How Nasdaq Makes Money: Capital Markets, Services, Fees
Nasdaq Inc. (NDAQ) is a global technology company providing data, analytics, software, and services to the capital markets industry. The company is best known as the operator of the Nasdaq Stock Market, the largest single venue of liquidity for trading U.S.-listed cash equities. At the end of 2020, a total of 3,392 companies traded shares on the Nasdaq in the U.S. As of May 2022, these companies had a combined market capitalization of more than $22.4 trillion.
Besides the Nasdaq Stock Market, Nasdaq also provides a variety of other products and services including equity derivative trading and clearing, cash equity trading, FICC and trade management services, investment intelligence, and market data services, both in the U.S. and abroad. Some of the company’s top competitors include Cboe Global Markets Inc. (CBOE), Miami International Holdings Inc., or MIAX, and the Intercontinental Exchange, Inc. (ICE), owner of the New York Stock Exchange (NYSE).
- Nasdaq is a global technology company providing data, analytics, software, and services, including the popular Nasdaq Stock Market.
- The company’s fastest-growing segment, measured by operating income, is Corporate Platforms.
- Nasdaq is expanding its services outside of traditional asset classes and markets.
- In Feb. 2021, the company completed the $2.75-billion acquisition of Verafin, a cloud-based company that provides technology to fight money laundering and financial fraud.
For its most recently quarterly period, Q1 2022, Nasdaq reported net income attributable to the company of $284 million on total revenue of $1.5 billion. Net income attributable to Nasdaq shrank by 4.7% year-over-year (YOY). These figures were positively impacted by the June 2021 sale of the company’s U.S. Fixed Income business for a pre-tax gain of $84 million. For Q2 2021, Nasdaq said its performance was driven by strong capital markets activity and expanding corporate and investor demand for financial technology solutions. The company has also expanded its offerings in anti-financial crime services and buyside workflow solutions, among others.
Nasdaq’s Business Segments
Nasdaq divides its business across four operating segments: Market Services, Corporate Platforms, Investment Intelligence and Market Technology. The company breaks down these segments in several ways, including by revenue and operating income.
Nasdaq’s Market Services segment charges for transactions from cash equity trading, derivatives trading, currency and commodity trading, clearing services, broker services and securities administration solutions. Depending on the location, the company offers trading for derivatives, commodities, cash equity, debt, index, options, futures, and exchange traded funds (ETFs). Nasdaq provides market services in the U.S., Canada, and throughout Europe.
In Q1 2022, Nasdaq’s Market Services reported $200 million in operating income, down 13% YOY. Market Services operating income accounted for 49% of consolidated operating income. For the same period, the segment reported revenue of $958 million, down about 16% YOY. Market Services is the largest of the company’s segments, with roughly 62.4% of total revenue for the quarter.
Nasdaq’s Corporate Platforms segment includes both its Listing Services and IR & ESG Services businesses. Nasdaq offers capital raising solutions to global companies through its corporate, or listing services. Corporate Platforms generates revenue from listing fees, fees for upcoming IPOs, and to switch from other exchanges to Nasdaq. Through its IR & ESG Services business, Nasdaq provides corporate investor relations, corporate governance, and sustainability-related consulting and other services.
In Q1 2022, Nasdaq’s Corporate Platforms segment reported operating income of $75 million, an increase of 29.3% YOY. This segment accounted for 18.5% of Nasdaq’s consolidated operating income for the quarter. It also reported revenue of $168 million, up 13% YOY. This segment accounted for 10.9% of the company’s total quarterly revenue.
This segment includes the data products, index licensing and services businesses of Nasdaq. Data products and services include the dissemination of proprietary Nasdaq data and third-party data, including trade-related information to support customers’ research, trading, and investing activities. Nasdaq charges a licensing fee from firms that use its index (or any constituent data). If a trading firm wants to launch a new ETF on the popular Nasdaq 100 Index, it will have to pay a licensing fee to Nasdaq. The company operates more than 46,000 indexes.
The company’s Investment Intelligence segment reported operating income of $170 million for Q2 2021, up 28.8% YOY. This accounted for 37.4% of consolidated operating income for the quarter. Nasdaq’s Investment Intelligence segment reported Q2 2021 total revenue of $263 million, up 23.5% YOY. That represented 18.6% of total quarterly revenue.
The Market Technology segment offers services to over 130 market infrastructure operators in 50 countries. The segment provides products and services to exchanges, clearing organizations, central securities depositories, regulators, banks, brokers, buy-side firms and corporate businesses. Nasdaq’s market technology products can be utilized to create new asset classes.
Nasdaq’s Market Technology segment is the company’s smallest, measured by both operating income and revenue. The segment reported Q2 2021 operating income of $17 million, up 13.3% YOY. Market Technology made up 3.7% of operating income. The segment reported Q2 2021 revenue of $117 million, up 39.3% YOY. While it is the smallest of Nasdaq’s four reportable segments, it is also the fastest-growing by revenue growth. The segment made up 8.3% of total revenue in Q2.
Nasdaq’s Recent Developments
In Feb. 2021, Nasdaq completed the purchase of Verafin, a provider of anti-financial crime solutions utilizing a cloud-based platform to help detect, investigate, and report money laundering and financial fraud. The value of the transaction was $2.75 billion. The acquisition is likely to bolster the company’s Market Technology segment, which posted the fastest revenue growth in the latest reported quarter.
In June 2021, the company sold its U.S. Fixed Income business, previously part of its FICC business within the Market Services segment to Tradeweb Markets Inc. The sale generated pre-tax gains of $84 million.