As a pioneer and the world’s first all-electronic stock market, Nasdaq Stock Market today manages 90 different markets and exchanges across 50 countries. In fact, approximately 10% of the world's security transactions occur on Nasdaq systems. Nasdaq is home to more than 4,000 listed companies with a combined market cap of more than $15 trillion. The company has more than 10,000 corporate clients.
Nasdaq has helped tech giants Apple (AAPL), Microsoft (MSFT), and Intel (INTC) become what they are today because these companies used Nasdaq during their early days to raise the much-needed capital in a timely manner, enabling them to become billion-dollar enterprises. Simply put, Nasdaq helps companies raise money and helps investors make money—but all of that help comes at a cost.
- Nasdaq makes its money from fees for customer services, data, and technology.
- Nasdaq has diversified its offerings over the years to keep pace with market developments.
- The market services segment generates the most revenues for the Nasdaq and makes money from trading activity.
- Corporate services is the segment that handles initial public offerings on the Nasdaq Stock Market.
- Data products fall under the umbrella of Nasdaq's information services business unit.
Where does all this money come from, you ask? In a nutshell, Nasdaq runs its business on fees. Companies pay a listing fee to appear on the Nasdaq stock exchange, investors pay transaction fees to trade, and users pay service fees to access market data, products, filing, and corporate services.
Nasdaq manages, operates, and offers its various products and services through four different business segments: market services, corporate services, information services, and technology solutions. Since Nasdaq (NDAQ) is a public company, it is possible to see how each business segment contributes to revenues using the company's financial statements. Figures included here are current through the third quarter of 2019.
The market services segment charges for transactions from cash equity trading, derivatives trading, currency and commodity trading, clearing services, broker services, and securities administration solutions. It supports trading for derivatives, commodities, cash equity, debt, structured products, and exchange traded funds (ETFs).
In select countries, the market services segment also offers brokerage, clearing, settlement, and depository services. Each of these is facilitated through the Nasdaq trading platform. The company charges investors fees to access orders and quotes for processing, displaying, integrating, routing, executing, and reporting. Market services account for more than one-third (35.5%) of the company's revenues.
Nasdaq offers capital raising solutions to global companies through its corporate, or listing services. In addition to a listing fee, the stock exchange charges fees for upcoming IPOs and to switch from other exchanges to Nasdaq. This segment accounts for approximately 20% of Nasdaq's total revenue.
This segment includes the data products and index licensing and services businesses of Nasdaq. Data products and services involve the dissemination of proprietary Nasdaq data and third-party data, which essentially is the price quote and trade-related information.
All market participants need market data for their research, trading, and investing activities. Nasdaq capitalizes on this through its data offerings, including products like Nasdaq TotalView and various data feeds of different exchanges and data levels (level 1 data, level 2 data, and index data).
Index licensing and services involves the quantitative development and licensing of various indexes used by various investment firms to issue financial products. Nasdaq charges a licensing fee from firms that use its index (or any constituent data). For example, 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 number of indexes included in the Nasdaq US All Market Index Family benchmark of U.S. stock market performance.
Nasdaq currently maintains thousands of indexes through its Nasdaq Global Index family across 45 countries. It also provides custom calculations for clients on their select set of securities. Revenues from the information services segment accounts for roughly 31% of Nasdaq's total revenues.
The market technology segment offers services to over 10,000 corporate clients through two streams: corporate solutions and market technology solutions. Corporate solutions include services for investor relations (content, analytics, advisory services, and communications tools), public relations (management of company public relations through targeted contacts, press releases, social media, and webcasts), and governance (services for effective communication and collaboration across different stakeholders).
The market technology stream covers the technology solutions of Nasdaq’s diversified client base (global exchanges, clearing corporations, securities depositories, market regulators, banks, brokerage firms, and corporate businesses). A wide variety of solutions are available for trading, clearing, settlement, surveillance, and information dissemination. In terms of revenues, market technology is the smallest segment, as it represents 13% of the company's total revenues.
The Bottom Line
Nasdaq has managed to diversify its offerings to keep pace with market developments. Sources of revenue for Nasdaq are charges for transactions, licensing fees, listing fees, and revenue from data products, in addition to technology products and services. Through a healthy mix of organic growth, acquisitions, and mergers, Nasdaq continues to maintain its position as one of the top global exchanges.