What Nasdaq Is, History, and Financial Performance

What Is Nasdaq?

Nasdaq is a global electronic marketplace for buying and selling securities. Its name was originally an acronym for "National Association of Securities Dealers Automated Quotations"—Nasdaq started as a subsidiary of the National Association of Securities Dealers (NASD), now known as the Financial Industry Regulatory Authority (FINRA). Nasdaq was launched after the Securities and Exchange Commission (SEC) urged NASD to automate the market for securities not listed on an exchange. The result was the first electronic trading system. Nasdaq opened for business on Feb. 8, 1971.

Understanding Nasdaq

The term “Nasdaq” is also used to refer to the Nasdaq Composite, an index of more than 3,700 stocks listed on the Nasdaq exchange that includes technology giants Apple Inc. (AAPL), Microsoft (MSFT), Google parent Alphabet (GOOG, GOOGL), Meta Platforms Inc. (META), Amazon.com Inc. (AMZN) and Tesla Inc. (TSLA).

Nasdaq officially separated from the NASD and began to operate as a national securities exchange in 2006. In 2008, it combined with the Scandinavian exchanges group OMX to become the Nasdaq OMX Group. The company changed its name to Nasdaq Inc. (NDAQ) in 2015.

Headquartered in New York, the Nasdaq operates 29 markets enabling the trading of stocks, derivatives, fixed income and commodities in the U.S., Canada, Scandinavia and the Baltics. the company also runs a clearinghouse and five central securities depositories in the United States and Europe. Its trading technology is used by 100 exchanges in 50 countries. Nasdaq Inc is listed on the Nasdaq stock market under the symbol NDAQ and has been part of the S&P 500 Index since 2008.

Tale of Two Nasdaqs' Booms and Busts

The Nasdaq computerized trading system was initially devised as an alternative to the inefficient “specialist” system, which had been the prevalent model for almost a century. The rapid evolution of technology has made Nasdaq’s electronic trading model the standard for markets worldwide.

It was only fitting for the world’s up-and-coming technology companies to list on an exchange using the latest technology. As the tech sector grew in prominence in the 1980s and 1990s, the Nasdaq Composite Index became its most widely quoted proxy.

That turned Nasdaq Composite into the index of the dot-com boom and bust. After rallying nearly 150% in the 16 months through March 2000, the Nasdaq Composite then slumped almost 80% by October 2002.

Recent History of Nasdaq

On November 2016, Chief Operating Officer Adena Friedman was promoted to the role of CEO, becoming the first woman to run a major exchange in the United States. 

Board Diversity Disclosure Rule

On Dec. 1, 2020, Nasdaq proposed a new rule requiring companies listed on the exchange to report on the diversity of their board of directors. The rule requires companies to include on their boards at least one female director and one who is a member of an underrepresented minority or LGBTQ+, or to publicly explain why they have not done so. The SEC approved the board diversity disclosure rule on Aug. 6, 2021.

Financial Performance

Nasdaq generates revenue from clients, including financial institutions, brokers, institutional investors, and corporations. Nasdaq's revenue is mainly derived from fees charged for the following:

• Market services, which give investors access to various markets
• Investment intelligence: data, indices, and investment analytics for financial institutions, brokers, and asset managers
• Market technology, which includes trading and settlement platforms as well as technology safeguards against financial crime
• Corporate services, such as listing fees and investment relations services

For Q1 2022 ended March 31, Nasdaq reported net income of $283 million on revenue of $1.54 billion, and revenue less transaction-based expenses of $892 million. The company also increased the quarterly dividend by 11% to $0.60 per share and announced plans to seek SEC and shareholder approval for a 3-to-1 stock split to be completed in the third quarter of 2022.

Nasdaq Composite Index Performance

The Nasdaq Composite closed at a record high of 16,057.44 on Nov. 19, 2021. The index proceeded to drop more than 23% from that point through April 2022. The Nasdaq Composite's 13.3% decline in April 2022 was its worst monthly drop since October 2008, when the index lost 17.4% amid the global financial crisis.