How Nasdaq Makes Money: Capital Markets, Services, Fees
Nasdaq Inc. (SO) is a global technology company that provides 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 liquidity venue for trading U.S.-listed cash stocks. At the end of 2020, a total of 3,392 companies were trading shares on the Nasdaq in the United States As of May 2022, these companies had a combined market capitalization of over $22.4 trillion.
In addition to the Nasdaq stock market, the Nasdaq also provides a variety of other products and services, including equity derivatives trading and clearing, cash equity trading, FICC and trade management services, business intelligence investment and market data services, both in the United States and abroad. Among the company’s main competitors are Cboe Global Markets Inc. (CBOE), Miami International Holdings Inc., or MIAX, and Intercontinental Exchange, Inc. (ICE), owner of the New York Stock Exchange (NYSE).
Key points to remember
- Nasdaq is a global technology company providing data, analytics, software and services, including the popular Nasdaq stock market.
- The company’s fastest growing segment, as measured by operating profit, is enterprise platforms.
- The Nasdaq is expanding its services outside of traditional asset classes and markets.
- In February 2021, the company completed the $2.75 billion acquisition of Verafin, a cloud-based company that provides technology to combat money laundering and financial fraud.
Nasdaq Finances
For the first quarter of 2021, the Nasdaq reported net income attributable to the company of $284 million, with total revenue of $1.5 billion. Net income attributable to Nasdaq was down 4.7% year-over-year (YOY). These figures were positively impacted by the sale in June 2021 of the company’s US Fixed Income business for a pre-tax gain of $84 million. For the second quarter of 2021, the Nasdaq said its performance was driven by strong activity in capital markets and growing demand from businesses and investors for fintech solutions. The company has also expanded its offerings of financial crime prevention services and buy-side workflow solutions, among others.
Distribution of profits
Nasdaq industry sectors
Nasdaq divides its business into four operating segments: Market Services, Corporate Platforms, Investment Intelligence and Market Technology. The company breaks down these segments in several ways, including revenue and operating income.
Market Services
The Nasdaq Market Services segment charges for cash stock trading transactions, derivatives trading, currency and commodity trading, clearing services, brokerage services and securities administration solutions. Depending on the location, the company offers trading in derivatives, commodities, cash stocks, debt, indices, options, futures and exchange traded funds (AND F). Nasdaq provides market services in the United States, Canada and throughout Europe.
In the first quarter of 2022, Nasdaq Market Services reported operating income of $200 million, down 13% year-on-year. Merchant Services operating profit represents 49% of consolidated operating profit. For the same period, the segment reported revenue of $958 million, down about 16% year-on-year. Market Services is the largest of the company’s segments, accounting for approximately 62.4% of total revenue for the quarter.
Enterprise platforms
Nasdaq’s Enterprise Platforms segment includes both its listing services business and RI and ESG services. The Nasdaq offers capital raising solutions to global companies through its corporate or listing services. Enterprise platforms generate revenue from listing fees, fees for upcoming IPOs, and moving other exchanges to the Nasdaq. Through its IR & ESG Services business, Nasdaq provides corporate investor relations, corporate governance, advisory and other sustainability-related services.
In the first quarter of 2022, Nasdaq’s Enterprise Platforms segment reported operating income of $75 million, a year-on-year increase of 29.3%. This segment accounted for 18.5% of Nasdaq’s consolidated operating profit for the quarter. It also posted revenue of $168 million, up 13% year-on-year. This segment accounted for 10.9% of the company’s total quarterly revenue.
investment intelligence
This segment includes Nasdaq’s data products, index licensing and service businesses. Data products and services include the dissemination of proprietary Nasdaq and third-party data, including trade-related information to support client research, trading and investment activities. The Nasdaq charges licensing fees to companies that use its index (or any constituent data). If a trading company 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 over 46,000 indexes.
The company’s Investment Intelligence segment reported operating income of $184 million for the first quarter of 2022, up 10.8% year-on-year. This represented 45.4% of consolidated operating profit for the quarter. Nasdaq’s Investment Intelligence segment reported total revenue of $284 million in the first quarter of 2022, up 10.9% year-on-year. This represented 18.5% of total quarterly revenue.
Market Technology
The Market Technology segment provides services to more than 130 market infrastructure operators in 50 countries. The segment provides products and services to stock exchanges, clearing organizations, central securities depositories, regulators, banks, brokers, buying houses and corporations. Nasdaq market technology products can be used to create new asset classes.
Nasdaq’s Market Technology segment is the company’s smallest, measured by both operating profit and revenue. The segment reported operating profit of $4 million in the first quarter of 2022, up 300% year-on-year. Market technology accounted for less than 1% of operating income. The segment recorded revenue of $124 million in the first quarter of 2022, up 24% year-on-year. Although it is the smallest of the four reportable segments on the Nasdaq, it is also the fastest growing in terms of revenue growth. The segment accounted for 12.4% of total revenue in the first quarter.
Recent Nasdaq Developments
In February 2021, Nasdaq completed the purchase of Verafin, a provider of financial crime solutions using 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 expected to bolster the company’s Market Technology segment, which saw the fastest revenue growth in the last reported quarter.
In June 2021, the company sold its US Fixed Income business, which was previously part of its FICC business within the Market Services segment to Tradeweb Markets Inc. The sale generated pre-tax gains of $84 million.
How much profit does the Nasdaq make?
The Nasdaq reported $5.9 billion in total revenue and $968 million in profit in 2021.
How does the Nasdaq work?
The Nasdaq is an electronic stock exchange, which facilitates transactions through licensed brokers. There is no trading space full of brokers and agents as seen on the New York Stock Exchange – all trading is done through computerized systems.
Who controls the Nasdaq?
The Nasdaq stock exchange is owned by Nasdaq, Inc., the company that created the stock exchange. The name of the exchange is an acronym for National Association of Securities Dealers Automated Quotation System.
