal amount of the 2023 Notes and the
trustee.
Except in cases of default, where the trustee has special duties, the trustee is not required to
take any action under the indenture at the request of holders unless the holders offer the trustee
protection from expenses and liability satisfactory to the trustee. If an indemnity satisfactory to the
Trustee is provided, the holders of a majority in principal amount of 2023 Notes may direct the
time, method and place of conducting any lawsuit or other formal legal action seeking any remedy
available to the trustee. The trustee may refuse to follow those directions in certain circumstances
specified in the indenture. No delay or omission in exercising any right or remedy will be treated
as a waiver of the right, remedy or Event of Default.
24
Before holders of the 2023 Notes are allowed to bypass the trustee and bring a lawsuit or other
formal legal action or take other steps to enforce their rights or protect their interests relating to the
Notes, the following must occur:
•
such holders must give the trustee written notice that an Event of Default has occurred and
remains uncured;
• holders of at least 25% in principal amount of the 2023 Notes must make a written request
that the trustee take action because of the default and must offer the trustee indemnity
satisfactory to the trustee against the cost and other liabilities of taking that action; and
•
the trustee must have failed to take action for 60 days after receipt of the notice and offer
of indemnity.
Holders are, however, entitled at any time to bring a lawsuit for the payment of money due on
the 2023 Notes on or after the due date.
Modification of the Indenture and Waiver of Rights of Holders
Under certain circumstances, we can make changes to the indenture and the 2023 Notes. Some
types of changes require the approval of each holder of 2023 Notes, some require approval by a
vote of a majority of the holders of the 2023 Notes, and some changes do not require any approval
at all.
25
Description of the 3.875% Senior Notes due 2021
The 3.875% Senior Notes due 2021 (the “2021 Notes”) were issued under an indenture, dated
as of June 7, 2013 (the “base indenture”) between Nasdaq, Inc. and Wells Fargo Bank, National
Association, as trustee (the “Trustee”) and a supplemental indenture to be dated as of June 7, 2013
(the “supplemental indenture” and, together with the base indenture, the “indenture”).
We issued €600 million aggregate principal amount of the 2021 Notes on June 4, 2013.
This summary is subject to, and qualified in its entirety by reference to, all the provisions of
the 2021 Notes and the indenture, including definitions of certain terms used therein.
General
The 2021 Notes:
•
are senior unsecured obligations of ours;
• will rank equally with all of our other senior unsecured indebtedness from time to time
outstanding and all indebtedness under our senior credit facility;
•
•
structurally subordinated to all existing and future obligations of our subsidiaries including
claims with respect to trade payables;
are effectively subordinated in right of payment to all of our existing and future secured
indebtedness to the extent of the collateral securing any such indebtedness.
The 2021 Notes were issued in minimum denominations of €100,000 and integral multiples of
€1,000 in excess thereof.
Principal, Maturity and Interest
The 2021 Notes bear interest at a rate of 3.875% per year. Interest on the 2021 Notes will
be payable annually in arrears on June 7 of each year, beginning on June 7, 2014, and will be
computed on the basis of the actual number of days in the period for which interest is being calculated
and the actual number of days from and including the last date on which interest was paid on the
2021 Notes (or the settlement date if no interest has been paid or duly provided for on the 2021
Notes), to but excluding the next date on which interest is paid or duly provided for. Interest on the
2021 Notes will accrue from and including the settlement date and will be paid to holders of record
on the June 6 immediately before the applicable interest payment date.
The 2021 Notes will mature on June 7, 2021. On the maturity date of the 2021 Notes, the
holders will be entitled to receive 100% of the principal amount of such Notes. The 2021 Notes
will not have the benefit of any sinking fund.
If any interest payment date falls on a day that is not a business day, then payment of interest
may be made on the next succeeding business day and no interest will accrue because of such
delayed payment. With respect to the 2021 Notes, when we use the term “business day” we mean
26
any day except a Saturday, a Sunday or a day on which banking institutions in the applicable place
of payment are authorized or required by law, regulation or executive order to close.
Claims against the Company for payment of principal, interest and additional amounts, if any, on
the 2021 Notes will become void unless presentment for payment is made (where so required under
the indenture) within, in the case of principal and additional amounts, if any, a period of ten years
or, in the case of interest, a period of five years, in each case from the applicable original date of
payment therefor.
Interest Rate Adjustment
The interest rate payable on the 2021 Notes will be subject to adjustment from time to time
if either Moody’s or S&P or, in either case, any substitute rating agency downgrades (or subsequently
upgrades) the credit rating assigned to such 2021 Notes.
Ranking
The 2021 Notes are general unsecured obligations of ours and rank equally with all of our
existing and future unsubordinated obligations.
Holders of any secured indebtedness will have claims that are prior to your claims as holders
of the 2021 Notes, to the extent of the value of the assets securing such indebtedness, in the event
of any bankruptcy, liquidation or similar proceeding.
Further Issues
The 2021 Notes constitute a separate series of debt securities under the indenture. Under
the indenture, we may, without the consent of the holders of the 2021 Notes, “reopen” such series
and issue additional 2021 Notes from time to time in the future, but only if such additional 2021
Notes are issued with less than a de minimis amount of original issue discount or are issued as part
of a “qualified reopening” for U.S. federal income tax purposes. This means that, in circumstances
where the indenture provides for the holders of debt securities of any series to vote or take any
action, any of the outstanding 2021 Notes, as well as any additional 2021 Notes that we may issue
by reopening such series, will vote or take action as a single class.
Redemption
Optional Redemption
The 2021 Notes will be redeemable, in whole or in part from time to time, at our option, at
a redemption price (the “make-whole redemption price”) equal to the greater of (i) 100% of the
principal amount of the 2021 Notes, and (ii) as determined by the Quotation Agent (as defined
below), the sum of the present values of the remaining scheduled payments of principal and interest
on the 2021 Notes (exclusive of interest accrued and unpaid as of the date of redemption), discounted
to the date of redemption on an annual basis (Actual/Actual (ICMA)) at the Bund Rate (as defined
below), plus 40 basis points, plus accrued and unpaid interest thereon to the date of redemption.
However, if the redemption date is after a record date and on or prior to a corresponding interest
payment date, the interest will be paid on the redemption date to the holder of record on the record
date.
27
Notice of any redemption will be mailed at least 30 days, but not more than 60 days, before
the redemption date to each registered holder of 2021 Notes to be redeemed. Once notice of
redemption is mailed, the 2021 Notes called for redemption will become due and payable on the
redemption date and at the applicable redemption price, plus accrued and unpaid interest to, but not
including, the redemption date. Unless we default in payment of the redemption price, on and after
the redemption date, interest will cease to accrue on the 2021 Notes (or portion thereof).
If money sufficient to pay the redemption price of all of the Notes (or portions thereof) to
be redeemed on the redemption date is deposited with the trustee or paying agent on or before the
redemption date and certain other conditions are satisfied, then on and after such redemption date,
interest will cease to accrue on the 2021 Notes (or such portion thereof) called for redemption.
“Bund Rate” means, with respect to any redemption date, the rate per annum equal to the
annual equivalent yield to maturity of the Comparable German Bund Issue, assuming a price for
the Comparable German Bund Issue (expressed as a percentage of its principal amount) equal to
the Comparable German Bund Price for such redemption date.
“Comparable German Bund Issue” means that German Bundesanleihe security selected by
the Quotation Agent as having a maturity comparable to the remaining term of the Notes to be
redeemed that would be utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate notes of comparable maturity to the remaining term of
the 2021 Notes.
“Comparable German Bund Price” means, with respect to any redemption date, (i) the
average of four Reference German Bund Dealer Quotations for such redemption date, after excluding
the highest and lowest such Reference German Bund Dealer Quotations, or (ii) if the Quotation
Agent obtains fewer than four such Reference German Bund Dealer Quotations, the average of all
such quotations.
“Quotation Agent” means a Reference German Bund Dealer appointed by us.
“Reference German Bund Dealer” means any dealer of German Bundesanleihe securities
selected by us in good faith.
“Reference German Bund Dealer Quotations” means, with respect to each Reference
German Bund Dealer and any redemption date, the average, as determined by us, of the bid and
asked prices for the Comparable German Bund Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Quotation Agent by such Reference German Bund Dealer
at 3:30 p.m., Frankfurt, Germany time, on the third business day preceding such redemption date.
If we elect to redeem less than all of the 2021 Notes, and such 2021 Notes are at the time
represented by a global note, then the depositary will select by lot the particular interests to be
redeemed. If we elect to redeem less than all of the 2021 Notes, and any of such 2021 Notes are
not represented by a global note, then the trustee will select the particular 2021 Notes to be redeemed
in a manner it deems appropriate and fair (and the depositary will select by lot the particular interests
in any global note to be redeemed).
28
We may at any time, and from time to time, purchase the 2021 Notes at any price or prices
in the open market or otherwise.
Repurchase upon Change of Control Triggering Event
If a Change of Control Triggering Event (as defined below) occurs with respect to the 2021
Notes, unless we have exercised our right to redeem the Notes, we will be required to make an offer
to repurchase all or, at the holder’s option, any part (equal to €100,000 or any integral multiple of
€1,000 in excess thereof) of each holder’s 2021 Notes pursuant to the offer described below (the
“Change of Control Offer”).
In the Change of Control Offer, we will be required to offer payment in cash equal to 101%
of the aggregate principal amount of 2021 Notes repurchased plus accrued and unpaid interest, if
any, on the Notes repurchased to, but not including, the date of purchase (the “Change of Control
Payment”).
“Change of Control” means the occurrence of any of the following: (1) the direct or indirect
sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in
one or a series of related transactions, of all or substantially all of the assets of us and our subsidiaries
taken as a whole to any Person or group of related Persons for purposes of Section 13(d) of the
Exchange Act (a “Group”) other than us or one of our subsidiaries; (2) the approval by the holders
of our common stock of any plan or proposal for our liquidation or dissolution; (3) the consummation
of any transaction (including, without limitation, any merger or consolidation) the result of which
is that any Person or Group becomes the beneficial owner, directly or indirectly, of more than 50%
of the then outstanding number of shares of our Voting Stock; or (4) the first day on which a majority
of the members of our board of directors are not Continuing Directors.
Notwithstanding the foregoing, a transaction will not be deemed to involve a Change of
Control if (1) we become a direct or indirect wholly owned subsidiary of a holding company and
(2)(A) the direct or indirect holders of the Voting Stock of such holding company immediately
following that transaction are substantially the same as the holders of our Voting Stock immediately
prior to that transaction or (B) immediately following that transaction no Person or Group (other
than a holding company satisfying the requirements of this sentence) is the beneficial owner, directly
or indirectly of more than 50% of the Voting Stock of such holding company.
“Change of Control Triggering Event” means the occurrence of both a Change of Control
and a Below Investment Grade Rating Event (as such term is defined in the indenture) occurring
in respect of that Change of Control.
“Continuing Directors” means, as of any date of determination, any member of our board
of directors who (1) was a member of our board of directors on the date of the issuance of the 2021
Notes; or (2) was nominated for election, elected or appointed to our board of directors with the
approval of a majority of the Continuing Directors who were members of our board of directors at
the time of such nomination, election or appointment (either by a specific vote or by approval of
the proxy statement issued by us in which such member was named as a nominee for election as a
director).
29
“Person” means any individual, firm, corporation, partnership, association, joint venture,
tribunal, trust, government or political subdivision or agency or instrumentality thereof, or any other
entity or organization and includes a “person” as used in Section 13(d)(3) of the Exchange Act.
“Voting Stock” of any specified Person as of any date means the capital stock of such Person
that is at the time entitled to vote generally in the election of the board of directors of such Person.
The definition of Change of Control includes a phrase relating to the sale, transfer,
conveyance or other disposition of “all or substantially all” of our consolidated assets. There is no
precise, established definition of the phrase “substantially all” under applicable law. Accordingly,
your ability to require us to purchase your Notes as a result of the sale, transfer, conveyance or other
disposition of less than all of our assets may be uncertain.
Certain Covenants
The indenture contains, among others, restrictive covenants regarding (i) our ability to
consolidate or merge with another entity or to sell, transfer or otherwise convey all or substantially
all of our assets to another entity; (ii) create or permit certain significant subsidiaries to create or
permit to exist certain liens and (iii) certain sale and lease-back transactions involving certain
subsidiaries.
Events of Default
Holders of the 2021 Notes will have specified rights if an Event of Default (as defined below)
occurs.
The term “Event of Default” in respect of the 2021 Notes means any of the following:
(1) we do not pay interest on any of the 2021 Notes within 30 days of its due date;
(2) we fail to pay the principal (or premium, if any) of any 2021 Note, when such principal
becomes due and payable, at maturity, upon acceleration, upon redemption or otherwise;
(3) failure by us to comply with our covenant obligations;
(4) we remain in breach of a covenant or warranty in respect of the indenture or 2021
Notes (other than a covenant included in the indenture solely for the benefit of debt securities
of another series) for 90 days after we receive a written notice of default, which notice must
be sent by either the trustee or holders of at least 25% in principal amount of the outstanding
2021 Notes;
(5) we file for bankruptcy, or other events of bankruptcy, insolvency or reorganization
specified in the indenture;
(6) we default on any indebtedness of ours or of a significant subsidiary having an
aggregate amount of at least $150,000,000, constituting a default either of payment of principal
when due and payable or which results in acceleration of the indebtedness unless the default
has been cured or waived or the indebtedness discharged in full within 60 days after we have
been notified of the default by the trustee or holders of at least 25% of the outstanding 2021
Notes; or
30
(7) one or more final judgments for the payment of money in an aggregate amount in
excess of $150,000,000 above available insurance or indemnity coverage shall be rendered
against us or any significant subsidiary and the same shall remain undischarged for a period
of 60 consecutive days during which execution shall not be effectively stayed.
If an Event of Default (other than an Event of Default specified in clause (5) above) with
respect to the 2021 Notes has occurred, the trustee or the holders of at least 25% in principal amount
of the 2021 Notes may declare the entire unpaid principal amount of (and premium, if any), and all
the accrued interest on, such 2021 Notes to be due and immediately payable. This is called a
declaration of acceleration of maturity. There is no action on the part of the trustee or any holder
of the 2021 Notes required for such declaration if the Event of Default is the Company’s bankruptcy,
insolvency or reorganization. Holders of a majority in principal amount of the 2021 Notes may also
waive certain past defaults under the indenture with respect to the 2021 Notes on behalf of all of
the holders of the 2021 Notes. A declaration of acceleration of maturity may be canceled, under
specified circumstances, by the holders of at least a majority in principal amount of the 2021 Notes
and the trustee.
Except in cases of default, where the trustee has special duties, the trustee is not required to
take any action under the indenture at the request of holders unless the holders offer the trustee
protection from expenses and liability satisfactory to the trustee. If an indemnity satisfactory to the
trustee is provided, the holders of a majority in principal amount of 2021 Notes may direct the time,
method and place of conducting any lawsuit or other formal legal action seeking any remedy
available to the trustee. The trustee may refuse to follow those directions in certain circumstances
specified in the indenture. No delay or omission in exercising any right or remedy will be treated
as a waiver of the right, remedy or Event of Default.
Before holders are allowed to bypass the trustee and bring a lawsuit or other formal legal action
or take other steps to enforce their rights or protect their interests relating to the 2021 Notes, the
following must occur:
•
such holders must give the trustee written notice that an Event of Default has occurred and
remains uncured;
• holders of at least 25% in principal amount of the 2021 Notes must make a written request
that the trustee take action because of the default and must offer the trustee indemnity
satisfactory to the trustee against the cost and other liabilities of taking that action; and
•
the Trustee must have failed to take action for 60 days after receipt of the notice and offer
of indemnity.
Modification of the Indenture and Waiver of Rights of Holders
Under certain circumstances, we can make changes to the indenture and the 2021 Notes.
Some types of changes require the approval of each holder of 2021 Notes affected, some require
approval by a vote of a majority of the holders of the 2021 Notes, and some changes do not require
any approval at all.
31
Exhibit 21.1
Subsidiaries and Affiliates of Nasdaq, Inc.*
As of February 14, 2020
U.S. Entities
1. A.S.A.P. Advisor Services, Inc (organized in New York)
2. BoardVantage, Inc (organized in Delaware)
3. Boston Stock Exchange Clearing Corporation (organized in Massachusetts)
4. Channel Capital Group Inc. (organized in Delaware)
5. Cinnober Americas Inc. (organized in New York)
6. Consolidated Securities Source LLC (organized in Delaware)
7. Content Services, LLC (organized in Delaware) -
8. Curzon Street Acquisition, LLC (organized in Delaware)
9. Directors Desk, LLC (organized in Delaware)
10. Dorsey, Wright & Associates, LLC (organized in Virginia)
11. ETC Acquisition Corp. (organized in Delaware)
12. eVestment Alliance Holdings, Inc. (organized in Delaware)
13. eVestment Alliance Holdings, LLC (organized in Georgia)
14. eVestment Alliance, LLC (organized in Georgia)
15. eVestment, Inc. (organized in Delaware)
16. ExactEquity, LLC (organized in Delaware)
17. Execution Access, LLC (organized in Delaware)
18. FinQloud LLC (organized in Delaware)
19. FINRA/Nasdaq Trade Reporting Facility LLC (organized in Delaware)
20. FTEN, Inc. (organized in Delaware)
21. Fundspire, Inc. (organized in Delaware)
22. Global Network Content Services, LLC (organized in Florida)
23. GlobeNewswire, Inc. (organized in California)
24. Granite Redux, Inc. (organized in Delaware)
25. GraniteBlock, Inc. (organized in Delaware)
26. Inet Futures Exchange, LLC (organized in Delaware)
27. International Securities Exchange Holdings, Inc. (organized in Delaware)
28. ISE ETF Ventures LLC (organized in Delaware)
29. Kleos Managed Services Holdings, LLC (organized in Delaware)
30. Kleos Managed Services, L.P. (organized in Delaware)
31. Longitude LLC (organized in Delaware)
32. Nasdaq BX, Inc. (organized in Delaware)
33. Nasdaq Capital Markets Advisory LLC (organized in Delaware)
34. Nasdaq Commodities Clearing LLC (organized in Delaware)
35. Nasdaq Corporate Services, LLC (organized in Delaware)
36. Nasdaq Corporate Solutions, LLC (organized in Delaware)
37. NASDAQ Energy Futures, LLC (organized in Delaware)
38. Nasdaq Execution Services, LLC (organized in Delaware)
39. NASDAQ Futures, Inc. (organized in Delaware)
40. Nasdaq GEMX, LLC (organized in Delaware)
41. NASDAQ Global, Inc. (organized in Delaware)
42. Nasdaq Governance Solutions, Inc. (organized in Delaware)
43. Nasdaq Information, LLC (organized in Delaware)
44. Nasdaq International Market Initiatives, Inc. (organized in Delaware)
45. Nasdaq ISE, LLC (organized in Delaware)
46. Nasdaq MRX, LLC (organized in Delaware)
47. NASDAQ OMX (San Francisco) Insurance LLC (organized in Delaware)
48. NASDAQ OMX BX Equities LLC (organized in Delaware)
49. Nasdaq PHLX LLC (organized in Delaware)
50. Nasdaq Technology Services, LLC (organized in Delaware)
51. Norway Acquisition LLC (organized in Delaware)
52. NPM Securities, LLC (organized in Delaware)
53. OneReport, Inc, (organized in Vermont)
54. Operations & Compliance Network, LLC (organized in Delaware)
55. Public Plan IQ Limited Liability Company (organized in New Jersey)
56. SecondMarket Labs, LLC (organized in Delaware)
57. SecondMarket Solutions, Inc. (organized in Delaware)
58. SMTX, LLC (organized in Delaware)
59. Strategic Financial Solutions, LLC (organized in Nevada)
60. Sybenetix Inc. (organized in Delaware)
61. The Center for Board Evaluations, Inc. (organized in North Carolina)
62. The Nasdaq Options Market LLC (organized in Delaware)
63. The NASDAQ Private Market, LLC (organized in Delaware)
64. The Nasdaq Stock Market LLC (organized in Delaware)
65. The Stock Clearing Corporation of Philadelphia (organized in Pennsylvania)
66. U.S. Exchange Holdings, Inc. (organized in Delaware)
Non-U.S. Subsidiaries
1. 2157971 Ontario Ltd. (organized in Canada)
2. AB Nasdaq Vilnius (organized in Lithuania) (96.35% owned, directly or indirectly, by Nasdaq, Inc.)
3. AS eCSD Expert (organized in Estonia)
4. AS Pensionikeskus AS (organized in Estonia)
5. BoardVantage (UK) Limited (organized in the United Kingdom)
6. Cinetics AB (organized in Sweden)
7. Cinnober AB (organized in Sweden)
8. Cinnober Financial Technology AB (organized in Sweden)
9. Cinnober Financial Technology North AB (organized in Sweden)
10. Curzon Street Holdings Limited (organized in the United Kingdom)
11. Ensoleillement Inc. (organized in Canada)
12. eVestment Alliance (UK) Limited (organized in the United Kingdom)
13. eVestment Alliance Australia Pty Ltd (organized in Australia)
14. eVestment Alliance Hong Kong Limited (organized in Hong Kong)
15. Indxis Ltd (organized in the United Kingdom)
16. Irisium AB (organized in Sweden)
17. LLC "SYBENETIX UKRAINE" (organized in Ukraine)
18. Longitude S.A. (organized in Luxembourg)
19. Marketwire China Holding (HK) Ltd. (organized in Hong Kong)
20. Minium Financial Technology AB (organized in Sweden)
21. Minium Financial Technology Ltd (organized in the United Kingdom)
22. Nasdaq (Asia Pacific) Pte. Ltd. (organized in Singapore)
23. Nasdaq AB (organized in Sweden)
24. Nasdaq Australia Holding Pty Ltd (organized in Australia)
25. Nasdaq Broker Services AB (organized in Sweden)
26. Nasdaq Canada Inc. (organized in Canada)
27. Nasdaq Clearing AB (organized in Sweden)
28. Nasdaq Copenhagen A/S (organized in Denmark)
29. Nasdaq Corporate Solutions (India) Private Limited (organized in India)
30. Nasdaq Corporate Solutions International Limited (organized in the United Kingdom)
31. Nasdaq CSD Iceland hf. (organized in Iceland)
32. Nasdaq CSD SE (organized in Latvia)
33. Nasdaq CXC Limited (organized in Canada)
34. Nasdaq Exchange and Clearing Services AB (organized in Sweden)
35. Nasdaq France SAS (organized in France)
36. Nasdaq Germany GmbH (organized in Germany)
37. Nasdaq Helsinki Ltd (organized in Finland)
38. Nasdaq Holding AB (organized in Sweden)
39. Nasdaq Holding Denmark A/S (organized in Denmark)
40. Nasdaq Holding Luxembourg Sárl (organized in Luxembourg)
41. Nasdaq Iceland hf. (organized in Iceland)
42. Nasdaq International Ltd (organized in the United Kingdom)
43. Nasdaq Korea Ltd. (organized in South Korea)
44. Nasdaq Ltd (organized in Hong Kong)
45. Nasdaq NLX Ltd (organized in the United Kingdom)
46. Nasdaq Nordic Ltd (organized in Finland)
47. NASDAQ OMX Europe Ltd (organized in the United Kingdom)
48. Nasdaq Oslo ASA (organized in Norway)
49. Nasdaq Pty Ltd (organized in Australia)
50. Nasdaq Riga, AS (organized in Latvia) (92.98% owned, directly or indirectly, by Nasdaq, Inc.)
51. Nasdaq Stockholm AB (organized in Sweden)
52. Nasdaq Tallinn AS (organized in Estonia)
53. Nasdaq Technology (Japan) Ltd (organized in Japan)
54. Nasdaq Technology AB (organized in Sweden)
55. Nasdaq Technology Canada Inc. (organized in Canada)
56. Nasdaq Technology Energy Systems AS (organized in Norway)
57. Nasdaq Technology Italy Srl (organized in Italy)
58. Nasdaq Teknoloji Servisi Limited Sirketi (organized in Turkey)
59. Nasdaq Treasury AB (organized in Sweden)
60. Nasdaq Vilnius Services UAB (organized in Lithuania)
61. Nasdaq Wizer Solutions AB (organized in Sweden)
62. Nasdaq Wizer Vilnius UAB (organized in Lithuania)
63. OMX Netherlands B.V. (organized in the Netherlands)
64. OMX Netherlands Holding B.V. (organized in the Netherlands)
65. OMX Treasury Euro AB (organized in Sweden) (99.9% owned, directly or indirectly, by Nasdaq, Inc.)
66. OMX Treasury Euro Holding AB (organized in Sweden)
67. PerTrac Financial Solutions Hong Kong Limited (organized in Hong Kong)
68. Quandl, Inc.(organized in Canada)
69. RF Nordic Express AB (organized in Sweden) (50.1% owned, directly or indirectly, by Nasdaq, Inc.)
70. Shareholder.com B.V. (organized in the Netherlands)
71. Simplitium Ltd (organized in the United Kingdom)
72. SMARTS (Asia) Ltd (organized in China)
73. SMARTS Broker Compliance Pty Ltd (organized in Australia)
74. SMARTS Market Surveillance Pty Ltd (organized in Australia)
75. Sybenetix Limited (organized in the United Kingdom)
76. TopQ Software Limited (organized in the United Kingdom)
77. Whittaker & Garnier Limited (organized in the United Kingdom)
* The list of subsidiaries does not include not-for-profit entities or foreign branches of particular subsidiaries
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1)
Registration Statement (Form S-3 No. 333-224489) of Nasdaq, Inc.,
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Registration Statement (Form S-8 No. 333-225218) pertaining to Nasdaq, Inc. Equity
Incentive Plan,
Registration Statement (Form S-8 No. 333-196838) pertaining to Nasdaq, Inc. (f/k/a The
NASDAQ OMX Group, Inc.) Equity Incentive Plan,
Registration Statement (Form S-8 No. 333-167724) pertaining to Nasdaq, Inc. (f/k/a The
NASDAQ OMX Group, Inc.) Employee Stock Purchase Plan,
Registration Statement (Form S-8 No. 333-167723) pertaining to Nasdaq, Inc. (f/k/a The
NASDAQ OMX Group, Inc.) Equity Incentive Plan,
Registration Statement (Form S-8 No. 333-110602) pertaining to The Nasdaq Stock Market,
Inc. Equity Incentive Plan,
Registration Statement (Form S-8 No. 333-106945) pertaining to the Employment
Agreement with Robert Greifeld of The Nasdaq Stock Market, Inc.,
Registration Statement (Form S-8 No. 333-76064) pertaining to The Nasdaq Stock Market,
Inc. 2000 Employee Stock Purchase Plan,
Registration Statement (Form S-8 No. 333-72852) pertaining to The Nasdaq Stock Market,
Inc. 2000 Employee Stock Purchase Plan, and
(10) Registration Statement (Form S-8 No. 333-70992) pertaining to The Nasdaq Stock Market,
Inc. Equity Incentive Plan;
of our reports dated February 25, 2020, with respect to the consolidated financial statements of
Nasdaq, Inc. and the effectiveness of internal control over financial reporting of Nasdaq, Inc.
included in this Annual Report (Form 10-K) of Nasdaq, Inc. for the year ended December 31, 2019.
New York, New York
February 25, 2020
POWER OF ATTORNEY
ANNUAL REPORT ON FORM 10-K
NASDAQ, INC.
Exhibit 24.1
Know all men by these presents, that the undersigned, a director of Nasdaq, Inc., a Delaware
corporation, hereby constitutes and appoints John A. Zecca and Joan C. Conley, and each of them
acting individually, the undersigned’s true and lawful attorneys-in-fact and agents, each with full
power and substitution and resubstitution, for him and in his name, place, and stead, in any case
and all capacities to:
(1) execute for and on behalf of the undersigned, an Annual Report on Form 10-K of Nasdaq,
Inc. for the fiscal year ended December 31, 2019, including any and all amendments and additions
thereto (collectively, the “Annual Report”) in accordance with the Securities Exchange Act of 1934,
as amended, and the rules thereunder;
(2) do and perform any and all acts for and on behalf of the undersigned which may be
necessary or desirable to file, or cause to be filed, the Annual Report with all exhibits thereto
(including this Power of Attorney), and other documents in connection therewith, with the United
States Securities and Exchange Commission; and
(3) take any other action or any type whatsoever in connection with the foregoing which,
in the opinion of such attorneys-in-fact, may be of benefit to, in the best interest of, or legally
required by, the undersigned, it being understood that the documents executed by such attorneys-
in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and
shall contain such terms and conditions as such attorneys-in-fact may approve in such attorneys-
in-fact’s discretion.
The undersigned hereby grants to each attorney-in-fact full power and authority to do and
perform any and every act and thing whatsoever requisite, necessary or proper to be done in the
exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the
undersigned might or could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such shall lawfully do or cause to be done by virtue of this
Power of Attorney and the rights and powers herein granted.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed
as of February 24, 2020.
/s/ Melissa M. Arnoldi
Signature
POWER OF ATTORNEY
ANNUAL REPORT ON FORM 10-K
NASDAQ, INC.
Know all men by these presents, that the undersigned, a director of Nasdaq, Inc., a Delaware
corporation, hereby constitutes and appoints John A. Zecca and Joan C. Conley, and each of them
acting individually, the undersigned’s true and lawful attorneys-in-fact and agents, each with full
power and substitution and resubstitution, for him and in his name, place, and stead, in any case
and all capacities to:
(1) execute for and on behalf of the undersigned, an Annual Report on Form 10-K of Nasdaq,
Inc. for the fiscal year ended December 31, 2019, including any and all amendments and additions
thereto (collectively, the “Annual Report”) in accordance with the Securities Exchange Act of 1934,
as amended, and the rules thereunder;
(2) do and perform any and all acts for and on behalf of the undersigned which may be
necessary or desirable to file, or cause to be filed, the Annual Report with all exhibits thereto
(including this Power of Attorney), and other documents in connection therewith, with the United
States Securities and Exchange Commission; and
(3) take any other action or any type whatsoever in connection with the foregoing which,
in the opinion of such attorneys-in-fact, may be of benefit to, in the best interest of, or legally
required by, the undersigned, it being understood that the documents executed by such attorneys-
in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and
shall contain such terms and conditions as such attorneys-in-fact may approve in such attorneys-
in-fact’s discretion.
The undersigned hereby grants to each attorney-in-fact full power and authority to do and
perform any and every act and thing whatsoever requisite, necessary or proper to be done in the
exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the
undersigned might or could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such shall lawfully do or cause to be done by virtue of this
Power of Attorney and the rights and powers herein granted.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed
as of February 24, 2020.
/s/ Charlene T. Begley
Signature
POWER OF ATTORNEY
ANNUAL REPORT ON FORM 10-K
NASDAQ, INC.
Know all men by these presents, that the undersigned, a director of Nasdaq, Inc., a Delaware
corporation, hereby constitutes and appoints John A. Zecca and Joan C. Conley, and each of them
acting individually, the undersigned’s true and lawful attorneys-in-fact and agents, each with full
power and substitution and resubstitution, for him and in his name, place, and stead, in any case
and all capacities to:
(1) execute for and on behalf of the undersigned, an Annual Report on Form 10-K of Nasdaq,
Inc. for the fiscal year ended December 31, 2019, including any and all amendments and additions
thereto (collectively, the “Annual Report”) in accordance with the Securities Exchange Act of 1934,
as amended, and the rules thereunder;
(2) do and perform any and all acts for and on behalf of the undersigned which may be
necessary or desirable to file, or cause to be filed, the Annual Report with all exhibits thereto
(including this Power of Attorney), and other documents in connection therewith, with the United
States Securities and Exchange Commission; and
(3) take any other action or any type whatsoever in connection with the foregoing which,
in the opinion of such attorneys-in-fact, may be of benefit to, in the best interest of, or legally
required by, the undersigned, it being understood that the documents executed by such attorneys-
in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and
shall contain such terms and conditions as such attorneys-in-fact may approve in such attorneys-
in-fact’s discretion.
The undersigned hereby grants to each attorney-in-fact full power and authority to do and
perform any and every act and thing whatsoever requisite, necessary or proper to be done in the
exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the
undersigned might or could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such shall lawfully do or cause to be done by virtue of this
Power of Attorney and the rights and powers herein granted.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed
as of February 24, 2020.
/s/ Steven D. Black
Signature
POWER OF ATTORNEY
ANNUAL REPORT ON FORM 10-K
NASDAQ, INC.
Know all men by these presents, that the undersigned, a director of Nasdaq, Inc., a Delaware
corporation, hereby constitutes and appoints John A. Zecca and Joan C. Conley, and each of them
acting individually, the undersigned’s true and lawful attorneys-in-fact and agents, each with full
power and substitution and resubstitution, for him and in his name, place, and stead, in any case
and all capacities to:
(1) execute for and on behalf of the undersigned, an Annual Report on Form 10-K of Nasdaq,
Inc. for the fiscal year ended December 31, 2019, including any and all amendments and additions
thereto (collectively, the “Annual Report”) in accordance with the Securities Exchange Act of 1934,
as amended, and the rules thereunder;
(2) do and perform any and all acts for and on behalf of the undersigned which may be
necessary or desirable to file, or cause to be filed, the Annual Report with all exhibits thereto
(including this Power of Attorney), and other documents in connection therewith, with the United
States Securities and Exchange Commission; and
(3) take any other action or any type whatsoever in connection with the foregoing which,
in the opinion of such attorneys-in-fact, may be of benefit to, in the best interest of, or legally
required by, the undersigned, it being understood that the documents executed by such attorneys-
in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and
shall contain such terms and conditions as such attorneys-in-fact may approve in such attorneys-
in-fact’s discretion.
The undersigned hereby grants to each attorney-in-fact full power and authority to do and
perform any and every act and thing whatsoever requisite, necessary or proper to be done in the
exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the
undersigned might or could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such shall lawfully do or cause to be done by virtue of this
Power of Attorney and the rights and powers herein granted.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed
as of February 24, 2020.
/s/ Essa Kazim
Signature
POWER OF ATTORNEY
ANNUAL REPORT ON FORM 10-K
NASDAQ, INC.
Know all men by these presents, that the undersigned, a director of Nasdaq, Inc., a Delaware
corporation, hereby constitutes and appoints John A. Zecca and Joan C. Conley, and each of them
acting individually, the undersigned’s true and lawful attorneys-in-fact and agents, each with full
power and substitution and resubstitution, for him and in his name, place, and stead, in any case
and all capacities to:
(1) execute for and on behalf of the undersigned, an Annual Report on Form 10-K of Nasdaq,
Inc. for the fiscal year ended December 31, 2019, including any and all amendments and additions
thereto (collectively, the “Annual Report”) in accordance with the Securities Exchange Act of 1934,
as amended, and the rules thereunder;
(2) do and perform any and all acts for and on behalf of the undersigned which may be
necessary or desirable to file, or cause to be filed, the Annual Report with all exhibits thereto
(including this Power of Attorney), and other documents in connection therewith, with the United
States Securities and Exchange Commission; and
(3) take any other action or any type whatsoever in connection with the foregoing which,
in the opinion of such attorneys-in-fact, may be of benefit to, in the best interest of, or legally
required by, the undersigned, it being understood that the documents executed by such attorneys-
in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and
shall contain such terms and conditions as such attorneys-in-fact may approve in such attorneys-
in-fact’s discretion.
The undersigned hereby grants to each attorney-in-fact full power and authority to do and
perform any and every act and thing whatsoever requisite, necessary or proper to be done in the
exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the
undersigned might or could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such shall lawfully do or cause to be done by virtue of this
Power of Attorney and the rights and powers herein granted.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed
as of February 24, 2020.
/s/ Thomas A. Kloet
Signature
POWER OF ATTORNEY
ANNUAL REPORT ON FORM 10-K
NASDAQ, INC.
Know all men by these presents, that the undersigned, a director of Nasdaq, Inc., a Delaware
corporation, hereby constitutes and appoints John A. Zecca and Joan C. Conley, and each of them
acting individually, the undersigned’s true and lawful attorneys-in-fact and agents, each with full
power and substitution and resubstitution, for him and in his name, place, and stead, in any case
and all capacities to:
(1) execute for and on behalf of the undersigned, an Annual Report on Form 10-K of Nasdaq,
Inc. for the fiscal year ended December 31, 2019, including any and all amendments and additions
thereto (collectively, the “Annual Report”) in accordance with the Securities Exchange Act of 1934,
as amended, and the rules thereunder;
(2) do and perform any and all acts for and on behalf of the undersigned which may be
necessary or desirable to file, or cause to be filed, the Annual Report with all exhibits thereto
(including this Power of Attorney), and other documents in connection therewith, with the United
States Securities and Exchange Commission; and
(3) take any other action or any type whatsoever in connection with the foregoing which,
in the opinion of such attorneys-in-fact, may be of benefit to, in the best interest of, or legally
required by, the undersigned, it being understood that the documents executed by such attorneys-
in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and
shall contain such terms and conditions as such attorneys-in-fact may approve in such attorneys-
in-fact’s discretion.
The undersigned hereby grants to each attorney-in-fact full power and authority to do and
perform any and every act and thing whatsoever requisite, necessary or proper to be done in the
exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the
undersigned might or could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such shall lawfully do or cause to be done by virtue of this
Power of Attorney and the rights and powers herein granted.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed
as of February 24, 2020.
/s/ John D. Rainey
Signature
POWER OF ATTORNEY
ANNUAL REPORT ON FORM 10-K
NASDAQ, INC.
Know all men by these presents, that the undersigned, a director of Nasdaq, Inc., a Delaware
corporation, hereby constitutes and appoints John A. Zecca and Joan C. Conley, and each of them
acting individually, the undersigned’s true and lawful attorneys-in-fact and agents, each with full
power and substitution and resubstitution, for him and in his name, place, and stead, in any case
and all capacities to:
(1) execute for and on behalf of the undersigned, an Annual Report on Form 10-K of Nasdaq,
Inc. for the fiscal year ended December 31, 2019, including any and all amendments and additions
thereto (collectively, the “Annual Report”) in accordance with the Securities Exchange Act of 1934,
as amended, and the rules thereunder;
(2) do and perform any and all acts for and on behalf of the undersigned which may be
necessary or desirable to file, or cause to be filed, the Annual Report with all exhibits thereto
(including this Power of Attorney), and other documents in connection therewith, with the United
States Securities and Exchange Commission; and
(3) take any other action or any type whatsoever in connection with the foregoing which,
in the opinion of such attorneys-in-fact, may be of benefit to, in the best interest of, or legally
required by, the undersigned, it being understood that the documents executed by such attorneys-
in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and
shall contain such terms and conditions as such attorneys-in-fact may approve in such attorneys-
in-fact’s discretion.
The undersigned hereby grants to each attorney-in-fact full power and authority to do and
perform any and every act and thing whatsoever requisite, necessary or proper to be done in the
exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the
undersigned might or could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such shall lawfully do or cause to be done by virtue of this
Power of Attorney and the rights and powers herein granted.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed
as of February 24, 2020.
/s/ Michael R. Splinter
Signature
POWER OF ATTORNEY
ANNUAL REPORT ON FORM 10-K
NASDAQ, INC.
Know all men by these presents, that the undersigned, a director of Nasdaq, Inc., a Delaware
corporation, hereby constitutes and appoints John A. Zecca and Joan C. Conley, and each of them
acting individually, the undersigned’s true and lawful attorneys-in-fact and agents, each with full
power and substitution and resubstitution, for him and in his name, place, and stead, in any case
and all capacities to:
(1) execute for and on behalf of the undersigned, an Annual Report on Form 10-K of Nasdaq,
Inc. for the fiscal year ended December 31, 2019, including any and all amendments and additions
thereto (collectively, the “Annual Report”) in accordance with the Securities Exchange Act of 1934,
as amended, and the rules thereunder;
(2) do and perform any and all acts for and on behalf of the undersigned which may be
necessary or desirable to file, or cause to be filed, the Annual Report with all exhibits thereto
(including this Power of Attorney), and other documents in connection therewith, with the United
States Securities and Exchange Commission; and
(3) take any other action or any type whatsoever in connection with the foregoing which,
in the opinion of such attorneys-in-fact, may be of benefit to, in the best interest of, or legally
required by, the undersigned, it being understood that the documents executed by such attorneys-
in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and
shall contain such terms and conditions as such attorneys-in-fact may approve in such attorneys-
in-fact’s discretion.
The undersigned hereby grants to each attorney-in-fact full power and authority to do and
perform any and every act and thing whatsoever requisite, necessary or proper to be done in the
exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the
undersigned might or could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such shall lawfully do or cause to be done by virtue of this
Power of Attorney and the rights and powers herein granted.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed
as of February 24, 2020.
/s/ Jacob Wallenberg
Signature
POWER OF ATTORNEY
ANNUAL REPORT ON FORM 10-K
NASDAQ, INC.
Know all men by these presents, that the undersigned, a director of Nasdaq, Inc., a Delaware
corporation, hereby constitutes and appoints John A. Zecca and Joan C. Conley, and each of them
acting individually, the undersigned’s true and lawful attorneys-in-fact and agents, each with full
power and substitution and resubstitution, for him and in his name, place, and stead, in any case
and all capacities to:
(1) execute for and on behalf of the undersigned, an Annual Report on Form 10-K of Nasdaq,
Inc. for the fiscal year ended December 31, 2019, including any and all amendments and additions
thereto (collectively, the “Annual Report”) in accordance with the Securities Exchange Act of 1934,
as amended, and the rules thereunder;
(2) do and perform any and all acts for and on behalf of the undersigned which may be
necessary or desirable to file, or cause to be filed, the Annual Report with all exhibits thereto
(including this Power of Attorney), and other documents in connection therewith, with the United
States Securities and Exchange Commission; and
(3) take any other action or any type whatsoever in connection with the foregoing which,
in the opinion of such attorneys-in-fact, may be of benefit to, in the best interest of, or legally
required by, the undersigned, it being understood that the documents executed by such attorneys-
in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and
shall contain such terms and conditions as such attorneys-in-fact may approve in such attorneys-
in-fact’s discretion.
The undersigned hereby grants to each attorney-in-fact full power and authority to do and
perform any and every act and thing whatsoever requisite, necessary or proper to be done in the
exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the
undersigned might or could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such shall lawfully do or cause to be done by virtue of this
Power of Attorney and the rights and powers herein granted.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed
as of February 24, 2020.
/s/ Lars R. Wedenborn
Signature
POWER OF ATTORNEY
ANNUAL REPORT ON FORM 10-K
NASDAQ, INC.
Know all men by these presents, that the undersigned, a director of Nasdaq, Inc., a Delaware
corporation, hereby constitutes and appoints John A. Zecca and Joan C. Conley, and each of them
acting individually, the undersigned’s true and lawful attorneys-in-fact and agents, each with full
power and substitution and resubstitution, for him and in his name, place, and stead, in any case
and all capacities to:
(1) execute for and on behalf of the undersigned, an Annual Report on Form 10-K of Nasdaq,
Inc. for the fiscal year ended December 31, 2019, including any and all amendments and additions
thereto (collectively, the “Annual Report”) in accordance with the Securities Exchange Act of 1934,
as amended, and the rules thereunder;
(2) do and perform any and all acts for and on behalf of the undersigned which may be
necessary or desirable to file, or cause to be filed, the Annual Report with all exhibits thereto
(including this Power of Attorney), and other documents in connection therewith, with the United
States Securities and Exchange Commission; and
(3) take any other action or any type whatsoever in connection with the foregoing which,
in the opinion of such attorneys-in-fact, may be of benefit to, in the best interest of, or legally
required by, the undersigned, it being understood that the documents executed by such attorneys-
in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and
shall contain such terms and conditions as such attorneys-in-fact may approve in such attorneys-
in-fact’s discretion.
The undersigned hereby grants to each attorney-in-fact full power and authority to do and
perform any and every act and thing whatsoever requisite, necessary or proper to be done in the
exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the
undersigned might or could do if personally present, with full power of substitution or revocation,
hereby ratifying and confirming all that such shall lawfully do or cause to be done by virtue of this
Power of Attorney and the rights and powers herein granted.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed
as of February 24, 2020.
/s/ Alfred W. Zollar
Signature
Exhibit 31.1
I, Adena T. Friedman, certify that:
1. I have reviewed this Annual Report on Form 10-K of Nasdaq, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
/s/ Adena T. Friedman
Name: Adena T. Friedman
Title:
President and Chief Executive Officer
Date: February 25, 2020
CERTIFICATION
Exhibit 31.2
I, Michael Ptasznik, certify that:
1. I have reviewed this Annual Report on Form 10-K of Nasdaq, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
/s/ Michael Ptasznik
Name: Michael Ptasznik
Title:
Executive Vice President, Corporate Strategy and
Chief Financial Officer
Date: February 25, 2020
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Nasdaq, Inc. (the “Company”) for the period ended December 31,
2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Adena T. Friedman, as President
and Chief Executive Officer of the Company, and Michael Ptasznik, as Executive Vice President, Corporate Strategy and Chief
Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of her or his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of the operations of the Company.
/s/ Adena T. Friedman
Name: Adena T. Friedman
Title:
Date:
President and Chief Executive Officer
February 25, 2020
/s/ Michael Ptasznik
Name: Michael Ptasznik
Title:
Executive Vice President, Corporate Strategy and
Chief Financial Officer
February 25, 2020
Date:
This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of § 18 of the Securities
Exchange Act of 1934, as amended.