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, 2020
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)
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
Delaware
52-1165937
151 W. 42nd Street, New York, New York
10036
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code: +1 212 401 8700
Securities registered pursuant to Section 12(b) of the Act:
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
1.75% Senior Notes due 2023
NDAQ
NDAQ30
NDAQ29
NDAQ23
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 ☒ No ☐
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 ☐ No ☒
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 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 been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☒
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 30, 2020, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $13.6 billion
(this amount represents approximately 114.4 million shares of Nasdaq, Inc.’s common stock based on the last reported sales price of $119.47 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 11, 2021
164,795,634 shares
Documents Incorporated by Reference: Certain portions of the Definitive Proxy Statement for the 2021 Annual Meeting of Shareholders 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 CXC” and “Nasdaq CX2” refer to the Canadian cash equity trading books operated by Nasdaq CXC Limited.
“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.
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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.
401(k) Plan: Voluntary Defined Contribution Savings Plan
2031 Notes: $650 million aggregate principal amount of
2017 Credit Facility: $1 billion senior unsecured revolving
credit facility, which was terminated in December 2020
2020 Credit Facility: $1.25 billion senior unsecured
revolving credit facility, which matures on December 22,
2025
1.650% senior unsecured notes due January 15, 2031
2040 Notes: $650 million aggregate principal amount of
2.500% senior unsecured notes due December 21, 2040
2050 Notes: $500 million aggregate principal amount of
3.25% senior unsecured notes due April 28, 2050
2021 Notes: €600 million aggregate principal amount of
3.875% senior unsecured notes due June 7, 2021, repaid in
full and terminated in March 2020
ASU: Accounting Standards Update
ATS: Alternative Trading System
2022 Notes: $600 million aggregate principal amount of
0.455% senior unsecured notes due December 21, 2022
2023 Notes: €600 million aggregate principal amount of
1.75% 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
ASU 2016-13: Measurement of Credit Losses on Financial
Instruments
AUM: Assets Under Management
CAT: A market-wide consolidated audit trail established
under an SEC approved plan by Nasdaq and other
exchanges
CCP: Central Counterparty
3.85% senior unsecured notes due June 30, 2026
CFTC: U.S. Commodity Futures Trading Commission
2029 Notes: €600 million aggregate principal amount of
EMIR: European Market Infrastructure Regulation
1.75% senior unsecured notes due March 28, 2029
2030 Notes: €600 million aggregate principal amount of
0.875% senior unsecured notes due February 13, 2030
Equity Plan: Nasdaq Equity Incentive Plan
ESG: Environmental, Social and Governance
ESPP: Nasdaq Employee Stock Purchase Plan
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ETF: Exchange Traded Fund
ETP: Exchange Traded Product
PSU: Performance Share Unit
Regulation NMS: Regulation National Market System
Exchange Act: Securities Exchange Act of 1934, as amended
Regulation SCI: Regulation Systems Compliance and
FASB: Financial Accounting Standards Board
FICC: Fixed Income and Commodities Trading and Clearing
FINRA: Financial Industry Regulatory Authority
IPO: Initial Public Offering
LIBOR: London Interbank Offered Rate
Integrity
SaaS: Software as a Service
SEC: U.S. Securities and Exchange Commission
SERP: Supplemental Executive Retirement Plan
SFSA: Swedish Financial Supervisory Authority
MiFID II: Update to the Markets in Financial Instruments
Directive
SI: Systematic Internalizer
S&P: Standard & Poor’s
MiFIR: Markets in Financial Instruments Regulation
S&P 500: S&P 500 Stock Index
MTF: Multilateral Trading Facility
SPAC: Special Purpose Acquisition Company
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
SRO: Self-regulatory Organization
SSMA: Swedish Securities Markets Act 2007:528
TSR: Total Shareholder Return
NFX: Nasdaq Futures, Inc.
U.S. GAAP: U.S. Generally Accepted Accounting Principles
NPM: The NASDAQ Private Market, LLC
UTP: Unlisted Trading Privileges
NSCC: National Securities Clearing Corporation
OCC: The Options Clearing Corporation
OTC: Over-the-Counter
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
Proxy Statement: Nasdaq's Definitive Proxy Statement for
the 2021 Annual Meeting of Shareholders
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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; 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 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.
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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 and services;
the impact of pricing changes;
tax matters;
the cost and availability of liquidity and capital;
any litigation, or any regulatory or government investigation or action, to which we are or could become a
party or which may affect us; and
the potential impact of the COVID-19 pandemic and the response of governments and other third parties on
our business, operations, results of operations, financial condition, workforce or the operations or decisions of
our customers, suppliers or business partners.
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
Platforms, Investment Intelligence and Market Technology.
In the fourth quarter of 2020, we renamed certain of our
segments and businesses. See Note 1, “Organization and
Nature of Operations,”
financial
statements for further discussion.
the consolidated
to
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 an independent registered
national securities exchange in 2007.
Inc. This
In February 2008, Nasdaq and OMX AB combined their
businesses, and we changed our corporate name to The
NASDAQ OMX Group,
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. We operated as the NASDAQ OMX Group 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
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of which are non-transaction based and rooted in innovative
technology. To keep 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, purpose and strategy:
Our Vision: To reimagine markets to realize the potential of
tomorrow.
Our Mission: To provide
the premier platform and
ecosystem for global capital markets and beyond with
unmatched technology, insights and markets expertise.
Our Purpose: To champion inclusive growth and prosperity.
We power stronger economies, create more equitable
opportunities and contribute to a more sustainable world to
help our communities, clients, employees and people of all
backgrounds reach their full potential.
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 four years, we have focused on maximizing the
resources, people and capital allocated to our largest growth
opportunities, particularly in our Market Technology and
Investment Intelligence segments, as we seek to execute on
our transformation into a higher growth, more scalable
platform to meet our clients' most critical needs. We are also
committed to maintaining and enhancing the marketplace
platform businesses that are core to Nasdaq, including
Market Services and Corporate Platforms. Additionally, we
will continue to execute on our strategy to reduce capital and
resources in areas that we believe are not as strategic to our
clients and have less growth potential within Nasdaq. Our
four business segments reflect our broad capabilities, with
Market Technology and Investment Intelligence providing
our
intelligence growth platform, and
Corporate Platforms and Market Services serving as our
foundational marketplace core.
technology and
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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
index and analytics business within our Investment
Intelligence segment; ESG-focused solutions, within our
and our Market
Corporate Platforms
Technology segment (including our anti-financial crime
technology business).
segment;
Consistent with this objective, in 2020 we acquired
Solovis, a provider of multi-asset class portfolio
management, analytics and reporting tools across public
and private markets, which is a part of our Investment
Intelligence segment. In February 2021, we completed
the acquisition of Verafin, a provider of anti-financial
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crime management solutions, which is part of our Market
Technology segment. We are continuing to invest in the
Market Technology segment through the expansion,
enhancement, and flexibility of our technology platform,
in addition to leveraging emerging technologies such as
machine intelligence in our Trade Surveillance offering.
Enhancing 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
innovate with new
functionality and strong market share in our core
markets. We migrated Nasdaq BX Options to a new
trading platform that leverages the NFF. This updated
technology will drive commonality across our internal
derivatives markets.
to
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. In
February 2021, we entered into an agreement to sell our
U.S. fixed income business. This transaction aligns with
our strategy to concentrate our resources and capital in
order to maximize our potential as a major technology
and analytics provider to the global capital markets. See
“Sale of U.S. Fixed Income Business,” of Note 21,
“Subsequent Events,” to the consolidated financial
statements for further discussion of this transaction.
Products and Services
Market Services
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 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 2020 represented the largest share of the U.S.
market for all categories, including single-exchange-listed
options products. 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 central counterparty clearing services for
stock options and futures and index options and futures.
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, institutional investors, 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).
the Nasdaq Nordic and Nasdaq Baltic
Collectively,
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, and
Denmark via the local central securities depositories. In
addition, Nasdaq owns a central securities depository that
provides notary, settlement, central maintenance and other
services in the Baltic countries and Iceland.
FICC
Our FICC business includes the U.S. and European portions
of the Nasdaq Fixed Income, or NFI, business and Nasdaq
Commodities.
for
The U.S. portion of Nasdaq Fixed Income includes an
electronic platform
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.
On February 2, 2021, we announced that we entered into a
purchase and sale agreement, or the Purchase Agreement, to
sell our U.S. Fixed Income business. See “Sale of U.S. Fixed
Income Business,” of Note 21, “Subsequent Events,” to the
consolidated financial statements for further discussion of
this transaction.
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, Estonia, Lithuania and Latvia. Nasdaq is the
largest bond listing venue in the Nordics, with more than
5,800 listed retail and institutional bonds. In addition, Nasdaq
Nordic facilitates the trading and clearing of Nordic fixed
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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. Nasdaq Clearing offers central counterparty
clearing services for fixed-income options and futures and
interest rate swaps. Nasdaq Clearing also operates a clearing
service for the resale and repurchase agreement market.
Nasdaq Commodities is the brand name for Nasdaq’s
European commodity-related products and 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 is the commodity derivatives exchange for
European products. All trades with Nasdaq Oslo ASA are
subject to clearing with Nasdaq Clearing, which offers
central counterparty clearing services for commodities
options and futures.
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 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
offerings between select data centers using millimeter wave
and microwave technology.
and
securities
customized
Our broker services operations business primarily offers
administration
technology
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 2021.
Corporate Platforms
Our Corporate Platforms segment includes our Listing
Services and IR & ESG Services businesses. These
businesses deliver critical capital market and governance
solutions across
lifecycle of public and private
companies.
the
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, telecommunication
services,
services,
industrials and energy. Our main listing markets are The
Nasdaq Stock Market and the Nasdaq Nordic and Nasdaq
Baltic exchanges.
information
technology,
financial
Companies seeking to list securities on The Nasdaq Stock
Market may do so on one of the three market tiers: The
Nasdaq Global Select Market, The Nasdaq Global Market, or
The Nasdaq Capital Market. To qualify, companies must
meet minimum listing requirements, including specified
financial and corporate governance criteria. Once listed,
companies must maintain rigorous listing and corporate
governance standards. We offer a suite of products to assist
standards,
companies manage
discussed below in “IR & ESG Services.”
corporate governance
As of December 31, 2020, a total of 3,392 companies listed
securities on The Nasdaq Stock Market, with 1,476 listings
on The Nasdaq Global Select Market, 907 on The Nasdaq
Global Market and 1,009 on The Nasdaq Capital Market.
We seek new listings from companies conducting IPOs,
including SPACs, and direct listings as well as companies
looking to switch from alternative exchanges. In 2020, The
Nasdaq Stock Market attracted 454 new listings, including
316 IPOs, representing 67% of U.S. IPOs in 2020. Of the 316
IPOs that listed on The Nasdaq Stock Market, 184 were
operating companies, representing 83% of all operating
company IPOs in 2020 and a 53% win rate among SPACs.
The new listings were comprised of the following:
IPOs
Switches from the New York Stock Exchange LLC,
or NYSE and the NYSE American LLC, or NYSE
American
Upgrades from OTC
ETPs and Other Listings
Total
316
20
46
72
454
During 2020, we had 20 new listings resulting from
companies switching their listings from NYSE or NYSE
American to join Nasdaq. Together with companies that
transferred additional securities to Nasdaq during 2020, an
aggregate of $282 billion
in global equity market
capitalization switched to Nasdaq. Notable switches in 2020
included AstraZeneca PLC, American Electric Power
Company, Inc., Keurig Dr Pepper Inc., and Opendoor
Technologies.
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, 2020, a total of 1,071 companies listed
4
securities on our Nordic and Baltic exchanges and Nasdaq
First North.
board members and teams can work faster and more
effectively.
equities, depository
Our European listing customers include companies, funds
and governments. Customers issue securities in the form of
cash
receipts, warrants, ETPs,
convertibles, rights, options, bonds or fixed-income related
products. In 2020, a total of 67 new companies listed on our
Nordic and Baltic exchanges and Nasdaq First North. In
addition, 12 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 to enable
employees, investors, and companies to execute transactions.
We are continuing to grow our U.S. Corporate Bond
exchange for the listing 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, 2020, 86
corporate bonds were listed on the Corporate Bond exchange.
Our U.S. corporate bond listing offering won 11 new issues
and we added 20 existing bond listings that transferred from
the NYSE.
IR & ESG Services
Our IR & ESG Services 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
their global
to understand and expand
improve corporate governance, and
shareholder base,
navigate the evolving ESG landscape through our suite of
advanced technology, analytics, and consultative services.
We also provide clients with counsel on a range of
governance and sustainability-related issues.
As of December 31, 2020, we provided IR & ESG Services
products and services in the following key areas:
•
•
Investor Relations Intelligence. We offer a global team
of consultative experts that deliver advisory services
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 such
as investor profiles, equity research, consensus estimates
and news.
Governance Solutions. We provide a global technology
offering and consultative services that streamline the
meeting process for board of directors and executive
leadership teams and help them accelerate decision
making and strengthen governance. Our solutions protect
sensitive data and facilitate productive collaboration, so
In January 2020, Nasdaq acquired OneReport, a provider of
ESG reporting solutions that helps organizations to navigate
corporate responsibility frameworks, manage the information
capture and response process, and deliver ESG data to ratings
agencies and other stakeholders.
Investment Intelligence
Our Investment Intelligence business provides the global
investing community with access to the financial markets
together with strong investment insights.
Our Investment Intelligence segment is organized into the
following businesses:
• Market Data;
•
•
Index; and
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
analytics.
Market Data
Our Market Data business sells and distributes historical and
real-time market data to the sell-side, the institutional
investing community, 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 provide varying levels of quote and trade
information
turn provide
subscriptions for this information. Our systems enable
distributors to gain access to our market depth, fund
valuation, order imbalances, market sentiment and other
analytical data.
to our customers who
in
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
5
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.
transactions
information for all
Our Market Data business also includes revenues from U.S.
tape plans. The plan administrators sell quotation and last
in Nasdaq-listed
sale
securities, whether traded on The Nasdaq Stock Market or
other exchanges,
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.
to market participants and
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 and financial products. 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 $359 billion
As of December 31, 2020, 339 ETPs listed in over 20
countries and exchanges tracked a Nasdaq index and
includes
accounted
approximately $121 billion in ETP AUM, or 34% of the total
AUM that tracked our smart beta indexes during this same
time period. Our flagship index, the Nasdaq-100 Index,
includes the top 100 non-financial securities listed on The
Nasdaq Stock Market, and is tracked by more than 70 ETPs
worldwide, and had nearly $200 billion in assets tracking the
index as of December 31, 2020.
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
6
additional data for our more than 46,000 indexes that we
operate.
Nasdaq Dorsey Wright, or NDW, provides passive indexing
and smart beta strategies to support the financial advisor
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.
Analytics
Our Analytics business provides asset managers, investment
consultants and institutional asset owners with information
and analytics to make data-driven investment decisions,
deploy their resources more productively, and provide
liquidity solutions for private funds. Through eVestment and
Solovis, we provide a suite of cloud-based solutions that help
institutional investors and consultants conduct pre-investment
due diligence, and monitor their portfolios post-investment.
The eVestment platform also enables asset managers to
market their institutional products worldwide.
Additionally, our Nasdaq Cloud Data Service provides a
flexible and efficient method of delivery for real-time
exchange data and other financial information. Data is made
available
through a suite of application programming
interfaces, or APIs, allowing for the integration of data from
disparate sources and a reduction in time to market for
customer-designed applications. The API is highly scalable
and can support the delivery of real-time exchange data.
Through the Solovis platform, endowments, foundations,
pensions and family offices transform how they collect and
aggregate investment data, analyze portfolio performance,
model and predict future outcomes, and share meaningful
portfolio insights with key stakeholders. The 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
over 33,000 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 investment management firms, investment
banks and other investors, we provide predictive insights to
inform investment decisions from discovered data.
Market Technology
Powering over 130 market infrastructure operators and new
market clients 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 markets customers,
including
liabilities securitization,
cryptocurrencies and sports wagering.
insurance
those
in
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 180 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.
During 2020, we advanced our strategic goals in order to
establish a comprehensive SaaS business with a broad and
interconnected portfolio by extending and migrating our
current offerings to services. We created a cross-discipline
transformation program, successfully migrated our Nasdaq
Market Surveillance offering for marketplaces and regulators,
advanced our Universal Matching Service, which is a cloud-
optimize matching service, and launched our new SaaS
marketplace platform layer, the Nasdaq Marketplace Services
Platform, which leverages the NFF. We added 10 SaaS
market infrastructure customers and 17 market participant
customers, and established a partnership with Microsoft to
deliver our Marketplace Services Platform via Microsoft’s
Azure cloud platform.
Our Market Technology business has evolved from its
origins serving the capital markets, as we have leveraged
NFF to develop our SaaS platform and offerings. We expect
to continue to expand adoption by our clients to this SaaS
model in the future.
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 2020, 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. In 2020, we also
7
materially completed development of the core NFF platform
and moved to the deployment phase.
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, two
commercial real estate markets, the reinsurance market, and
several sports wagering operators. Our Marketplaces Services
Platform provides next-generation marketplace capabilities
spanning the transaction lifecycle to facilitate the exchange of
assets, services and information across various types of
market ecosystems and machine-to-machine transactions.
The Marketplaces Services Platform is targeted at new
markets and enables end-to-end marketplace implementation
without the resources required with on-premise solutions.
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
front-office
jurisdictions has made outsourcing of
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
continued its growth in 2020.
We also continue to extend our anti-financial crime strategy.
Our Nasdaq Trade Surveillance solution 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 2020, we added an anti-
money laundering offering with a new automated investigator
tool for retail banks, the Nasdaq Automated Investigator.
Additionally, in February 2021, we completed the acquisition
of Verafin, a provider of anti-financial crime management
solutions that provides a cloud-based platform to help detect,
investigate, and report money laundering and financial fraud
to more than 2,000 financial institutions in North America.
We also offer our clients 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 identifying areas
for improvement in systems, and 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.
that
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
together Nasdaq’s
portfolio of functionality across the trade lifecycle, in an open
framework whereby exchanges, 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
technology
developments.
end users
leverage
recent
ties
to
Competitive Strengths
We are a global technology company and we continue to
diversify our product and service offerings by having a
client-first focus and orientation; unparalleled expertise in
markets; a
independent, global brand; unique
technology capabilities and reputation; and fostering a
leading issuer community and investor intelligence platform.
We believe that our strong competitive position in large,
high-growth markets positions us for sustained growth.
trusted,
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
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 including:
•
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
infrastructure
regulators,
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.
Banks and Financial Institutions - Providing a suite of
trade surveillance and anti-financial crime management
solutions.
Competition
Market Services
We face intense competition in North America and Europe in
businesses that comprise our Market Services segment. We
seek 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 MIAX, and Intercontinental
Exchange, Inc., or ICE. In cash equities in the U.S., we
compete with exchanges operated by Cboe, ICE, MIAX, The
Investors Exchange, and the recently launched Members
Exchange and the Long Term Stock Exchange. We also face
8
regulated broker-owned
competition from ATSs, known as “dark pools,” and other
less-heavily
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.
trade
In Europe, our cash equities markets compete with exchanges
such as Euronext N.V., Deutsche Börse AG and London
Stock Exchange Group plc, or LSE, and many MTFs such as
Cboe, Turquoise and Aquis. Our competitors in the trading
and clearing of options and futures on European equities
include Eurex, Cboe, ICE Futures Europe and London
Clearing House, or LCH. 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
exchange-based
competition, we face competition from OTC derivative
markets.
equities.
addition
In
to
The implementation of MiFID II and MiFIR has resulted in
further competitive pressure on our European
trading
business. SIs are already attracting a significant share of
electronically matched volume and 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. Regulators are continuously monitoring the
market structure and have, in a series of consultations, asked
for input regarding suggested changes to MiFID II.
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. 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 Platforms
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 our 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
9
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. Additionally, we
face competition from private equity firms that may elect to
keep their portfolio companies as private companies.
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 AG. 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 IR & ESG Services 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 to customers alongside listing services. The
competitive landscape for our Governance Solutions business
varies by customer
segment and geography. Most
competitors offer SaaS solutions that are supported by a data
center strategy. Some firms offer specialized services that
focus on a single niche segment. 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. Our ESG-focused services,
including Nasdaq OneReport and ESG Advisory, are
positioned in evolving markets with competitors offering
multiple point solutions providing software, data or
consulting services.
Investment Intelligence
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.
threat
is under competitive
The sale of our proprietary data products in both the U.S. and
from alternative
Europe
exchanges and trading venues that offer similar products. Our
data business competes with other exchanges and third party
vendors to 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, including S&P Dow Jones Indices, MSCI and
FTSE Russell.
Our 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 firms along with
start-up data providers and aggregators. Our Solovis offering
competes with other analytics providers, including Addepar
and Caissa. 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.
Market Technology
Traditionally, exchanges and exchange-related businesses
internally developed
technology, sometimes aided by
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. Our
competitors range from large enterprise software providers
that cover the broader compliance lifecycle to smaller
vendors focusing on a single silo of the compliance
workflow. Recently, an influx of start-ups have entered the
space from the FinTech landscape, often shifting from data
and analytics, or a complimentary silo like electronic
communications,
to surveillance. Our offerings must
demonstrate ability to decrease false-positives, provide in-
depth views into potential abuses and risks that stem from
those cases and help firms both reduce the reputational and
regulatory risk and complexity in efforts to keep markets
safe.
Intellectual Property
We believe that our intellectual property assets are important
the competitive differentiation of our
for maintaining
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
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
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.
innovative skills,
the
Corporate Venture Practice
in emerging growth
We operate a corporate venture program to make minority
financial
investments primarily
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 $67 million in 15
companies in various sectors, including data and analytics,
blockchain and digital assets, market infrastructure, machine
intelligence and regulatory technology and compliance, ESG
and new marketplaces.
10
Environmental, Social and Governance Matters
Nasdaq is committed to long-term ESG, advocacy, oversight,
and philanthropy to engage with stakeholders at all levels.
During 2020, particularly in response to the COVID-19
pandemic and the social justice movement, we broadened our
corporate and community ESG efforts, including expanding
ESG oversight of our own operations and furthering our
commitment to greater sustainability. Nasdaq achieved its
continued commitment to be carbon neutral across all
business operations through the purchase of green power,
carbon offsets, and renewable energy certificates. We were
named to the Dow Jones Sustainability North America Index
for the fifth consecutive year. We also expanded our ESG
services and solutions with new offerings for our clients,
including our new platform Nasdaq OneReport to help clients
streamline the data gathering process to provide data to
ratings agencies, the 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, the Nasdaq ESG Data Portal,
which now includes ESG-related data from more than 600
companies and the Nasdaq ESG Footprint, a tool to help both
institutional and retail investors understand the real-life
impact of their portfolios. We also provide clients with
counsel on a range of governance and sustainability-related
issues.
Additionally, we filed a new proposed U.S. listing rule with
the SEC that seeks to standardize disclosure of board-level
diversity statistics through a consistent disclosure framework.
The proposal includes disclosure of either the recommended
minimum diversity goal of two diverse directors or an
explanation, and is subject to SEC approval.
For more information regarding our ESG efforts in 2020,
both internally and externally, please see the section entitled
“Human Capital Management” below and our 2021 Proxy
Statement.
Regulation
We are subject to extensive regulation in the U.S., Canada
and Europe.
U.S. Regulation
SROs
companies.
U.S. federal securities laws establish a system of cooperative
regulation of securities markets, market participants and
listed
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.
conduct
the
This regulatory framework applies to our U.S. business in the
following ways:
•
regulation of our
exchanges; and
registered national
securities
11
•
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
the SEC. Our
periodic and special examinations by
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.
Nasdaq’s
regulation.
Broker-dealer
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.
to
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
introduce
prospective accredited investors in connection with, private
non-capital raising transactions. Nasdaq Capital Markets
Advisory acts as a third-party advisor to privately-held or
publicly-traded companies during IPOs and various other
offerings.
facilitate closings of, and
Two of our broker-dealers also are registered with the SEC as
ATSs. 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
12
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,
2020, 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
regulatory activities
performed under these agreements by FINRA.
responsibility
for all
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
regulatory responsibility for specifics covered by
the
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;
joint
industry agreement with FINRA covering
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
for an
dissemination of all consolidated
individual NMS stock through a single plan processor.
information
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 recently extended for a two-year term through October
2023. 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
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.
hardware,
software
system,
for
the
In May 2020, the SEC adopted an order to require changes to
the governance of securities information processors. The
SEC also approved, with material amendments, SRO
proposed policies regarding the governance of these entities.
In June and July 2020, we and several other exchanges
petitioned the U.S. Court of Appeals for the District of
Columbia Circuit to review both the SEC’s governance order
and its amendments to the SRO-proposed policies. In
December 2020, the SEC adopted a rule to modify the
infrastructure
and
dissemination of market data for exchange-listed national
market stocks, or NMS data. The rule changes include,
among other things, requiring exchanges to add more “core
data” to the securities information processors, including
partial depth-of-book, certain odd-lot quotations/transactions,
auction, regulatory, and administrative data; eliminating
central, official consolidators of tape plans and enables
multiple competing consolidators to register to aggregate and
disseminate core data; and authorizing persons to purchase
and aggregate core data directly from the exchanges for their
own use. The rule implementation schedule has not yet been
finalized by the SEC, and we are not certain of the timing, or
consolidation
collection,
the impact, of these new rules on our business or role as a
securities information processor. In February 2021, we
petitioned the U.S. Court of Appeals for the District of
Columbia Circuit to review the SEC’s rulemaking. In
addition, we requested the SEC to stay implementation of the
rule.
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
inter-
disciplinary 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.
implemented an
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. 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 regulator, 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
in connection with
to Canadian securities regulations
providing these services.
Nasdaq Canada is subject to several national marketplace
requirements
related
for
rules and managing
marketplace operations,
instruments which set out
trading
13
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 2016,
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,
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, 2024, 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 clearinghouse 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
initial
exchange’s
articles of
association
following
registration must be approved by the SFSA. Nasdaq Clearing
holds the license as a CCP under EMIR.
to all
that each person which meets
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 access (i.e.,
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
trading) and
those who participate
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.
in
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
financial
trading participation
instrument compliance with relevant listing rules and the
extent to which issuers meet their obligation to submit
regular financial information to relevant authorities.
rules,
there has been cooperation between
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.
the
Since 2005,
supervisory authorities in Sweden, Iceland, Denmark and
Finland, which
and
to
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.
safeguard
effective
looks
Nasdaq owns a central securities depository known as
Nasdaq CSD SE (Societas Europaea)¸ that provides notary,
settlement, central maintenance and other services in the
Baltic countries and in Iceland. Nasdaq CSD SE is licensed
under
the European Central Securities Depositories
Regulation and is supervised by the respective regulatory
institutions.
We operate a licensed exchange, Nasdaq Oslo ASA, in
lists commodity derivatives.
Norway
Although Norway is not a member of the EU, as a result of
trades and
that
14
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 Financial Supervisory Authority of Norway supervises
the Norwegian exchange on an autonomous basis and the
Norwegian exchange also has a separate market surveillance
function overseen by the Financial Supervisory Authority.
surveillance work
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
is
conceptually organized into two functions: one for the review
and admission of listing applications and surveillance
activities related to 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, Sweden and Norway. 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.” Exchanges in Sweden, Denmark,
and Finland have applied for status as “Recognised Overseas
Investment Exchanges” and we expect these exchanges to
receive such status during 2021. Pending approval, we are
able to operate in the United Kingdom under the overseas
person exemption. Nasdaq Clearing is registered as a
recognized third country CCP with the Bank of England
under the temporary recognition regime. The registration
became effective on December 31, 2020, and lasts for three
years. We will be applying for permanent recognition within
eighteen months of the end of this implementation period.
Human Capital Management
Nasdaq’s commitment to, and investment in, attracting,
its employees
retaining, developing and motivating
strengthened during 2020, and while
the COVID-19
pandemic has created certain challenges for our employees,
we have bolstered our human capital management efforts
throughout the past year. We have built on our existing
foundation of striving to create a diverse and inclusive work
environment of equal opportunity, where employees feel
respected and valued for their contributions, and where
Nasdaq and its employees have opportunities to make
positive contributions to our local communities and to social
justice initiatives.
As of December 31, 2020, we had 4,830 employees.
ESG Oversight
The Nominating & ESG Committee has formal responsibility
and oversight for ESG policies and programs and receives
regular reporting on key ESG matters and initiatives. Our
internal ESG Working Group is co-chaired by executive
leaders
diverse
of
representatives from multiple business units. The ESG
Working Group serves as the central oversight body for our
ESG strategy.
geographically
comprised
and
COVID-19 and Employee Safety
As the COVID-19 pandemic continues around the world,
affecting all of our offices, we are committed to ensuring the
safety and well-being of our employees and stakeholders, and
complying with local government regulations in the areas in
which we operate. This includes having the vast majority of
our employees work from home, while
implementing
additional safety measures and precautions for employees
continuing critical on-site work in certain of our offices. We
have informed our employees that they may continue to work
remotely through at least June 30, 2021, and we will continue
to evaluate local conditions and regulations before we fully
transition back to our offices.
Talent Management and Development
We continued to increase our efforts in attracting and
retaining our employees.
Nasdaq seeks to hire world-class, innovative, and diverse
talent across the globe. We recently strengthened our
employer brand strategy with an updated “People Promise,”
which encapsulates Nasdaq’s vision, mission, purpose and
employment experience in order to become a leading
company for highly sourced talent. In addition, we created a
new diversity recruiting function to help us attract talent
using innovative new techniques and channels.
We introduced new onboarding and exit surveys to better
understand why employees join, and leave, Nasdaq. We
conducted annual performance management, succession
planning and advancement exercises to ensure we are
aligning our employees with the right opportunities across
the company. Additionally, we introduced a peer-to-peer
employee recognition program. Finally, as a result of
internship
COVID-19
program to remotely welcome 151 interns to Nasdaq.
restrictions, we
reinvented our
We have invested in professional development for our
employees, including offering access to more than 14,000
tuition
professional development programs; providing
15
assistance to employees enrolled in degree-granting academic
fairs and career
internal career
programs; holding
development
one-on-one
and
professional coaching opportunities.
programs;
providing
Diversity and Inclusion
In 2020, we established three pillars to guide our diversity
and inclusion efforts with our employees: Workforce, to
ensure our employee population is representative of the
communities in which we operate; Workplace, to ensure a
positive workplace experience for all employees of Nasdaq;
and Marketplace, to positively influence our peers in the
capital market space and to invest in our local communities in
which we operate.
Nasdaq sponsors eleven employee-led
internal affinity
networks. These networks include more than 1,500 employee
members to support the diverse communities that comprise
our workforce, and include networks for our Black, Asian
American, Hispanic, LGBTQ, female, disabled, veteran, and
parent/caregiver employees. The networks provide both
formal and informal development programs and guidance for
their members, and benefit the entire Nasdaq workforce
through educational events, guest speakers, and volunteering
opportunities.
reflecting
the diversity of
We created a dedicated diversity recruiting function to further
our recruiting efforts and enhance the representation of
women and minorities at Nasdaq. In order to monitor our
diversity efforts on an ongoing basis, each business unit has a
dashboard
their employee
population and can track changes on a monthly basis. We
launched a new “Inclusive Leadership” training program for
all employees, starting with our Chief Executive Officer and
senior executives. We also added customized developmental
programs for underrepresented talent, including executive
mentoring and accelerated leadership development programs.
Additionally, as a signatory to the Parity Pledge, we fulfilled
our commitment to interview female candidates for all
externally advertised roles at the Vice President level and
above.
On a company-wide basis, as the social justice movement
gained momentum in 2020, we hosted a series of educational
discussions for all of our employees featuring internal and
external guest speakers addressing racial dynamics in our
society and fostering greater understanding in the workplace.
In honor of Juneteenth, we debuted “Amplifying Black
Voices,” a series of art by Black artists displayed on the
Nasdaq Tower in New York’s Times Square.
Finally, Nasdaq published statistics on the composition of its
own global workforce by gender, and of its U.S. workforce
by gender, race and ethnicity, in our U.S. EEO-1 report and
our Sustainability Report, which reports are available on our
website.
Compensation and Benefits
Our Total Rewards compensation program is designed to
attract, retain, and empower employees to successfully
execute our growth strategy. Nasdaq’s balanced Total
16
long-term
the short and
Rewards program encourages decisions and behaviors that
align with
interests of our
shareholders. The building blocks of our Total Rewards
program are designed to promote and support our strategy
and reinforce our cultural values of: Act as an Owner, Play as
a Team, Fuel Client Success, Lead with Integrity, Expand
Your Expertise, and Drive Innovation. Our Company values
energize and align employees with the most important
priorities, and encourage and reward high
levels of
performance, innovation and growth, while not promoting
undue risk. Our compensation program seeks to retain our
most talented employees in a highly dynamic, competitive
talent market, while also engaging and exciting current and
future employees who possess
leading skills and
competencies needed for us to achieve our strategy and
objectives. The Total Rewards compensation program is
comprised of base salary, an annual cash bonus incentive
program and long-term equity incentive awards. The long-
term equity awards align our employee interests with our
shareholders.
the
In addition to cash and equity compensation, we also offer
employee benefits such as health (medical, dental, vision and
telehealth) insurance, paid time off, paid parental leave,
adoption assistance and a U.S. 401(k) Plan with company
matching. We also introduced additional new benefits this
year as a result of the COVID-19 pandemic in an effort to
help our employees with the additional stress in balancing
their work and personal commitments, including providing
“flex days” for additional time away from the office without
requiring the usage of vacation or personal leave days,
additional family care resources and benefits, including back-
up childcare and other caregiver support, wellness benefits,
and student loan repayment benefits. We also provide
additional benefits to our international employees based on
local regulations and practice to address market-specific
needs.
Community Involvement
We are committed to creating lasting, positive change within
our Company and the communities we serve, and increased
our community involvement during 2020, both as a result of
the COVID-19 pandemic and the heightened focus on social
inequality in the United States.
Our employees take pride in being active in our communities.
Through our Nasdaq GoodWorks Corporate Responsibility
Program, we have committed to supporting the communities
in which we live and work by providing eligible full and part-
time employees two paid days off per year to volunteer. We
also match charitable donations of all Nasdaq employees and
contractors up to $1,000, or more in certain circumstances,
per calendar year, and during 2020, we offered additional,
higher matching programs for employee donations to global
COVID-19 relief and response organizations and other
charities selected by the Nasdaq employee networks. While
most of our in-person volunteer efforts in 2020 pivoted to
virtual volunteering events due to the pandemic, we still
organized more than 90 volunteer events around the world,
and more than 260 associates volunteered and contributed
over 2,600 service hours.
the following risks actually occur, our business, financial
condition, or operating results could be adversely affected.
In 2020, we announced actions to strengthen our continued
commitment to diversity and inclusion and donated an
aggregate of $7 million, including $6 million in cash, to
organizations serving underserved, minority communities in
fighting the impact of the COVID-19 health crisis. These
organizations included the Equal Justice Initiative, the
NAACP’s COVID-19 project and World Central Kitchen’s
Restaurants for the People. Additionally, we contributed $10
million to support the Nasdaq Foundation and plan to
annually fund the Nasdaq Foundation with approximately
one quarter of one percent of our operating profits beginning
in 2021.
Initiative
to advance
In September 2020, we launched the “Purpose Initiative,”
inclusive growth and
which
is designed
prosperity. The Purpose
our
comprises
philanthropic, community outreach, corporate sustainability,
to
and employee volunteerism programs, all designed
leverage our unique place at the center of capital creation,
markets, and technology and drive stronger economies, more
equitable opportunities and contribute to a more sustainable
world. We also relaunched the Nasdaq Foundation in
September 2020, with a renewed mission focused on two
primary goals: (i) reimagining investor engagement to equip
under-represented communities with the financial knowledge
to share in the wealth that markets create; and (ii) leveraging
the Nasdaq Entrepreneurial Center
our
alongside new strategic partnerships with organizations that
can help build a deeper, data-led understanding of where the
challenges are greatest, what existing efforts could be
amplified, and how the Nasdaq Foundation can make new
and distinctive contributions.
investment
in
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 reports, proxy and information statements, and other
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
17
RISKS RELATED TO OUR BUSINESS AND
INDUSTRY
The COVID-19 pandemic could have an adverse effect on
our business, financial condition, liquidity or results of
operations.
We are continuing to closely monitor the evolving impact of
the COVID-19 pandemic on our industry and business in the
United States and worldwide, including its effect on our
customers, employees, vendors and other stakeholders. The
COVID-19 pandemic has created significant volatility,
uncertainty and economic disruption, which may adversely
affect our business, financial condition, liquidity or results of
operations.
trading volumes amidst
While results in our Market Services segment were strong in
2020, reflecting elevated
the
COVID-19 pandemic, there is no assurance that such trading
levels will continue. In our Corporate Platforms segment,
while we have experienced strong demand for IPOs in 2020,
we cannot predict whether investor demand for IPOs and new
listings will continue in the future. We continue to observe
that certain Market Technology customers are delaying
purchasing decisions or extending implementation schedules.
While our licensed ETPs, and in particular our Nasdaq-100
index, have grown due to the increases in the market and net
inflows, there is no assurance that such AUM levels or
volume trends will continue in the future.
As the COVID-19 pandemic and its resultant economic
effects continue, existing customers in each of our segments
may reduce or cancel spending for our products and services.
Additionally, our sales pipeline with new client prospects
may be further affected as new clients may delay or cancel
purchase decisions while they evaluate the continuing impact
of COVID-19.
In response to COVID-19, we have shifted to having a
majority of our staff work from home and have added
additional network capacity and monitoring. However, such
remote work may cause heightened cybersecurity and
operational risks. Certain of our global offices have re-
opened on a limited basis, with applicable safety protocols in
place, or expect to re-open subject to limitations during 2021.
We could face disruption to our business or operations if a
significant number of our employees or any of our key
employees becomes ill due to the virus. We have filed a
proposal with the SEC to amend Nasdaq PHLX’s business
continuity plan to permit a virtual trading crowd, which
would allow Nasdaq PHLX to operate its trading floor
remotely in the event the physical trading floor becomes
unavailable due to COVID-19. If our pending rule change is
not approved by the SEC, and Nasdaq PHLX is unable to
operate its physical trading floor due to COVID-19 or other
restrictions, our revenue, market share and reputation may be
adversely affected. If the rule change is approved by the SEC
and we are unable to successfully operate the virtual trading
crowd in compliance with the SEC rules, our revenues and
reputation may be harmed. Any disruption to our ability to
deliver services to our clients could result in liability to our
customers, regulatory fines, penalties or other sanctions,
increased operational costs or harm to our reputation and
brand. This, in turn, may have an adverse effect on our
business,
results of
operations.
financial condition,
liquidity or
The extent to which the COVID-19 pandemic impacts our
business, financial condition, liquidity or results of operations
will depend on future developments, which are uncertain and
cannot be predicted, including the scope and duration of the
COVID-19 pandemic, the length of time government,
commercial and travel limitations are in place, the continued
effectiveness of our remote work arrangements, actions taken
by governmental authorities, regulators and other third parties
in response to the pandemic, as well as other direct and
indirect impacts on us, our exchanges, our customers, our
vendors and other stakeholders.
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,
pandemics 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 IR & ESG Services, 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, including SPACs, and direct listings.
Investment Intelligence 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 as well as trading in futures linked to Nasdaq
indexes.
There may be less demand for our IR & ESG Services 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
Investment Intelligence, Market Technology or Corporate
Platforms products and services due to economic conditions
or other market factors could adversely affect our business,
financial condition and operating results.
The industries we operate in are highly competitive.
We face significant competition in our Market Technology,
Investment Intelligence and Corporate Platforms 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.
in Europe,
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
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.
is structured
to maintain
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 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
listings, clearing, data or
trading,
could make
technology businesses more competitive than ours.
their
18
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, or due to new SEC regulations,
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 Platforms,
Index 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 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
the
in
causes
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.
services, decreases
interruption
an
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 delay purchases in anticipation of new products
or 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
the
than anticipated.
introduction of new products by competitors, the emergence
of new industry standards or the development of entirely new
technologies to replace existing product offerings could
render our existing or future products obsolete.
In addition,
lower
is
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, and particularly
in 2020, trading and clearing volumes and values across our
markets have fluctuated significantly depending on market
conditions and other factors beyond our control, including the
COVID-19 pandemic. 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
19
liquid, then our business, financial condition and operating
results could be adversely affected.
capacity, reliability and speed required by our business and
our regulators, as well as by our customers.
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 and depository
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 recently adopted 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. Due to COVID-19, most
of our workforce may continue to work from home, creating
a broader and more distributed network footprint and
increased reliance on the home networks of employees. 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
functionality, performance,
platforms
that have
the
technology, evolving
The markets in which we compete are characterized by
rapidly changing
industry and
regulatory standards, frequent enhancements to existing
products and services, the adoption of new services and
products and changing customer demands. We are reliant on
our customers that purchase our on-premise solutions to
maintain a certain level of network infrastructure for our
products to operate and to allow for our support of those
products, and there is no assurance that a customer will
implement such measures. 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 15, “Clearing Operations,”
to the consolidated financial statements. There are no
assurances that similar defaults will not occur again, which
could result in losses. 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.
20
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 the effects of
COVID-19 on their business, bankruptcy, lack of liquidity,
operational failure or other reasons.
We clear 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 Nasdaq Clearing on 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, 2020, we have contributed $13
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 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
transaction and
subscription-based revenues that are billed to customers on a
monthly or quarterly basis, in arrears.
to
Credit losses such as those described above could adversely
affect our consolidated financial position and results of
operations.
issues relating
Technology
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
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, or an increase in the
number of delistings, 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 IR &
ESG Services 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
ACTIVITIES AND STRATEGIC RELATIONSHIPS
RELATED
TRANSACTIONAL
TO
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;
21
•
•
•
•
•
•
•
•
•
•
•
•
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;
implementation of disclosure controls,
the
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;
coordination
the
organizations;
of
geographically
separate
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.
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 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, 2020, goodwill totaled $6.9 billion and
intangible assets, net of accumulated amortization, totaled
$2.3 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
flows. Considerable
performance and projected cash
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, 2020, 2019 and 2018, and there were no
indefinite-lived intangible asset impairment charges in 2020,
2019 and 2018.
We may experience future events that may result in asset
impairments. Future disruptions to our business, prolonged
economic weakness, due to COVID-19 or otherwise, 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.
Acquisitions, divestments, investments, joint ventures and
transactional activities may require significant
other
resources and/or result in significant unanticipated losses,
costs or liabilities.
the past several years, acquisitions have been
Over
significant factors in our growth. We have, and may continue
to, divest additional businesses or assets in the future.
Although we cannot predict our transactional activities, we
believe that additional acquisitions, divestments, investments,
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.
We also invest in early-stage companies 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
in certain
circumstances and financial and reputational risks if there are
operational failures.
to additional capital
requirements
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
22
to
In
existing
addition,
shareholders.
dilutive
the
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
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.
in significant
incremental
results
Furthermore, any future transactions could entail a number of
additional risks, including:
•
•
•
•
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.
the inability to maintain key pre-transaction business
relationships;
RISKS RELATED TO LEGAL AND REGULATORY
MATTERS
•
•
•
•
•
•
•
•
•
•
•
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, including after a
transaction is completed;
incurred but unreported claims for an acquired company;
difficulties in realizing projected efficiencies, synergies
and cost savings; and
changes in our credit rating and financing costs.
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 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, or due to changes in trading
patterns, such as due to the recent volatility involving the
trading of certain stocks.
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.
There is no assurance 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, central
securities
depositories, clearinghouse and markets for violations of
applicable requirements.
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
23
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. 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 fees because, among other reasons, they spend
significantly less on regulation.
to
requirements. Creating CAT has
In 2016, the SEC approved a plan for Nasdaq and other
exchanges to establish a CAT, to improve regulators’ ability
to monitor
increased
trading activity. In addition
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
the
development 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.
required
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
24
its
certain
business
of debt to equity in the regulatory capital composition of a
broker-dealer and constrain the ability of a broker-dealer to
expand
circumstances.
under
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.
or
central
exchanges,
In
clearinghouses
these countries, we have
Our non-U.S. business is subject to regulatory oversight in all
the countries in which we operate regulated businesses, such
securities
as
depositories.
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 the Benchmark 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
material adverse effect on our business, financial condition
and operating results.
Regulatory changes and changes in market structure and
proprietary data 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 affecting the securities markets, including market
structure, technological oversight and fees for proprietary
market data, connectivity and transactions. The SEC, FINRA
and the national securities exchanges have introduced several
initiatives to ensure the oversight, integrity and resilience of
markets.
With respect to our regulated businesses, our business model
can be severely impacted by policy decisions. In May 2020,
the SEC adopted a rule to require changes to the governance
of securities information processors. In December 2020, the
SEC adopted a rule to modify the infrastructure for the
collection, consolidation and dissemination of market data for
exchange-listed national market stocks. If either or both of
these rules are fully implemented, they may adversely affect
our revenues. The timing for the implementation of these
rules is currently unknown, and we believe they may take
two to three years to fully implement. If the rules are
ultimately implemented as set forth in their adopting releases,
demand for certain of our proprietary tape share data
products may be reduced, or we may have to reduce our
pricing to compete with other entrants into the market for
consolidated data. 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. These regulatory changes
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.
In Canada, all new marketplace fees and changes to existing
fees, including trading and market 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 market data products
to customers on a non-discriminatory and reasonable
commercial basis. The MiFID II/MiFIR rules entail that the
price for regulated market 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 market data products adversely. In
addition, any future actions by European Union institutions
could affect our ability to offer market data products in the
same manner as today, thereby causing an adverse effect on
our market data revenues.
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
regulations promulgated by
decisions and
regulatory agencies.
rules and
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 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
interest of “for-profit” markets
potential conflicts of
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.
25
Laws and regulations 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. 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
future enforcement actions or
investigations, or the creation of new rights to pursue
damages could
increased costs or
restrictions on our business, and noncompliance could result
in regulatory penalties and significant legal liability.
regulations,
impact us
through
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, including
federal or state financial transaction taxes, may increase the
cost of our offerings or services, 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 ensure 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 such 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, 2020 was $5.5 billion.
We may borrow additional amounts by utilizing available
liquidity under our existing credit facilities, issuing additional
debt securities or issuing short-term, unsecured commercial
paper notes through our commercial paper program.
Our leverage could:
•
•
•
•
•
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;
for
affect our ability to obtain additional financing in the
future
indebtedness, acquisitions,
working capital, capital expenditures or other purposes;
and
refinancing
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 effect certain fundamental transactions, dispose of
certain assets, incur additional indebtedness and grant liens
on assets. 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,
26
in
engage
strategic
maintain our credit rating, meet our regulatory capital
requirements,
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 additional funds to service debt payments, which
may impair our ability to make investments in our business
or to integrate acquired businesses.
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 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, IR & ESG Services 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
any misconduct, fraudulent activity or theft by our
employees or other persons formerly or currently
associated with us.
•
•
•
•
•
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, Index, IR & ESG
Services or Market Technology businesses. This, in turn, may
have a material adverse effect on our business, financial
condition and operating results.
Failure to meet customer expectations or deadlines for the
implementation of our products could result in negative
publicity, losses and reduced sales, each of which may harm
our reputation, business and results of operations.
and
budget
associated with
large-scale market
We generally mutually agree with our customers on the
duration,
the
costs
implementation of certain of our products, particularly our
infrastructure
Market Technology
projects. Various factors may cause implementations to be
delayed, inefficient or otherwise unsuccessful, including due
to unforeseen project complexities, our deployment of
insufficient resources, logistical challenges due to the effects
of COVID-19 or other external factors. The effects of a
failure to meet an implementation schedule could include
monetary credits for current or future service engagements, a
reduction in fees for the project, or the expenditure of
additional expenses to mitigate such delays. In addition, time-
consuming implementations may also increase the personnel
we must allocate to such customer, thereby increasing our
from other projects.
costs and diverting attention
Unsuccessful, lengthy, or costly customer implementation
projects could result in claims from customers, decreased
customer
reputation, and
opportunities for competitors to displace us, each of which
could have an adverse effect on our reputation, business and
results of operations.
satisfaction, harm
to our
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,
27
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.
effective
jurisdictions. However,
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 for
software products and pursue patent protection for inventions
developed by us. We hold a number of patents, patent
applications and licenses in the United States and other
trademark,
foreign
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. 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 parties, any of which could
adversely affect our business, financial condition and
operating results.
GENERAL RISK FACTORS
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.
28
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.
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.
If actual
revenue
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, cloud,
data storage, data content, clearing and other services.
Interruptions or delays in services from our third-party data
center hosting facilities or cloud computing platform
providers could impair the delivery of our services and harm
our business. To the extent that any of our vendors or other
third-party
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.
service providers
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
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.
in processes or reporting due
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,
significant
litigation against us might unduly burden
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 its intended purpose. Because our
clients depend on our solutions for critical business 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 that we use 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; cause increased volatility in commodity markets
in which Nasdaq Clearing operates as a clearinghouse, which
may result in Nasdaq Clearing holding insufficient collateral
for such volatility; and create adverse market conditions,
including trading volatility beyond historical levels, any of
which could adversely affect our business, reputation,
financial condition and operating results.
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,
office/remote working arrangements 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.
29
locations could adversely affect our operations and financial
results. Some locations, such as Lithuania, India and the
Philippines, have economies that may be subject to greater
political, economic and social uncertainties than countries
with more developed institutional structures, which may
increase our operational risk.
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, pandemics
(such as COVID-19), 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,
Sweden, 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. Additionally,
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.
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 is comprised of senior executives and has
the responsibility for regularly reviewing risks and referring
significant risks to the board of directors or specific board
committees. Local risk management committees in our
local risk oversight and
international offices provide
escalation to local boards, as appropriate. Certain 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
imposed by applicable law and other factors that the board
deems relevant. Based on an evaluation of these factors, the
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.
restrictions,
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.
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
the rules of some of our exchange
our ownership,
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.
30
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 18,
“Commitments, Contingencies and Guarantees,”
the
consolidated financial statements, which is incorporated
herein by reference.
to
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 11, 2021,
we had approximately 229 holders of record of our common
stock.
Issuer Purchases of Equity Securities
Share Repurchase Program
See “Share Repurchase Program,” of Note 12, “Nasdaq
Stockholders’ Equity,”
financial
statements for further discussion of our share repurchase
program.
the consolidated
to
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
31
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The table below represents repurchases made by or on behalf of us or any “affiliated purchaser” of our common stock during
the fiscal quarter ended December 31, 2020:
Period
October 2020
Share repurchase program(1)
Employee transactions(2)
November 2020
Share repurchase program(1)
Employee transactions(2)
December 2020
Share repurchase program(1)
Employee transactions(2)
Total Quarter Ended December 31, 2020
Share repurchase program
Employee transactions
(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)
— $
—
12,466 $
127.08
77,364 $
55 $
126.70
133.20
203,617 $
55,205 $
127.16
133.72
280,981 $
67,726 $
127.04
132.49
— $
N/A
77,364 $
N/A
203,617 $
N/A
280,981 $
N/A
446
N/A
436
N/A
410
N/A
410
N/A
____________
N/A Not applicable.
(1)
See “Share Repurchase Program,” of Note 12, “Nasdaq Stockholders’ Equity,” to the consolidated financial statements for
further discussion of our share repurchase program.
(2) Represents shares surrendered to us to satisfy tax withholding obligations arising from the vesting of restricted stock and
PSUs issued to employees.
32
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, shown below, for the past five years:
PERFORMANCE GRAPH
• ASX Limited
• Deutsche Börse AG
• LSE
• B3 S.A.
• Bolsas Mexicana de Valores, S.A.B.
• Euronext N.V.
• Hong Kong Exchanges and Clearing
• Singapore Exchange Limited
• TMX Group Limited
Peer Group
de C.V.
• Cboe
• CME Group Inc.
Limited
• ICE
• Japan Exchange Group, Inc
The figures represented below assume an initial investment of $100 in the common stock or index at the closing price on
December 31, 2015 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 12/31/2015 in stock or index, including reinvestment of dividends.
Nasdaq, Inc.
Nasdaq Composite Index
S&P 500
Peer Group
Fiscal Year Ended December 31,
2015
2016
2017
2018
2019
2020
$
100 $
100
100
100
117 $
109
112
110
137 $
141
136
148
148 $
137
130
159
199 $
187
171
204
251
272
203
244
Copyright© 2020 Standard & Poor's, a division of S&P Global. All rights reserved.
33
Period EndedNasdaq, Inc.Nasdaq Composite IndexS&P 500Peer Group201520162017201820192020$50$100$150$200$250$300
Item 6. Selected Financial Data
As a result of our early adoption, in December 2020, of SEC Final Rule Release No. 33-10890, “Management's Discussion and
Analysis, Selected Financial Data, and Supplementary Financial Information,” this item has been omitted.
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, 2020 and December 31, 2019. Discussion of fiscal year 2018 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, 2019 and
December 31, 2018 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, 2019, which was previously filed
with the SEC on February 25, 2020.
Business Segments
We manage, operate and provide our products and services in four business segments: Market Services, Corporate Platforms,
Investment Intelligence and Market Technology. See Note 1, “Organization and Nature of Operations,” and Note 19, “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.
Impact of COVID-19 on Our Business
For a discussion of the impact of COVID-19 on our business, see “Item 1A. Risk Factors - Risks Related To Our Business and
Industry - The COVID-19 pandemic could have an adverse effect on our business, financial condition, liquidity or results of
operations,” and “Liquidity and Capital Resources.”
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.
34
Nasdaq’s Operating Results
Key Drivers
The following table and charts include key drivers and other metrics for our Market Services, Corporate Platforms, Investment
Intelligence 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 Platforms
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)
Investment Intelligence
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)
35
Year Ended December 31,
2020
2019
2018
27.7
12.7%
9.8%
0.2%
7.8%
5.6%
0.7%
36.8%
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%
320,204
366,289
339,139
10.9
508.3
16.8%
0.9%
0.6%
18.3%
31.8%
50.1%
7.0
348.1
17.2%
1.7%
0.7%
19.6%
29.8%
49.4%
7.3
358.5
15.9%
2.8%
0.8%
19.5%
31.3%
50.8%
$
933,822
5.6
78.1%
$
590,705
4.5
72.8%
618,579
5.6
$
68.8%
$ 6,169
$ 10,465
$ 15,983
103,379
112,738
132,475
956
842
1,067
316
45
454
67
188
34
313
53
186
53
303
72
3,392
1,071
3,140
1,040
3,058
1,019
339
359
240
283
$
$
$
332
233
366
260
$
$
$
365
172
223
222
$
$
$
____________
(1)
Includes Finnish option contracts traded on Eurex for which Nasdaq and Eurex have a revenue sharing arrangement.
(2)
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 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, 2020, 412 as
of December 31, 2019 and 392 as of December 31, 2018.
(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 for a given period is the annualized revenue of active Market Technology support and SaaS subscription contracts.
ARR is currently one of our key performance metrics to assess the health and trajectory of our recurring 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 at the end of a reporting
period used in calculating ARR may or may not be extended or renewed by our customers.
The following chart summarizes our annualized recurring revenue, or ARR (in millions):
ARR for a given period is the annualized revenue derived from subscription contracts with a defined contract value. This
excludes contracts that are not recurring, are one-time in nature, or where the contract value fluctuates based on defined metrics.
ARR is currently one of our key performance metrics to assess the health and trajectory of our recurring 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 at the end of a reporting period used in
calculating ARR may or may not be extended or renewed by our customers.
36
$1,359$1,359$1,446$1,446$1,577$1,577$284$284$308$420$430$470$433$472$516$222$260$283Market ServicesCorporate PlatformsInvestment IntelligenceMarket Technology4Q184Q194Q20 ____________
Includes:
◦
◦ U.S. and Nordic annual listing fees, IR and ESG products, including subscription contracts for IR Insight, Boardvantage
Trade Management Services business, excluding one-time service requests.
and OneReport, and IR advisory services.
Proprietary market data and index data subscriptions as well as subscription contracts for eVestment, Solovis, DWA tools
and services, Nasdaq Fund Network and Quandl. Also includes guaranteed minimum on futures contracts within the Index
business.
Active Market Technology support and SaaS subscription contracts.
◦
◦
The following chart summarizes our SaaS revenues for the years ended December 31, 2018, 2019 and 2020 (in millions):
Financial Summary
The following table summarizes our financial performance for the year ended December 31, 2020 when compared to the same
period in 2019 and for the year ended December 31, 2019 when compared with the same period in 2018. For a detailed
discussion of our results of operations, see “Segment Operating Results” below.
Revenues less transaction-based expenses
Operating expenses
Operating income
Net income attributable to Nasdaq
Diluted earnings per share
Cash dividends declared per common share
Year End December 31,
Percentage Change
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
(in millions, except per share amounts)
2,903 $
2,535 $ 2,526
1,669 $
1,518 $ 1,498
1,234 $
1,017 $ 1,028
933 $
5.59 $
1.94 $
774 $
4.63 $
1.85 $
458
2.73
1.70
$
$
$
$
$
$
14.5 %
9.9 %
21.3 %
20.5 %
20.7 %
4.9 %
0.4 %
1.3 %
(1.1) %
69.0 %
69.6 %
8.8 %
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.”
37
$382$382$411$411$456$456$136$136$144$144$164$184$102$111$128Corporate PlatformsInvestment IntelligenceMarket Technology201820192020
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:
Year Ended December 31,
Percentage Change
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
Market Services
Transaction-based expenses
(in millions)
$
3,832 $
2,639 $ 2,709
(2,724)
(1,727)
(1,751)
Market Services revenues less transaction-based expenses
1,108
530
908
357
—
912
496
779
338
10
45.2 %
57.7 %
21.5 %
6.9 %
16.6 %
5.6 %
(2.6) %
(1.4) %
(4.8) %
1.8 %
9.1 %
25.2 %
958
487
714
270
97
(100.0) %
(89.7) %
$
2,903 $
2,535 $ 2,526
14.5 %
0.4 %
Corporate Platforms
Investment Intelligence
Market Technology
Other revenues(1)
Total revenues less transaction-based expenses
____________
(1)
For the year ended December 31, 2019 and 2018, other revenues include the revenues from the BWise enterprise
governance, risk and compliance software platform, which was sold in March 2019, and for the year ended December 31,
2018, other revenues also include 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 IR & ESG Services business
within our Corporate Platforms segment.
38
The following charts show our Market Services, Corporate Platforms, Investment Intelligence, and Market Technology
segments as a percentage of our total revenues less transaction-based expenses of $2,903 million in 2020, $2,535 million in
2019, and $2,526 million in 2018:
39
2020 Percentage of Revenues LessTransaction-based Expenses by SegmentMarketServices:38.2%CorporatePlatforms:18.2%InvestmentIntelligence:31.3%MarketTechnology:12.3%2019 Percentage of Revenues LessTransaction-based Expenses by SegmentMarketServices:36.0%CorporatePlatforms:19.6%Otherrevenues:0.4%InvestmentIntelligence:30.7%MarketTechnology:13.3%2018 Percentage of Revenues LessTransaction-based Expenses by SegmentMarketServices:37.9%CorporatePlatforms:19.3%Otherrevenues:3.8%InvestmentIntelligence:28.3%MarketTechnology:10.7%
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
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
(in millions)
$
1,258 $
816 $
849
54.2 %
(3.9) %
(828)
(76)
(477)
(47)
(506)
(44)
73.6 %
61.7 %
(5.7) %
6.8 %
354
292
299
21.2 %
(2.3) %
2,211
1,462
1,476
51.2 %
(0.9) %
(1,200)
(618)
(847)
(352)
(830)
(361)
41.7 %
75.6 %
2.0 %
(2.5) %
393
64
(1)
(1)
62
263
285
49.4 %
(7.7) %
70
92
(8.6) %
(23.9) %
(3)
(1)
66
(8)
(2)
82
(66.7) %
(62.5) %
— %
(50.0) %
(6.1) % (19.5) %
Trade Management Services Revenues
299
291
292
2.7 %
(0.3) %
Total Market Services revenues less transaction-
based expenses
$
1,108 $
912 $
958
21.5 %
(4.8) %
____________
(1)
Includes Section 31 fees of $69 million in 2020, $43 million in 2019, and $39 million in 2018. 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 $586 million in 2020, $337 million in 2019, and $343 million in 2018. Section 31 fees are
recorded as cash equity trading revenues with a corresponding amount recorded in transaction-based expenses.
(2)
Equity Derivative Trading and Clearing Revenues
Equity derivative trading and clearing revenues and equity
derivative trading and clearing revenues less transaction-
based expenses increased in 2020 compared with 2019. The
increase in equity derivative trading and clearing revenues
was primarily due to higher U.S. industry trading volumes, a
higher U.S. gross capture rate, and higher Section 31 pass-
through fee revenue, partially offset by lower overall U.S.
matched market share executed on Nasdaq's exchanges. The
increase in equity derivative trading and clearing revenues
less transaction-based expenses was primarily due to higher
U.S. industry trading volumes, partially offset by a lower
U.S. net capture rate and lower overall U.S. matched market
share executed on Nasdaq's 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 2020 compared with 2019 primarily due to
higher dollar value traded on Nasdaq's exchanges and higher
average SEC fee rates.
Transaction rebates, in which we credit a portion of the per
share execution charge to the market participant, increased in
2020 compared with 2019 due to higher U.S. industry trading
volumes and an increase in the U.S. rebate capture rate,
40
partially offset by a decrease in our overall U.S. matched
market share executed on Nasdaq's exchanges.
Brokerage, clearance and exchange fees increased in 2020
compared with 2019 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 increased in 2020
compared with 2019 primarily due to higher U.S. industry
trading volumes and higher European value traded, partially
offset by lower overall U.S. matched market share executed
on Nasdaq's exchanges. Also contributing to the increase in
cash equity trading revenues were higher Section 31 pass-
through fee revenue, while a higher net U.S. capture rate also
contributed to the increase in cash equity trading revenues
less transaction-based expenses in 2020.
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 increased in 2020 compared with 2019 due to
higher dollar value traded on Nasdaq’s exchanges and higher
average SEC fee rates.
Transaction rebates increased in 2020 compared with 2019.
For The Nasdaq Stock Market, Nasdaq PSX and Nasdaq
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 CX2, we credit a portion of the per
share execution charge to the market participant that takes the
liquidity. The increase in 2020 was primarily due to higher
U.S. industry trading volumes, partially offset by lower
overall U.S. matched market share executed on Nasdaq's
exchanges and a lower rebate capture rate.
Brokerage, clearance and exchange fees increased in 2020
compared with 2019 primarily due to higher Section 31 pass-
through fees, as discussed above.
FICC Revenues
FICC revenues and FICC revenues less transaction-based
expenses decreased in 2020 compared with 2019 driven by
lower U.S. fixed income volumes and the sale of the core
assets of our NFX business, partially offset by higher
European products revenues.
Trade Management Services Revenues
Trade management services revenues increased in 2020
compared with 2019 primarily due to higher demand for our
connectivity services.
CORPORATE PLATFORMS
The following table shows revenues from our Corporate Platforms segment:
* * * * * *
Corporate Platforms:
Listing Services
IR & ESG Services
Total Corporate Platforms
Listing Services Revenues
Year Ended December 31,
Percentage Change
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
(in millions)
$
$
316 $
214
530 $
296
200
496
$
$
290
197
487
6.8 %
7.0 %
6.9 %
2.1 %
1.5 %
1.8 %
Listing services revenues increased in 2020 compared with 2019. The increase was primarily due to higher U.S. listings
revenues due to an increase in the overall number of listed companies and a favorable impact from foreign exchange of $2
million.
IR & ESG Services Revenues
IR & ESG Services revenues increased in 2020 compared with 2019 primarily due to increases in demand for both governance
and investor relations intelligence services.
41
INVESTMENT INTELLIGENCE
The following table shows revenues from our Investment Intelligence segment:
Year Ended December 31,
Percentage Change
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
(in millions)
Investment Intelligence:
Market Data
Index
Analytics
$
409 $
398 $
324
175
223
158
Total Investment Intelligence
$
908 $
779 $
390
206
118
714
2.8 %
45.3 %
10.8 %
16.6 %
2.1 %
8.3 %
33.9 %
9.1 %
Market Data Revenues
Market data revenues increased in 2020 compared with 2019
primarily due to organic growth in proprietary products from
new sales, including continued expansion geographically,
partially offset by a decrease in shared tape plan revenues.
Index Revenues
Index revenues increased in 2020 compared with 2019
primarily due to higher licensing revenues from higher
average AUM in ETPs linked to Nasdaq indexes and higher
licensing revenues from futures trading linked to the
Nasdaq-100 Index.
Analytics Revenues
Analytics revenues increased in 2020 compared with 2019
primarily due to the acquisition of Solovis and growth in
eVestment.
MARKET TECHNOLOGY
The following table shows revenues from our Market Technology segment:
* * * * * *
Year Ended December 31,
Percentage Change
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
(in millions)
Market Technology
$
357 $
338 $
270
5.6 %
25.2 %
Market Technology Revenues
Market technology revenues increased in 2020 compared with 2019. The increase was primarily due to higher SaaS revenues
and a favorable impact from foreign exchange of $6 million.
OTHER REVENUES
For the year ended December 31, 2019 and 2018, other revenues include the revenues from the BWise enterprise governance,
risk and compliance software platform, which was sold in March 2019, and for the year ended December 31, 2018, other
revenues also include 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 IR & ESG Services business within our Corporate
Platforms segment.
42
Year Ended December 31,
Percentage Change
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
(in millions)
$
786 $
707 $
137
127
712
144
151
107
142
39
202
24
33
48
1,669 $
133
97
125
39
190
31
30
39
127
95
120
37
210
32
21
—
1,518 $ 1,498
11.2 %
7.9 %
13.5 %
10.3 %
13.6 %
— %
6.3 %
(22.6) %
10.0 %
23.1 %
9.9 %
(0.7) %
(11.8) %
4.7 %
2.1 %
4.2 %
5.4 %
(9.5) %
(3.1) %
42.9 %
N/M
1.3 %
its
following
Regulatory expense decreased in 2020 primarily due to a
favorable decision on a regulatory matter. In December 2016,
we were issued a $6 million fine by the SFSA as a result of
findings
investigations of cybersecurity
processes at our Nordic exchanges and clearinghouse. We
appealed the SFSA’s decision, including the amount of the
fine and received a favorable decision in the third quarter of
2020 where the court set aside the SFSA’s decision including
the fine. The SFSA decided not to appeal the decision and the
decision is therefore now final. As a result, the $6 million
fine was reversed to regulatory expense in the consolidated
statements of income for 2020.
Merger and strategic initiatives expense increased in 2020.
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 party
transaction costs and will vary based on the size and
frequency of the activities described above.
See Note 20, “Restructuring Charges,” to the consolidated
financial statements for further discussion of our 2019
restructuring plan and charges associated with this plan.
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.
The increase in compensation and benefits expense in 2020
was primarily driven by an increase in headcount as a result
of our strategic initiatives, higher performance incentives and
higher compensation costs resulting from our recent
acquisitions. Partially offsetting the higher compensation and
benefits expense in 2020 was lower compensation costs
resulting from our 2019 divestiture.
Headcount increased to 4,830 employees as of December 31,
2020 from 4,361 as of December 31, 2019 primarily due to
our strategic initiatives, mainly growth in our Market
Technology business, and recent acquisitions.
Professional and contract services expense increased in 2020
primarily due to higher consulting and legal costs.
Computer operations and data communications expense
increased in 2020 primarily due to higher software and
hardware maintenance costs, higher cloud costs, higher
market data feed costs, and our recent acquisitions.
Occupancy expense increased in 2020 mainly due to higher
costs associated with additional facility and rent costs
resulting from the expansion of our new U.S. headquarters in
New York.
General, administrative and other expense increased in 2020
primarily due to a higher loss on extinguishment of debt, a
reserve recorded for a loss on a Market Technology
implementation project, and charitable donations made to the
Nasdaq Foundation, COVID-19 response and relief efforts,
and social justice charities. These increases were partially
offset by a higher provision for notes receivable in 2019 and
lower corporate travel costs in 2020.
Depreciation and amortization expense increased in 2020
primarily due to an increase in capitalized software placed in
service.
43
Non-operating Income and Expenses
The following table shows our non-operating income and expenses:
Year Ended December 31,
Percentage Change
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
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
(in millions)
$
4 $
10 $
10
(101)
(97)
(124)
(114)
—
—
5
70
—
27
5
84
(60.0) %
(18.5) %
(14.9) %
— %
(17.3) %
(18.6) %
— % (100.0) %
(150)
(140)
118
33
7
18
36
(100.0) %
— %
(16.7) %
(1,200.0) %
(18.2) %
(28.6) %
366.7 %
(94.4) %
Total non-operating income (expenses)
$
(22) $
2 $
Interest Income
Interest income decreased in 2020 compared to 2019 primarily due to a decrease in interest rates.
Interest Expense
Interest expense decreased in 2020 compared with 2019 primarily due to the refinancing of our 3.875% senior notes in March
2020 with the 2030 Notes and the refinancing of our 5.55% senior notes in May 2019 with the 2029 Notes, both at lower
interest rates, and the repayment of our senior unsecured floating rate notes in March 2019 with commercial paper issuances
and cash on hand. See Note 9, “Debt Obligations,” to the consolidated financial statements for further discussion of our debt
obligations.
The following table shows our interest expense:
Year Ended December 31,
Percentage Change
2020
2019
(in millions)
2018
2020 vs. 2019
2019 vs. 2018
Interest expense on debt
$
93 $
115 $
140
(19.1) %
Accretion of debt issuance costs and debt discount
Other fees
Interest expense
Net Gain on Divestiture of Businesses
6
2
6
3
7
3
$
101 $
124 $
150
— %
(33.3) %
(18.5) %
(17.9) %
(14.3) %
— %
(17.3) %
The net gain on divestiture of businesses in 2019 related to the divestiture of BWise. See “2019 Divestiture,” of Note 4,
“Acquisitions and Divestiture,” to the consolidated financial statements for further discussion. The net gain on divestiture of
businesses in 2018 related to the sale of the Public Relations Solutions and Digital Media Services business, which was part of
our IR & ESG Services business within our Corporate Platforms segment.
Net Income from Unconsolidated Investees
Net income from unconsolidated investees decreased in 2020 compared with 2019 primarily due to a decrease in income
recognized from our equity method investment in OCC. See “Equity Method Investments,” of Note 6, “Investments,” to the
consolidated financial statements for further discussion.
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
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
($ in millions)
$
279
$
245
$ 606
13.9 %
(59.6) %
23.0 %
24.0 %
57.0 %
For further discussion of our tax matters, see Note 17, “Income Taxes,” to the consolidated financial statements.
44
Non-GAAP Financial Measures
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 this non-GAAP
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 businesses, the relative
operating performance of the businesses between periods,
and the earnings power of Nasdaq. Performance measures
excluding intangible asset amortization expense therefore
provide investors with a useful representation of our
businesses’ ongoing activity in each period.
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 20,
“Restructuring Charges,”
the consolidated financial
to
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 “Equity
Method Investments,” of Note 6, “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 changes in the OCC's
capital management policy. 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.
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 2020, other significant items primarily included:
a provision for notes receivable associated with the
funding of technology development for the CAT;
a loss on extinguishment of debt;
charges associated with duplicative rent and impairment
of leasehold assets related to our global headquarter
move;
charitable donations made to the Nasdaq Foundation,
COVID-19 response and relief efforts, and social justice
charities; and
•
•
•
•
45
•
the reversal of a $6 million regulatory fine issued by the
SFSA which is recorded in regulatory expense in the
Consolidated Statements of Income.
For 2019, other significant items primarily included:
•
•
•
•
a provision for notes receivable associated with the
funding of technology development for the CAT;
a loss on extinguishment of debt; and
a net gain on divestiture of business which represents our
pre-tax net gain of $27 million on the sale of BWise;
other items:
◦
◦
a tax reserve for certain prior year examinations; and
litigation costs which are recorded
certain
in
professional and contract services expense in the
Consolidated Statements of Income.
The above charges, with the exception of those noted
differently above, are recorded in general, administrative and
other expense in our 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 2020:
◦
◦
◦
a tax benefit related to favorable audit settlements;
a release of tax reserves due to statute of limitation
expiration, partially offset with an increase to certain
tax reserves related to certain tax filings; and
a tax benefit on compensation related deductions
determined to be allowable.
for 2020 and 2019, excess tax benefits related to
employee share-based compensation
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.
to reflect
for 2019, a tax benefit primarily related to an adjustment
to the 2018 federal and state tax returns and a tax benefit
related to capital distributions from the OCC. See
“Equity Method Investments,” of Note 6, “Investments,”
to the consolidated financial statements for further
discussion of our OCC investment.
•
•
46
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:
U.S. GAAP net income attributable to Nasdaq
$
933 $
774 $
458
Year End December 31,
2020
2019
2018
(in millions, except share and per share amounts)
Non-GAAP adjustments:
Amortization expense of acquired intangible assets
Merger and strategic initiatives expense
Restructuring charges
Net income from unconsolidated investees
Clearing default loss
Provision for notes receivable
Extinguishment of debt
Net gain on divestiture of businesses
Gain on sale of investment security
Charitable donations
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
103
33
48
101
30
39
(70)
(82)
—
6
36
—
—
17
8
181
(77)
(6)
—
—
(83)
98
—
20
11
(27)
—
—
17
109
(43)
(5)
—
—
(48)
61
835 $
109
21
—
(16)
31
—
—
(33)
(118)
—
17
11
6
(9)
290
41
328
339
797
Non-GAAP net income attributable to Nasdaq
$
1,031 $
Weighted-average common shares outstanding for diluted earnings per share
166,903,941
166,970,161
167,691,299
U.S. GAAP diluted earnings per share
Total adjustments from non-GAAP net income
Non-GAAP diluted earnings per share
$
$
5.59 $
4.63 $
0.59
0.37
6.18 $
5.00 $
2.73
2.02
4.75
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 response to the uncertainties posed by COVID-19 and
related economic impacts, we took actions to strengthen our
liquidity and cash position and to reduce our refinancing risk.
In March 2020, we observed that conditions in the market for
Tier 2 commercial paper
issuers were deteriorating,
impacting both costs and actionable duration of commercial
paper issues. To mitigate funding uncertainties and as a
precautionary measure to maximize our liquidity and increase
our available cash on hand, Nasdaq borrowed $799 million
under the revolving credit commitment of the 2017 Credit
Facility. See “Early Extinguishment of 2017 Credit Facility,”
of Note 9, “Debt Obligations,” to the consolidated financial
statements for further discussion of the 2017 Credit Facility.
In April 2020, we issued the 2050 Notes and used the net
proceeds from the 2050 Notes to repay a portion of amounts
previously borrowed under the 2017 Credit Facility. For
further discussion of the 2050 Notes, see “3.25% Senior
Unsecured Notes Due 2050,” of Note 9, “Debt Obligations,”
to the consolidated financial statements. In June 2020, the
remaining outstanding amount under the 2017 Credit Facility
was repaid using cash on hand. In June 2020, we also repaid
all outstanding borrowings under our commercial paper
program.
47
liabilities) was $2,736 million as of December 31, 2020,
compared with $63 million as of December 31, 2019, an
increase of $2,673 million. Current asset balance changes
increased working capital by $3,370 million, with increases
in cash and cash equivalents, primarily due to net proceeds of
$1.9 billion from issuances of long-term debt in the fourth
quarter of 2020 for the acquisition of Verafin, default funds
and margin deposits, receivables, net, and restricted cash and
cash equivalents, partially offset by decreases in financial
investments and other current assets. Current liability balance
changes decreased working capital by $697 million, due to
increases in default funds and margin deposits, Section 31
fees payable to the SEC, accrued personnel costs, accounts
payable and accrued expenses, and deferred revenue,
partially offset by decreases in short-term debt and other
current liabilities.
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;
volatility or disruption in the public debt and equity
markets; and
the impact of the COVID-19 pandemic on our business.
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, 2020
December 31, 2019
Cash and cash equivalents
Restricted cash and cash
equivalents
Financial investments
(in millions)
$
2,745 $
37
195
Total financial assets
$
2,977 $
332
30
291
653
Other Financing Transactions
In February 2020, we issued the 2030 Notes. We primarily
used the net proceeds from the 2030 Notes to redeem the
2021 Notes and for other general corporate purposes. See
“0.875% Senior Unsecured Notes Due 2030,” and “Early
Extinguishment of 3.875% Senior Unsecured Notes Due
2021,” of Note 9, “Debt Obligations,” to the consolidated
financial statements for further discussion.
In December 2020, we issued the 2022 Notes, 2031 Notes
and 2040 Notes. The net proceeds were used to partially
finance the acquisition of Verafin. For further discussion of
these notes, see “Senior Unsecured Notes Due 2022, 2031
and 2040,” of Note 9, “Debt Obligations,” to the consolidated
financial statements. For further discussion of the acquisition
of Verafin, see “Acquisition of Verafin,” of Note 4,
“Acquisitions and Divestiture,” to the consolidated financial
statements.
In December 2020, we also terminated the 2017 Credit
Facility and entered into the 2020 Credit Facility. See “Credit
Facilities,” of Note 9, “Debt Obligations,” to the consolidated
financial statements for further discussion.
As of December 31, 2020, our sources and uses of cash were
not materially impacted by COVID-19 and we have not
identified any material liquidity deficiencies as a result of the
COVID-19 pandemic. We will continue to closely monitor
and manage our liquidity and capital resources. In addition,
we continue to prudently assess our capital deployment
strategy through balancing acquisitions, internal investments,
debt repayments, and shareholder return activity including
share repurchases and dividends.
Other Liquidity and Capital Considerations
revolving credit
In the near term, we expect that our operations and the
availability under our
facility and
commercial paper program will provide sufficient cash to
fund our operating expenses, capital expenditures, debt
repayments, any share repurchases, and any dividends. In
January 2021, we increased the size of our commercial paper
program from $1 billion to $1.25 billion. In February 2021,
we issued $475 million of commercial paper to partially fund
the acquisition of Verafin. For further discussion of the
acquisition of Verafin, see “Acquisition of Verafin,” of Note
the consolidated
4, “Acquisitions and Divestiture,”
financial statements.
to
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 18,
“Commitments, Contingencies and Guarantees,”
the
consolidated financial statements for further discussion.
to
The value of various assets and liabilities, including cash and
cash equivalents, receivables, accounts payable and accrued
expenses,
long-term debt, and
commercial paper, can fluctuate from month to month.
Working capital (calculated as current assets less current
the current portion of
48
December 31, 2020 and $160 million as of December 31,
2019. The remaining balance held in the U.S. totaled $2,508
million as of December 31, 2020 and $172 million as of
December 31, 2019. See “Cash and Cash Equivalents,” of
Note 2, “Summary of Significant Accounting Policies,” to
the consolidated financial statements for discussion of the
increase in cash and cash equivalents.
Unremitted earnings of certain 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 12, “Nasdaq
Stockholders’ Equity,”
financial
statements for further discussion of our share repurchase
program.
the consolidated
to
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
2020
2019
$
$
0.47
0.49
0.49
0.49
1.94
$
$
0.44
0.47
0.47
0.47
1.85
See “Cash Dividends on Common Stock,” of Note 12,
“Nasdaq Stockholders’ Equity,” to the consolidated financial
statements for further discussion of the dividends.
Financial Investments
investments
Our financial
totaled $195 million as of
December 31, 2020 and were trading securities primarily
comprised of highly rated European government debt
securities. As of December 31, 2019, financial investments
totaled $291 million and were trading securities primarily
comprised of highly rated European government debt
securities, time deposits and highly rated corporate debt. Of
these securities, $175 million as of December 31, 2020 and
$169 million as of December 31, 2019 are assets primarily
utilized to meet regulatory capital requirements, mainly for
our clearing operations at Nasdaq Clearing. See Note 6,
“Investments,” to the consolidated financial statements for
further discussion.
Cash and Cash Equivalents and Restricted Cash and Cash
Equivalents
rates, our
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
investment policy, and alternative
investment choices. As of December 31, 2020, our cash and
cash equivalents of $2,745 million were primarily invested in
bank deposits and money market funds. 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, 2020
increased $2,413 million from December 31, 2019, primarily
due to:
•
•
•
proceeds from issuances of long-term debt, net of
issuance costs. For further discussion, see “Senior
Unsecured Notes Due 2022, 2031, and 2040,” of Note 9,
financial
“Debt Obligations,”
statements;
the consolidated
to
net cash provided by operating activities; and
proceeds from the net sales of securities. These increases
were partially offset by:
◦
◦
◦
◦
◦
◦
◦
◦
repayments of borrowings under our credit
commitment and debt obligations;
repayments of commercial paper, net;
cash dividends paid on our common stock;
repurchases of our common stock;
purchases of property and equipment;
cash paid for acquisitions, net of cash and cash
equivalents acquired;
payments related to employee shares withheld for
taxes; and
payment of debt extinguishment costs.
See “Cash Flow Analysis” below for further discussion.
Restricted cash and cash equivalents are restricted from
withdrawal due to contractual or regulatory requirements or
is not available for general use. Restricted cash and cash
equivalents were $37 million as of December 31, 2020 and
$30 million as of December 31, 2019, an increase of $7
million. Restricted cash and cash equivalents are classified as
restricted cash and cash equivalents in the Consolidated
Balance Sheets.
Repatriation of Cash
Our cash and cash equivalents held outside of the U.S. in
various foreign subsidiaries totaled $237 million as of
49
Debt Obligations
The following table summarizes our debt obligations by contractual maturity:
Maturity Date
December 31, 2020
December 31, 2019
Short-term debt - commercial paper
Long-term debt:
3.875% senior unsecured notes
$1 billion senior unsecured revolving credit facility
0.445% senior unsecured notes
1.75% senior unsecured notes
4.25% senior unsecured notes
$
Repaid March 2020 $
Terminated December 2020
December 2022
May 2023
June 2024
(in millions)
— $
— $
—
597
730
498
$1.25 billion senior unsecured revolving credit facility
December 2025
(4)
3.85% senior unsecured notes
1.75% senior unsecured notes
0.875% senior unsecured notes
1.650% senior unsecured notes
2.500% senior unsecured notes
3.25% senior unsecured notes
Total long-term debt
Total debt obligations
June 2026
March 2029
February 2030
January 2031
December 2040
April 2050
497
726
726
643
643
485
$
$
5,541 $
5,541 $
2,996
3,387
391
671
(2)
—
668
497
—
497
665
—
—
—
—
In addition to the $1.25 billion revolving credit facility, we
also have other credit facilities primarily to support our
Nasdaq Clearing operations in Europe, as well to provide a
cash pool credit line for one subsidiary. These credit
facilities, which are available in multiple currencies, totaled
$232 million as of December 31, 2020 and $203 million as of
December 31, 2019 in available liquidity, none of which was
utilized as of December 31, 2020, and of which $15 million
was utilized as of December 31, 2019.
As of December 31, 2020, we were in compliance with the
covenants of all of our debt obligations.
See Note 9, “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,
2020, our required regulatory capital of $145 million was
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
to
regulatory
Capital Markets Advisory, are subject
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, 2020, the combined
required minimum net capital totaled $1 million and the
combined excess capital totaled $55 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 and cash equivalents in
the Consolidated Balance Sheets.
Nordic
Requirements
and Baltic Exchange Regulatory Capital
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, 2020, our required regulatory capital of $39
million was primarily invested in European debt securities
that are included in financial investments in the Consolidated
Balance Sheets and cash which is included in restricted cash
and cash equivalents 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, 2020, other required
regulatory capital was $12 million and was primarily
included in restricted cash in the Consolidated Balance
Sheets.
50
Cash Flow Analysis
The following table summarizes the changes in cash flows:
* * * * * *
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents
and restricted cash and cash equivalents
Net increase (decrease) in cash and cash equivalents and
restricted cash
Cash and cash equivalents and restricted cash and cash
equivalents at beginning of period
Cash and cash equivalents and restricted cash and cash
equivalents at end of period
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; expense associated with share-based
compensation; and net
from unconsolidated
investees.
income
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
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 increased $289
million for the year ended December 31, 2020 compared with
the same period in 2019. The increase was primarily driven
by higher net income, an increase in Section 31 fees payable
to the SEC due to elevated U.S. industry trading volumes,
lower performance
in 2020
compared with 2019 primarily due to prior year performance
and lower interest paid due to a decline in average interest
rates on our debt obligations, partially offset by an increase in
receivables, net, due to elevated U.S. industry trading
volumes and higher income taxes paid. The remaining
change is primarily due to fluctuations in our working
capital.
incentive payments made
Net Cash Used in Investing Activities
Year Ended December 31,
Percentage Change
2020
2019
2018
2020 vs. 2019
2019 vs. 2018
(in millions)
$
1,252 $
963 $
1,028
30.0 %
(6.3) %
(231)
(240)
196
(3.8) % (222.4) %
1,383
(937)
(1,027)
(247.6) %
(8.8) %
16
(10)
(10)
(260.0) %
— %
2,420
(224)
187
(1,180.4) % (219.8) %
362
586
399
(38.2) %
46.9 %
$
2,782 $
362 $
586
668.5 %
(38.2) %
Net cash used in investing activities for 2020 primarily
related to $188 million of purchases of property and
equipment and $157 million of cash used for acquisitions, net
of cash and cash equivalents acquired, partially offset by
$119 million of proceeds from the net sales of securities.
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 divestiture.
Net Cash Used in (Provided by) Financing Activities
Net cash provided by financing activities for 2020 primarily
related to $3,811 million of proceeds from issuances of long-
term debt and the utilization of our credit commitment,
partially offset by $1,472 million
in repayments of
borrowings under our credit commitment and debt
obligations, $391 million of net repayments of commercial
paper, $320 million of dividend payments
to our
shareholders, and $222 million in repurchases of common
stock.
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.
the
See Note 4, “Acquisitions and Divestiture,”
consolidated financial statements for further discussion of our
acquisitions and divestiture.
to
See Note 9, “Debt Obligations,” to the consolidated financial
statements for further discussion of our debt obligations.
51
See “Share Repurchase Program,” and “Cash Dividends on
Common Stock,” of Note 12, “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, 2020.
Payments Due by Period
Contractual Obligations
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Debt obligations by contract maturity(1)
Operating lease obligations(2)
Purchase obligations(3)
Total
$
$
6,915 $
558
43
7,516 $
(in millions)
114 $
62
31
207 $
1,557 $
108
12
1,677 $
684 $
77
—
761 $
4,560
311
—
4,871
____________
(1) Our debt obligations include both principal and interest obligations. As of December 31, 2020, an interest rate of 1.39%
was used to compute the amount of the contractual obligations for interest on the 2020 Credit Facility. All other debt
obligations were primarily calculated on a 365-day basis at the contractual fixed rate multiplied by the aggregate principal
amount as of December 31, 2020. See Note 9, “Debt Obligations,” to the consolidated financial statements for further
discussion.
(2) Operating lease obligations represent our undiscounted operating lease liabilities as of December 31, 2020. See Note 16,
“Leases,” to the consolidated financial statements for further discussion of our leases.
(3) Purchase obligations primarily represent minimum outstanding obligations due under software license agreements.
Acquisition of Verafin
For further discussion of our acquisition of Verafin, see “Acquisition of Verafin,” of Note 4, “Acquisitions and Divestiture,” to
the consolidated financial statements.
* * * * * *
Non-Cash Contingent Consideration
See “Non-Cash Contingent Consideration,” of Note 18,
“Commitments, Contingencies and Guarantees,”
the
consolidated financial statements for further discussion.
to
Off-Balance Sheet Arrangements
For discussion of off-balance sheet arrangements see:
• Note 15, “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
18,
“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;
Routing brokerage activities;
Acquisition of Verafin;
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
52
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, 2020, 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,
2020, the fair value of this portfolio would have declined by
$5 million.
Debt Obligations
As of December 31, 2020, the majority of our debt
obligations were fixed-rate obligations. Interest rates on
certain tranches of notes are subject to adjustment to the
extent our debt rating is downgraded below investment grade,
as further discussed in Note 9, “Debt Obligations,” to the
consolidated financial statements. 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 borrowings under our 2020 Credit Facility, as the
interest rate on this facility has a variable interest rate. We are
also 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, 2020, there were no
outstanding borrowings under our 2020 Credit Facility or
commercial paper program.
We may utilize interest rate swap agreements to achieve a
desired mix of variable and fixed rate debt.
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, 2020 and 2019 are presented
in the following table:
Year End December 31, 2020
Average foreign currency rate to the U.S. dollar
Percentage of revenues less transaction-based expenses
Percentage of operating income
Impact of a 10% adverse currency fluctuation on revenues less
transaction-based expenses
Impact of a 10% adverse currency fluctuation on operating
income
Euro
Swedish
Krona
Other
Foreign
Currencies
U.S. Dollar
Total
(in millions, except currency rate)
1.1398
0.1086
7.7 %
10.7 %
6.6 %
(4.6) %
#
4.7 %
(4.9) %
N/A
N/A
81.0 % 100.0 %
98.8 % 100.0 %
$
(22)
$
(19)
$
(14)
$ —
$
(55)
$
(13)
$
(6)
$
(6)
$ —
$
(25)
Euro
Swedish
Krona
Other
Foreign
Currencies
U.S. Dollar
Total
(in millions, except currency rate)
Year End December 31, 2019
Average foreign currency rate to the U.S. dollar
1.1193
0.1057
#
N/A
N/A
Percentage of revenues less transaction-based expenses
Percentage of operating income
Impact of a 10% adverse currency fluctuation on revenues less
transaction-based expenses
Impact of a 10% adverse currency fluctuation on operating
income
____________
#
N/A Not applicable.
Represents multiple foreign currency rates.
7.7 %
13.9 %
7.6 %
(4.3) %
5.0 %
(5.8) %
79.7 % 100.0 %
96.2 % 100.0 %
$
(19)
$
(19)
$
(13)
$ —
$
(51)
$
(14)
$
(4)
$
(6)
$ —
$
(24)
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
53
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, 2020 is presented in the following table:
$
Swedish Krona(1)
British Pound
Norwegian Krone
Canadian Dollar
Australian Dollar
Euro
Net Assets
Impact of a 10%
Adverse Currency
Fluctuation
(in millions)
3,675 $
212
177
123
122
39
367
21
18
12
12
4
____________
(1)
Includes goodwill of $2,728 million and intangible
assets, net of $665 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, 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
financial
ratings, well-capitalized
institutions and other creditworthy counterparties.
grade
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
clearinghouse officially accepts the trade for novation,
Nasdaq Execution Services is legally removed from trade
transaction. Once
the
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
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
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.
limit counterparty
to a system
rules
Execution Access is our 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 ICBC. As of December 31, 2020, we have
contributed $13 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
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,
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.
the U.S. Treasury
specified by
Income
Fixed
the
if
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. “See
“Receivables, net - Measurement of Credit Losses on
54
to
the
consolidated
Financial Instruments,” of Note 2, “Summary of Significant
Accounting Policies,”
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 15, “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 investments are primarily placed in
large, highly rated financial institutions, highly rated
government debt instruments and other creditworthy
counterparties.
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 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 with short dated maturities of
high quality sovereign debt (for example, European
government and U.S. Treasury securities), central bank
certificates and supranational debt instruments.
•
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
financial statements and
in conformity with U.S. GAAP
related
The preparation of
disclosures
requires
management to make judgments, assumptions, and estimates
that affect the amounts reported in the consolidated financial
statements and accompanying notes. Note 2, “Summary of
Significant Accounting Policies,”
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.
to
Revenue Recognition
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
these contracts containing
in
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,
the complexity of work performed, and
logistical challenges due to the effects of COVID-19.
Revenue and cost estimates for our long-term contracts are
55
reviewed and reassessed at least quarterly. 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. During the fourth quarter, as part of our regular
review of significant implementation projects, we refined and
revised our plans relating to a large-scale post-trade clearing
implementation project for a specific client. At that point it
became probable that we would incur a loss over the
remainder of that particular project, in part due to the
logistical implications of COVID-19. As a result, we
recorded a $25 million provision for the estimated loss in
general, administrative and other expense in our Consolidated
Statements of Income and is included in other current and
other non-current liabilities in our Consolidated Balance
Sheets.
Due to the significance of judgment in the estimation process,
as discussed above, changes in assumptions and estimates
may adversely or positively affect financial performance in
future periods.
For further discussion related to recognition of these fees, see
“Revenue From Contracts with Customers - Revenue
Recognition - Market Technology,” of Note 2, “Summary of
Significant Accounting Policies,”
the consolidated
financial statements.
to
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
the Corporate Platforms segment: Listing
comprising
Services and IR & ESG Services, the Investment Intelligence
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
In
perform a quantitative goodwill
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
impairment
test.
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.
On January 1, 2020, we adopted ASU 2017-04, “Simplifying
the Test for Goodwill Impairment,” and as a result, when
performing the quantitative goodwill impairment test, we
compare the fair value of each reporting unit with its carrying
amount. The fair value of each reporting unit is estimated
using a combination of a 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
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
fair value exceeds its estimated carrying amount, goodwill is
not impaired. If the carrying amount exceeds the fair value of
the reporting unit, an impairment charge is recognized in an
amount equal to the difference, limited to the total amount of
goodwill allocated to that reporting unit.
assumptions used
and
The following table presents the balances of goodwill for our
reportable segments at the time of our 2020 annual
impairment test:
Market Services
Corporate Platforms
Investment Intelligence
Market Technology
October 1, 2020
(in millions)
$
$
3,391
465
2,457
287
6,600
In 2020, we performed a quantitative test for our annual
impairment test for goodwill for all reporting units based on
our policy of performing a quantitative impairment test every
three years, even if qualitative considerations do not indicate
the fair value of a reporting unit is less than its carrying
amount. The periodic and
the
quantitative assessment provides better support for our
qualitative assessment.
the quantitative
assessment, we determined that fair value sufficiently
exceeded the carrying amount for each of our reporting units.
As a result, no goodwill impairment was recorded in 2020. In
2019 and 2018, we performed a qualitative assessment and
timely calculation of
In conducting
56
no goodwill impairment was recorded.
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 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
the Greenfield Approach for
discounted value, using
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 2020, we performed a
quantitative test based on our policy of performing a
quantitative impairment test every three years as discussed
above in the goodwill impairment discussion.
There were no indefinite-lived intangible asset impairment
charges in 2020 and there were no impairment charges
recorded in 2019 and 2018.
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
investments, equity
intangible assets, equity method
securities, property and equipment, and operating lease assets
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.
We recorded pre-tax, non-cash property and equipment asset
impairment charges of $4 million in 2020 and $24 million in
2019. The asset impairment charges in 2020 and 2019
primarily related to capitalized software that was retired and
are included in restructuring charges in the Consolidated
Statements of Income for 2020 and 2019. See Note 20,
“Restructuring Charges,”
the consolidated financial
to
statements for a discussion of our 2019 restructuring plan.
For the year ended December 31, 2018, there were no
material property and equipment asset impairment charges.
No material impairments were recorded to reduce the
carrying value of our other long-lived assets during 2020,
2019 or 2018.
Income Taxes
the
tax and
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
financial
temporary differences between
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
57
Financial Information,” this data has been omitted.
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. 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, 2020 that have materially
affected, or are reasonably likely to materially affect,
Nasdaq’s internal control over financial reporting.
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
corresponding impact to the provision for income taxes in the
period in which such determination is made.
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 Not Yet Adopted
We have considered all recent accounting pronouncements
and have concluded that no accounting pronouncements that
have not yet been adopted would have a material impact on
our financial position or results of operations.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
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,
including
financial
Nasdaq’s consolidated
Consolidated Balance Sheets as of December 31, 2020 and
2019, Consolidated Statements of Income for the years ended
December 31, 2020, 2019 and 2018, Consolidated Statements
of Comprehensive Income for the years ended December 31,
2020, 2019 and 2018, Consolidated Statements of Changes in
Stockholders' Equity for the years ended December 31, 2020,
2019 and 2018, Consolidated Statements of Cash Flows for
the years ended December 31, 2020, 2019 and 2018 and
notes to our consolidated financial statements, together with a
report thereon of Ernst & Young LLP, dated February 23,
2021, are attached hereto as pages F-1 through F-46 and
incorporated by reference herein.
Summarized Quarterly Financial Data (Unaudited)
As a result of our early adoption, in December 2020, of SEC
Final Rule Release No. 33-10890, “Management's Discussion
and Analysis, Selected Financial Data, and Supplementary
58
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, 2020, 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, 2020, 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.
59
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, 2020, 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, 2020, 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, 2020 and 2019, 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, 2020, and the related notes and our report dated February 23, 2021 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 23, 2021
60
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 1: 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 & Risk Committee and Audit & Risk
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 1: 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
Items-Security
Ownership of Certain Beneficial Owners and Management”
in the Proxy Statement.
the heading “Other
Equity Compensation Plan and ESPP Information
* * * * * *
Nasdaq’s Equity Plan provides for the issuance of our equity securities to all employees and directors as part of their
compensation plan, though employees in certain of our locations may be ineligible due to local securities laws and regulations.
In addition, in jurisdictions where participation in the ESPP is permitted, all our employees are eligible. Employees may
purchase shares of our common stock at a 15% discount to the lesser of the closing price of our common stock on (i) the first
trading day of the offering period or (ii) the last trading day of the offering period. Offering periods under the ESPP are six
months in duration. As of December 31, 2020, over 99.0% of our employees are eligible to participate.
The Equity Plan and the ESPP have been previously approved 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, 2020.
Plan Category
Equity compensation plans approved by
stockholders
Equity compensation plans not approved by
stockholders
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)
293,353 $
63.22
14,270,858 (2)
—
—
—
Total
____________
(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, 2020, we also had 2,618,588 shares to be issued upon vesting of outstanding restricted
stock and PSUs.
14,270,858 (2)
293,353 $
63.22
(2) This amount includes 9,837,094 shares of common stock that may be awarded pursuant to the Equity Plan and 4,433,764
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
61
herein by reference from the discussion under the heading “Board of Directors-Proposal 1: Election of Directors” in the Proxy
Statement.
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 & Risk Committee Matters-Annual Evaluation and 2021 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).
Share Purchase Agreement, dated as of November 18, 2020, by and among Osprey Acquisition Corporation, a
wholly owned subsidiary of Nasdaq, Verafin Holdings Inc., certain shareholders of Verafin (the “Sellers”), and
Shareholder Representative Services LLC, solely in its capacity as the representative of the Sellers.†
Amendment to Share Purchase Agreement, dated as of February 11, 2021, by and among Osprey Acquisition
Corporation, a wholly owned subsidiary of Nasdaq, Verafin Holdings Inc., certain shareholders of Verafin (the
“Sellers”), and Shareholder Representative Services LLC, solely in its capacity as the representative of the
Sellers
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).
2.1
2.2
2.3
3.1
3.1.1
3.1.2
3.1.3
3.2
4.1
4.2
4.2.1
4.3
62
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).
4.3.1
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).
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).
Seventh Supplemental Indenture, dated February 13, 2020, 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 Exhibit 4.2 to the Company’s Form 8-A filed on February
13, 2020).
Eighth Supplemental Indenture, dated April 28, 2020, by and between Nasdaq, Inc. and Wells Fargo Bank,
National Association, as Trustee (incorporated herein by reference to Exhibit 4.2 to the Current Report on Form
8-K filed on April 28, 2020).
Ninth Supplemental Indenture, dated December 21, 2020, by and between Nasdaq, Inc. and Wells Fargo Bank,
National Association, as Trustee (incorporated herein by reference to Exhibit 4.2 to the Current Report on Form
8-K filed on December 21, 2020).
Tenth Supplemental Indenture, dated December 21, 2020, by and between Nasdaq, Inc. and Wells Fargo Bank,
National Association, as Trustee (incorporated herein by reference to Exhibit 4.3 to the Current Report on Form
8-K filed on December 21, 2020).
Eleventh Supplemental Indenture, dated December 21, 2020, by and between Nasdaq, Inc. and Wells Fargo
Bank, National Association, as Trustee (incorporated herein by reference to Exhibit 4.4 to the Current Report
on Form 8-K filed on December 21, 2020).
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 May 19, 2020 (incorporated herein by
reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 filed on
August 5, 2020).*
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).*
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
10.1
10.2
10.3
10.4
63
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, 2020 filed on August 5,
2020).*
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, 2020 filed on August 5,
2020).*
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
10.4 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 filed on August 5, 2020).*
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).*
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).*
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).*
Retirement Agreement and General Release of Claims by and between Nasdaq, Inc. and Michael Ptasznik,
dated October 21, 2020.*
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 Agreement by and between Nasdaq, Inc. and Bradley J. Peterson, dated October 1, 2020.*
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).
Amendment No. 1 to Credit Agreement, dated as of December 1, 2020, by and among Nasdaq, Inc., the lenders
party thereto, and Bank of America, N.A., as administrative agent (incorporated herein by reference to Exhibit
10.1 to the Current Report on Form 8-K filed on December 3, 2020).
Credit Agreement, dated as of December 21, 2020, among Nasdaq, Inc., the various lenders from time to time
party thereto and, Bank of America, N.A., as administrative agent and issuing bank (incorporated herein by
reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 21, 2020).
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).
10.5
10.6
10.7
10.8
10.9
10.10
10.10.1
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
64
11
21.1
23.1
24.1
31.1
31.2
32.1
101
104
Statement regarding computation of per share earnings (incorporated herein by reference from Note 13 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,
2020, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets
as of December 31, 2020 and December 31, 2019; (ii) Consolidated Statements of Income for the years ended
December 31, 2020, 2019 and 2018; (iii) Consolidated Statements of Comprehensive Income for the years
ended December 31, 2020, 2019 and 2018; (iv) Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 2020, 2019 and 2018; (v) Consolidated Statements of Cash Flows for the
years ended December 31, 2020, 2019 and 2018; and (vi) notes to consolidated financial statements.
Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101.
____________
* 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.
65
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 23, 2021.
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 23, 2021.
Name
/s/ Adena T. Friedman
Adena T. Friedman
/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
*
Alfred W. Zollar
President and Chief Executive Officer
(Principal Executive Officer)
Title
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
* Pursuant to Power of Attorney
By:
/s/ John A. Zecca
John A. Zecca
Attorney-in-Fact
66
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, 2020 and
2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2020, 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, 2020, 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 23, 2021 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 2, 3 and 8 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 $53 million as of
December 31, 2020 and recognized $357 million in revenue for the year then ended. 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 2, 3 and 8 to the consolidated financial statements related to market
technology revenue recognition.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1986.
New York, New York
February 23, 2021
F-3
Nasdaq, Inc.
Consolidated Balance Sheets
(in millions, except share and par value amounts)
December 31, 2020
December 31, 2019
$
$
$
Assets
Current assets:
Cash and cash equivalents
Restricted cash and cash equivalents
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:
171,278,761 at December 31, 2020 and 171,075,011 at December 31, 2019; shares
outstanding: 164,933,678 at December 31, 2020 and 165,094,440 at December 31, 2019
Additional paid-in capital
Common stock in treasury, at cost: 6,345,083 shares at December 31, 2020 and
5,980,571 shares at December 31, 2019
Accumulated other comprehensive loss
Retained earnings
Total Nasdaq stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
F-4
2,745 $
37
195
566
3,942
175
7,660
475
6,850
2,255
381
358
17,979 $
175 $
224
227
235
121
3,942
—
4,924
5,541
502
389
187
11,543
2
2,547
(376)
(1,368)
5,628
6,433
3
6,436
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
—
5,639
13,924
$
17,979 $
Nasdaq, Inc.
Consolidated Statements of Income
(in millions, except per share amounts)
Revenues:
Market Services
Corporate Platforms
Investment Intelligence
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
Year Ended December 31,
2020
2019
2018
$
3,832 $
530
908
357
—
5,627
$
2,639
496
779
338
10
4,262
2,709
487
714
270
97
4,277
(2,029)
(695)
2,903
(1,327)
(400)
2,535
(1,344)
(407)
2,526
786
137
151
107
142
39
202
24
33
48
1,669
1,234
4
(101)
—
—
5
70
1,212
279
933 $
5.67 $
5.59 $
1.94 $
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
$
$
$
$
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
$
$
$
$
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 benefit (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
Year Ended December 31,
2020
2019
2018
$
933 $
774
$
458
269
49
318
—
—
—
(122)
(31)
(153)
(4)
1
(3)
318
(156)
$
1,251 $
618
$
(240)
(11)
(251)
9
(9)
—
(251)
207
____________
(1) Primarily relates to the tax effect of unrealized gains and losses on Euro denominated notes.
(2) For 2018, 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
Impact of adoption of ASU 2016-13
Net income
Reclassification impact of Tax Reform
Cash dividends declared per common share
Ending balance
Total Nasdaq stockholders’ equity
Noncontrolling interests
Beginning balance
Net activity related to noncontrolling interests
Ending balance
Total Equity
Year Ended December 31,
2020
2019
2018
Shares
165
$
2
Shares
165
$
2
Shares
167
$
2
(2)
1
—
1
—
2,632
(222)
87
2
48
2,547
(336)
(40)
(376)
(1,686)
318
—
(1,368)
5,027
(12)
933
—
(320)
5,628
6,433
—
3
3
(2)
1
—
1
—
2,716
(200)
79
2
35
2,632
(297)
(39)
(336)
(1,530)
(156)
—
(1,686)
4,558
—
774
—
(305)
5,027
5,639
—
—
—
(5)
2
—
1
—
3,024
(394)
69
3
14
2,716
(247)
(50)
(297)
(862)
(251)
(417)
(1,530)
3,963
458
417
(280)
4,558
5,449
—
—
—
165 $
6,436
165 $
5,639
165 $
5,449
See accompanying notes to consolidated financial statements.
F-7
Nasdaq, Inc.
Consolidated Statements of Cash Flows
(in millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Share-based compensation
Deferred income taxes
Reversal of certain Swedish tax benefits
Extinguishment of debt
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
Proceeds from sale of investment securities
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 borrowings under our credit commitment and debt obligations
Payment of debt extinguishment cost
Proceeds from issuances of long-term debt, net of issuance costs and utilization of credit commitment
Repurchases of common stock
Dividends paid
Proceeds received from employee stock activity and other issuances
Payments related to employee shares withheld for taxes
Other financing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period
Cash and cash equivalents and restricted cash and cash equivalents at end of period
Supplemental Disclosure Cash Flow Information
Cash paid for:
Interest
Income taxes, net of refund
See accompanying notes to consolidated financial statements.
F-8
Year Ended December 31,
2020
2019
2018
$
933 $
774 $
458
202
87
41
—
36
—
—
14
(70)
18
(167)
26
5
92
32
15
(12)
1,252
(283)
402
—
22
(157)
(188)
(27)
(231)
190
79
35
—
11
(27)
—
25
(84)
8
(42)
(173)
(49)
23
(9)
(15)
217
963
(579)
543
132
11
(206)
(127)
(14)
(240)
(391)
(1,468)
(36)
116
(1,215)
(11)
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)
—
3,807
(222)
(320)
50
(40)
3
1,383
16
2,420
362
2,782 $
680
(200)
(305)
37
(39)
—
(937)
(10)
(224)
586
362 $
—
(394)
(280)
17
(50)
—
(1,027)
(10)
187
399
586
97 $
290 $
120 $
205 $
148
221
$
$
$
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
Platforms, Investment Intelligence and Market Technology.
In the fourth quarter of 2020, we renamed the segment that
was formerly known as the Corporate Services segment to
the Corporate Platforms segment and renamed the business
that was formerly known as the Corporate Solutions business
to the IR & ESG Services business. We also renamed the
segment that was formerly known as the Information
Services segment to the Investment Intelligence segment and
renamed the business that was formerly known as the
Investment Data and Analytics business to the Analytics
business. There was no impact to current or prior years'
operating results as a result of these changes.
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
certain countries where we operate exchanges, we also
provide broker services, clearing, settlement and central
depository services. 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. During 2020, all open interest was migrated
to other exchanges. In January 2020, we commenced an
orderly wind-down of our Nordic broker services operations
business. We expect this wind-down to continue through
2021. Also, in February 2021, we announced that we entered
into a Purchase Agreement to sell NFI. See “Sale of U.S.
Fixed Income Business,” of Note 21, “Subsequent Events,”
for further discussion of this transaction.
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 - Market Services,” of “Item 1.
Business.”
Corporate Platforms
Our Corporate Platforms segment includes our Listing
Services and IR & ESG Services businesses. These
businesses deliver critical capital market and governance
solutions across
companies.
the
lifecycle of public and private
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.
We are continuing to grow our U.S. Corporate Bond
exchange for the listing of corporate bonds. This exchange
operates pursuant to The Nasdaq Stock Market exchange
license and is powered by NFF. As of December 31, 2020, 86
corporate bonds were listed on the Corporate Bond exchange.
We also continue to grow the Nasdaq Sustainable Bond
Network, a platform for increased transparency in the global
sustainable bond markets.
As of December 31, 2020, there were 3,392 total listings on
The Nasdaq Stock Market, including 412 ETPs. The
combined market capitalization was approximately $22.0
trillion. In Europe, the Nasdaq Nordic and Nasdaq Baltic
exchanges, together with Nasdaq First North, were home to
1,071 listed companies with a combined market capitalization
of approximately $2.1 trillion.
Our IR & ESG Services 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, improve corporate
governance, and navigate the evolving ESG landscape
through our suite of advanced technology, analytics, and
consultative services. We provide clients with counsel on a
range of governance and sustainability-related issues. Our
acquisition of OneReport in January 2020 broadened our
offerings which also include our ESG Advisory service and
our board assessment and collaboration technology.
For further discussion of our Corporate Platforms businesses,
see “Products and Services - Corporate Platforms,” of “Item
1. Business.”
Investment Intelligence
Our Investment Intelligence segment includes our Market
Data, Index and Analytics businesses.
Our Market Data business sells and distributes historical and
real-time market data to the sell-side, the institutional
investing community, retail online brokers, proprietary
trading shops, other venues, internet portals and data
distributors. Our market data products enhance transparency
F-9
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 and financial products. We also license cash-settled
options, futures and options on futures on our indexes. As of
December 31, 2020, 339 ETPs listed in over 20 countries and
exchanges tracked a Nasdaq index and accounted for $359
billion in AUM.
their
Our Analytics business provides asset managers, investment
consultants and institutional asset owners with information
and analytics to make data-driven investment decisions and
deploy
resources more productively. Through
eVestment and Solovis, we provide a suite of cloud-based
solutions that help institutional investors and consultants
conduct pre-investment due diligence, and monitor their
portfolios post-investment. The eVestment platform also
enables asset managers to market their institutional products
worldwide.
For further discussion of our Investment Intelligence
businesses, see “Products and Services - Investment
Intelligence,” of “Item 1. Business.”
Market Technology
Powering over 130 market infrastructure operators and new
market clients in more than 50 countries, 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. 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 markets customers,
including
liabilities securitization,
cryptocurrencies and sports wagering. During 2020, we
the cloud-deployed Nasdaq
announced
for
Automated
solution
retail
investigating
and
commercial banks
institutions.
Additionally, in February 2021, we completed the acquisition
of Verafin, a SaaS technology provider specializing in
combating fraud and money laundering. See “Acquisition of
Verafin,” of Note 4, “Acquisitions and Divestiture,” for
further discussion.
the
Investigator,
anti-money
an
laundering
for
financial
and other
launch of
automated
insurance
those
in
For further discussion of our Market Technology businesses,
see “Products and Services - Market Technology,” 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 6,
“Investments,” for further discussion of our equity method
investments.
The accompanying consolidated financial statements reflect
all adjustments which are, in the opinion of management,
necessary for a fair statement of
the results. These
adjustments are of a normal recurring nature. All significant
intercompany accounts and transactions have been eliminated
in consolidation.
Certain prior year amounts have been reclassified to conform
to the current year presentation.
Use of Estimates
In preparing our consolidated financial statements, we make
assumptions, judgments and estimates that can have a
significant impact on our revenue, operating income and net
income, as well as on the value of certain assets and liabilities
in our consolidated balance sheets. At least quarterly, we
evaluate our assumptions, judgments and estimates, and
make changes as deemed necessary.
limited
including but not
Nasdaq has considered the impact of COVID-19 on the
assumptions and estimates used in evaluating our assets and
to our goodwill,
liabilities,
investments, equity
intangible assets, equity method
securities and allowance for losses on accounts receivable.
We determined that there were no material adverse impacts
on our results of operations and financial position for the year
ended December 31, 2020. In addition, there were no
material impairment charges recorded for the year ended
December 31, 2020. These estimates may change as new
events occur and additional information is obtained. Actual
results could differ from these estimates under different
assumptions or conditions.
Foreign Currency
Foreign denominated assets and liabilities are remeasured
into the functional currency at exchange rates in effect at the
balance sheet date and recorded
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 in
the Consolidated Statements of Income.
through
the
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
F-10
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 $2,509 million as of
December 31, 2020 and $135 million as of December 31,
2019. Cash equivalents are carried at cost plus accrued
interest, which approximates fair value due to the short
maturities of these investments. The increase in cash
equivalents in 2020 was primarily due to the investment of
net proceeds of $1.9 billion from issuances of long-term debt
in the fourth quarter of 2020 for the acquisition of Verafin,
which closed
in February 2021. See “Acquisition of
Verafin,” of Note 4, “Acquisitions and Divestiture,” for
further discussion.
Restricted Cash
Restricted cash and cash equivalents, which was $37 million
as of December 31, 2020 and $30 million as of December 31,
2019, is restricted from withdrawal due to a contractual or
regulatory requirement or not available for general use and as
such is classified as restricted in the Consolidated Balance
Sheets. As of December 31, 2020 and 2019, restricted cash
and cash equivalents primarily includes funds held for our
trading and clearing businesses.
Receivables, net
Our receivables are concentrated with our member firms,
market data distributors, listed companies and investor
relations and governance and market technology customers.
Receivables are shown net of a reserve for uncollectible
accounts. On January 1, 2020, we adopted ASU 2016-13.
Implementation of this standard is discussed below under
“Measurement of Credit Losses on Financial Instruments.”
The reserve for bad debts is maintained at a level that
management believes to be sufficient to absorb expected
losses over the life of our 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 an aging
methodology. This method applies loss rates based on
is disaggregated by
historical
business segment and, as deemed necessary, is adjusted for
other
impact
collectibility. In circumstances where a specific customer’s
inability to meet its financial obligations is known (i.e.,
bankruptcy filings), we determine whether a specific
provision for bad debts is required. 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
factors and considerations
information which
that could
loss
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 $21 million as of
December 31, 2020, $9 million as of December 31, 2019 and
$13 million as of December 31, 2018. The changes in the
balance between periods was immaterial.
Measurement of Credit Losses on Financial Instruments
ASU 2016-13 changed 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,
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 that the
losses are recognized as allowances rather than reductions in
the amortized cost of the securities.
loan commitments,
We recorded a $12 million non-cash cumulative effect
adjustment to retained earnings on our opening Consolidated
Balance Sheets as of January 1, 2020 as a result of the
adoption of this new standard.
The comparative information has not been restated and
continues to be reported under the accounting standards in
effect for those periods. We expect the impact of the adoption
of the new standard to be immaterial to our net income on an
on-going basis.
took
to an adjustment
At the date of adoption, the adjustment impacted by the
standard related primarily
trade
receivables. We
into consideration all financial
instruments held at the date of adoption which were impacted
by the standard, including reverse repurchase agreements and
commercial paper, and estimated the risk of loss to be
immaterial. Therefore, no adjustment was recorded for these
instruments.
to
In accordance with the new standard, Nasdaq must recognize
an allowance when a receivable or contract asset is
established, regardless of whether there has been an incurred
loss.
to determine expected credit
In order to assess the appropriate allowance as of January 1,
2020, we disaggregated our trade receivables by business
segment and the aging of receivables. We concluded that
historical loss information is a reasonable starting point on
which
trade
receivables held at the date of adoption as the composition of
our trade receivables at adoption of the standard is materially
consistent with that used in developing the historical loss
percentages for each business unit. In order to incorporate
our expectation of credit losses over the life of our
receivables, we considered corporate default rate averages
over an extended period as compared to the period covered
losses for
F-11
by our historical loss data and included an adjustment to
historical
loss percentages for current conditions and
expected future conditions at the date of adoption.
For the years ended December 31, 2020, 2019 and 2018, no
material adjustments were made to the carrying value of our
equity securities.
Investments
Purchases and sales of investment securities are recognized
on settlement date.
Financial investments
Financial investments are comprised of trading securities.
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.
Fair value 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 6, “Investments,” for further
discussion of our equity securities.
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 under the equity method of
accounting. We record our estimated pro-rata share of
earnings or losses each reporting 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 6,
“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 2020,
2019 or 2018.
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
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.
cash or non-cash
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
F-12
expense in the Consolidated Statements of Income and
offsets the foreign currency exposure.
As of December 31, 2020 and 2019, 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 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 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 “1.75% Senior Unsecured
Notes Due 2023,” “1.75% Senior Unsecured Notes Due
2029,” and “0.875% Senior Unsecured Notes Due 2030,” of
Note 9, “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
the Consolidated Balance Sheets.
equipment, net
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.
in
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 7, “Property and Equipment, net,” for further
discussion.
Leases
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. Prior periods continue to be reported under guidance in
effect prior to January 1, 2019.
At inception, we determine whether a contract is or contains
a lease. We have operating leases which are primarily real
estate leases for our U.S. and European headquarters and for
general office space. As of December 31, 2020, these leases
have varying lease terms with remaining maturities ranging
from 1 month to 15 years. Operating lease balances are
included in operating lease assets, other current liabilities,
and operating lease liabilities in our Consolidated Balance
Sheets. We do not have any leases classified as finance
leases.
Operating
to use an
lease assets represent our right
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 16, “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
F-13
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 impairment test.
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.
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. When performing a
quantitative goodwill impairment test, we compare the fair
value of a reporting unit with its carrying amount. If the fair
value is less than the carrying amount, an impairment charge
is recognized in an amount equal to the difference, limited to
the total amount of goodwill allocated to that reporting unit.
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
its carrying amount, an
than
impairment charge is recognized in an amount equal to the
difference.
less
is
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 the 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.
There was no impairment of goodwill for the years ended
December 31, 2020, 2019 and 2018 and there were no
indefinite-lived intangible asset impairment charges in 2020,
2019 and 2018. Future disruptions to our business and events,
such as prolonged 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 $4 million in 2020 and $24 million in
2019. For the year ended December 31, 2018, no material
adjustments were made to the carrying amounts of finite-
lived intangible assets or property and equipment.
Revenue Recognition and Transaction-Based Expenses
Revenue From Contracts With Customers
Our revenue recognition policies under ASU 2014-09,
“Revenue from Contracts with Customers (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 $21 million as of December 31, 2020 and $9
million as of December 31, 2019. The changes in the balance
immaterial. We do not have
between periods were
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 a material amount of 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, for
the portion of transaction price allocated to unsatisfied
performance obligations, see Note 3, “Revenue From
F-14
Contracts With Customers.” Deferred revenue primarily
represents our contract liabilities related to our fees for
annual and initial listings, market technology, IR & ESG
services and investment intelligence contracts. Deferred
revenue is the only significant contract asset or liability as of
December 31, 2020. See Note 8, “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
to our
related amortization expense are not material
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
the
judgments and estimates were used
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.
in
Revenue Recognition
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
similar economic
characteristics of the nature, amount, timing and uncertainty
of our revenues and cash flows.
that depict
represent
those
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
they are
transactions are substantially complete when
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 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 The
Nasdaq Stock Market, Nasdaq PSX and Nasdaq 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 CX2, 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
the
transaction
Consolidated Statements of Income. These
rebates are paid on a monthly basis and the amounts due are
included in accounts payable and accrued expenses in the
Consolidated Balance Sheets.
transaction-based expenses
included
in
in
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
F-15
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 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
administration
solutions. 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, we commenced an orderly wind-
down of this broker services operations business. We expect
this wind-down to continue through 2021.
customized
securities
and
Corporate Platforms
Listing Services
the standalone selling price of
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 IR & ESG 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
performance obligations is based on the initial and annual
listing fees and the standalone selling price of the IR & ESG
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 IR & ESG 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.
In the U.S., annual renewal fees are charged to listed
companies based on their number of outstanding shares 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. Annual
fees are charged to newly listed companies on a pro-rata
basis, based on outstanding shares at the time of listing and
recognized over the remainder of the year. 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.
IR & ESG Services
Our IR & ESG Services business includes our Investor
Relations Intelligence and Governance Solutions businesses,
which serve both public and private companies and
organizations.
IR & ESG Services 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.
Investment Intelligence
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
F-16
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:
•
the
facilitate
collection
• We are the administrator for the plan, in addition to
being a participant in the plan. In our unique role as
and
administrator, we
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
in
distributors and subscribers and
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.
taking action
•
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 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 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.
Analytics
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 revenues 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.
long-term contracts with customers
Our
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
F-17
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. During the fourth quarter, as
part of our regular review of significant implementation
projects, we refined and revised our plans relating to a large-
scale post-trade clearing implementation project for a specific
client. At that point it became probable that we would incur a
loss over the remainder of that particular project, in part due
to the logistical implications of COVID-19. As a result, we
recorded a $25 million provision for the estimated loss in
general, administrative and other expense in our Consolidated
Statements of Income and is included in other current and
other non-current liabilities in our Consolidated Balance
Sheets.
Other Revenues
For the year ended December 31, 2019 and 2018, other
revenues include the revenues from the BWise enterprise
governance, risk and compliance software platform, which
was sold in March 2019, and for the year ended December
31, 2018, other revenues also include 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 IR & ESG
Services business within our Corporate Platforms segment
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 restricted stock, PSUs, and
employee stock options. 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. Shares 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 13, “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 allocations. See Note 10, “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.
The expected rate of return on plan assets for our U.S.
pension plans represents our long-term assessment of 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
restricted stock, PSUs, and stock options. 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. The fair value of stock options are
estimated using the Black-Scholes option-pricing model.
F-18
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.
•
•
•
Level 1-Quoted prices for identical instruments in active
markets.
Level 2-Quoted prices for similar instruments in active
similar
markets; quoted prices
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.
identical or
for
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 11, “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
generally include integration costs, as well as legal, due
diligence and other third party transaction costs. As of
December 31, 2020, 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:
This hierarchy requires the use of observable market data
when available.
See Note 14, “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 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.
Subsequent Events
We have evaluated subsequent events through the issuance
date of this Annual Report on Form 10-K. See Note 21,
“Subsequent Events,” for further discussion.
F-19
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, 2020, 2019 and 2018:
Year Ended December 31, 2020
Market
Services
Corporate
Platforms
Investment
Intelligence
Market
Technology
Consolidated
(in millions)
Transaction-based trading and clearing, net
$
809 $
— $
— $
Trade management services
Listing services
IR & ESG Services
Market data
Index
Analytics
Market technology
299
—
—
—
—
—
—
—
316
214
—
—
—
—
—
—
—
409
324
175
—
Revenues less transaction-based expenses
$
1,108 $
530 $
908 $
—
—
—
—
—
—
—
357
357
$
809
299
316
214
409
324
175
357
$
2,903
Market
Services
Corporate
Platforms
Investment
Intelligence
Market
Technology
Other
Revenues
Consolidated
Year End December 31, 2019
(in millions)
Transaction-based trading and clearing, net
$
621 $
— $
— $
— $
— $
Trade management services
Listing services
IR & ESG Services
Market data
Index
Analytics
Market technology
Other revenues
291
—
—
—
—
—
—
—
—
296
200
—
—
—
—
—
—
—
—
398
223
158
—
—
—
—
—
—
—
—
338
—
—
—
—
—
—
—
—
10
621
291
296
200
398
223
158
338
10
Revenues less transaction-based expenses
$
912 $
496 $
779 $
338 $
10 $
2,535
Market
Services
Corporate
Platforms
Investment
Intelligence
Market
Technology
Other
Revenues
Consolidated
Year End December 31, 2018
(in millions)
Transaction-based trading and clearing, net
$
666 $
— $
— $
— $
— $
Trade management services
Listing services
IR & ESG Services
Market data
Index
Analytics
Market technology
Other revenues
292
—
—
—
—
—
—
—
—
290
197
—
—
—
—
—
—
—
—
390
206
118
—
—
—
—
—
—
—
—
270
—
—
—
—
—
—
—
—
97
666
292
290
197
390
206
118
270
97
Revenues less transaction-based expenses
$
958 $
487 $
714 $
270 $
97 $
2,526
F-20
For the year ended December 31, 2020, approximately 69.8% of Market Services revenues were recognized at a point in time
and 30.2% were recognized over time. 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.
The increase in Market Services revenues recognized at a point in time for the year ended December 31, 2020 compared with
2019 and 2018 was primarily due to higher U.S. industry trading volumes in our equity derivative trading and clearing business
and higher U.S. industry trading volumes and higher European value traded in our cash equity trading business. Substantially
all revenues from the Corporate Platforms, Investment Intelligence and Market Technology segments were recognized over
time for the years ended December 31, 2020, 2019 and 2018.
As discussed in “Revenue From Contracts with Customers - Contract Balances,” of Note 2, “Summary of Significant
Accounting Policies,” 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, 2020:
2021
2022
2023
2024
2025
2026 and thereafter
Total
(in millions)
287
174
93
68
51
112
785
$
$
Market technology deferred revenue, as discussed in Note 8, “Deferred Revenue,” represents consideration received that is yet
to be recognized as revenue for unsatisfied performance obligations.
4. Acquisitions and Divestiture
The financial results of the below transactions are included in our consolidated financial statements from the date of each
acquisition or divestiture.
2021 Acquisition
Acquisition of Verafin
In February 2021, we completed the acquisition of Verafin, a SaaS technology provider specializing in combating fraud and
money laundering, for an aggregate purchase price of $2.75 billion, subject to certain adjustments. Verafin is part of our Market
Technology segment.
Nasdaq used the net proceeds from our offering of new senior notes in December 2020, commercial paper issuances, and cash
on hand to fund this acquisition. See “Commercial Paper Program,” and “Senior Unsecured Notes Due 2022, 2031 and 2040,”
of Note 9, “Debt Obligations,” for further discussion.
We are currently reviewing the impact of this acquisition under FASB Accounting Standards Codification Topic 805, “Business
Combinations.” Any additional disclosures would not be practicable for the year ended December 31, 2020. Such disclosures
will be included in our Quarterly Report on Form 10-Q for the quarter ending March 31, 2021.
2020 Acquisition
Acquisition of Solovis
In March 2020, we acquired Solovis, a provider of multi-asset class portfolio management, analytics and reporting tools across
public and private markets. Solovis is part of our Investment Intelligence segment.
2019 Acquisition and Divestiture
2019 Divestiture
Divestiture of BWise
F-21
In March 2019, we sold the BWise enterprise governance, risk and compliance software platform, which was part of our IR &
ESG Services business within our Corporate Platforms 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.
2019 Acquisition
Acquisition of Cinnober
Cinnober
$
219 $
18 $
(19) $
74 $
146
Purchase
Consideration
Total Net Assets
Acquired
Total Net Deferred
Tax Liability
(in millions)
Acquired
Intangible Assets
Goodwill
In January 2019, we acquired Cinnober, a Swedish financial
technology
and
clearinghouses worldwide for $219 million. Cinnober is part
of our Market Technology segment.
exchanges
provider
brokers,
to
Nasdaq used cash on hand to fund this acquisition.
The amounts in the table above represent the final allocation
of the purchase price.
See “Intangible Assets” below for further discussion of
intangible assets acquired in the Cinnober acquisition.
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.
Discount Rate
for
flows
the hypothetical cash
The discount rate used reflects the amount of risk associated
with
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.
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.
Estimated Useful Life
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, 2020 and 2019 include the financial results of
the above acquisitions from the dates of these acquisitions.
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. Goodwill and Acquired Intangible Assets
Goodwill
* * * * * *
The following table presents the changes in goodwill by business segment during the year ended December 31, 2020:
Market
Services
Corporate
Platforms
Investment
Intelligence
(in millions)
Market
Technology
Total
Balance at December 31, 2019
$
3,342 $
460 $
2,283 $
281 $
6,366
Goodwill acquired
Foreign currency translation adjustment
—
177
—
21
135
123
—
28
135
349
Balance at December 31, 2020
$
3,519 $
481 $
2,541 $
309 $
6,850
F-22
The goodwill acquired for Investment Intelligence shown
above relates to our acquisition of Solovis. See “2020
Acquisition,” of Note 4, “Acquisitions and Divestiture,” for
further discussion of this acquisition.
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,
2020 and 2019; however, events such as prolonged 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.
Acquired Intangible Assets
* * * * * *
The following table presents details of our total acquired intangible assets, both finite- and indefinite-lived:
Finite-Lived Intangible Assets
Technology
Customer relationships
Other
Foreign currency translation adjustment
December 31, 2020
December 31, 2019
Gross
Amount
Accumulated
Amortization
Net Amount
Gross
Amount
Accumulated
Amortization
Net Amount
(in millions)
(in millions)
$
76 $
(24) $
52 $
63 $
(19) $
44
1,599
18
(104)
(648)
(6)
58
951
12
1,596
18
(46)
(159)
(532)
1,064
(5)
55
13
(104)
Total finite-lived intangible assets
$ 1,589 $
(620) $
969 $ 1,518 $
(501) $ 1,017
Indefinite-Lived Intangible Assets
Exchange and clearing registrations
$ 1,257 $
— $ 1,257 $ 1,257 $
— $ 1,257
Trade names
Licenses
Foreign currency translation adjustment
121
52
(144)
—
—
—
121
52
121
52
(144)
(198)
—
—
—
121
52
(198)
Total indefinite-lived intangible assets
$ 1,286 $
— $ 1,286 $ 1,232 $
— $ 1,232
Total intangible assets
$ 2,875 $
(620) $ 2,255 $ 2,750 $
(501) $ 2,249
Amortization expense for acquired finite-lived intangible
assets was $103 million for the year ended December 31,
2020, $101 million for the year ended December 31, 2019
and $109 for the year ended December 31, 2018. 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 $46
million as of December 31, 2020) of acquired finite-lived
intangible assets as of December 31, 2020 is as follows:
2021
2022
2023
2024
2025
2026 and thereafter
Total
(in millions)
$
109
106
103
98
96
503
$ 1,015
6. Investments
The following table presents the details of our investments:
December 31,
2020
December 31,
2019
(in millions)
195 $
291
216 $
60 $
156
49
$
$
$
Financial investments
Equity method investments
Equity securities
Financial Investments
As of December 31, 2020, financial
investments are
comprised of trading securities, and are primarily comprised
of highly rated European government debt securities, of
which $175 million are assets primarily utilized to meet
regulatory capital requirements, mainly for our clearing
operations at Nasdaq Clearing. As of December 31, 2019,
financial investments are comprised of trading securities, and
rated European
are primarily comprised of highly
government debt securities, time deposits and highly rated
F-23
corporate debt securities, of which $169 million are assets
primarily utilized to meet regulatory capital requirements,
mainly for our clearing operations at Nasdaq Clearing.
Equity Method Investments
We record our estimated pro-rata share of earnings or losses
each reporting period and record any dividends as a reduction
in the investment balance. As of December 31, 2020 and
2019, our equity method investments primarily included our
40.0% equity interest in the 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 for
the years end December 31, 2020, 2019 and 2018.
Net income recognized from our equity interest in the
earnings and losses of these equity method investments,
primarily the OCC, was $70 million for the year ended
December 31, 2020, $84 million for the year ended
December 31, 2019 and $18 million for the year ended
December 31, 2018. For the year ended December 31, 2020,
higher equity earnings in the OCC, driven by elevated U.S.
industry trading volumes, were partially offset by a rebate to
clearing members in the fourth quarter of 2020.
In 2019, the SEC disapproved the OCC capital plan that had
been established in 2015. Following the SEC disapproval, the
OCC suspended customer rebates and dividends to owners,
including the unpaid dividend on 2018 results. 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, during the first quarter of 2019, we
recognized $36 million of additional income relating to our
share of OCC's 2018 net income, which is included in the
$84 million for the year ended December 31, 2019.
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 for the years
ended December 31, 2020, 2019 and 2018. As of December
31, 2020 and December 31, 2019, our equity securities
represent various strategic investments made through our
corporate venture program as well as investments acquired
through various acquisitions.
7. 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,
2020
2019
(in millions)
$
732 $
565
300
1,032
305
870
(557)
(486)
Total property and equipment, net
$
475 $
384
Depreciation and amortization expense for property and
equipment was $99 million for the year ended December 31,
2020, $89 million for the year ended December 31, 2019, and
$101 million for the year ended December 31, 2018. These
amounts are included in depreciation and amortization
expense in the Consolidated Statements of Income.
We recorded pre-tax, non-cash property and equipment asset
impairment charges on capitalized software that was retired
and accelerated depreciation expense on certain assets as a
result of a decrease in their useful life of $14 million in 2020
and $26 million in 2019. These charges are included in
restructuring charges in the Consolidated Statements of
Income. See Note 20, “Restructuring Charges,” for a
discussion of our 2019 restructuring plan. There were no
other material impairments of property and equipment
recorded in 2020, 2019 or 2018.
As of December 31, 2020 and 2019, we did not own any real
estate properties.
F-24
8. 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, 2020 are reflected in the following table:
Balance at December 31, 2019
Deferred revenue billed in the current
period, net of recognition
Revenue recognized that was included
in the beginning of the period
Foreign currency translation adjustment
Balance at December 31, 2020
Initial Listing
Revenues
Annual
Listings
Revenues
IR & ESG
Services
Revenues
Investment
Intelligence
Revenues
(in millions)
Market
Technology
Revenues
(1)
Other
Total
$
69 $
2 $
41 $
82 $
66 $
14 $
274
50
3
46
80
39
10
228
(30)
2
$
91 $
(2)
(1)
2 $
(41)
—
46 $
(64)
(1)
97 $
(60)
8
53 $
(10)
3
17 $
(207)
11
306
____________
(1) Balance at December 31, 2020 primarily includes deferred revenue from non-U.S. listing of additional shares fees. In the
U.S., these fees will run-off in 2021 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, 2020, we estimate that our deferred revenue will be recognized in the following years:
Fiscal year ended:
2021
2022
2023
2024
2025
2026 and thereafter
Total
Initial Listing
Revenues
Annual
Listings
Revenues
IR & ESG
Services
Revenues
Investment
Intelligence
Revenues
Market
Technology
Revenues
(1)
Other
Total
(in millions)
$
35 $
23
13
10
7
3
2 $
—
—
—
—
—
42 $
4
—
—
—
—
95 $
2
—
—
—
—
51 $
2
—
—
—
—
10 $
2
3
2
—
—
235
33
16
12
7
3
$
91 $
2 $
46 $
97 $
53 $
17 $
306
____________
(1) For composition of “Other” see footnote (1) above.
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-25
9. Debt Obligations
The following table presents the changes in the carrying amount of our debt obligations during the year ended December 31,
2020:
December 31, 2019
Additions
Payments, Foreign
Currency
Translation and
Accretion
(in millions)
December 31, 2020
Short-term debt - commercial paper
$
391 $
990
$
(1,381) $
—
Long-term debt:
3.875% senior unsecured notes repaid on March 16, 2020
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
0.875% senior unsecured notes due February 13, 2030
3.25% senior unsecured notes due April 28, 2050
0.445% senior unsecured notes due December 21, 2022
1.650% senior unsecured notes due January 15, 2031
2.500% senior unsecured notes due December 21, 2040
$1 billion senior unsecured revolving credit facility
terminated December 2020
$1.25 billion senior unsecured revolving credit facility due
December 22, 2025
Total long-term debt
Total debt obligations
Commercial Paper Program
Our U.S. dollar commercial paper program is supported by
our 2020 Credit Facility which provides liquidity support for
the repayment of commercial paper issued through this
program. Prior to the 2020 Credit Facility, the 2017 Credit
repayment of
liquidity support
Facility provided
commercial paper. The 2017 Credit Facility was terminated
in December 2020. See “Early Extinguishment of 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.
for
In March 2020, we observed that conditions for Tier 2
commercial paper issuers were deteriorating, impacting both
costs and actionable duration of commercial paper issues. To
mitigate funding uncertainties and as a precautionary
measure to maximize our liquidity and increase our available
cash on hand, Nasdaq borrowed $799 million under the
revolving credit commitment of the 2017 Credit Facility. In
April 2020, Nasdaq issued the 2050 Notes and used the net
proceeds to repay a portion of amounts borrowed under the
2017 Credit Facility. In June 2020, the remaining outstanding
amount under the 2017 Credit Facility was repaid using cash
on hand. For further discussion of the 2050 Notes, see
“3.25% Senior Unsecured Notes Due 2050” below and see
“Early Extinguishment of 2017 Credit Facility” below for
671
497
668
497
665
—
—
—
—
—
—
—
—
—
—
644
485
597
643
643
(671)
1
62
—
61
82
—
—
—
—
(2)
799
(797)
—
2,996
(4)
3,807
—
(1,262)
$
3,387 $
4,797
$
(2,643) $
—
498
730
497
726
726
485
597
643
643
—
(4)
5,541
5,541
further discussion of our 2017 Credit Facility. As of
December 31, 2020, we had no outstanding borrowings under
our commercial paper program. In January 2021, we
increased the size of our commercial paper program from $1
billion to $1.25 billion. In February 2021, we issued $475
million of commercial paper to partially fund the acquisition
of Verafin. For further discussion of the acquisition of
Verafin, see “Acquisition of Verafin,” of Note 4,
“Acquisitions and Divestiture.”
Senior Unsecured Notes
Our 2022 and 2040 Notes were issued at par. The remaining
senior unsecured notes were 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, 2020, 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
F-26
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.
Early Extinguishment of 3.875% Senior Unsecured Notes
Due 2021
Nasdaq issued the 2021 Notes in June 2013. The 2021 Notes
paid interest annually at a rate of 3.875% per annum.
In March 2020, we primarily used the net proceeds from the
2030 Notes to repay in full and terminate our 2021 Notes.
For further discussion of the 2030 Notes, see “0.875% Senior
Unsecured Notes Due 2030” below. In connection with the
early extinguishment of the 2021 Notes, we recorded a
charge of $36 million, which primarily included a make-
whole redemption price premium. This charge is included in
general, administrative and other expense in the Consolidated
Statements of Income for the year ended December 31, 2020.
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. Such interest rate may vary with Nasdaq’s debt
rating, to the extent Nasdaq is downgraded below investment
grade, 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. Such interest rate may vary with Nasdaq’s
debt rating, to the extent Nasdaq is downgraded below
investment grade, up to a rate not to exceed 3.75%.
rate
The 2023 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 increase in the carrying
amount of $62 million noted in the “Payments, Foreign
Currency Translation and Accretion” column in the table
above primarily reflects the translation of the 2023 Notes into
U.S. dollars and
in accumulated other
recorded
comprehensive loss within stockholders’ equity in the
Consolidated Balance Sheets as of December 31, 2020.
is
3.85% Senior Unsecured Notes Due 2026
In June 2016, Nasdaq issued the 2026 Notes. The 2026 Notes
pay interest semi-annually at a rate of 3.85% per annum until
June 30, 2026. Such interest rate may vary with Nasdaq’s
debt rating, to the extent Nasdaq is downgraded below
investment grade, 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 at a rate of 1.75% per annum
until March 28, 2029. Such interest rate may vary with
Nasdaq’s debt rating, to the extent Nasdaq is downgraded
below investment grade, 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 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 increase in the carrying amount of $61
million noted
the “Payments, Foreign Currency
Translation and Accretion” column in the table above
primarily reflects the translation of the 2029 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, 2020.
in
0.875% Senior Unsecured Notes Due 2030
In February 2020, Nasdaq issued the 2030 Notes. The 2030
Notes pay interest annually in arrears, which began on
February 13, 2021 and may be redeemed by Nasdaq at any
time, subject to a make-whole amount. The interest rate of
0.875% may vary with Nasdaq's debt rating, to the extent
Nasdaq is downgraded below investment grade, up to a rate
not to exceed 1.875%. The proceeds from the 2030 Notes,
approximately $644 million after issuing the notes at a
discount and deducting underwriting fees of the offering,
were primarily used to redeem the 2021 Notes and for other
general corporate purposes. For further discussion of the
2021 Notes, see “Early Extinguishment of 3.875% Senior
Unsecured Notes Due 2021” above.
The 2030 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 increase in the carrying amount of $82
million noted
the “Payments, Foreign Currency
Translation and Accretion” column in the table above
primarily reflects the translation of the 2030 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, 2020.
in
3.25% Senior Unsecured Notes Due 2050
In April 2020, Nasdaq issued the 2050 Notes. The 2050
Notes pay interest semi-annually in arrears, which began on
October 28, 2020 and may be redeemed by Nasdaq at any
time, subject to a make-whole amount. The interest rate of
3.25% may vary with Nasdaq's debt rating, to the extent
Nasdaq is downgraded below investment grade, up to a rate
not to exceed 5.25%. The net proceeds from the 2050 Notes
were approximately $485 million after issuing the notes at a
discount and deducting underwriting fees of the offering. In
April 2020, we used the net proceeds from the 2050 Notes to
repay a portion of amounts previously borrowed under the
2017 Credit Facility. See “Early Extinguishment of 2017
Credit Facility” below for further discussion of our 2017
Credit Facility.
F-27
Senior Unsecured Notes Due 2022, 2031 and 2040
In December 2020, Nasdaq issued the 2022, 2031 and 2040
Notes. The net proceeds were used to partially finance the
acquisition of Verafin. For further discussion of
the
acquisition of Verafin, see “Acquisition of Verafin,” of Note
4, “Acquisitions and Divestiture.”
0.445% Senior Unsecured Notes Due 2022
The 2022 Notes pay interest semi-annually in arrears,
beginning on June 21, 2021 and may be redeemed by Nasdaq
at any time, subject to a make-whole amount. The proceeds
from the 2022 Notes were approximately $597 million after
deducting underwriting fees of the offering. The interest rate
of 0.445% may vary with Nasdaq's debt rating, to the extent
Nasdaq is downgraded below investment grade, up to a rate
not to exceed 1.445%.
1.650% Senior Unsecured Notes Due 2031
The 2031 Notes pay interest semi-annually in arrears, which
began on January 15, 2021 and may be redeemed by Nasdaq
at any time, subject to a make-whole amount. The proceeds
from the 2031 Notes were approximately $643 million after
issuing the notes at a discount and deducting underwriting
fees of the offering. The interest rate of 1.650% may vary
with Nasdaq's debt rating,
is
downgraded below investment grade, up to a rate not to
exceed 2.65%.
the extent Nasdaq
to
2.500% Senior Unsecured Notes Due 2040
The 2040 Notes pay interest semi-annually in arrears,
beginning on June 21, 2021 and may be redeemed by Nasdaq
at any time, subject to a make-whole amount. The proceeds
from the 2040 Notes were approximately $643 million after
deducting the underwriting fees of the offering. The interest
rate of 2.500% may vary with Nasdaq's debt rating, to the
extent Nasdaq is downgraded below investment grade, up to
a rate not to exceed 3.50%.
Credit Facilities
Early Extinguishment of 2017 Credit Facility
In April 2017, Nasdaq entered into the 2017 Credit Facility.
Under our 2017 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 December 2020 we terminated our 2017 Credit Facility.
No amounts were outstanding at the time of termination.
2020 Credit Facility
In December 2020, Nasdaq entered into the 2020 Credit
Facility. The 2020 Credit Facility consists of a $1.25 billion
five-year revolving credit facility (with sublimits for non-
dollar borrowings, swingline borrowings and letters of
credit), which replaced the 2017 Credit Facility. Nasdaq
intends to use funds available under the 2020 Credit Facility
for general corporate purposes and to provide liquidity
support for the repayment of commercial paper issued
through the commercial paper program. Nasdaq is permitted
to repay borrowings under our 2020 Credit Facility at any
time in whole or in part, without penalty.
As of December 31, 2020, no amounts were outstanding on
the 2020 Credit Facility. The $(4) million balance represents
unamortized debt issuance costs which are being accreted
through interest expense over the life of the credit facility.
Under our 2020 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 0.350%, 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 the year ended December 31, 2020.
The 2020 Credit Facility contains financial and operating
covenants. Financial covenants include a maximum leverage
ratio. Operating covenants include, among other things,
incur additional
limitations on Nasdaq’s ability
indebtedness, grant liens on assets, dispose of assets and
make certain restricted payments. The facility also contains
customary affirmative covenants,
to
financial statements, notice of defaults and certain other
material events, maintenance of properties and insurance, and
customary events of default, including cross-defaults to our
material indebtedness.
including access
to
The 2020 Credit Facility includes an option for Nasdaq to
increase the available aggregate amount by up to $625
million subject to the consent of the lenders funding the
increase and certain other conditions.
Other Credit Facilities
Certain of our European subsidiaries have several other credit
facilities, which are available
in multiple currencies,
primarily to support our Nasdaq Clearing operations in
Europe, as well to provide a cash pool credit line for one
subsidiary. These credit facilities, in aggregate, totaled $232
million as of December 31, 2020 and $203 million as of
December 31, 2019 in available liquidity, none of which was
utilized as of December 31, 2020, and of which $15 million
was utilized as of December 31, 2019. Generally, these
facilities each have a one year term. The amounts borrowed
under these various credit facilities bear interest on the
principal amount outstanding at a variable interest rate based
on a base rate (as defined in the applicable credit agreement),
plus an applicable margin. We are charged commitment fees
(as defined in the applicable credit agreement), whether or
not amounts have been borrowed. These commitment fees
are included in interest expense and were not material for the
years ended December 31, 2020, 2019 and 2018.
These facilities include customary affirmative and negative
operating covenants and events of default.
F-28
Debt Covenants
As of December 31, 2020, 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, 2020, we did not have material risk exposure
to LIBOR through our outstanding debt instruments or other
transactions.
10. 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 $14 million for the year ended
December 31, 2020, $13 million for the year ended
December 31, 2019 and $14 million for the year ended
December 31, 2018.
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 $23 million for the year ended
December 31, 2020, $20 million for the year ended
December 31, 2019 and $22 million for the year ended
December 31, 2018.
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 $119 million as of December 31,
2020 and $110 million as of December 31, 2019 and the
benefit obligation was $118 million as of December 31, 2020
and $110 million as of December 31, 2019. As a result, the
U.S. defined-benefit pension plans are fully funded as of
December 31, 2020 and 2019. During 2020 and 2019, we did
not make any contributions to our U.S. defined-benefit
pension plans. For our SERP and other post-retirement
benefit plans, the net underfunded liability was $30 million
as of December 31, 2020 and $33 million as of December 31,
the Nasdaq Benefit Plans are
2019. 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
target
of
allocations adopted by 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.
invested per
Accumulated Other Comprehensive Loss
As of December 31, 2020, 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:
Fiscal Year Ended:
(in millions)
Pension
SERP
Total
2021
2022
2023
2024
2025
2026 through 2030
$
8 $
7 $
15
7
7
8
8
40
2
2
2
2
8
9
9
10
10
48
$
78 $
23 $ 101
11. Share-Based Compensation
We have a share-based compensation program for employees
and non-employee directors. Share-based awards granted
under this program include restricted stock (consisting of
restricted stock units), PSUs and stock options. For
accounting purposes, we consider PSUs to be a form of
restricted stock.
Summary of Share-Based Compensation Expense
the
total
table
following
The
share-based
shows
compensation expense resulting from equity awards and the
15.0% discount for the ESPP for the years ended December
31, 2020, 2019 and 2018, which is included in compensation
and benefits expense in the Consolidated Statements of
Income:
Share-based compensation
expense before income taxes $
Income tax benefit
Share-based compensation
expense after income taxes
Year Ended December 31,
2020
2019
2018
(in millions)
87 $
79 $
69
(23)
(21)
(19)
$
64 $
58 $
50
F-29
Common Shares Available Under Our Equity Plan
As of December 31, 2020, we had approximately 9.8 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 to
employees below the manager level generally vest 33.3% on
the first anniversary of the grant date, 33.3% on the second
anniversary of the grant date, and 33.3% on the third
anniversary of the grant date. Restricted stock awards granted
to employees at or above the manager level generally vest
33.3% on the second anniversary of the grant date, 33.3% on
the third anniversary of the grant date, and 33.3% on the
fourth anniversary of the grant date.
Summary of Restricted Stock Activity
The following table summarizes our restricted stock activity
for the years ended December 31, 2020, 2019 and 2018:
align the equity programs for eligible officers, the one-year
performance-based program was eliminated and all eligible
officers will participate
three-year cumulative
in
performance-based program. While the performance periods
are complete for all PSUs granted under the one-year
performance-based program, some shares underlying these
PSUs have not vested.
the
One-Year PSU Program
The grant date fair value of PSUs under the one-year
performance-based program was 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 received
a target grant of PSUs, but could have received 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
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.
recognized over
is
Restricted Stock
Three-Year PSU Program
Unvested at December 31,
2017
Granted
Vested
Forfeited
Unvested at December 31,
2018
Granted
Vested
Forfeited
Unvested at December 31,
2019
Granted
Vested
Forfeited
Unvested at December 31,
2020
Number of Awards
Weighted-Average
Grant Date Fair
Value
1,988,500 $
550,544
(702,832)
(252,837)
1,583,375 $
605,033
(548,588)
(153,064)
1,486,756 $
743,300
(499,357)
(91,648)
57.34
81.66
48.64
63.86
68.62
85.03
61.45
73.99
77.38
89.93
72.95
81.17
1,639,051 $
84.21
As of December 31, 2020, $70 million of total unrecognized
compensation cost related to restricted stock is expected to be
recognized over a weighted-average period of 1.8 years.
PSUs
PSUs are based on performance measures that impact the
amount of shares that each recipient will receive upon
vesting. Prior to April 1, 2020, we had two performance-
based PSU programs for certain officers, a one-year
performance-based program and a three-year cumulative
performance-based program that focuses on TSR. Effective
with new equity awards issued on April 1, 2020, to better
individual
receives PSUs, subject
Under the three-year performance-based program, each
eligible
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 award issuance 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 award issuance 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 2018 with a three-year
performance period exceeded the applicable performance
parameters. As a result, an additional 150,290 units above the
original target were granted in the first quarter of 2021 and
were fully vested upon issuance.
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 for the
years ended December 31, 2020 and 2019:
F-30
Weighted-average risk free interest
rate(1)
Year End December 31,
2020
2019
0.27%
2.26%
Expected volatility(2)
Weighted-average grant date share price $92.34
Weighted-average fair value at grant
27.4%
16.5%
$89.00
date
____________
(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.
$111.50
$97.65
(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.
Summary of PSU Activity
The following table summarizes our PSU activity for the
years ended December 31, 2020, 2019 and 2018:
PSUs
One-Year Program
Three-Year Program
Weighted-
Average
Grant
Date Fair
Value
Number of
Awards
Weighted-
Average
Grant
Date Fair
Value
Number of
Awards
Unvested at
December
31, 2017
Granted(1)
Vested
Forfeited
Unvested at
December
31, 2018
Granted(1)
333,004 $ 61.39
1,009,958 $ 78.18
177,831
80.97
(170,257) 58.49
(26,347) 61.83
484,075
90.92
(655,204) 64.08
(1,079) 81.57
314,231 $ 74.01
837,750 $ 96.57
179,599
83.56
397,553
96.55
Vested
(147,984) 70.64
(431,751) 93.25
Forfeited
(28,595) 75.43
(6,101) 103.29
Unvested at
December
31, 2019
Granted(1)
Vested
317,251 $ 80.87
797,451 $ 98.31
26,780
84.17
320,328
107.42
(138,423) 78.09
(300,767) 81.57
Forfeited
(36,060) 82.41
(7,023) 98.26
Unvested at
December
31, 2020
169,548 $ 83.33
809,989 $ 108.12
____________
(1)
Includes target and additional awards granted based on
overachievement of performance parameters. For the
one-year PSUs in 2020, only includes overachievement
of performance parameters due to the elimination of the
program.
As of December 31, 2020, $4 million of total unrecognized
compensation cost related to the one-year PSU program is
expected to be recognized over a weighted-average period of
1.2 years. For the three-year PSU program, $31 million of
total unrecognized compensation cost is expected to be
recognized over a weighted-average period of 1.3 years.
Stock Options
There were no stock option awards granted during the years
ended December 31, 2020, 2019 and 2018.
Summary of Stock Option Activity
A summary of stock option activity for the years ended
December 31, 2020, 2019 and 2018 is as follows:
Number of
Stock Options
Weighted-
Average
Exercise
Price
Outstanding at December 31, 2017
571,380 $ 43.84
Exercised
Forfeited
(118,094)
(4,320)
24.44
26.11
Outstanding at December 31, 2018
448,966 $ 49.25
Exercised
Forfeited
(69,699)
(165)
20.84
25.28
Outstanding at December 31, 2019
379,102 $ 54.32
Exercised
Forfeited
Outstanding and exercisable at
December 31, 2020
(85,195)
(554)
23.91
20.94
293,353 $ 63.22
We received net cash proceeds of $2 million from the
exercise of 85,195 stock options for the year ended
December 31, 2020, received net cash proceeds of $2 million
from the exercise of 69,699 stock options for the year ended
December 31, 2019, and received net cash proceeds of $3
million from the exercise of 118,094 stock options for the
year ended December 31, 2018.
As of December 31, 2020, the aggregate pre-tax intrinsic
value of the outstanding and exercisable stock options in the
above table was $20 million and represents the difference
between our closing stock price on December 31, 2020 of
$132.74 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. As of December 31, 2020, the weighted-
average remaining contractual term of the outstanding and
exercisable stock options included in the above table was 5.5
years. As of December 31, 2019, 0.3 million outstanding
stock options were exercisable and the weighted-average
exercise price was $50.50.
The total pre-tax intrinsic value of stock options exercised
was $9 million for the year ended December 31, 2020, $6
F-31
million for the year ended December 31, 2019 and $7 million
for the year ended December 31, 2018.
ESPP
We have an ESPP under which approximately 4.4 million
shares of our common stock were available for future
issuance as of December 31, 2020. In May 2020, we
increased by 3,000,000 the number of shares authorized for
issuance under the ESPP, and extended the term of the ESPP
by approximately 10 years. 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 expense associated with the ESPP for the years
ended December 31, 2020, 2019 and 2018:
Year Ended December 31,
2020
2019
2018
Number of shares purchased 221,123
Weighted-average price of
229,172
205,785
shares purchased
$ 95.79 $ 73.79 $ 66.79
Compensation expense (in
millions)
$
5 $
4 $
3
12. Nasdaq Stockholders’ Equity
Common Stock
As of December 31, 2020, 300,000,000 shares of our
common stock were authorized, 171,278,761 shares were
issued and 164,933,678 shares were outstanding. 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
shareholder to vote in excess of 5.0% of the then-outstanding
shares of Nasdaq common stock.
Share Repurchase Program
As of December 31, 2020,
the remaining aggregate
authorized amount under the existing share repurchase
program was $410 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.
The following is a summary of our share repurchase activity,
reported based on settlement date, for the years ended
December 31, 2020 and 2019:
Year Ended December 31,
2020
2019
Number of shares of common
stock repurchased(1)
2,033,455
2,053,855
Average price paid per share
$
109.13 $
97.37
Total purchase price (in millions) $
222 $
200
____________
(1) Excludes shares withheld upon vesting of restricted stock
and PSUs of 364,512 for the year ended December 31,
2020 and 436,250 for the year ended December 31,
2019.
As discussed above in “Common Stock in Treasury, at Cost,”
shares repurchased under our share repurchase program are
currently retired and cancelled.
In January 2021, the board of directors authorized an increase
to the share repurchase program of an additional $1 billion,
subject to the closing of the NFI sale and acceleration of the
issuance of Nasdaq common stock related to the sale. See
“Sale of U.S. Fixed Income Business,” of Note 21,
“Subsequent Events,” for further discussion of the sale of
NFI and acceleration of share issuance.
Common Stock in Treasury, at Cost
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, 2020 and December 31, 2019, no shares of
preferred stock were issued or outstanding.
We account for the purchase of treasury stock under the cost
method with the shares of stock repurchased reflected as a
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. If treasury shares are reissued, they are recorded at
the average cost of the treasury shares acquired. We held
6,345,083 shares of common stock in treasury as of
December 31, 2020 and 5,980,571 shares as of December 31,
2019, most of which are related to shares of our common
stock withheld
tax
withholding obligations arising from the vesting of restricted
stock and PSUs.
the settlement of employee
for
F-32
Cash Dividends on Common Stock
During 2020, 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 28, 2020
April 22, 2020
July 22, 2020
October 21, 2020
$
0.47 March 13, 2020
$
78 March 27, 2020
0.49
June 12, 2020
80
June 26, 2020
0.49 September 11, 2020
81 September 25, 2020
0.49 December 4, 2020
$
81 December 18, 2020
320
The total amount paid of $320 million was recorded in retained earnings in the Consolidated Balance Sheets at December 31,
2020.
In January 2021, the board of directors approved a regular quarterly cash dividend of $0.49 per share on our outstanding
common stock. The dividend is payable on March 26, 2021 to shareholders of record at the close of business on March 12,
2021. The estimated amount of this dividend is $81 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.
13. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Numerator:
Net income attributable to common shareholders
Denominator:
Year Ended December 31,
2020
2019
2018
(in millions, except share and per share amounts)
$
933 $
774 $
458
Weighted-average common shares outstanding for basic earnings per share
164,415,191
164,931,628
165,349,471
Weighted-average effect of dilutive securities:
Employee equity awards(1)
Contingent issuance of common stock(2)
2,135,532
1,679,922
1,988,610
353,218
358,611
353,218
Weighted-average common shares outstanding for diluted earnings per share
166,903,941
166,970,161
167,691,299
Basic and diluted earnings per share:
Basic earnings per share
Diluted earnings per share
$
$
5.67 $
5.59 $
4.69 $
4.63 $
2.77
2.73
____________
(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 18, “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 2020, 2019 and 2018.
F-33
14. Fair Value of Financial Instruments
The following tables present our financial assets and financial liabilities that were measured at fair value on a recurring basis as
of December 31, 2020 and December 31, 2019.
December 31, 2020
December 31, 2019
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
(in millions)
(in millions)
Assets at Fair Value
European government debt securities
$ 156 $ 156 $ — $ —
$ 157
$ 157 $ — $ —
Corporate debt securities
State owned enterprises and municipal
securities
Swedish mortgage bonds
Time deposits
2
—
2
—
34
—
34
—
15
22
—
—
15
22
—
—
—
—
—
—
24
19
57
—
—
—
24
19
57
—
—
—
Total assets at fair value
$ 195 $ 156 $
39 $ —
$ 291
$ 157 $ 134 $ —
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 and cash
equivalents, 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 6,
“Investments,” for further discussion.
We also consider our debt obligations to be financial
instruments. As of December 31, 2020, the majority of our
debt obligations were fixed-rate obligations. We were
exposed to changes in interest rates as a result of borrowings
under our 2017 Credit Facility and we are exposed to
changes in interest rates under our 2020 Credit Facility, as
the interest rates on these facility have a variable interest rate.
We are also exposed to changes in interest rates as a result of
the amounts outstanding from the sale of commercial paper
under our commercial paper program. As of December 31,
2020, we had no outstanding borrowings under our 2020
Credit Facility or commercial paper program. The fair value
of our debt obligations utilizing prevailing market rates for
our fixed rate debt was $5.9 billion as of December 31, 2020
and 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. 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 as of December 31, 2019 approximated the
carrying value since the rates of interest on this short-term
debt approximated market rates. 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 9,
“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, 2020 and December 31, 2019, there were no
non-financial assets measured at fair value on a non-recurring
basis.
15. 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.
include
the resale and repurchase market,
Through our clearing operations in the financial markets,
the
which
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,
F-34
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 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.
Immediately following the event, Nasdaq Clearing launched
a comprehensive enhancement program to strengthen the
resilience and robustness of the clearinghouse.
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
fund
replenishments. In 2018, we recorded a charge of $23 million
related to this program.
clearing members' default
the
Since the member default in 2018, Nasdaq Clearing has been
working to maximize the recovery from the defaulted
member. All funds recovered are applied towards the default
fund participants on a pro rata basis. As of December 31,
2020, the expected recovery together with the capital relief
program amounts to approximately 80% of the initial loss, of
which the majority has been paid and the remainder is
expected to be paid during 2021.
In December 2018, the SFSA initiated a review of Nasdaq
Clearing. On January 27, 2021, the SFSA issued a warning
combined with an administrative fine of approximately $36
million (SEK 300 million) to Nasdaq Clearing based on their
review. Nasdaq Clearing has assessed the SFSA´s decision
and has decided to appeal the decision to the Administrative
Court. As of December 31, 2020, no accrual has been
recorded related to this matter as the outcome cannot be
reasonably estimated.
Default Fund Contributions and Margin Deposits
As of December 31, 2020, clearing member default fund
contributions and margin deposits were as follows:
December 31, 2020
Cash
Contributions
Non-Cash
Contributions
Total
Contributions
(in millions)
$
$
529 $
99 $
628
3,413
5,511
8,924
3,942 $
5,610 $
9,552
Default fund
contributions
Margin deposits
Total
Of the total default fund contributions of $628 million,
Nasdaq Clearing can utilize $556 million as capital resources
in the event of a counterparty default. The remaining balance
of $72 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 highly rated European
government debt securities with original maturities of 90
days or less, reverse repurchase agreements and supranational
debt securities. Investments in reverse repurchase agreements
are secured with highly rated government securities with
maturity dates that range from 4 days to 7 days. The carrying
value of these securities approximates their fair value due to
instruments and reverse
the
the short-term nature of
repurchase agreements.
Nasdaq Clearing has invested the total cash contributions of
$3,942 million as of December 31, 2020 and $2,996 million
F-35
as of December 31, 2019, in accordance with its investment
policy as follows:
December 31, 2020 December 31, 2019
(in millions)
Demand deposits
$
2,086 $
Central bank certificates
European government debt
securities
Reverse repurchase
agreements
Supranational debt
securities
1,111
470
180
95
Total
$
3,942 $
1,328
896
508
116
148
2,996
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
reverse
repurchase agreement to high quality issuers, primarily
government
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.
the acceptable collateral under
securities and other
the
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 maintained in demand deposits
held at central banks and large, highly rated financial
institutions or invested by Nasdaq Clearing, in accordance
with its investment policy, either in central bank certificates,
highly rated government debt securities, reverse repurchase
agreements with highly rated government debt securities as
collateral, or supranational debt securities. 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. 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, 2020, Nasdaq Clearing committed
capital totaling $145 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
is
counterparty
framework, which
risk management
F-36
•
senior capital contributed to each specific market by
Nasdaq Clearing, calculated
in accordance with
clearinghouse rules, which totaled $24 million as of
December 31, 2020; 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 $82 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:
Commodity and seafood options, futures
and forwards(1)(2)(3)
$
122
December 31, 2020
(in millions)
773
175
Fixed-income options and futures(1)(2)
Stock options and futures(1)(2)
Index options and futures(1)(2)
Total
____________
(1) We determined the fair value of our option contracts
using standard valuation models that were based on
implied
market-based observable
volatility, interest rates and the spot price of the
underlying instrument.
including
inputs
1,138
68
$
(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.
comprised of policies, procedures, standards and financial
resources. The level of regulatory capital is determined in
accordance with Nasdaq Clearing’s regulatory capital and
default fund 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.
is
the
As mentioned above, Nasdaq Clearing
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, 2020.
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
230.0% 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 $39 million as of December 31, 2020;
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;
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;
F-37
Derivative Contracts Cleared
(1)
Includes short-term lease cost, which was immaterial.
The following table includes the total number of derivative
contracts cleared through Nasdaq Clearing for the years
ended December 31, 2020 and 2019:
In 2018, prior to the adoption of ASU 2016-02, rent expense
for operating leases was $82 million, which is net of
immaterial amounts of sublease income.
December 31, 2020
December 31, 2019
Commodity and seafood
options, futures and
forwards(1)
Fixed-income options and
futures
672,219
542,557
21,299,713
21,464,522
Stock options and futures
19,757,733
23,777,980
Index options and futures
51,371,391
47,595,114
Total
93,101,056
93,380,173
____________
(1) The total volume in cleared power related to commodity
contracts was 956 Terawatt hours (TWh) for the year
ended December 31, 2020 and 842 TWh for the year
ended December 31, 2019.
The outstanding contract value of resale and repurchase
agreements was $0.3 billion as of December 31, 2020 and
2019. The total number of contracts cleared was 4,832,504
for the year ended December 31, 2020 and was 6,627,103 for
the year ended December 31, 2019.
16. Leases
We have operating leases which are primarily real estate
leases for our U.S. and European headquarters and for
general office
table provides
supplemental balance sheet information related to Nasdaq's
operating leases:
space. The
following
Leases
Balance Sheet
Classification
December 31,
2020
December 31,
2019
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 Sheets.
2021
2022
2023
2024
2025
2026 and thereafter
Total lease payments
Less: interest(1)
Present value of lease liabilities(2)
December 31, 2020
(in millions)
$
$
62
56
52
45
32
311
558
(123)
435
____________
(1) Calculated using the interest rate for each lease.
(2)
Includes the current portion of $46 million.
The following table provides information related to Nasdaq's
lease term and discount rate:
Weighted-average remaining lease term
(in years)
Weighted-average discount rate
December 31, 2020
11.5
4.2 %
Assets:
Operating lease
assets
Liabilities:
Current lease
liabilities
Non-current
lease
liabilities
Total lease
liabilities
(in millions)
The following
information related to Nasdaq's operating leases:
table provides supplemental cash flow
Operating
lease assets
$
381 $
346
Other current
liabilities
Operating
lease
liabilities
$
46 $
61
Cash paid for amounts included in
the measurement of operating
lease liabilities
389
331
Lease assets obtained in exchange
for new operating lease liabilities
$
435 $
392
17. Income Taxes
Years End December 31,
2020
2019
(in millions)
$
$
77 $
78
100 $
26
The following table summarizes Nasdaq's lease cost:
Operating lease cost(1)
Variable lease cost
Sublease income
Total lease cost
____________
Year Ended December 31,
2020
2019
(in millions)
85 $
26
(4)
107 $
79
23
(5)
97
$
$
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. 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
F-38
Year Ended December 31,
2020
2019
2018
Federal income tax provision at
the statutory rate
21.0 % 21.0 % 21.0 %
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
4.2 % 4.1 % 3.7 %
— %
— % 27.0 %
(0.6) % (0.5) % (0.7) %
Non-U.S. subsidiary earnings
0.5 % 1.0 % 0.4 %
Tax credits and deductions
Change in unrecognized tax
benefits
Other, net
(0.2) % (0.2) % (0.2) %
(0.6) % (0.1) % 4.7 %
(1.3) % (1.3) % 1.1 %
Actual income tax provision
23.0 % 24.0 % 57.0 %
The majority of the decrease in our effective tax rate in 2020
compared to 2019 was the result of favorable audit
settlements and remeasurement of our deferred inventory,
which is included in “Other, net” in the table above. The
decrease in our effective tax rate in 2019 compared to 2018
was primarily due to the remeasurement of our U.S. deferred
tax inventory in 2018 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:
charge, reducing deferred tax assets relating to foreign
currency translation.
Income Before Income Tax Provision
The following table presents the domestic and foreign
components of income before income tax provision:
Year Ended December 31,
2020
2019
2018
(in millions)
Domestic
$
898 $
691 $
Foreign
Income before income tax
314
328
636
428
provision
$ 1,212 $ 1,019 $ 1,064
Income Tax Provision
The income tax provision consists of the following amounts:
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
Year Ended December 31,
2020
2019
2018
(in millions)
$ 114 $ 120 $ 103
50
74
40
50
56
146
238
210
305
37
6
(2)
27
185
7
1
116
—
41
35
301
Total income tax provision
$ 279 $ 245 $ 606
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,
2020, the cumulative amount of undistributed earnings in
these subsidiaries is $280 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, 2020, 2019 and 2018 is as
follows:
F-39
Deferred tax assets:
Deferred revenues
U.S. federal net operating loss
Foreign net operating loss
State net operating loss
Compensation and benefits
Federal benefit of uncertain tax positions
Operating lease liabilities
Unrealized losses
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
December 31,
2020
2019
(in millions)
$
8 $ 10
3
4
2
28
5
97
54
39
—
4
2
32
6
101
—
20
240
175
(3) —
$ 237 $ 175
$ (55) $ (42)
Amortization of acquired intangible assets
(499) (495)
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
(77)
(58)
—
(31)
(86)
(89)
(19)
(11)
$ (736) $ (726)
$ (499) $ (551)
$
3 $
1
(502) (552)
$ (499) $ (551)
____________
(1) Included in other non-current assets in the Consolidated
Balance Sheets.
As of December 31, 2020, we recognized a valuation
allowance of $3 million due to recurring operating losses in a
foreign jurisdiction. 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 remainder of Nasdaq's deferred tax
asset inventory.
As of December 31, 2020, 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
Federal NOL
State NOL
(in millions)
$
4 No expiration
3 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
Ending balance
Year Ended December 31,
2020
2019
2018
(in millions)
$ 48 $ 52 $ 45
9
10
28
2
1
6
(6) (10) (23)
(11)
(5)
(4)
$ 42 $ 48 $ 52
We had $42 million of unrecognized tax benefits as of
December 31, 2020, $48 million as of December 31, 2019,
and $52 million as of December 31, 2018 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 was a $2 million tax benefit for
the year ended December 31, 2020 and a tax provision of $3
million for the year ended December 31, 2019 and $2 million
for 2018. Accrued interest and penalties, net of tax effect
were $8 million as of December 31, 2020 and $12 million as
of December 31, 2019.
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. Our Federal income tax return for the years
2017 through 2019 is subject to examination by the Internal
Revenue Service. 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
2014 through 2019. We regularly assess the likelihood of
jurisdiction and have
additional assessments by each
established tax reserves that we believe are adequate in
relation
for additional assessments.
Examination outcomes and the timing of examination
settlements are subject to uncertainty. Although the results of
the potential
to
F-40
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 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.
18. 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 15,
“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
$5 million as of December 31, 2020 and $11 million as of
December 31, 2019. As discussed
in “Other Credit
Facilities,” of Note 9, “Debt Obligations,” we also have
credit facilities primarily related to our Nasdaq Clearing
operations, which are available in multiple currencies, and
totaled $232 million as of December 31, 2020 and $203
million as of December 31, 2019 in available liquidity, none
of which was utilized as of December 31, 2020, and of which
$15 million was utilized as of December 31, 2019.
Execution Access is our 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 ICBC. As of December 31, 2020, we have
contributed $13 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
Clearing
through
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
issuance
more,
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
the U.S. Treasury
specified by
Income
Fixed
the
if
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
these arrangements.
Consolidated Balance Sheets
However, no guarantee can be provided
these
arrangements will at all times be sufficient.
that
for
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 15,
“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
shares of Nasdaq
common
tax benefits associated with
As part of the purchase price consideration of a prior
acquisition, we have agreed to future annual issuances of
stock which
992,247
the
approximated certain
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.
In February 2021, we announced that we entered into a
Purchase Agreement to sell NFI. Upon the consummation of
this transaction, the aggregate number of Nasdaq shares that
remain subject to this contingent obligation is expected to be
reduced (pursuant to the discounting adjustment provisions
set forth in the original purchase agreement for Nasdaq's
acquisition of the business) and accelerated, which would
result in an issuance of an aggregate of approximately 6.2
million shares of Nasdaq common stock. See “Sale of U.S.
Fixed Income Business,” of Note 21, “Subsequent Events,”
for further discussion of this transaction.
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
F-41
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.
Acquisition of Verafin
For further discussion of our acquisition of Verafin, see
“Acquisition of Verafin,” of Note 4, “Acquisitions and
Divestiture.”
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. The parties are currently engaged in the discovery
process. 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. In
December 2018, the SFSA initiated a review of Nasdaq
Clearing. We have been cooperating fully with the SFSA in
their review. On January 27, 2021, the SFSA issued a
warning combined with an administrative
fine of
approximately $36 million (SEK 300 million) to Nasdaq
Clearing relating to its review. Nasdaq Clearing has assessed
the SFSA's decision and has decided to appeal the decision to
the Administrative Court. See “Nasdaq Commodities
Clearing Default,” of Note 15, “Clearing Operations,” for
further information.
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 17,
“Income Taxes,” for further discussion.
19. Business Segments
We manage, operate and provide our products and services in
segments: Market Services, Corporate
four business
Platforms,
and Market
Technology. See Note 1, “Organization and Nature of
Operations,” for further discussion of our reportable
segments.
Intelligence
Investment
Our management allocates resources, assesses performance
and manages these businesses as four separate segments. We
F-42
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, 2020, 2019
and 2018:
Market
Services
Corporate
Platforms
Investment
Intelligence
Market
Technology
Corporate
Items
Consolidated
Year Ended December 31, 2020
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, 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
$
$
$
3,832 $
(2,724)
1,108
78
687
63
2,639 $
(1,727)
912
74
516
30
2,709 $
(1,751)
958
95
544
28
530 $
—
530
34
190
30
496 $
—
496
34
178
27
487 $
—
487
36
155
29
(in millions)
908 $
—
908
57 $
580
52
779 $
—
779
52
490
30
714 $
—
714
51
460
17
357 $
—
357
33
32
43
338 $
—
338
30
54
40
270 $
—
270
21
34
37
— $
—
—
—
(255)
—
10 $
—
10
—
(221)
—
97 $
—
97
7
(165)
—
5,627
(2,724)
2,903
202
1,234
188
4,262
(1,727)
2,535
190
1,017
127
4,277
(1,751)
2,526
210
1,028
111
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:
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 managers or when
making decisions to allocate resources. Therefore, we believe
performance measures
asset
amortization expense provide management with a useful
representation of our segments' ongoing activity in each
period.
intangible
excluding
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
performance of our segments or their managers or when
making decisions to allocate resources. 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.
the purpose of evaluating
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 20,
“Restructuring Charges,” for further discussion of our 2019
restructuring plan. We believe performance measures
F-43
excluding restructuring charges provide management with a
useful representation of our segments' ongoing activity in
each period.
funding of technology development for the CAT, a loss
on extinguishment of debt, and a tax reserve for certain
prior year examinations;
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 IR & ESG Services business within
our Corporate Platforms segment as BWise was sold in
March 2019 and the Public Relations Solutions and Digital
Media Services businesses were sold in April 2018.
•
•
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. Other
significant items included:
•
•
for the year ended December 31, 2020, charitable
donations made to the Nasdaq Foundation, COVID-19
response and relief efforts, and social justice charities
and charges associated with duplicative rent and
impairment of leasehold assets related to our global
headquarter move;
for the years ended December 31, 2020 and 2019, a
provision for notes receivable associated with the
for the years ended December 31, 2020, 2019 and 2018,
certain litigation costs which are recorded in professional
and contract services expense in the Consolidated
Statements of Income; and
for the year ended December 31, 2018, charges related to
uncertain positions pertaining to sales and use tax and
value added tax and charges associated with the clearing
default that occurred in September 2018.
The above charges are recorded in general, administrative
and other expense in our Consolidated Statements of Income
unless noted otherwise.
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 business
Expenses:
Amortization expense of acquired intangible assets
Merger and strategic initiatives expense
Restructuring charges
Clearing default loss
Provision for notes receivable
Extinguishment of debt
Charitable donations
Expenses - divested businesses
Other
Total expenses
Operating loss
Year End December 31,
2020
2019
2018
(in millions)
$
— $
10 $
97
103
101
109
33
48
—
6
36
17
—
12
30
39
—
20
11
—
8
22
21
—
31
—
—
—
83
18
255
231
262
$
(255) $
(221) $
(165)
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-44
Geographic Data
The following table presents total revenues and property and
equipment, net by geographic area for 2020, 2019 and 2018.
Revenues are classified based upon the location of the
customer. Property and equipment information is based on
the physical location of the assets.
2020:
United States
All other countries
Total
2019:
United States
All other countries
Total
2018:
United States
All other countries
Total
Total
Revenues
Property and
Equipment,
Net
(in millions)
$
4,664
$
$
963
5,627
3,409
853
$
4,262
$
3,379
898
$
4,277
$
$
$
$
$
$
311
164
475
250
134
384
224
152
376
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 2020, 2019
and 2018.
20. 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 approximately $100 million in pre-tax charges
over a two year period related primarily to third-party
consulting costs and non-cash
items such as asset
impairments and accelerated depreciation. 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.
The following table presents a summary of the 2019
restructuring plan charges in the Consolidated Statements of
Income for the years ended December 31, 2020 and 2019
which primarily consisted of consulting services, asset
impairment charges primarily related to capitalized software
that was retired, and accelerated depreciation expense on
certain assets as a result of a decrease in their useful life.
Asset impairment charges and
accelerated depreciation expense
Consulting services
Contract terminations
Severance and employee-related costs
Other
Year End December 31,
2020
2019
(in millions)
$
14 $
26
22
3
3
6
2
2
8
1
Total restructuring charges
$
48 $
39
21. Subsequent Events
Sale of U.S. Fixed Income Business
On February 2, 2021, we announced that we entered into a
Purchase Agreement to sell NFI to an affiliate of Tradeweb
Markets Inc., or Tradeweb. Pursuant to the Purchase
Agreement, an affiliate of Tradeweb will acquire all of the
outstanding equity interests in certain subsidiaries of Nasdaq
and certain assets and liabilities related to the transaction.
The closing is subject to regulatory approvals and the
satisfaction of other customary conditions, and is expected to
occur later in 2021.
As discussed in “Non-Cash Contingent Consideration,” of
Note 18, “Commitments, Contingencies and Guarantees,” as
part of the purchase price consideration of a prior acquisition,
Nasdaq has a contingent obligation to issue 992,247 shares of
Nasdaq common stock annually through 2027. Upon the
the
consummation of
aggregate number of Nasdaq shares that remain subject to
this contingent obligation is expected to be reduced (pursuant
to the discounting adjustment provisions set forth in the
original purchase agreement for Nasdaq's acquisition of the
business) and accelerated, which would result in an issuance
of an aggregate of approximately 6.2 million shares of
Nasdaq common stock.
transaction with Tradeweb,
the
Nasdaq intends to use the proceeds from the sale of NFI,
available tax benefits and NFI working and clearing capital,
as well as other sources of cash to repurchase shares in order
to offset dilution. The proceeds from the sale, the remaining
tax benefits related to the 2013 purchase, and the working
and clearing capital to be released upon closing of the
transaction are estimated to total approximately $700 million.
To facilitate these repurchases, the board of directors has
authorized an increase to the share repurchase program of an
additional $1 billion, subject to the closing of the NFI sale
and the acceleration of the share issuance.
Acquisition of Verafin
For further discussion of our acquisition of Verafin, see
“Acquisition of Verafin,” of Note 4, “Acquisitions and
Divestiture.”
F-45
Nasdaq Commodities Clearing Default
During September 2018, a clearing member of Nasdaq
Clearing's commodities market was declared in default. In
December 2018, the SFSA initiated a review of Nasdaq
Clearing. We have been cooperating fully with the SFSA in
their review. On January 27, 2021, the SFSA issued a
fine of
warning combined with an administrative
approximately $36 million (SEK 300 million) to Nasdaq
Clearing relating to its review. Nasdaq Clearing has assessed
the SFSA's decision and has decided to appeal the decision to
the Administrative Court. See “Nasdaq Commodities
Clearing Default,” of Note 15, “Clearing Operations,” for
further information.
F-46