Nasdaq, Inc. (NDAQ) Earnings Call Transcript & Summary

Okay. We'll get started with our final presentation for the day. So our next session is with Nasdaq. I'm very pleased to welcome back Adena Friedman, President and CEO of Nasdaq, to the SDC. Adena, welcome. Thanks for coming in and seeing in person, and I look forward to this.

Great. It's great to be here.

Good. So before we get started, you guys know the drill by now. If you want to ask a question, you can send it through Pigeonhole, and I'll ask Adena at the end of it. So maybe Adena, a good place to start is just Nasdaq's strategy over time, which I think is what's brilliantly in a world where stocks are rewarded for revenue growth, tech has been in fashion from an investor perspective. That seems to be somewhat changing, I would say, broadly. How do you think about the Nasdaq sort of strategy in a world where we're sort of shifting investor preferences?

Well, first of all, I would say that we have been building our strategy on the basis of creating long-term value for our shareholders and I also -- and as well as a really long-term view into what the clients' needs are. And we launched our new strategy when I became CEO in 2017, we really did a full strategic assessment of what is Nasdaq really great at. What do our clients expect us to be great at? What are the trends that are going to define the industry over the next decade? And therefore, where should we be leaning in? Where should we be maintaining our investment? Where should we be lessening our investment? And what probably doesn't belong at Nasdaq anymore? And on the back of that, we made some decisions to divest a few businesses and then -- but also to invest in new businesses. We expanded our capabilities across market tech with the Cinnober acquisition. We really expanded significantly into the asset owner and asset manager community with the acquisitions of eVestment and Solovis. And then we decided to go very big and kind of double down in our anti-financial crime capabilities with the acquisition of Verafin. And then on an organic strategy, we have been really building out distribution to the corporate community to help them solve ESG reporting in their programs, develop their programs and develop reporting capabilities. We have now a carbon removal marketplace that we're -- that we've invested in that helps corporates manage their net-zero obligation, their commitments. And we've also been -- we've completely modernized our technology stack to support our markets, but also the markets that we serve, our technology, too. We have about 130 other companies and exchanges that use our technology. So we are making sure that we are giving them the most modern technology available. I think that was all designed to really develop and deepen our relationships with our clients. But obviously, it does accrue to the benefit of the shareholders over time. I would say we are feeling great about our strategy. We feel really, really good about our growth prospects. We're a hyper-resilient company. So we are going to continue down that road. And I think I feel very good about where we're going.

Right. Inflation is the topic de jure just now, and I'm sure as CEO you're planning for lots of different scenarios. If I think about the last couple of years, last 3 years in particular, you've had really strong growth in your non-transaction businesses. I think it's averaged well north of 10%, which is above your targets. As we move into, call it, the more inflationary backdrop, maybe even a tougher macro backdrop, how do you think about the resiliency of growth in your Solutions businesses over the next few years?

Yes. I think if we -- so we look at our businesses along the lines of our trading businesses and then all of the other services and technologies that we offer to our clients, which is our Solutions segments, as you mentioned. And when we -- we focused first on, is what we do really critical to their needs? So -- and different market backdrops to our clients continue to need our services. And I think that we can stay really holistically, the answer is yes. And I can certainly expand on that answer. And then secondly, in an inflationary environment, we take a long-term approach to value creation. So we're not going to sit there and maximize pricing just in a given year. We're going to look at it long term to make sure we're helping our clients manage through different economic cycles, but we also do have the ability over time in many parts of our Solutions segments to manage pricing successfully, to manage through different cost base environments. And then about half of our expenses are people. And so one of the things we've been doing very, very carefully, is number one, creating a culture. That really is -- I really like to think of Nasdaq as a destination employer for our employees. We've really done a lot to develop our culture and our services, our benefits to really create a great culture inside Nasdaq. I think we're very purpose-driven in terms of really helping advance economic progress around the world. And I think our employees really buy into that and they do, in fact, contribute to that. And then at the same time, we did also provide our expense guidance this year, and we did have about a 2 percentage point increase in expenses related to just managing the inflationary pressures associated with employee retention. And our retention is almost exactly equivalent to what it was right pre-pandemic. The retention went way up during the pandemic. We're right back down to where we were prior to the pandemic. So we feel very good about what we've been able to do to retain our employees in this environment. But these are dynamic times. I consider Nasdaq an all-weather company. I've been here for -- been part of Nasdaq for 29 years, and I've seen our way through several different economic environments. And it's a hyper-resilient company. So I feel very good about it.

Can we double-click on that? Because the business has changed dramatically even in the last 5 years, courtesy of what has been a strategic strategy on your part. And so I guess the question really maybe to drill further is, how do you think about resiliency, though? How do you think about resiliency of growth in a macro downturn? We are entering a somewhat different paradigm. So I would love to drill into that.

I would want to say, what's the resiliency of the business? So I think that there are going to be certain businesses that grow at faster or slower rates depending on the clients' needs in different economic periods of time. But let's -- I'll give you an example. Structural growth in anti-financial crime solutions, no doubt about it, right? It's a fast-growing business, huge TAM. We have, I think, among the best solutions in the world, and we have a great growth strategy there. I think in the exchanges are all very resilient businesses. So as they're managing through different economic cycles within their own worlds, they want to make sure that they're investing in their futures, too. And we provide critical -- mission-critical technology to them to make sure they're coming out of any economic cycle with the most advanced technology available. So we feel very good about how we're leaning in structurally into our market tech business. We've had the most challenge in that business through COVID, but we -- I think we've really -- we're seeing our way through that challenge, and we feel very good about the growth prospects going forward there. I think that in terms of Investment Intelligence, our asset owner community is relying on us more than ever to help them manage through a very dynamic market backdrop in terms of asset allocation decisions. They want to become more efficient and data-driven in their decisions around which funds to invest in and then managing their portfolios. That is what we do. That is what we provide them. So again, we feel very good about the fact that we can continue to expand what we do for them in an environment that's a pretty -- potentially a challenging economic environment. But if anything, they need to lean in more to make sure they're making the right strategic decisions, and they want to use more data and workflow tools to do it. And then I think on the corporate client basis, the listing environment has been super robust. It's obviously not as robust this year. But we now have about -- I think it's 900 more companies today than we had pre-pandemic. We are the only exchange company in the world that provides a whole suite of solutions geared towards the IRO, the CFO and the CEO to manage their lives as public companies with our IR solutions, our ESG solutions and our governance solutions. Those are all very critical solutions, particularly as they're dealing with a lot of change in investors. They want to understand that. They want to be able to manage those changes and get intelligence around them. ESG will continue to be driven into the corporate community regardless of the economic environment, and we saw that through COVID. So our view is that those are, again, structural solutions that really serve the clients' needs in all economic environments.

Within Investment Intelligence, if that's actually been a big driver of your outsized growth over the last couple of years, obviously benefited from some asset price appreciation. As we move away from that kind of dynamic, are there any other levers that can drive growth, market share gains, different products? I'm just curious how you think about levers.

Yes. So I think in our Investment Intelligence business, we have 3 subsegments. We have our Market Data business, which is driven from our exchanges; we have our index business, which I think is what you're keying in on; and then we have our Analytics business, which is that eVestment, Solovis asset owner or asset management solutions. The structural areas of growth there -- I mean Market Data has been a low to mid-single-digit grower for a long time, and it's a hyper-resilient business. We've been -- we do not -- we haven't been managing that growth through pricing changes. We've been managing it through just increasing distribution of our data. We've built out new API tools that make it much easier for customers to take our data in and serve it up to their customers. We've been globalizing distribution of that data. So we've been doing some really good work there. And I would say, as I said, a low- to medium-growth business, a single-digit growth business. I think that the Index business has been an outsized grower, and there are 3 components to the growth there. One is asset appreciation. One is growing TSO. So more investors coming in and investing either based on just liking the strategy or new products we launch and getting adoption of those products. And then the third has been on the futures volumes because the volatility in the markets has been accruing to the benefit of the futures partnership we have with CME. And I think that if in this more dynamic world where asset appreciation has come down, one of the things we do notice, especially with our benchmark indexes, the Nasdaq 100, the Nasdaq Next Gen 100, Semiconductor Index and things like that is people tend to buy on the dip because they see it as a long-term play towards a growth economy. So they see an entry rate based on a lower market environment. We've seen that multiple times. So while it doesn't completely shield us from asset depreciation, it does create a buffer. So you have more interest. And then the futures volumes have been very active. So that business has some really interesting dynamics, but what we've decided to do is we are launching new products. And we've been creating ESG sleeves for our indexes. We've been creating new thematic indexes around innovation. And even if -- my view is you launch the product -- and yes, you want to get instant combustion, but you're also launching it for the long term. And I think that we -- our view is that we will continue to launch new products in this environment. It's a very scaled, very efficient, great margin business and we want to continue to grow it.

Okay. A big end markets, a growing end market for asset owners is alternatives. It's a place where you've put some resources to bear. So talk about your offering there, the opportunity set over time.

Yes. So the 3 years I was away from Nasdaq, I was at Carlyle. And I was the CFO of Carlyle. So I started to understand that world pretty well. And wow, I don't know, the whole private equity world is just completely underserved when it comes to technology. I mean everything was on a spreadsheet. So I think that one of the things I really wanted to do is take the eVestment and Solovis capabilities and make sure that they were as available and relevant to the private equity world as they were to the public market world. So we have created a private markets module within eVestment, where we gather up data from GPs to be able to serve to LP so LPs can make smarter asset allocation decisions. We've built out a whole -- basically, we've replicated a lot of the databases that the LPs use to decide on funds like -- well, I won't name the names, but other companies that provide basic fund return information. We've actually created a really great database of that. We've onboarded more and more of the private equity-related LPs and GPs. And now on top of that, we now can do -- essentially for an asset owner, you have -- you can make asset allocation decision into a private fund or public fund. You can manage that portfolio now through Solovis, both private and public equity, not just equity but private equity and public equity portfolio. And then if you want to make a change in your allocation to private equity, you can use our secondaries platform, where it's a liquidity platform that allows you to automate the price discovery around and the transfer of ownership of LP interest in private equity funds. So we're really trying to make sure we automate a lot of the stuff that's been just super inefficient in the private equity space. And we're really excited about that because we're definitely onboarding a lot more clients in that regard.

How do you think about the pathway to like greater monetization of all the things you're building in alternatives?

Yes. I think that's where -- I mean we're pricing those products along the same lines as we price our public equity product, all of the eVestment, Solovis products for the public portfolios. On the liquidity solution, we're at the very beginning -- like we've been actually working on that for a while. And I knew that when I came back, I really wanted to build a liquidity solution for secondaries in private equity. We already had Nasdaq Private Market. So we decided to build it on that platform. But it's really changing an industry. Like there's a very embedded workflow, very manual workflow. It takes months to get these secondaries done. And so we've been having lots of dialogue across the private equity world. And we're now signing up clients, lining up clients, getting them to embed these liquidity solutions into their fund docs and are actually starting to execute secondaries. So we're at the very, very beginning of that. But we charge both on the -- if you embed the liquidity solution into your fund dock, we get paid on just basis points for the life of the fund, and then we get paid on the transaction.

Switching over to your market tech business, have had mixed results. I think the financial crime piece of it is obviously going very well with Verafin, but the infrastructure piece is a little bit weaker. Maybe just help us understand really what's going on there and either a pathway, a catalyst, a time line for you to see a real inflection in that business.

Yes. Yes. I mean that business is a business that I think has been -- when I got back to Nasdaq in 2014, I knew about that business because it was part of the OMX acquisition. And I was super excited about that business when we bought OMX. I saw it as like this gem inside the OMX business. At the time, it was not profitable. It was pretty small, but they've done some really great work to establish relationships with some of the largest exchanges in the world. And so when I got back to Nasdaq, I said, I went and did a world tour. And I talked to our clients, our market tech clients. And the general consensus was, you guys deliver really good tech, but it's not as nimble as it should be. We want to be able to be more dynamic in developing new products, launching new asset classes, doing new things. Can you make the product more dynamic? And so we undertook an effort to say, we deliver hyper-resilient technology, but how do we also build a nimbleness into the technology? And we've also been sitting on the same general technology stack within Nasdaq for quite some time in our own markets. So we launched a program to rebuild the entire trade life cycle technology onto a microservice architecture, cloud-enabled, cloud-ready. So if any -- if we can deploy it as a cloud-based service, we can operate as a SaaS-based service if people want, and we can also move our own markets on to this next-gen technology as well. And we launched that in 2017. We've built out the platform from, I would say, '17 to '19. We started building out the application layer on top of the core platform in '18 and '19 and '20. And then COVID hit. And we were in the middle -- we just signed on some very large post-trade clients to -- that wanted a next-gen solution. We were going to codevelop that -- some of the application layer with them. But that requires a lot of colocation. We would go to the client, we'd sit with them. It would be -- it's a long process to deliver these things. And COVID made it much harder to get that done. And the rest of the clients also kind of moved into, let me just make sure I've got the capacity to run my markets. So like the discussions around the next generation of technology went on pause for about a year. On the back -- as we went into 2021, the conversations were starting to re-kick off in terms of the demand for our next-gen platform, but we were still working our way through these really challenging implementations. We've scaled up the team to make sure we could get them done. And we now have delivered Phase 1 on all 3 of the core projects. They're very large contracts. We've delivered Phase 1. We've moved into Phase 2. We're in a much better delivery mode with them now. And at the same time, we now have a much more built-out system that we can then go and sell as a product now around the world. And so I think that we feel very good about the -- we definitely feel good about the long-term prospects of that business. We feel good about the fact we're moving our way through the most challenging environment -- COVID-related environment. But we still need to show you that we can kind of grow our way out of that. And one last thing is we had one contract that a 10-year agreement where the service and maintenance was finished after 10 years, and that's happened in the end of June last year. It was a big contract so that we need to lap that. So as we go into the second half of the year, we should be able to start to recover some growth there.

What have you learned about experience with that business?

The big thing that we've learned is we started to -- we developed a new technology stack that we can deliver in a much more product-oriented way. We now actually have gone live, like full cloud-based -- hyper-low latency cloud-based implementation. We just went live with a client in a cloud-delivered solution for a really high scalability trading system. So we're excited about that. We're building out these very, very robust clearing capabilities on this platform. But our history has been, we go to a client and we say, "Oh, you want to build a market. How do you want to build it? We'll build it for you." That's a very different thing than to say, "We have this awesome platform. We can deliver it to you as a cloud-based service or hybrid or on-prem. And it offers you all these capabilities and don't you want this?" That's a product sale, right? That and "Oh, you want some customizations? Well, let's walk through and understand why you need them If you want to be a global standard, if you want to be a global company, do you need them all?" And so just to make sure we're kind of paring back on some of the customizations that we were delivering. I think that that's a very different sale. And that requires retraining the team, making sure we're delivering it in that format. And I think we've been actually -- COVID's given us that chance to really focus on that and be more, I would say, more modern in the way that we're selling and delivering the product. So that's been -- so it's one thing to build a product. It's another thing to redo the whole go-to-market. And so we've been really building out those muscles in the last 2 years.

What do you think about your strategy in terms of things like Verafin, some of your other products? They are very much more cloud, SaaS.

They are.

I still hear, from what you just said, on-prem customization. This tend to be [ procedure ] with lower margins, et cetera. So when you think about that business, is the long term to remain like that, cloud, but some customization? Or could you ever move to a place where it's a real SaaS business with the kind of margins you would expect?

Yes. So -- yes. So I mean if we look at -- I would kind of take a step back and look at Nasdaq as a whole, we have about -- we have $3.5 billion of revenue, $1.9 billion of annual recurring revenue. So what's not in there is our trading business and our index business because AUM is not -- it's not a recurring business. It's reoccurring. Trading is reoccurring but not recurring. So ARR is about $1.9 billion. Of that, $655 million is SaaS. And so we have our eVestment, Solovis solutions are SaaS. Verafin is SaaS. Our trade surveillance solutions are SaaS. IR, ESG and governance solutions are SaaS. And then our listings is not SaaS. Our Market Data is not considered SaaS. But we have a growing -- and frankly, we've built out a lot more expertise in running a SaaS business building in an agile format, delivering in a really modern way in optimizing for the cloud. So we have that along -- across a lot of what we do. But market tech has historically been an on-prem delivery of customized capabilities. And so with this next-gen platform, we kind of unveiled a strategy to the investors, I think it was in '18, to say we want to move this into a SaaS-oriented solution business. But we also said it's going to be a long road because these contracts are long-dated. Our clients have historically run everything on-prem. And the cloud is a new creation. So what we've done is we've said -- we've kind of morphed into, we can deliver you a fully cloud-enabled solution end to end. We can do it in a hybrid mode, and we'll talk about that like kind of an outpost -- AWS outpost on-prem but in a cloud environment or we can continue to deliver it to you on-prem, but we're going to charge you as a SaaS client. We're going to deliver a product, not a custom build, and we will do some custom configs for you. That's where we're moving to. But I would say we're going to end up in that hybrid world for some period of time.

Since you brought up AWS and cloud, we'll just switch to that now. So to your point, you struck a historic agreement with Amazon to build out a cloud partnership. Can you just explain to us exactly what that means, what it means for Nasdaq, Nasdaq's customers? Any sort of financial impact? Sort of help us understand what broadly that partnership really means to Nasdaq.

Yes. Sure. So we've been working with AWS for about 10 years on moving many, many, many of our workloads into the cloud and delivering our products into the cloud. And they've been a great partner to us. We came to them about 3 years ago, and we said, "Okay, it's time for us to build out the capabilities to deliver our markets in the cloud." And we actually worked with 3 of the cloud providers to understand what were their capabilities, what were they ready for, what would it take to take our hyper-low-latency, hyper-resilient, high-throughput, hyperscale markets and move them into a cloud environment. And I think AWS was great engaging with us on a partnership basis, and we've co-developed a hyper-low latency edge compute system that's geared towards capital markets. So rather than us thinking, oh, we're just going to move our market into a public cloud, let's bring the cloud into Nasdaq's data centers, and so through Outpost. So AWS is delivering an Outpost environment into our data centers right now. And we are through -- we are migrating our option -- one of our options markets onto our next-gen platform, which this will be the second market we do that with -- actually the third because we also did the Nordic markets. And then we are going to have one of our markets actually in Outpost. So not only on our next-gen trading platform, but then also delivered into Outpost so that we can prove that a cloud environment -- a hybrid cloud environment can work. We've already migrated all of the surrounding systems like our revenue management solution, billing, trade operations, market operation systems, those are all in the public cloud. So we will have a very tight connection into an availability zone that houses all the surrounding systems but allowing the match to sit inside our data center in a controlled environment, but with the capabilities that AWS has, I think, is a really good result. And it could be in, I don't know, 5, 10 years that we could think about it as a public cloud solution. But this is a great way to go. And now we've created a road map that other hyperscale markets can follow. And AWS is a go-to-market partner with us on them as well. And it's -- we've entered into a long-term agreement with them not only to do it for us, but to co-develop and co-go to market with the rest of our clients.

How should we think about the benefits?

Yes. I think, first of all, I'll give you an example of the benefits that we've already seen just by having surrounding systems in the cloud. And we had -- we went from managing about a peak of 31 -- 30 -- or like just over 30 billion or -- messages coming into our options and equities markets in the U.S. a day. That was like in the fourth quarter of 2019. In February 28, 2020, we went to 62 billion. And then in October of 2021, we went to 80 billion. And we hit 90 billion in the first quarter of this year. So that's a massive amount of scale. That's 90 billion messages coming into our systems in a day. And while the matching engine is -- I mean, we do a really good job of optimizing our architecture. So that matching engine is hyper -- it's very efficient. We did go through a capacity. We had to go in and do a big capacity plan because our obligation is always have 2.5x the capacity on a peak day. So we've been going through a capacity upgrade on our systems for a while. But the surrounding systems is scaled instantly. We didn't have to do anything for those systems. All we had to do on our capacity program is just upgrade our matching servers. So that really helped us in terms of not only having that hyperscale but also the cost associated with that. I think that if we move into a fully cloud environment over time, you no longer have the need to manage your own infrastructure. I personally don't see that as a low -- I don't see that as a short-term opportunity. We have a colo environment. We have a -- so what -- instead, what we're trying to do is say, "Okay, let's turn our data center. Let's double the size of it, turn it into a private local zone, allow for more of the workloads from our clients to be brought into our data center. If they're data-sensitive or latency-sensitive workloads, they can house them in our data center as part of the AWS environment." So it gives us an opportunity to expand our relationships with our trading clients and over time, migrate more hopefully. We do not need to do this, but we'd like to see more of the colo migrate into that cloud -- that on-prem cloud environment, too. So it's a really nice, say, very multiyear road map to help us modernize the infrastructure that supports the markets.

So I hear mostly sort of operational capacity improvements, potentially some cost cuts, are they things in the...

And revenue opportunity as we bring -- if we're able to build out the capabilities, like as we increase the size of the data center and bring -- turn it into a full private local zone, the idea that our broker-dealer clients could use that for more of their data-sensitive or latency-sensitive workloads, we see as an opportunity as well.

Okay. Back to the market tech business. Financial crime has been phenomenal. It's been growing very well. Verafin acquisition has done quite well. Can you just remind us of the structural trends that drive in sort of top line growth, if I think still 30% last quarter? And sort of how sustainable that is over time?

Yes. So I think Verafin is -- we walked into Verafin with a very clear strategy. So we started in 2018 defining -- we have our trade surveillance solution, which is the most scaled and the most penetrated trade surveillance solution in the world. Most of -- many of the Tier 1 and Tier 2 banks use us for trade surveillance. About 60 markets use us for market surveillance and several regulators as well. But it's a very bespoke solution specifically around trading. And our clients actually started saying to us, "Can't you integrate AML and fraud detection into and kind of broaden out what you do for us? We love -- we like what you do, but we want to do more," which is a great thing to hear. So we decided to go and do a complete strategic review of what is anti-fin crime? What do we do and how do we leg into more? And we took about 1.5 years to really dissect that. And on the back of that, we identified Verafin as the #1 acquisition candidate. We went into a process -- actually, there was no process, but we went into conversations, and we ended up applying them. And we -- the thesis was we're going to pay a high price because it's a Rule of 50 north business, meaning it's growing 30% a year with a nice margin for a SaaS business. has great technology. It's run extremely well, and the growth potential is incredible. I think the TAM for that business is somewhere in the range of probably $10 billion. And we -- our view is that -- and that business had done a great job of penetrating the smallest banks, Tier 4 banks, Tier 3 banks. They were starting to really start to penetrate Tier 2 banks, and they hadn't actually moved up to Tier 1s. And that is our client. So if we can help them catalyze and accelerate growth into Tier 1s on top of the structural worth they're already having, that's a home run. And when we bought the company, it was exactly what we hoped it would be in terms of like the reality of matching our diligence. So we're just all on offense. We're working with them to open those doors. We're in POCs now with several very large banks on fraud detection and investigation capabilities. We also opened their eyes to the fact that we have a lot of fintech relationships so we can kind of broaden the scope of their services into fintechs. They've built out some crypto modules now to allow for AML and fraud detection across digital wallets as well as traditional accounts. And so we have a lot of runways to grow. And all of that's just in North America. So we have an ability to also expand it internationally, but we see that as a longer-term goal for us.

On the large band cross-sell, what's the progress been so far? Are you seeing real traction? What kind of pushback some of these large banks give to these suite of products?

Yes. So the first thing is when you're dealing with small banks, you kind of walk and you say, "Here is a fraud and AML detection investigation solution all in one. Here you go." And they love that because they're not well resourced. So it's nice to have one vendor if it does it all. When you walk up to the Tier 1s, they have a lot of internal systems and external systems. And so what you need to be able to go in with is to say, "Here is a far superior, let's say, business e-mail compromise solution or fraud -- wire fraud solution or ACH and check fraud solution. Why is it better? Because it has a data lake that already has 2,000 banks associated with it that allows us to be much more effective in routing out false positives and finding true positives. Let us do a POC for you." So we did a POC for a couple of clients. The results were very, very good. They have contracted and were in those clients now. And we're working on POCs with other clients. I think the challenge is twofold. One is just the time to contract with large banks is long. And we know that. That's a new experience for them, not a new experience for us. So just getting to contracts, as you know, from your prior employer, it can take a while. And so we're working through that. And the second thing is they have -- we have to find a way -- in many respects, they might have an in-house solution that's custom-built for investigations. So we need to be able to plug our module into our investigation tool as opposed to them using our investigation tool upfront. But again, that's not a hard integration, but that's just one of the things we have to show them that we can do. So those are that -- those are the things we're working through.

Okay. You talk about customer acquisition. It's not a topic we talk a lot about exchanges but -- particularly because I see a lot of ads for anti-financial crime on TV. And I'm curious how it works. Is it a brand marketing-type way to bring in new customers? Is it a sales force-driven way? Maybe just talk about how you're actually bringing new customers to the anti-financial crime solution?

Yes. I mean, generally speaking, it's been -- it is definitely a customer relationship sales business. But we want to make sure that people start to see Nasdaq and Verafin as the premier provider. So we did -- we have done some really fun kind of I would call -- we've done some ads through CNBC and other channels just to get people to recognize Nasdaq as a scaled anti-financial crime provider, leveraging our brand. I think that we -- our brand denotes trust and integrity, innovation, so we want to leverage those characteristics to say we can apply that to anti-fin crime and to make sure people see us as a core provider of that. But the fact of the matter is the sales is really going to be through the sales force.

Okay. Leadership in market tech, you've been very complimentary about the Verafin leadership team, particularly in terms of how they produce products very regularly. They have a very disciplined process. And I think you've made some changes to bring some of the Verafin folks into the broader Nasdaq business. What are you -- what do you hope to accomplish? How does that maybe change the pace of innovation in your market tech business?

Yes. So I think, first of all, what kind of transpired over the last year is Lars Ottersgård had been running the market tech business very successfully for about 18 years, and he actually decided to retire. And he gave me a year to say, "Okay, I'm going to retire in a year. How do you want to make this transition work?" That's awesome when you're an executive that gives you a year because it allows you to start to like ruminate over it for a while. I started getting Roland more involved in some of the projects that we were working on. He, as Chief Risk Officer, it was a natural for him to get involved there. I was able to really get to know Jamie, who's the founder of Verafin post acquisition so that when the retirement came around, it was a very logical decision to basically split Lars' role into 2, with Jamie becoming the Head of Anti-fin Crime and Roland becoming the Head of Market Infrastructure Technology. Those businesses have grown a lot. They have different dynamics. They have different clients for the most part. And so it allows us -- there's some crossover clients, so we still want to keep it as one segment because there is the ability to cross over. Like market surveillance is sold to exchanges. Some of our trading solutions are sold to broker-dealers, but it allows us to look at those businesses and those dynamics and bring the strength of Roland, who has deep experience in infrastructure and post trade. He was an executive at ASX and Hong Kong and LCH, and then bring him into that fold. And then really leverage Jamie's skills. So I, firstly, feel like we got really lucky because with Lars making that decision, it allows us to put some really great people in charge and really grow this business to hopefully continue to accelerate the growth.

Okay. And then lastly, on market tech. Just curious the impact of Russia, Ukraine. I'd imagine there's more sanctions monitoring and things like that, that could be beneficial. So maybe talk about that as a catalyst for growth.

So I think -- well, one of the things -- we've always had a good sanction screening tool, but we actually have -- one of the great things about Verafin is they do have a weekly release cycle. So they have a very agile way of developing technology. So they have actually launched a much more -- a more advanced sanctioned screening tool that they can then roll out to all their clients and because it's a cloud-based -- cloud-delivered service. And so that actually helps us. I would not say that it's like we are going in to a large bank and saying we can just do this for you. But if we're already having conversations with them about business e-mail compromise and fraud detection, we also say now we also have this more modern sanctioned screening tool. It's kind of just part of the sales conversation. And it's still early days because we're just kind of rolling it out now, but we do feel like we have a really great solution for them.

Okay. in to the exchange business. What's the state of capital markets from your point of view? I mean Nasdaq really the center of what has happened over the last 2 years. And if you look at the IPO market today, do you think the current environment is a cyclical blip? Or are we in for a much more structural sort of depression similar to what we had post the dot com?

Well, I think that if we kind of compare what we're dealing with right now with what we saw back in 2000 and 2001, so I was actually at Nasdaq then, so I remember it. We had, had 6 years of having more than 500 companies listed on Nasdaq, a year. And those companies, it was the dawn of a brand-new technology. A lot of those companies were -- they were not well formed at all. They were pre-revenue, in some cases. It was a really interesting time. And I think that the fact is that the economy kind of had -- kind of went into a bad -- went into a recession. And that whole technology kind of -- there was a big washout. I would say, in this particular case, we've had 1.5 years of more than 500 listing -- actually, only 1 year of more than 500 listings. So 1.5 years of a robust IPO cycle. Many of the companies that have gone public are great companies. I mean well-scaled, well -- revenue-generating really interesting businesses designed to help digitize the economy or to take -- I saw the electric -- I saw the Rivian outside. All those different things that are really going to drive the economy forward.

I think this is pre-revenue but...

It may be, but it's still -- it's a great car, a great truck. But I think that it's also -- but then we also have, through the SPAC combinations, less mature companies that have come public as well. And what I believe is it's very important to allow investors to have choice. And we now finally are in an environment where we've allowed companies to go public in different stages of maturity and have choice. Going into 2022, we now have a very -- we're entering into a different economic environment with the challenges of the supply chains post COVID, but still some COVID-related supply chain issues, particularly that I think are going to just impact the ability to deliver merchandise. I think the second is what's happening with the Ukraine-Russia conflict in terms of energy and food areas. But I think we're less impacted by that as a country as -- than the rest of the world is, but that's an inflationary impact. And then you also have this really, really, really robust labor market. You've had really good growth in the economy. You have a strong consumer, and that has resulted in inflation. So the Fed needs to execute their program, to bring inflation down. That will bring growth down. Their challenge is going to be to do it briefly. And I don't think anyone knows yet how successful they'll be at that. But I'm an eternal optimist. So I believe that if they are successful in doing that, we can bring inflation down. We can start to see a positive direction there. You start to see some of the COVID-related supply chain challenges be addressed. We can land pretty gracefully here and have a healthy environment. In terms of companies that want to go public, we have 270 companies that have filed to go public on Nasdaq. It's about 30 more than we had at this time last year. But they want to come out in an environment where investors are receptive, and this is not the time. So I think that they will wait, and we will see how the markets continue to evolve. Positives are we have, as I said, about 900 more companies listed on Nasdaq today than we had 2 years ago. And through our IPO packages and all the other services we offer them, they will roll off those packages and become paying clients to us over the next 2 years. So we have more we can do with the companies you've already listed that will deliver growth even if the IPO environment is slower.

So just to get you under record, you are not expecting a hurricane?

As I said, I'm an eternal optimist, so I'll take the optimistic viewpoint.

Right. Okay. On to your transaction businesses, your cash and options businesses. They've seen really good growth in the last 3 years after what was a somewhat depressing period post the financial crisis. It's always hard to predict, right? But we've had some secular tailwinds like retail trading, et cetera, increasing. But how do you think about the structural growth from here for those businesses over the next couple of years?

Well, I think, first of all, there are 2 things to recognize that are structural that are not just based on the volatility. So you had 3 effects in the markets. You've had the volatility that has come from COVID, that's come from also this very dynamic economic environment and all the news. And that has definitely created the volatility, which is a volume driver. But you also have, as I said, a lot more inventory. Nasdaq -- with 900 more companies on Nasdaq today, and that's the operating companies on Nasdaq today than 2 years ago, that's just more inventory to trade. So to look at -- reverting back to 2019, you've at least got to reflect the fact we have more inventory in our market to trade, and we have a higher market share of trading in Nasdaq-listed companies than in any other obviously listed companies. And we also manage more of the trading in terms of the opens and closes and things like that. So that's a great benefit. And then the third thing, as you said, is retail. And retail, again, if the environment stays relatively healthy, I think that retail, they're going through a period. But if we can kind of land gracefully, we have a whole new generation of investors that have come in to interact with the markets. And I think that, that will be a structural advantage. If we go into a recessionary period, then it takes about 2 years for retail to kind of decide that this isn't for them. So we could see that over a period of time. But that would be a -- you'd have to have a pretty long-dated recession in order to kind of see that play out. I would also say we had a lot of retail trading in the markets in the first quarter of last year. Most of -- it's really actually reverted more to institutional trading this year, and we still have very healthy volumes. So we're -- we see it as a good place. But growth from here, I think that we'd have to kind of understand what the economic environment is.

Okay. On the options business, which is a hefty business for you guys, at least in the trading side, market share in the U.S. options business has come down. I think it was almost 40% at one point. It's near at 30% today. So how are you thinking about market share, revenue growth, competitive positioning within the options business?

Yes. So we actually -- we look at it in 3 -- first of all, there's 6 options markets. So we're able to support every strategy that anyone would want to undertake in the options markets. So we have certain venues that are geared towards institutional involvement like Philex and ISE and other venues that are geared more towards retail, like GEMX and MRX and Nasdaq Options Market. So we can really manage through different types of strategies, but also different levels of participation. The other thing we really focus on is combining market share with capture rate and volumes. Those are the 3 drivers, right, volumes, market share, capture rate. We do not chase share. And we've made a conscious choices, both equities and options not to chase share. And so therefore, we've been really trying to manage through how do we make sure that our capture remains relatively healthy in a different dynamic where you might have more or less on or off exchange volumes and equities and different types of participants and options? And I think that we've actually handled that quite well. We've actually -- even with that shift in market share, we still are the largest marketplace. Across our 6 exchanges, we trade more options than any other market in the United States today. And so I think we've handled a very dynamic competitive environment quite well.

All right. Switching over to market data. I think recently, an appeals court judge essentially allowed the SEC to proceed in its agenda to reform sort of market data, something that exchanges have been opposed to. Curious as this is something we've got a lot of questions from, from investors. So it doesn't feel like it's a big topic of debate anymore, but it's something that was topical at one point. So I'm curious kind of how you guys see potential market data going forward given what the appeals court judge said.

Yes. I mean, I think -- first of all, I think that there's still more legal proceedings to come on some of the work there. And there are actually 2 proposals from the SEC that are going through that system, that court process. So we still have a long way to go before we actually know the outcome of all of that. I would also say our view on those proposals, there's -- even if those proposals went through completely as they were written, there's actually a -- there's always -- I always look at it, I know market data quite well. I think that there's actually a lot of opportunity in there, not just risk. I mean I actually don't see it as really a significant risk. I just see it as not great market structure. So we just don't agree with what they're trying to achieve from a market structure perspective on the back of those proposals. We don't think they were well researched, and we don't think the economic analysis was really done in a robust way. So we challenge them on those basis. We also would say consolidated data has value and will continue to have value. You put 5 levels of depth on a consolidated data, it's not going to suddenly choke off the demand for our [ product feeds ] at all. Our [ product feeds ] are sold because they have a complete depth. They're extremely -- they're robust and they're embedded into the trade workflows of every -- of many of our firms. So -- and we actually sold -- we tried to sell a 5-level depth feedback when we launched our execution system back in the mid-2000s, and there was no demand for it, by the way. So it was kind of interesting. But I asked you just would say that our view is that we still have ways to go in the court system. We have a long time to go before we even really know the outcome. And we would prefer to see -- we prefer to see better market structure, but we will live with whatever we have to live with.

And then one last one for me just on expenses and cost rationalization. To the extent we see a more protracted sort of downturn here, how much flexibility do you have to further rationalize cost, head count, et cetera, over the next couple of years?

Yes. I would look at it a little differently. I think that we are walking into whatever this economic environment is in a really strong position. We have mission-critical products, we have great markets. We're hyper efficient and resilient, and we have great cash flows. And we've been growing really nicely. So if I look at this period of time as an opportunity to just make sure we prioritize. We prioritize our investments towards those things that will -- we will come out of whatever economic environment we are walking into, we will come out stronger in those key areas of growth. And I think that we've really focused on 3 key themes. One is ESG and making sure we're positioning our corporate clients to handle the next version of ESG, whatever that is. We actually -- we kind of see an evolution of that. And we believe that, that will -- we have a lot of benefit opportunity there. The second is the digitization of markets and the modernization of the technology that underpins markets. And we've made a lot of investments there, and we will continue to march down that road. We really believe in that, and we think that, that's -- there's a lot to be done there. Our next-generation platform can manage any digital format, digital assets, anything. So we have a lot of opportunity there in the long run. I think the third is on the anti-fin crime side, and that's just a structural growth regardless of economic environment. In fact, sometimes these happens that economic environments create more opportunity there. So if we can focus on our key growth areas and just make sure that our core is really efficiently run, we will come out of whatever this period is actually stronger. And so I'd rather kind of focus it that way than just kind of sit there and say we're going to go into a retrenchment mode. I just -- I think that it's -- the strongest companies do the right thing to make the right investments in these periods of time, but you have to focus. You have to focus on what's going to matter in the next 5 years, not the next one.

Fantastic. On that note, I think we'll end it there.

Okay. Great. Thank you.

Thank you so much, Adena. Thank you very much.

Thanks.