Nasdaq, Inc. ($NDAQ)

All right. Next up, it's my pleasure to introduce Tal Cohen, President of Nasdaq. Tal leads the market services and financial technology division in Nasdaq. He's responsible for North American and European market services businesses as well. Also the company's portfolio of marketplace technology surveillance, risk management, regulatory reporting solutions. One of the central voices by Nasdaq always on Markets Vision 24/7 trading, a big topic here at this conference. So Tal, thanks so much for joining us.

Yes. Thanks for having me.

So I'll start off with a question on perps. Big news on Friday. CFTC approved Cache's Bitcoin perpetual futures contract to put some pressure on the exchange names here recently. So with perps seemingly on a path to becoming onshore in other asset classes, how is Nasdaq thinking about this? Is it an opportunity? Is it a threat? Is this overblown? What's your take?

Yes. And it's Greg going after David and hearing what you have to say. So I think we came out of folks construed that and extrapolated that and said, okay, if you can do that for bitcoin, maybe they'll provide approvals for equity-linked products. And I think that's the extrapolation that folks were making. And there's a couple of points I'd make there. One, is from an Nasdaq perspective, when we first looked at it, we were kind of surprised at the reaction you just talked about because we don't think it has an impact on our equities or options business, and I'll describe why. The first is options have great utility. It's hedging, risk management, income generation and obviously, you can express sentiment with options. And when we look at perps and our understanding of it, it's more kind of a linear exposure product. And you heard about the funding rate, you heard some of the things and some of the use cases for perks. The second is, and this is an important one, is when we think about our index options franchise, we've invested in that to curate an ecosystem of institutional and retail investors. And as a result, we have great liquidity, great market depth, great market quality. And that's hard to replicate from a price discovery perspective when we continue to invest in our index options franchise. And the third is, I just -- I would say that it's essentially cleared it's scaled, it's well regulated, and it has strong risk management around it. So when you think about retail participation, we want retail and institutions to be in our markets, for the long run, and we want that experience to be positive. If you take everything I just said in terms of the utility of the product, the scale that we have in that product being essentially cleared in the economics that we have around it, it's pretty compelling. And then I just would garner to say is like we're already pretty competitive with the futures market. So like Nasdaq's products compete with futures products that are highly levered, 13 to 17x leverage on the mines on the futures. So we're already in a competitive environment. And then again, I think these products are more kind in the way David was describing it to like a swap or a CFD and maybe some off-exchange products that we see today. The other thing I just want to weigh in on is just the process -- and this is important to Nasdaq, and I think to others as well. You need to balance innovation with a good regulatory process for things that are new and novel and complex. And what I mean by that, it needs to be an open collaborative industry consultation that whether you're the SEC or the CFTC, we want to see you engage in because when it's new and novel, we think the input from the industry is going to lead to better outcomes for investors. It's going to lead to better outcomes for issuers, investors and the markets in general. So that is one thing around the process, I would note. And then the third is just in terms of just the opportunity. It's a massive opportunity for Nasdaq in that regulators are open for business. and they're willing to have conversations around innovation. So we're moving our markets to 235. And equities, we're extending trading hours and options we're doing binary index options on the tokenization front. We got our filing approved. We announced a Nasdaq equity token. So we're really excited. We're embracing innovation, but at the same time, we're trying to do it in a responsible way. that generates outcomes for investors and issuers that not only in the short term, but in the long run, look positive.

Maybe just a follow up on that. Something Terry Duffy talk has talked about is the leverage in perps and worries about the U.S. importing that leverage structure that you see in Europe and Asia into the U.S. and the stress that, that could put on U.S. capital markets and equity markets, is that a concern to you at all? Or do you think that will be -- should be something that's addressed by regulators as we kind of go down this path?

That's why we have that in the open consultation process, which is there is -- and I think Terry spoke about this yesterday, and I've heard me speak about it more generally, which is there's leverage in the system today, whether it's 5x, 10, 15x but it isn't 100x, 200x, and people understand the products they're in and some of these leverage products. And you heard about the funding rate and how that works and that's an arbitrage mechanism, but it can also be used for a squeeze it has to be an open consultation process. People have to understand that. And retail, in particular, when they're using these products as tactical products, we want to make sure the retailer understands what they're getting into and the auto liquidation mechanism that works on per franchise, it's really important to understand how that works when you're at 100x leverage.

Yes. Okay. All right. So moving on another very timely announcement recently on May 1, you implemented meaningful changes to the Nasdaq 100 methodology. You added the fast entry rule that lets top 40 IPOs into the index within 15 trading days. Can you just talk about what went into the decision to make these changes now? And is this primarily about index integrity or about competing more aggressively for the IPO listings in the ETF ecosystem.

Yes, good question. So just a context, Suzi asked me how we came to this decision. This process started for us in the fall of 2025. and we opened up a consultation process with the industry. So it's open, transparent and the methodology of the index, most importantly is open and transparent. So we engage the industry had a consultation process, and we actually took in their input and made some changes as a result of that. And I'll talk about what those were. The second thing is we understood that other investors were updating or modernizing their methodologies. And the reason was, we all saw this, and it's not just this year, we've seen this coming for the better part of a year or 2 is market dynamics have changed. Companies are staying private longer, IPOs, you have larger companies with smaller floats. So market dynamics are just changing and evolving. So what do we want to do about that? And then the third is, for those that I recall, we had some large switches last year that were Nasdaq 100 eligible. And then we also anticipated some of the larger IPOs. So all of that kind of went into the decision-making. That's the context setting the decisions we made. So the changes we made, and I want to talk about what it was and what it is. The first is we had an annual rebalance and we went to a quarterly rebalance. Why did we do that? Because companies could be outside of our index for the better part of the year. if we didn't do that. So think about the great companies that are coming into our market being out of an index up to a year and not being able to access that pool of capital that is becoming more and more prevalent and important and think about investors' preferences on that. The second, and you mentioned the free float adjustment, we had a free float adjustment that worked like this prior where if you had 10% of your equity free float, we showed you at 100% market cap. That's how it worked. There was a minimum of 10%, and once you cross 70%, we showed you the 100. What we've done is actually made it more in line with the liquidity in the market. So I think it's much more elegant with how it matches up against liquidity, where the example is now if you have 5% of your equity free floating and say that represents $25 billion. We'll put a 3x multiple on that. So now we represent you at $75 billion, but not at your market cap. And so that's much more tied to what the liquidity in the underlying markets are. And once you hit 33%, which is much higher than the 10%, then we reflect you at 100%. right? So we do like a 3x on the free float up to 33% and at 33%, you go to 100%. So if you think about it, it actually lines up with the liquidity and the trading in the market -- and that was 1 of the suggestions. And by the way, great suggestions from the committee that we had, we said, should it be 5x Committee and consultation process, they said no, it should be 3. So we implemented that. And then the last 1 is just the fast entry, the fast track role. The way that works is really simple. If you're a top 40 Nasdaq companies, so Nasdaq listed nonfinancial company, and that means your market cap is about $120 billion, so a pretty big company. If you are, we're going with the fast track you. And the reason we're doing that is if you have a company that large, investors and issuers, the preference there was to show within the index and not wait for example, up to a year. And so we've done those 3 changes based on the consultation process. It's been generally well received, but there's been a lot of debate about what this means with respect to whether it's like SpaceX or other incoming IPOs. So we've just been really open about here's what we've done, who's why we think it benefits the markets. Here's how we think it plays out for investors, who is the conversations we've had for issuers. But it is an about an issuer. It's about changing market dynamics that we and other indexers have noticed over the last 2 to 3 years. And anybody who's been in the market is seeing the same dynamic we have.

Sure. Zooming out, the macro picture this year has been volatile, but it seems recently to be trending in a more favorable direction. Capital markets activity seems to be picking up. From your seat overseeing financial technology and market services, what is the state of those businesses today? And how would you characterize the tone of conversations with issuers, clients, market participants?

Yes, there's a lot there. So just on on the macro side for our markets, there's 4 things. There's corporate earnings, very constructive. Obviously, AI is a backdrop, the regulatory environment, constructive and retail engagement is high. So all of that has been really constructive as a buildup into the markets. And volatility has been generally well behaved. I mean there's been volatility intraday and in the markets, but if you're looking at the VIX as an indicator of that, it's been pretty well behaved. So that has been a really good backdrop. And then from a market perspective, we're generating alpha in a high beta environment. I love our competitive positioning. We continue to invest in our markets, whether it's in the technology, the service side, what we offer in terms of features and functionality, I really love our competitive positioning both in options and equities -- and that's been showcased in whether it's like our revenue capture or our market share or just our engagement with our clients, which is most important. Going to the financial technology side, ignoring just the macro backdrop we just talked about. There's 3 or 4 trends that I hear. So we have 3,800 clients across 6 continents. Tier 1 all the way to your smallest community banks. And let me share with you what they're telling us every single day we talk to them, whether it's in like Latin America, Southeast Asia, there's 3 things going on in the environment that is top of mind to them. One is modernization transformation. And those words mean different things to different people, but everybody is thinking about modernization and transformation, whether it's going to the cloud, adopting new technologies like AI or simply automation. The second is complexity. The increasing complexity in the global landscape, where you have divergence, geoeconomic divergence, geopolitical divergence regulatory divergence, complexity is increasing, and our customers need solutions to help them manage that. The third is just managing risk. If you're talking about like an always-on world, 24/7 with automation, the more granular, the more real time, you can manage your risk, the more successful you can be in the businesses you run. That is an obvious statement, but our clients are struggling to figure out how to do that. And our solutions are unique in that they're all mission-critical solutions both run the bank and change the bank solutions. And that makes us really, really unique in how we can come in and have those conversations. So as a result of that, customer engagement has been great. It is -- the sales cycles have been strong. And you saw that in the first quarter where we had 18% growth in financial technology. So really nothing has changed then. We feel really good again about our position product by product.

Sure. So I want to double-click on always on markets at Investor Day, you laid out kind of the vision for that. Adena, I think last year talked about 23.5% targeting that for 2026, back you spoke about it at Investor Day, too. But where are you today on that rollout? And when do you expect Nasdaq to go live with extended our trading.

Yes. And I can't remember who coined always on, but I feel like we were really early to the concept of always on. And so Alison has a few defining features in the innovation economy. And it's what you said. We think about 235 accelerated settlement the mobility and the velocity of capital and collateral throughout the system and fast removement of money and securities. All of those things kind of come to entocenization, of course, come together to form always on. And a couple of things we're doing. One is at the ground level, we have on our fintech side, an exciting opportunity with Calypso, which is a treasury and capital management or collateral solution we serve 24 central banks. We serve a number of Tier 2s, Tier 3s and some Tier 1 -- and everybody is talking to us about collateral management and optimizing for that in the 24/7, if you will, tokenized digital asset world. And so we have a real opportunity across collateral management. 235, we've announced in December 6 of this year, we're taking our equities markets to 35. We're extending trading hours in our options market and then we have the approval for tokenization. And on top of all that, what we're seeing is demand for solutions like surveillance. So as we go to 24 a lot of clients are coming to us and say, we need to surveil the market 24/7, how do we do that? From a trading perspective, because we're taking our markets to 235 and some of our markets to 24/7 ultimately. A lot of our market technology clients are coming to us and saying, "You're highly regulated. You've taken your own technology there. How can you help us? and we service 130 institutions, exchanges and regulators across the globe. So it's a tremendous opportunity for us. So when you combine all of that, always on -- really, there's a flywheel with that across all of our businesses, including the businesses not part of which is the data business and the index business.

Yes. So switching gears to the FinTech business. The 1 Nasdaq cross-sell strategy in other terms, I think you obviously coined was tracking ahead of plan last year. Pipeline mix is at about 15% and you're targeting $100 million of cross-sell revenues by 2027. So could you help us get a better sense for how that's come together? I think at Investor Day, you said you were already at $45 million there. And where are you seeing the most traction across Eclipse Calypso, MSL and the others?

Yes. Great question. So on Investor Day, we talked about achieving that $100 million target. We are confident that we're on track to do that. And since then, we've seen a real uptake, and I'll talk about that in a second. So the buildup to that is on Investor Day, as you said, we talked about the $45 million run rate, 43 clients signed. Since then, we also announced for Verafin, we had a 21 bank. We shared that with the investment community that was very well received. -- and our pipeline continues to showcase above 15% of our pipeline. -- is cross-sell. And we've seen that quarter-over-quarter. So that's been a consistent trend, and it's building. So that gives us the confidence that we can achieve that. In terms of our go-to-market strategy, where we've seen the real uptake is in a couple of places. One is Verafin with Tier 1 banks, global expansion, that's been really exciting for us to see. Two is, as Acxiom, which is a regulatory compliance and reporting solution goes down market -- we're seeing real synergies with Verafin, which is really, really interesting, and that is opening up more discussions for us. And then we have Calypso and our trading and post-trade platforms. So we're able to go into financial market infrastructure operators and actually provide them with portray solutions for both exchange clearing and OTC clearing and help them with gross margin and cross collateralization. So that's been a door opener for us. And then we have new products like the intelligence platform that we developed, which is really -- it's a data and analytics platform that's very, very modern. And when we go into a lot of clients, and we're looking to replace a vendor, they'll say to us, do you have a data management solution. I can't just rip out my trade management solution. I need to have a data solution under that. Do you have that for us. We have that now. So the intelligence platform plus Calypso has formed a really, really nice, if you will, complementary set of capabilities for us. And then on the surveillance side, I talked a little bit about surveillance and always on, but surveillance and trading have always gone together. And that's been a strong cross-sell opportunity for us. So we have a number of go-to-market that we implement every quarter. We've been pretty successful customer reception has been strong. I just kind of noted a few there, and I think we'll continue to build on that. But it's really important to note 1 thing, which is that's just 1 part of our entire revenue growth algorithm. We have upsells, new logos, all of that comes together in terms of our revenue growth algorithm sure.

Sure. So I want to ask about AI. At Investor Day, you also announced a $100 million efficiency target that you were expecting to receive. I think I had a lot to do with that. So from your seat, where are you actually getting operating leverage from AI today? And where do you think the next kind of inflection or acceleration is going to be in that area?

So we talk about in 2 areas. One is in the product. The second is on the business, and I think that's what you're referring to -- in the product, let me just start there because we're seeing great traction with our clients there. A couple of highlights. Verafin, since Investor Day, now has 500 clients using its genetic workforce. That's up 40% since Investor Day. That's incredible. We've seen Acxiom, which has a suite of agent capabilities from Red CoPilot, to agents to workflow management, all of those, and we call it [indiscernible] Rigsimplify, RegNavigator, we have names for it. It's a workforce, if you will. We've seen great traction there. because we're empowering our clients to take control of regulatory reporting and think just about the pace and intensity of regulatory change and having an end-to-end solution. It's also pushing more discussions on cloud and managed services for us. So it's not just what AI does for us. it's what AI does for us from a perspective of cloud and managed services. And the third 1 to note is on surveillance. We recently launched what we call calibration copilot, which is basically how you set your alerts how you calibrate your alerts -- and what we're doing there is there's a collective intelligence or compounding intelligence piece to it where across our entire client base, and we serve most Tier 1s, we can share with you how to reduce false positive, be more accurate about your detections and help you instead of like that trial and error that most people go through around how do I set my loads, we can actually use AI to help you set it correctly earlier and manage that through the process. Think about what that does for your conversations with regulators and your clients. all of that's been really good. On the business, because you just mentioned that we have the $100 million run rate expense target for the end of 2027. This is about transforming Nasdaq an engineering perspective and a client success perspective, obviously, we have that in how -- in our coding, in our QA process, the whole PDLC process. If I could take you through it from 1 of our products, we have a, if you will, a collection of agents from business requirements all the way through QA that we've developed from 1 of our products, surveillance. And you kind of see the swing of agents that are coordinated and orchestrated through a master agent. So you got a master agent up top. And we have all these individual agents of like business requirements, QA, testing, all the way through the process that allows us to enhance the productivity of our developers. But more importantly, it generates higher quality code and our cycle times have come down. So we're able to get into that backlog that everybody has all of our products have a backlog. We're able to basically burn through that backlog faster, deliver higher-quality code and have our engineers and our client success teams focused on higher-value activities. And we're kind of stringing that along through all of our products. So that's just a great example of how we're thinking about it across Nasdaq and how that really transform us beyond just $100 million efficiency. There needs to be a benefit for you all. SP1 All right. So I want to end on a big picture question. I think the last 10 years or so for Nasdaq, there's been a lot of focus on the nonexchange business. I think going forward, the Market Services business, there's a lot of exciting things going on. There's a lot of tailwinds for volumes. You have the pattern day trading rule today going away. You have AI trading agents. You have all these big IPOs that people think could boost option volumes by upwards of 10%. So -- as we move in that direction, 24/7 trading tokenization, all the other things I mentioned, do you think Market Services will become a more meaningful driver of growth for Nasdaq in the next 10 years. Yes. I'm not independent on that question. I'm a markets guy. So the markets are always going to be a Nasdaq Foundational business. It gives us the credibility to go into financial technology and talk to our clients about their modernization efforts. So if you're a highly regulated institution that's trying to modernize -- do you want to talk to somebody who just sell software or somebody that actually uses that software is highly regulated and is going on that journey as well. And that is incredibly -- that establishes credibility when you walk in the door. -- and that's really important to us. And the foundational business is growing. It's been a great business for us. We love that business. We love it during volatile times we lever during nonvolatile tonnes because we kind of structured that business to be successful in different market environments. And what I would say to you is we're investing in that business. That's the important thing to note. -- is for 247. I'll give you 1 example. We're really excited about. Some people might have heard me speak about this. We have a digital twin now that we've stood up, which is basically a replica of our production environment that we spin up through AI, and we spin it up in the cloud. We designed it through AI, and it's an exact replica of our of our trading environment. What makes it special is we place agents on top of that, we give the agents personas. You are a retail broker, you are a high-frequency trader, you are a global bank, you are XYZ. And then we have them inject orders into this environment. And so we're able to replicate extreme market conditions, raise conditions, edge conditions much faster. Why is that important? In a 24/7 world where if you have an issue, you don't have the downtime to actually remedy that issue. -- or you need to stop the market, and that's a big deal anytime you stop a market or a positive market. So our ability to have a much more robust simulation environment that's cost effective that allows us to replicate all these different conditions, use AI for that and then also be able to offer that as a product through financial technology, that's the connective tissue right there for you. Then we can go to our clients and say, we can offer you this. And that's an incredible game changer for us in the way that we we kind of communicate with our clients. So that is why that foundational business is so powerful and so important to us. And that's just 1 simple example of how we're using AI in our foundational businesses to drive a flywheel across our greater businesses.

All right. Well, I think we're out of time. But Tal, thanks so much for joining us.

Thank you. Appreciate it.