Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the financial condition and results of operations of Nasdaq should be read in conjunction with our consolidated financial statements and related notes included in this Form 10-K, as well as the discussion under “Item 1A. Risk Factors.”

Business Overview

We are a leading provider of trading, clearing, marketplace technology, regulatory, securities listing, information and public and private company services. Our global offerings are diverse and include trading and clearing across multiple asset classes, trade management services, data products, financial indexes, capital formation solutions, corporate solutions, and market technology products and services. Our technology powers markets across the globe, supporting equity derivative trading, clearing and settlement, cash equity trading, fixed income trading, trading surveillance and many other functions.

For further discussion of our business, see “Item 1. Business.”

Business Environment

Our non-transactional businesses provide technology to exchanges, clearing organizations and central securities depositories around the world. We also offer companies and other organizations access to innovative products, software solutions and services that increase transparency, mitigate risk, improve board efficiency and facilitate better corporate governance. In our transactional business, we serve listed companies, market participants and investors by providing derivative, commodities, cash equity, and fixed income markets, as well as clearing services, thereby facilitating economic growth and corporate entrepreneurship. In broad terms, our business performance is impacted by a number of drivers including macroeconomic events affecting the risk and return of financial assets, investor sentiment, government and private sector demands for capital, the regulatory environment for capital markets, changing technology, particularly in the financial services industry, and changes in investment patterns and priorities. Our future revenues and net income will continue to be influenced by a number of domestic and international economic trends including, among others:

•the demand by companies and other organizations for the products sold by our Corporate Solutions business, which is largely driven by the overall state of the economy and the attractiveness of our offerings;
•the challenges created by the automation of market data consumption, including competition and the quickly evolving nature of the data business;
•the outlook of our technology customers for capital market activity;
•technological advances and members’ and customers’ demand for speed, efficiency, and reliability;
•the acceptance of cloud-based services and advanced analytics by our customers and global regulators;
•trading volumes and values in equity derivative, cash equity and FICC, which are driven primarily by overall macroeconomic conditions;
•the number of companies seeking equity financing, which is affected by factors such as investor demand, the global economy, and availability of diverse sources of financing, as well as tax and regulatory policies;
•the demand for information about, or access to, our markets, which is dependent on the products we trade, our importance as a liquidity center, and the quality and pricing of our data and trade management services;
•the demand for licensed ETPs, enhanced analytics and other financial products based on our indexes as well as changes to the underlying assets associated with existing licensed financial products;
•continuing pressure in transaction fee pricing due to intense competition in the U.S. and Europe;
•competition related to pricing, product features and service offerings; and
•regulatory changes relating to market structure or affecting certain types of instruments, transactions, pricing structures or capital market participants.

The current consensus forecast for gross domestic product growth for the U.S. is 2.3% in 2017 and 2.5% in 2018 and the Eurozone is 2.3% in 2017 and 2.1% in 2018. U.S. growth forecasts for 2018 remained relatively consistent through the first half of 2017, but have been climbing upwards since then and are currently 0.2 percentage points higher than forecasted at the start of the year. Growth forecasts for the Eurozone in 2018 have steadily risen since an estimate of 1.5% at the start of 2017. While growth is accelerating, there are a number of significant structural and political issues continuing to impact the global economy. Consequently, sustained instability could return at any time, resulting in an increased level of market volatility, oscillating trading volumes, and a more cautious outlook by the clients of our non-trading segments. Volatility was low throughout 2017; however, in early February 2018, volatility levels have increased.

Following weakness in 2016 and early 2017, IPO activity has picked up somewhat over the past three quarters particularly in our Nordics market. Additional impacts on our business drivers include the international enactment and implementation of new legislative and regulatory initiatives, notably MiFID II in Europe, the evolution of market participants’ trading and investment strategies, and the continued rapid progression and deployment of new technology in the financial services industry. The business environment that influences our financial performance in 2018 may be characterized as follows:

•rapidly evolving technology for our non-transactional businesses and their clients;
•increased demand for applications using emerging technologies and sophisticated analytics by both new entrants and industry incumbents;
•the expansion of the number of industries and emergence of new industries, seeking to use advanced market technology;
•intense competition among U.S. exchanges and dealer-owned systems for cash equity trading and strong competition between MTFs and exchanges in Europe for cash equity trading; and
•globalization of exchanges, customers and competitors extending the competitive horizon beyond national markets.

2018 Outlook

For key trends that may influence our business, see “Item 1. Business—2017 Strategic Review.” Our strategy consists of leveraging our market technology and information analytics expertise across our global capital markets. The focus for both our non-transactional and transactional businesses continues to include identifying organic growth and developing adjacent opportunities to our existing businesses. In addition, our strategy includes identifying acquisitions that both complement our strengths and extend our capabilities, and offer opportunities for revenue and expense synergies and increased shareholder value.

Our non-transactional businesses seek to provide increased transparency and analytics to the investment community and to expand our market technology offerings that power trading, post-trade and surveillance. New competitors will arise from both startups and existing firms and some existing competitors will fade as continued rapid technological change dominates the competitive environment in 2018. We expect regulation to also evolve as governments and regulators respond to emerging technologies. The growth of a market place economy in financial services and beyond, the need for new analytic capabilities to process the data explosion, the evolution of the investment management industry, and our existing clients continued outsourcing of non-differentiating capabilities and processes create opportunities for our non-transactional businesses in 2018 and beyond.

During 2018, we expect changes in both the competitive and regulatory environments in our transactional businesses. In the U.S., in 2017, CBOE completed its acquisition of BATS, trading commenced on Miami's second option exchange, NYSE announced plans to begin trading Tape B and Tape C stocks on its floor and to launch a fourth equities exchange, and CBOE and CME began trading bitcoin futures. We expect intense competition among U.S. equity and options marketplaces to continue and new entrants may also become part of our competitive environment. While the willingness of new entrants to commence operations can be taken as a positive sign of good health in the trading industry, as these organizations implement their strategies, they have the potential to affect the competitive environment we face.

European regulators are currently moving forward on a number of new policies affecting the operation and infrastructure of the financial markets. The implementation of EMIR is changing the way we structure and operate the Nordic clearinghouse. MiFID II, as well as the new regulations in MiFIR, will change the way our trading business operates and will create both challenges in our existing businesses, as well as new opportunities for growth. Industry response to the implementation of MiFID II in early 2018 is still unfolding, particularly the anticipated increase in the number of Systematic Internalizer trading systems operated by large financial service firms and electronic markets. Consequently, 2018 is an uncertain environment for our European transactional businesses.

The following summarizes our 2018 outlook for each of our segments:

Market Services

Economic and political uncertainty continue to weigh on the global economy and the debate over future fiscal and monetary policy in the U.S. and Europe continues. We believe that our diversified businesses position us well to compete in an uncertain market environment. If the increased levels of market volatility seen in early February 2018 persist into the balance of 2018, then many of the asset classes within our Market Services segment and our Data Products business will continue to benefit.

NFX continues to expand its offering in its energy derivative products. We enter 2018 with plans to increase the number of clients running on the NFX platform, and we continue to identify additional products to bring to market.

We expect global markets to be influenced by significant change in 2018, driven by economic factors and regulatory initiatives in the U.S. and Europe as recently adopted regulations and legislation continue to be implemented. These changes could result in the continued fragmentation of U.S. equity derivative and cash equity markets, and trading could continue to migrate from exchanges to OTC systems, particularly in the U.S. We anticipate that trading volumes will move to new types of broker-operated systems in Europe and potentially from exchanges to broker-operated systems as the industry responds to European Union regulatory changes.

Information Services

As we look toward the future, we continue to make progress in leveraging emerging technologies to expand the ways we serve clients, with our launch of the trading and analytics product suite, Analytics Hub, which leverages machine intelligence in its logic to serve investors.

We also continue to make strides in expanding our Index Licensing and Services business, in particular in our smart beta products, which make up a strong portion of our growing total assets under management. The 2017 acquisition of eVestment added the strong network effects of a leading analytics provider to our product offerings.

The performance of our market data products offerings reflect overall market conditions as well as our ability to offer market participants superior performance and efficiency relative to our competitors’ products. Our market data products also face pressure from our customers’ desire to minimize their costs and from regulatory changes in the regions where we operate.

In addition, we continue to look for opportunities to expand product sales through additional geographic expansion and new opportunities such as eVestment.

Corporate Services

Overall, we made significant progress in 2017 to enhance the client experience. In 2017, we combined our two board portal platforms. In addition, we created an architectural foundation for our next generation corporate solutions products using the cloud and machine learning to offer enhanced surveillance tools.

2017 was a record year for Nordic IPOs, while the IPO market was more subdued in the U.S. Nasdaq led U.S. exchanges for IPOs for the fifth consecutive year. There was strong momentum in U.S. listing switches with the largest issuer ever to switch their exchange listing to Nasdaq in 2017. Growth in 2018 for our Corporate Services segment will depend on a continued positive economic outlook, a lower level of merger and acquisition transactions and a reasonable level of volatility.

As part of our strategic review, we identified the areas of our Corporate Solutions business that were of greatest importance to our customer base, that demonstrated significant growth opportunities, and where we could apply our technology to enhance customer value and drive future growth. We determined that our Investor Relations and Board & Leadership Services would be our area of focus and we commenced a process to evaluate strategic alternatives for the Public Relations Solutions and Digital Media Services businesses within our Corporate Solutions business and in January 2018, we announced the sale of these businesses. See “Definitive Agreement to Sell our Public Relations Solutions and Digital Media Services Businesses,” of Note 21, “Subsequent Events,” to the consolidated financial statements for further discussion.

Market Technology

During 2017, we continued to invest in the Nasdaq Financial Framework, which is our market technology modular architecture that will provide next generation capital market

capabilities, including the integration of blockchain technology across the issuance and settlement of securities, as well as cloud-enabled trading and clearing. Based on customer interest and sales during 2017, we expect this next generation platform to contribute meaningfully to our order intake in 2018 and beyond.

In addition, during 2017, we enhanced our SMARTS product and acquired deeper surveillance and behavioral capabilities through Sybenetix. Our service delivery model continues to evolve as we move from deployed software to a Platform-as-a-Service approach as cloud capabilities and market acceptance mature.

Summary

We believe that our future will continue to be determined by our ability to satisfy our customer's evolving needs and to allocate resources in strategic areas which will yield attractive returns.

Consistent with our long-term strategy, we expect to leverage our technology strengths to offer new products that expand and strengthen our relationships with existing and new customers.

We believe that our continued focus on meeting our cost, revenue and technology objectives will enable us to benefit from any improving economic conditions in the future. We will continue to look for opportunities to further expand our business with enhanced product offerings and/or acquisitions that are complementary to our existing businesses.

Business Segments

We manage, operate and provide our products and services in four business segments: Market Services, Corporate Services, Information Services and Market Technology. See Note 1, “Organization and Nature of Operations,” and Note 20, “Business Segments,” to the consolidated financial statements for further discussion of our reportable segments, as well as how management allocates resources, assesses performance and manages these businesses as four separate segments.

Sources of Revenues and Transaction-Based Expenses

See “Revenue Recognition and Transaction-Based Expenses,” of Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements for further discussion of our sources of revenues and transaction-based expenses.

Nasdaq’s Operating Results

Key Drivers

The following table includes key drivers for our Market Services, Corporate Services, Information Services and Market Technology segments. In evaluating the performance of our business, our senior management closely evaluates these key drivers.

Year Ended December 31,
201720162015
Market Services
Equity Derivative Trading and Clearing
U.S. equity options
Total industry average daily volume (in millions)14.714.414.8
Nasdaq PHLX matched market share17.3%16.0%16.7%
The Nasdaq Options Market matched market share9.2%7.8%7.7%
Nasdaq BX Options matched market share0.7%0.8%0.8%
Nasdaq ISE Options matched market share(1)9.1%5.8%—%
Nasdaq GEMX Options matched market share(1)5.2%1.1%—%
Nasdaq MRX Options matched market share(1)0.1%0.1%—%
Total matched market share executed on Nasdaq’s exchanges41.6%31.6%25.2%
Nasdaq Nordic and Nasdaq Baltic options and futures
Total average daily volume of options and futures contracts(2)330,218376,730380,725
Cash Equity Trading
Total U.S.-listed securities
Total industry average daily share volume (in billions)6.537.356.91
Matched share volume (in billions)295.9321.6327.7
The Nasdaq Stock Market matched market share14.2%14.0%15.8%
Nasdaq BX matched market share3.1%2.4%2.0%
Nasdaq PSX matched market share0.8%1.0%1.0%
Total matched market share executed on Nasdaq’s exchanges18.1%17.4%18.8%
Market share reported to the FINRA/Nasdaq Trade Reporting Facility34.5%33.1%31.8%
Total market share(3)52.6%50.5%50.6%
Nasdaq Nordic and Nasdaq Baltic securities
Average daily number of equity trades executed on Nasdaq’s exchanges552,104472,428438,864
Total average daily value of shares traded (in billions)$5.3$5.1$5.1
Total market share executed on Nasdaq’s exchanges67.5%62.5%68.0%
FICC
Fixed Income
U.S. fixed income notional trading volume (in billions)$17,800$21,504$29,234
Total average daily volume of Nasdaq Nordic and Nasdaq Baltic fixed income contracts115,18589,252108,708
Commodities
Power contracts cleared (TWh)(4)1,1991,6581,496
Corporate Services
Initial public offerings
The Nasdaq Stock Market13691143
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic886278
Total new listings
The Nasdaq Stock Market(5)268283274
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic(6)1088891
Number of listed companies
The Nasdaq Stock Market(7)2,9492,8972,859
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic(8)984900852
Information Services
Number of licensed ETPs324298222
ETP assets under management tracking Nasdaq indexes (in billions)$167$124$114
Market Technology
Order intake (in millions)(9)$292$276$271
Total order value (in millions)(10)$847$777$788
(1)For the year ended December 31, 2016, Nasdaq ISE, Nasdaq GEMX and Nasdaq MRX matched market share represents trading volume which commenced on June 30, 2016.
(2)Includes Finnish option contracts traded on Eurex.
(3)Includes transactions executed on The Nasdaq Stock Market’s, Nasdaq BX’s and Nasdaq PSX’s systems plus trades reported through the FINRA/Nasdaq Trade Reporting Facility.
(4)Transactions executed on Nasdaq Commodities or OTC and reported for clearing to Nasdaq Commodities measured by Terawatt hours (TWh).
(5)New listings include IPOs, including those completed on a best efforts basis, issuers that switched from other listing venues, closed-end funds and separately listed ETPs.
(6)New listings include IPOs and represent companies listed on the Nasdaq Nordic and Nasdaq Baltic exchanges and companies on the alternative markets of Nasdaq First North.
(7)Number of total listings on The Nasdaq Stock Market at period end, including 373 ETPs as of December 31, 2017 and 328 as of December 31, 2016.
(8)Represents companies listed on the Nasdaq Nordic and Nasdaq Baltic exchanges and companies on the alternative markets of Nasdaq First North at period end.
(9)Total contract value of orders signed during the period.
(10)Represents total contract value of signed orders that are yet to be recognized as revenue. Market technology deferred revenue, as discussed in Note 9, “Deferred Revenue,” to the consolidated financial statements, represents consideration received that is yet to be recognized as revenue for these signed orders.

Financial Summary

The following table summarizes our financial performance for the year ended December 31, 2017 when compared with the same period in 2016 and for the year ended December 31, 2016 when compared with the same period in 2015. The comparability of our results of operations between reported periods is impacted by the acquisitions of: eVestment in October 2017, Nasdaq Canada and Marketwired in February 2016, Boardvantage in May 2016, ISE in June 2016 and DWA in January 2015. See Note 4, “Acquisitions,” to the consolidated financial statements for further discussion of the above acquisitions. For a detailed discussion of our results of operations, see “Segment Operating Results” below.

Year Ended December 31,Percentage Change
2017201620152017 vs. 20162016 vs. 2015
(in millions, except per share amounts)
Revenues less transaction-based expenses$2,428$2,277$2,0906.6%8.9%
Operating expenses1,4291,4381,370(0.6)%5.0%
Operating income99983972019.1%16.5%
Interest expense(143)(135)(111)5.9%21.6%
Asset impairment charge—(578)—(100.0)%N/M
Income before income taxes880136630547.1%(78.4)%
Income tax provision14628203421.4%(86.2)%
Net income attributable to Nasdaq$734$108$428579.6%(74.8)%
Diluted earnings per share$4.33$0.64$2.50576.6%(74.4)%
Cash dividends declared per common share$1.46$1.21$0.9020.7%34.4%

N/M Not meaningful.

In countries with currencies other than the U.S. dollar, revenues and expenses are translated using monthly average exchange rates. Impacts on our revenues less transaction-based expenses and operating income associated with fluctuations in foreign currency are discussed in more detail under “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.”

Segment Operating Results

The following table shows our revenues by segment, transaction-based expenses for our Market Services segment and total revenues less transaction-based expenses:

Year Ended December 31,Percentage Change
2017201620152017 vs. 20162016 vs. 2015
(in millions)
Market Services$2,418$2,255$2,0847.2%8.2%
Transaction-based expenses(1,537)(1,428)(1,313)7.6%8.8%
Market Services revenues less transaction-based expenses8818277716.5%7.3%
Corporate Services6566355623.3%13.0%
Information Services5885405128.9%5.5%
Market Technology30327524510.2%12.2%
Total revenues less transaction-based expenses$2,428$2,277$2,0906.6%8.9%

The following charts show our Market Services, Corporate Services, Information Services and Market Technology segments as a percentage of our total revenues less transaction-based expenses of $2,428 million in 2017, $2,277 million in 2016 and $2,090 million in 2015:

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MARKET SERVICES

The following table shows total revenues, transaction-based expenses, and total revenues less transaction-based expenses from our Market Services segment:

Year Ended December 31,Percentage Change
2017201620152017 vs. 20162016 vs. 2015
(in millions)
Market Services Revenues:
Equity Derivative Trading and Clearing Revenues(1)$752$541$43239.0%25.2%
Transaction-based expenses:
Transaction rebates(450)(288)(223)56.3%29.1%
Brokerage, clearance and exchange fees(1)(43)(25)(21)72.0%19.0%
Equity derivative trading and clearing revenues less transaction-based expenses25922818813.6%21.3%
Cash Equity Trading Revenues(2)1,2791,3491,315(5.2)%2.6%
Transaction-based expenses:
Transaction rebates(692)(785)(756)(11.8)%3.8%
Brokerage, clearance and exchange fees(2)(334)(309)(306)8.1%1.0%
Cash equity trading revenues less transaction-based expenses253255253(0.8)%0.8%
FICC Revenues969998(3.0)%1.0%
Transaction-based expenses:
Transaction rebates(16)(19)(4)(15.8)%375.0%
Brokerage, clearance and exchange fees(2)(2)(3)—%(33.3)%
FICC revenues less transaction-based expenses787891—%(14.3)%
Trade Management Services Revenues2912662399.4%11.3%
Total Market Services revenues less transaction-based expenses$881$827$7716.5%7.3%
(1)Includes Section 31 fees of $40 million in 2017, $24 million in 2016 and $19 million in 2015. Section 31 fees are recorded as equity derivative trading and clearing revenues with a corresponding amount recorded in transaction-based expenses.
(2)Includes Section 31 fees of $319 million in 2017, $290 million in 2016 and $282 million in 2015. Section 31 fees are recorded as cash equity trading revenues with a corresponding amount recorded in transaction-based expenses.

Equity Derivative Trading and Clearing Revenues

Equity derivative trading and clearing revenues and equity derivative trading and clearing revenues less transaction-based expenses increased in both 2017 compared with 2016 and 2016 compared with 2015.

The increases in 2017 were primarily due to the inclusion of a full year of revenues from our acquisition of ISE compared with six months in 2016, higher U.S. industry trading volumes and an increase in our overall U.S. matched market share. Further impacting the increase in equity derivative trading revenues was higher Section 31 pass-through fee revenue.

The increases in 2016 were primarily due to:

•the inclusion of revenues from our acquisition of ISE, partially offset by;
•lower U.S. industry trading volumes; and
•lower market share at Nasdaq PHLX.

Section 31 fees are recorded as equity derivative trading and clearing revenues with a corresponding amount recorded as transaction-based expenses. In the U.S., we are assessed these fees from the SEC and pass them through to our customers in the form of incremental fees. Pass-through fees can increase or decrease due to rate changes by the SEC, our percentage of the overall industry volumes processed on our systems, and differences in actual dollar value of shares traded. Since the amount recorded in revenues is equal to the amount recorded as transaction-based expenses, there is no impact on our revenues less transaction-based expenses. The increase in 2017 compared with 2016 is primarily due to the inclusion of a full year of Section 31 fees from our acquisition of ISE compared with six months in 2016. The increase in 2016 compared with 2015 is primarily due to the inclusion of six months of Section 31 fees from our acquisition of ISE.

Transaction rebates, in which we credit a portion of the per share execution charge to the market participant, increased in both

2017 compared with 2016 and 2016 compared to 2015. The increase in 2017 was primarily due to the inclusion of a full year of rebates associated with our acquisition of ISE compared with six months in 2016, increases in rebate capture, higher U.S. industry trading volumes, and an increase in our overall U.S. matched market share. The increase in 2016 was primarily due to the inclusion of six months of rebates associated with our acquisition of ISE, partially offset by lower U.S. industry trading volumes and lower market share at Nasdaq PHLX.

Brokerage, clearance and exchange fees increased in both 2017 compared with 2016 and 2016 compared with 2015. The increase in both 2017 and 2016 was primarily due to higher Section 31 pass-through fees associated with our acquisition of ISE, as discussed above.

Cash Equity Trading Revenues

Cash equity trading revenues and cash equity trading revenues less transaction-based expenses decreased in 2017 compared with 2016 and increased in 2016 compared with 2015.

The decreases in 2017 were primarily due to:

•lower U.S. industry trading volumes, partially offset by;
•higher European industry trading volumes; and
•an increase in our overall U.S. matched market share and European market share executed on Nasdaq's exchanges.

The decrease in cash equity trading revenues in 2017 was also partially offset by an increase in Section 31 pass-through fee revenue.

The increases in 2016 were primarily due to:

•the inclusion of revenues associated with our acquisition of Nasdaq Canada; and
•higher U.S. and European industry trading volumes, partially offset by a;
•decrease in our overall U.S. and European matched market share executed on Nasdaq’s exchanges.

The increase in cash equity trading revenues less transaction-based expenses in 2016 was also unfavorably impacted by a decrease in the U.S. average net capture rate.

Similar to equity derivative trading and clearing, in the U.S. we record Section 31 fees as cash equity trading revenues with a corresponding amount recorded as transaction-based expenses. We are assessed these fees from the SEC and pass them through to our customers in the form of incremental fees. Since the amount recorded as revenues is equal to the amount recorded as transaction-based expenses, there is no impact on our revenues less transaction-based expenses. The increases in Section 31 fees in 2017 compared with 2016 and 2016 compared with 2015 were primarily due to higher dollar value traded on Nasdaq’s exchanges and higher SEC fee rates.

Transaction rebates decreased in 2017 compared with 2016 and increased in 2016 compared with 2015. For The Nasdaq Stock Market, Nasdaq PSX and Nasdaq Canada, we credit a portion of the per share execution charge to the market participant that

provides the liquidity, and for Nasdaq BX, we credit a portion of the per share execution charge to the market participant that takes the liquidity.

The decrease in 2017 was primarily due to:

•lower U.S. industry trading volumes, partially offset by;
•an increase in our overall U.S. matched market share executed on Nasdaq’s exchanges.

The increase in 2016 was primarily due to:

•higher U.S. industry trading volumes; and
•the inclusion of rebates associated with our acquisition of Nasdaq Canada, partially offset by a;
•decrease in our overall U.S. matched market share executed on Nasdaq’s exchanges.

Brokerage, clearance and exchange fees increased in both 2017 compared with 2016 and 2016 when compared with 2015. The increase in 2017 was primarily due to higher Section 31 pass-through fees, as discussed above, partially offset by a decline in routing fees. The increase in 2016 was primarily due to an increase in Section 31 pass-through fees.

FICC Revenues

FICC revenues decreased in 2017 compared with the same period in 2016 primarily due to volume declines in European commodities products and U.S. fixed income products, partially offset by higher volumes and pricing changes at NFX. FICC revenues less transaction-based expenses were flat in 2017 compared with 2016 as declines in European commodities products and U.S. fixed income products were offset by higher volumes and pricing changes at NFX.

FICC revenues increased slightly in 2016 compared with 2015 and FICC revenues less transaction-based expenses decreased in 2016 compared with 2015. The decrease in FICC revenues less transaction-based expenses in 2016 was primarily due to the impact of NFX trading incentives and a decline in U.S. fixed income revenues, partially offset by higher commodities revenues.

Trade Management Services Revenues

Trade management services revenues increased in both 2017 compared with 2016 and 2016 compared with 2015. The increase in 2017 was primarily due to an increase in customer demand for third party connectivity, co-location, and test facilities and the inclusion of a full year of revenues from our acquisition of ISE compared with six months in 2016. The increase in 2016 was primarily due to an increase in customer demand for network connectivity and the inclusion of six months of revenues from our acquisition of ISE.

CORPORATE SERVICES

The following table shows revenues from our Corporate Services segment:

Year Ended December 31,Percentage Change
2017201620152017 vs. 20162016 vs. 2015
(in millions)
Corporate Services:
Corporate Solutions$386$363$2986.3%21.8%
Listing Services270272264(0.7)%3.0%
Total Corporate Services$656$635$5623.3%13.0%

Corporate Solutions Revenues

Corporate solutions revenues increased in both 2017 compared with 2016 and 2016 compared with 2015. The increase was primarily due to the inclusion of revenues associated with the acquisitions of Boardvantage and Marketwired. See “Acquisition of Boardvantage,” and “Acquisition of Marketwired,” of Note 4, “Acquisitions,” to the consolidated financial statements for further discussion of the Boardvantage and Marketwired acquisitions.

Listing Services Revenues

Listing services revenues decreased in 2017 compared with 2016 and increased in 2016 compared with 2015. The decrease in 2017 was primarily due to a decrease in U.S. listing of additional share fees as a result of our all-inclusive annual listing fee program, partially offset by an increase in European listing services revenues due to new company listings. The increase in 2016 was primarily due to an increase in European revenues due to new company listings.

INFORMATION SERVICES

The following table shows revenues from our Information Services segment:

Year Ended December 31,Percentage Change
2017201620152017 vs. 20162016 vs. 2015
(in millions)
Information Services:
Data Products$454$427$3996.3%7.0%
Index Licensing and Services13411311318.6%—%
Total Information Services$588$540$5128.9%5.5%

Data Products Revenues

Data products revenues increased in both 2017 compared with 2016 and 2016 compared with 2015. The increase in 2017 was primarily due to growth in proprietary data products revenues and the inclusion of revenues associated with the acquisition of eVestment. The increase in 2016 was primarily due to growth in proprietary data products revenues, the inclusion of revenues

associated with the acquisitions of ISE and Nasdaq Canada, and higher index data products revenues.

Index Licensing and Services Revenues

Index licensing and services revenues increased in 2017 compared with 2016 and was flat in 2016 compared with 2015. The increase in 2017 was primarily due to higher assets under management in ETPs linked to Nasdaq indexes. Index licensing and services revenues were flat in 2016 as an increase in revenues associated with the acquisition of ISE was offset by a decrease in average fees on ETPs tracking to Nasdaq indexes and a decrease in the value of underlying assets associated with non-ETP Nasdaq-licensed products.

MARKET TECHNOLOGY

The following table shows revenues from our Market Technology segment:

Year Ended December 31,Percentage Change
2017201620152017 vs. 20162016 vs. 2015
(in millions)
Market Technology$303$275$24510.2%12.2%

Market Technology Revenues

Market technology revenues increased in both 2017 compared with 2016 and 2016 compared with 2015. The increase in 2017 was primarily due to higher change request revenues and an increase in revenues from software as a service. The increase in 2016 was primarily due to an increase in revenues from software, licensing and support as well as surveillance products.

Total Order Value

Total order value, which represents the total contract value of orders signed that are yet to be recognized as revenues, was $847 million as of December 31, 2017 and $777 million as of December 31, 2016. As of December 31, 2017, market technology deferred revenue of $173 million represents consideration received that is yet to be recognized as revenue for these signed orders. See Note 9, “Deferred Revenue,” to the consolidated financial statements for further discussion. The recognition and timing of these revenues depend on many factors, including those that are not within our control. As such, the following table of market technology revenues to be recognized in the future represents our best estimate:

Total Order Value
(in millions)
Fiscal year ended:
2018$263
2019204
2020137
2021102
202262
2023 and thereafter79
Total$847

On January 1, 2018, we adopted ASU 2014-09, “Revenue from Contracts with Customers.” As a result, a portion of revenues that were previously deferred were recognized either in prior period revenues, through restatement, or as an adjustment to

retained earnings upon adoption of the new standard. See “Recent Accounting Pronouncements,” of Note 2, “Summary of Significant Accounting Policies,” for further discussion and the impact to the deferred revenue balance.

Expenses

Operating Expenses

The following table shows our operating expenses:

Year Ended December 31,Percentage Change
2017201620152017 vs. 20162016 vs. 2015
(in millions)
Compensation and benefits$675$664$5901.7%12.5%
Professional and contract services1561531482.0%3.4%
Computer operations and data communications12511110712.6%3.7%
Occupancy95868510.5%1.2%
General, administrative and other82726513.9%10.8%
Marketing and advertising3130283.3%7.1%
Depreciation and amortization18817013810.6%23.2%
Regulatory333527(5.7)%29.6%
Merger and strategic initiatives447610(42.1)%660.0%
Restructuring charges—41172(100.0)%(76.2)%
Total operating expenses$1,429$1,438$1,370(0.6)%5.0%

The increase in compensation and benefits expense in 2017 was primarily due to overall higher compensation costs resulting from our 2017 and 2016 acquisitions and an unfavorable impact from foreign exchange of $2 million, partially offset by lower compensation expense reflecting lower performance incentives. Also impacting the change in compensation expense in 2017 was accelerated expense recorded in 2016 due to the retirement of the company's former CEO for equity awards previously granted. The increase in 2016 was primarily due to overall higher compensation costs resulting from our 2016 acquisitions and accelerated expense due to the retirement of the company’s former CEO discussed above. Partially offsetting the 2016 increases was lower compensation expense reflecting lower performance incentives and a favorable impact from foreign exchange of $3 million.

Headcount increased to 4,734 employees as of December 31, 2017 from 4,325 as of December 31, 2016 primarily due to our acquisition of eVestment.

The increase in professional and contract services expense in 2017 was primarily associated with our 2017 and 2016 acquisitions and the increase in 2016 was primarily associated with our 2016 acquisitions.

The increase in computer operations and data communications expense in 2017 and 2016 was primarily due to higher hardware and license costs. The increase in 2017 was associated with our 2017 and 2016 acquisitions and the increase in 2016 was primarily associated with our 2016 acquisitions.

The increase in occupancy expense in 2017 and 2016 primarily reflects additional facility and rent costs. The increase in 2017 was associated with our 2017 and 2016 acquisitions and the increase in 2016 was associated with our 2016 acquisitions. The increase in 2016 is partially offset by lower facility and rent costs as a result of our restructuring activities.

The increase in general, administrative and other expense in 2017 was primarily due to a pre-tax charge of $10 million which primarily included a make-whole redemption price premium paid on the early extinguishment of our $370 million aggregate principal amount of 5.25% senior unsecured notes, or the 2018 Notes, and lower regulatory fine collections. The increase in 2016 is primarily associated with our 2016 acquisitions.

Marketing and advertising expense increased in both 2017 and 2016 primarily due to an increase in advertising spend.

The increase in depreciation and amortization expense in 2017 and 2016 was primarily due to additional amortization expense associated with acquired intangible assets. The increase in 2017 was associated with our 2017 and 2016 acquisitions and the increase in 2016 was primarily associated with our 2016 acquisitions. The increase in 2016 was also due to additional amortization expense associated with software assets placed in service.

The decrease in regulatory expense in 2017 was primarily due to costs incurred in 2016 related to the investigations of cybersecurity processes at our Nordic exchanges and clearinghouse, which are discussed below, partially offset by a rate increase for regulatory services and trade surveillance. The

increase in 2016 was due to investigations of cybersecurity processes at our Nordic exchanges and clearinghouse. In December 2016, we were issued a $6 million fine by the SFSA as a result of findings in connection with its investigation. The SFSA’s conclusions related to governance issues rather than systems and platform security. We have appealed the SFSA’s decision, including the amount of the fine. The court has not yet reached a decision on our appeal.

Merger and strategic initiatives expense for 2017 was primarily related to our acquisitions of eVestment and ISE as well as costs associated with our review of strategic alternatives for our

Public Relations Solutions and Digital Media Services businesses within our Corporate Solutions business. Merger and strategic initiatives expense for 2016 was primarily related to our acquisitions of ISE, Boardvantage, and Marketwired. Merger and strategic initiatives expense for 2015 was primarily related to certain strategic initiatives and our acquisition of DWA.

See Note 3, “Restructuring Charges,” to the consolidated financial statements for a discussion of our restructuring charges recorded during 2016 and 2015.

Non-operating Income and Expenses

The following table shows our non-operating income and expenses:

Year Ended December 31,Percentage Change
2017201620152017 vs. 20162016 vs. 2015
(in millions)
Interest income$7$5$440.0%25.0%
Interest expense(143)(135)(111)5.9%21.6%
Net interest expense(136)(130)(107)4.6%21.5%
Asset impairment charge—(578)—(100.0)%N/M
Other investment income23—(33.3)%N/M
Net income from unconsolidated investees15217650.0%(88.2)%
Total non-operating expenses$(119)$(703)$(90)(83.1)%681.1%

N/M Not meaningful.

Interest Income

Interest income increased in both 2017 and 2016 primarily due to an increase in interest rates.

Interest Expense

The following table shows our interest expense:

Year Ended December 31,Percentage Change
2017201620152017 vs. 20162016 vs. 2015
(in millions)
Interest expense on debt$135$129$1064.7%21.7%
Accretion of debt issuance costs and debt discount65420.0%25.0%
Other bank and investment-related fees211100.0%—%
Interest expense$143$135$1115.9%21.6%

Interest expense increased in 2017 and 2016 primarily due to debt issuances related to our acquisitions, partially offset by refinancing to lower cost debt. The increase in 2017 was primarily associated with our 2017 and 2016 acquisitions and the increase in 2016 was primarily associated with our 2016 acquisitions.

See Note 10, “Debt Obligations,” to the consolidated financial statements for further discussion.

Asset Impairment Charge

The asset impairment charge in 2016 relates to a pre-tax, non-cash intangible asset impairment charge related to the full write-off of the eSpeed trade name due to a continued decline in the operating performance of the eSpeed business during 2016 and a rebranding of our Fixed Income business under a single brand called Nasdaq Fixed Income.

See “Intangible Asset Impairment Charges,” of Note 6, “Goodwill and Acquired Intangible Assets,” to the consolidated financial statements for further discussion of the intangible asset impairment charge in 2016.

Net Income from Unconsolidated Investees

Net income from unconsolidated investees in 2017 and 2015 primarily relates to income recognized from our equity method investment in OCC. Net income from unconsolidated investees in 2016 includes income recognized from our equity method investments in OCC and EuroCCP N.V. , partially offset by the write-off of an equity method investment. See “Equity Method Investments,” of Note 7, “Investments,” to the consolidated financial statements for further discussion of our equity method investments.

Tax Matters

The Tax Cuts and Jobs Act was enacted on December 22, 2017 and is effective January 1, 2018. The new legislation contains several key provisions, including a reduction of the U.S. corporate income tax rate from 35% to 21%. We are required to remeasure all our U.S. deferred tax assets and liabilities as of December 22, 2017 and record the impact of such remeasurement in our 2017 financial statements. For the year ended December 31, 2017, we recorded a decrease to tax expense of $87 million, substantially all of which reflects the estimated impact associated with the remeasurement of our net U.S. deferred tax liability at the lower U.S. federal corporate income tax rate. The Tax Cuts and Jobs Act also imposes a transition tax on unremitted aggregate accumulated earnings of non-U.S. subsidiaries, which did not impact us.

The following table shows our income tax provision and effective tax rate:

Year Ended December 31,Percentage Change
2017201620152017 vs. 20162016 vs. 2015
($ in millions)
Income tax provision$146$28$203421.4%(86.2)%
Effective tax rate16.6%20.6%32.2%

The lower effective tax rate in 2017 when compared to 2016 is primarily due to a decrease to tax expense associated with the remeasurement of our net U.S. deferred tax liability as a result of enactment of the Tax Cuts and Jobs Act. The decrease in the effective tax rate in 2017 is also due to the recognition of excess tax benefits associated with the vesting of employee share-based compensation arrangements. The lower effective tax rate in 2016 when compared to 2015 is primarily due to a shift in the geographic mix of earnings, largely driven by the write-off of the eSpeed trade name, partially offset by an unfavorable ruling from the Finnish Supreme Administrative Court.

The effective tax rate may also vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

For further discussion of our tax matters, see “Tax Matters,” and “Recent Accounting Pronouncements,” of Note 2, “Summary of Significant Accounting Policies,” and Note 11, “Income Taxes,” to the consolidated financial statements.

Non-GAAP Financial Measures

In addition to disclosing results determined in accordance with U.S. GAAP, we also have provided non-GAAP net income attributable to Nasdaq and non-GAAP diluted earnings per share. Management uses this non-GAAP information internally, along with U.S. GAAP information, in evaluating our performance and in making financial and operational decisions. We believe our presentation of these measures provides investors with greater transparency and supplemental data relating to our financial condition and results of operations. In addition, we believe the presentation of these measures is useful to investors for period-to-period comparisons of results as the items described below do not reflect ongoing operating performance.

These measures are not in accordance with, or an alternative to, U.S. GAAP, and may be different from non-GAAP measures used by other companies. Investors should not rely on any single financial measure when evaluating our business. We

recommend investors review the U.S. GAAP financial measures included in this Annual Report on Form 10-K, including our consolidated financial statements and the notes thereto. When viewed in conjunction with our U.S. GAAP results and the accompanying reconciliation, we believe these non-GAAP measures provide greater transparency and a more complete understanding of factors affecting our business than U.S. GAAP measures alone.

We understand that analysts and investors regularly rely on non-GAAP financial measures, such as non-GAAP net income attributable to Nasdaq and non-GAAP diluted earnings per share, to assess operating performance. We use non-GAAP net income attributable to Nasdaq and non-GAAP diluted earnings per share because they highlight trends more clearly in our business that may not otherwise be apparent when relying solely on U.S. GAAP financial measures, since these measures eliminate from our results specific financial items that have less bearing on our ongoing operating performance. Non-GAAP net

income attributable to Nasdaq for the periods presented below is calculated by adjusting for the following items:

Amortization expense of acquired intangible assets: We amortize intangible assets acquired in connection with various acquisitions. Intangible asset amortization expense can vary from period to period due to episodic acquisitions completed, rather than from our ongoing business operations. As such, if intangible asset amortization is included in performance measures, it is more difficult to assess the day-to-day operating performance of the businesses, the relative operating performance of the businesses between periods, and the earnings power of Nasdaq. Performance measures excluding intangible asset amortization therefore provide investors with a more useful representation of our businesses’ ongoing activity in each period.

Merger and strategic initiatives expense: We have pursued various strategic initiatives and completed a number of acquisitions in recent years which have resulted in expenses which would not have otherwise been incurred. These expenses generally include integration costs, as well as legal, due diligence and other third party transaction costs. The frequency and the amount of such expenses vary significantly based on the size, timing and complexity of the transaction. Accordingly, we exclude these costs for purposes of calculating non-GAAP measures which provide a more meaningful analysis of Nasdaq’s ongoing operating performance or comparison in Nasdaq’s performance between periods.

Restructuring charges: Restructuring charges are associated with our 2015 restructuring plan to improve performance, cut costs and reduce spending and were primarily related to (i) severance and other termination benefits, (ii) asset impairment charges, and (iii) other charges. We exclude these restructuring costs because these costs do not reflect future operating expenses and do not contribute to a meaningful evaluation of Nasdaq’s ongoing operating performance or comparison of Nasdaq’s performance between periods.

Asset impairment charge: Intangible assets that have indefinite lives are reviewed for impairment at least annually, or when indicators of impairment are present. In December 2016, we recorded a pre-tax, non-cash intangible asset impairment charge of $578 million related to the full write-off of the eSpeed trade name. The impairment charge was the result of a decline in operating performance and the rebranding of our Fixed Income business. We exclude asset impairment charges because they do not reflect future operating expenses and do not contribute to a meaningful evaluation of Nasdaq’s ongoing operating performance or comparison of Nasdaq’s performance between periods.

Other significant items: We have excluded certain other charges or gains, including certain tax items, that are the result of other non-comparable events to measure operating performance. We believe the exclusion of such amounts allows management and investors to better understand the ongoing financial results of Nasdaq. For 2017, other significant items primarily include a make-whole redemption price premium paid on the early

extinguishment of our 2018 Notes, a sublease loss reserve charge recorded on space we currently occupy due to excess capacity, and wind down costs associated with an equity method investment that was previously written off. For 2016, other significant items primarily include accelerated expense for equity awards previously granted due to the retirement of the company’s former CEO, a regulatory fine received by our Nordic exchanges and clearinghouse, the release of a sublease loss reserve due to the early exit of a facility, and the impact of the write-off of an equity method investment, partially offset by a gain resulting from the sale of a percentage of a separate equity method investment. For 2015, other significant items include income from our equity investment in OCC where we were not able to determine what our share of OCC’s income was for the year ended December 31, 2014 until the first quarter of 2015, when financial statements were made available to us. As a result, we recorded other income in the first quarter of 2015 relating to our share of OCC’s income for the year ended December 31, 2014. For 2015, other significant adjustments also included the reversal of a VAT refund.

Significant tax items: The adjustment to the income tax provision includes the tax impact of each non-GAAP adjustment in addition to the following items:

•The recognition of previously unrecognized tax benefits of $12 million associated with positions taken in prior years for the year ended December 31, 2017.
•We recorded a $27 million tax expense for the year ended December 31, 2016, due to an unfavorable tax ruling received during the second quarter of 2016, the impact of which is related to prior periods.
•The impact of newly enacted U.S. tax legislation is related to the Tax Cuts and Jobs Act which was enacted on December 22, 2017. For the year ended December 31, 2017, we recorded a decrease to tax expense of $87 million, which reflects the estimated impact associated with the enactment of this act. The decrease in tax expense primarily relates to the remeasurement of our net U.S. deferred tax liability at the lower U.S. federal corporate income tax rate. The estimate may be refined in the future as new information becomes available.
•Excess tax benefits related to employee share-based compensation of $40 million for the year ended December 31, 2017 was recorded as a result of the adoption of new accounting guidance on January 1, 2017. This guidance requires all income tax effects of share-based awards to be recognized as income tax expense or benefit in the income statement when the awards vest or are settled on a prospective basis, as opposed to stockholders’ equity where it was previously recorded, and will be a recurring item going forward. This item is subject to volatility and will vary based on the timing of the vesting of employee share-based compensation arrangements and fluctuation in our stock price.

The following table represents reconciliations between U.S. GAAP net income attributable to Nasdaq and diluted earnings per share and non-GAAP net income attributable to Nasdaq and diluted earnings per share:

Year Ended December 31, 2017Year Ended December 31, 2016Year Ended December 31, 2015
Net IncomeDiluted Earnings Per ShareNet IncomeDiluted Earnings Per ShareNet IncomeDiluted Earnings Per Share
(in millions, except share and per share amounts)
U.S. GAAP net income attributable to Nasdaq and diluted earnings per share$734$4.33$108$0.64$428$2.50
Non-GAAP adjustments:
Amortization expense of acquired intangible assets920.54820.49620.36
Merger and strategic initiatives440.26760.45100.06
Extinguishment of debt100.06————
Restructuring charges——410.241721.00
Asset impairment charge——5783.42——
Executive compensation——120.07——
Regulatory matter10.0160.04——
Income from OCC equity investment————(13)(0.08)
Reversal VAT refund————120.07
Sublease loss reserve20.01(1)(0.01)——
Other20.0160.04——
Adjustment to the income tax provision to reflect non-GAAP adjustments and other tax items(70)(0.41)(287)(1.70)(90)(0.52)
Impact of newly enacted U.S. tax legislation(87)(0.51)————
Excess tax benefits related to employee share-based compensation(40)(0.24)————
Total non-GAAP adjustments, net of tax(46)(0.27)5133.041530.89
Non-GAAP net income attributable to Nasdaq and diluted earnings per share$688$4.06$621$3.68$581$3.39
Weighted-average common shares outstanding for diluted earnings per share169,585,031168,800,997171,283,271

Liquidity and Capital Resources

Historically, we have funded our operating activities and met our commitments through cash generated by operations, augmented by the periodic issuance of our common stock and debt. See Note 10, “Debt Obligations,” to the consolidated financial statements for further discussion. Currently, our cost and availability of funding remain healthy.

As part of the purchase price consideration of a prior acquisition, Nasdaq has contingent future obligations to issue 992,247 shares of Nasdaq common stock annually which approximated certain tax benefits associated with the transaction of $484 million. Such contingent future issuances of Nasdaq common stock will be paid ratably through 2027 if Nasdaq’s total gross revenues equal or exceed $25 million in

each such year. The contingent future issuances of Nasdaq common stock are subject to anti-dilution protections and acceleration upon certain events.

In April 2017, we entered into the 2017 Credit Facility which replaced our existing 2014 credit facility. We also entered into a commercial paper program which enables us to borrow efficiently at reasonable short-term interest rates and is supported by our 2017 Credit Facility. See “Commercial Paper Program,” “2017 Credit Facility,” and “2014 Credit Facility,” of Note 10, “Debt Obligations,” to the consolidated financial statements for further discussion.

As of December 31, 2017, the balance of $110 million outstanding on the 2017 Credit Facility reflects the outstanding

amount, less unamortized debt issuance costs of $5 million. Of the $885 million that is available for borrowing, $480 million provides liquidity support for the principal amount outstanding under the commercial paper program as of December 31, 2017 and $1 million has been utilized for a letter of credit. As of December 31, 2017, the total remaining amount available under the 2017 Credit Facility was $404 million.

In May 2017, we used a combination of cash on hand and net proceeds from the sale of commercial paper to redeem all of our 2018 Notes. In addition, in June 2017, we used net proceeds from the sale of commercial paper to repay $300 million of the amount outstanding on the 2016 Credit Facility. As of December 31, 2017, the outstanding balance of $100 million on the 2016 Credit Facility reflects the aggregate principal amount, less the unamortized debt issuance costs. See “Early Extinguishment of 2018 Notes,” and “2016 Credit Facility,” of Note 10, “Debt Obligations,” to the consolidated financial statements for further discussion.

In September 2017, we announced an agreement to acquire eVestment and issued the 2019 Notes. Since the proposed acquisition of eVestment was not immediately expected to close, $276 million of the net proceeds from the 2019 Notes was used to partially pay down our outstanding commercial paper balance and the remainder of the net proceeds was held in cash and used in October 2017 to partially fund our acquisition of eVestment. See “Acquisition of eVestment,” of Note 4, “Acquisitions,” for further discussion.

In May 2016, Nasdaq issued the 2023 Notes and in June 2016, Nasdaq issued the 2026 Notes. We used the majority of the net proceeds from the 2023 Notes of $664 million and the 2026 Notes of $495 million to fund the acquisition of ISE and related expenses. See “3.85% Senior Unsecured Notes,” and “1.75% Senior Unsecured Notes,” of Note 10, “Debt Obligations,” and “Acquisition of ISE,” of Note 4, “Acquisitions,” to the consolidated financial statements for further discussion.

In the near term, we expect that our operations and the availability under our revolving credit commitment and commercial paper program will provide sufficient cash to fund our operating expenses, capital expenditures, debt repayments, any share repurchases, and any dividends.

Various assets and liabilities, including cash and cash equivalents, receivables, accounts payable and accrued expenses, and commercial paper can fluctuate from month to month. Working capital (calculated as current assets less current liabilities) was $267 million as of December 31, 2017, compared with $478 million as of December 31, 2016, a decrease of $211 million. Current asset balance changes increased working capital by $969 million, with increases in default funds and margin deposits, assets held for sale, other current assets and restricted cash, partially offset by decreases in cash and cash equivalents, financial investments, at fair value, and receivables, net. Current liability balance changes decreased working capital by $1,180 million, due to increases in default funds and margin deposits, short-term debt, liabilities held for sale, deferred revenue, Section 31 fees payable to the SEC, and accounts payable and accrued expenses, partially

offset by decreases in other current liabilities and accrued personnel costs. Principal factors that could affect the availability of our internally-generated funds include:

•deterioration of our revenues in any of our business segments;
•changes in regulatory and working capital requirements; and
•an increase in our expenses.

Principal factors that could affect our ability to obtain cash from external sources include:

•operating covenants contained in our credit facilities that limit our total borrowing capacity;
•increases in interest rates under our credit facilities;
•credit rating downgrades, which could limit our access to additional debt;
•a decrease in the market price of our common stock; and
•volatility or disruption in the public debt and equity markets.

The following sections discuss the effects of changes in our financial assets, debt obligations, clearing and broker-dealer net capital requirements, and cash flows on our liquidity and capital resources.

Financial Assets

The following table summarizes our financial assets:

December 31, 2017December 31, 2016
(in millions)
Cash and cash equivalents$377$403
Restricted cash2215
Financial investments, at fair value235245
Total financial assets$634$663

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents includes all non-restricted cash in banks and highly liquid investments with original maturities of 90 days or less at the time of purchase. The balance retained in cash and cash equivalents is a function of anticipated or possible short-term cash needs, prevailing interest rates, our investment policy, and alternative investment choices. As of December 31, 2017, our cash and cash equivalents of $377 million were primarily invested in bank deposits, money market funds and commercial paper. In the long-term, we may use both internally generated funds and external sources to satisfy our debt obligations and other long-term liabilities. Cash and cash equivalents as of December 31, 2017 decreased $26 million from December 31, 2016, primarily due to:

•cash paid for acquisitions, net of cash and cash equivalents acquired;
•repayments of long-term debt;
•cash dividends paid on our common stock;
•repurchases of our common stock; and
•purchases of property and equipment, partially offset by;
•net cash provided by operating activities;
•net proceeds received from the issuance of the 2019 Notes;
•net proceeds received from commercial paper, net; and
•proceeds received from utilization of credit commitment, net of debt issuance costs.

See “Cash Flow Analysis” below for further discussion.

As of December 31, 2017 and December 31, 2016, restricted cash is restricted from withdrawal due to a contractual or regulatory requirement or is not available for general use. Restricted cash was $22 million as of December 31, 2017 and $15 million as of December 31, 2016, an increase of $7 million. The increase relates to an increase in regulatory capital required. Restricted cash is classified as restricted cash in the Consolidated Balance Sheets.

Repatriation of Cash

Our cash and cash equivalents held outside of the U.S. in various foreign subsidiaries totaled $138 million as of December 31, 2017 and $102 million as of December 31, 2016. The remaining balance held in the U.S. totaled $239 million as of December 31, 2017 and $301 million as of December 31, 2016.

Unremitted earnings of subsidiaries outside of the U.S. are used to finance our international operations and are generally considered to be indefinitely reinvested. It is not our current intent to change this position. However, the majority of cash held outside the U.S. is available for repatriation, but under current law in certain jurisdictions, could subject us to additional income taxes, less applicable foreign tax credits.

Share Repurchase Program

See “Share Repurchase Program,” of Note 14, “Nasdaq Stockholders’ Equity,” to the consolidated financial statements for further discussion of our share repurchase program.

Cash Dividends on Common Stock

The following table shows quarterly cash dividends paid per common share on our outstanding common stock:

20172016
First quarter$0.32$0.25
Second quarter0.380.32
Third quarter0.380.32
Fourth quarter0.380.32
Total$1.46$1.21

See “Cash Dividends on Common Stock,” of Note 14, “Nasdaq Stockholders’ Equity,” to the consolidated financial statements for further discussion of the dividends.

Financial Investments, at Fair Value

Our financial investments, at fair value totaled $235 million as of December 31, 2017 and $245 million as of December 31, 2016 and are primarily comprised of trading securities, mainly highly rated European government debt securities. Of these securities, $160 million as of December 31, 2017 and $172 million as of December 31, 2016 are assets utilized to meet regulatory capital requirements, primarily for our clearing operations at Nasdaq Clearing. See Note 7, “Investments,” to the consolidated financial statements for further discussion of our trading investment securities.

Debt Obligations

The following table summarizes our debt obligations by contractual maturity:

Maturity DateDecember 31, 2017December 31, 2016
(in millions)
Short-term debt - commercial paperWeighted-average maturity of 22 days$480$—
Long-term debt:
5.25% senior unsecured notesRepaid May 2017—369
Senior unsecured floating rate notesMarch 2019498—
$400 million senior unsecured term loan facilityNovember 2019100399
5.55% senior unsecured notesJanuary 2020599598
3.875% senior unsecured notesJune 2021716625
$1 billion revolving credit commitmentApril 2022110—
1.75% senior unsecured notesMay 2023712622
4.25% senior unsecured notesJune 2024496495
3.85% senior unsecured notesJune 2026496495
Total long-term debt3,7273,603
Total debt obligations$4,207$3,603

In addition to the $1 billion revolving credit commitment and $400 million term loan facility, we also have other credit facilities related to our Nasdaq Clearing operations in order to provide further liquidity. Other credit facilities, which are available in multiple currencies, totaled $187 million as of December 31, 2017 and $170 million as of December 31, 2016, in available liquidity, none of which was utilized.

As of December 31, 2017, we were in compliance with the covenants of all of our debt obligations.

See Note 10, “Debt Obligations,” to the consolidated financial statements for further discussion of our debt obligations.

Clearing and Broker-Dealer Net Capital Requirements

Clearing Operations Regulatory Capital Requirements

We are required to maintain minimum levels of regulatory capital for the clearing operations of Nasdaq Clearing. The level of regulatory capital required to be maintained is dependent upon many factors, including market conditions and creditworthiness of the counterparty. As of December 31, 2017, our required regulatory capital of $160 million is primarily comprised of highly rated European government debt securities that are included in financial investments, at fair value in the Consolidated Balance Sheets.

Broker-Dealer Net Capital Requirements

Our broker-dealer subsidiaries, Nasdaq Execution Services, Execution Access, NPM Securities, SMTX, and Nasdaq Capital Markets Advisory are subject to regulatory requirements intended to ensure their general financial soundness and liquidity. These requirements obligate these subsidiaries to comply with minimum net capital requirements. The following table summarizes the net capital requirements for our broker-dealer subsidiaries as of December 31, 2017:

Broker-Dealer SubsidiariesTotal Net CapitalRequired Minimum Net CapitalExcess Capital
(in millions)
Nasdaq Execution Services$7.3$0.3$7.0
Execution Access47.70.447.3
NPM Securities0.2—0.2
SMTX1.50.31.2
Nasdaq Capital Markets Advisory0.50.30.2

Other Capital Requirements

Nasdaq Execution Services

Nasdaq Execution Services also is required to maintain a $2 million minimum level of net capital under our clearing arrangement with OCC.

Nasdaq Canada

As a member of the Investment Industry Regulatory Organization of Canada, Nasdaq Canada must comply with its dealer member rules which are intended to ensure general financial soundness and liquidity. Under these rules, Nasdaq Canada is required to comply with minimum net capital requirements. As of December 31, 2017, Nasdaq Canada was required to maintain minimum net capital of $0.2 million and

had total net capital of approximately $7.8 million, or $7.6 million in excess of the minimum amount required.

Cash Flow Analysis

The following table summarizes the changes in cash flows:

Year Ended December 31,Percentage Change
2017201620152017 vs. 20162016 vs. 2015
(in millions)
Net cash provided by (used in):
Operating activities$909$776$72717.1%6.7%
Investing activities(890)(1,657)(435)(46.3)%280.9%
Financing activities(53)948(400)(105.6)%(337.0)%
Effect of exchange rate changes on cash and cash equivalents and restricted cash15(6)(11)(350.0)%(45.5)%
Net increase (decrease) in cash and cash equivalents and restricted cash(19)61(119)(131.1)%(151.3)%
Cash and cash equivalents and restricted cash at beginning of period41835747617.1%(25.0)%
Cash and cash equivalents and restricted cash at end of period$399$418$357(4.5)%17.1%

Net Cash Provided by Operating Activities

Net cash provided by operating activities increased $133 million in 2017 compared with 2016 and increased $49 million in 2016 compared with 2015. The increase in 2017 was primarily due to higher net income, mainly due to the inclusion of a full year of cash flows from our 2016 acquisitions, partially offset by higher compensation payments driven by our 2016 acquisitions. The increase in 2016 was primarily due to additional cash flows from our 2016 acquisitions, partially offset by an increase in cash payments related to merger and strategic initiatives expense associated with our 2016 acquisitions.

Net Cash Used in Investing Activities

Net cash used in investing activities decreased $767 million in 2017 compared with 2016 and increased $1,222 million in 2016 compared with 2015. The decrease in 2017 was primarily due to cash paid for our 2016 acquisitions, net of cash and cash equivalents acquired of $1,460 million partially offset by cash paid for our 2017 acquisitions, net of cash and cash equivalents acquired of $776 million.

Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities for the year ended December 31, 2017 primarily consisted of repayment of long-term debt of $708 million, $243 million related to cash dividends paid on our common stock, and $203 million related to the repurchase of our common stock, partially offset by net proceeds of $498 million from the issuance of the 2019 Notes

and commercial paper, net of $480 million, and proceeds received from the utilization of our credit commitment of $150 million.

Net cash provided by financing activities for the year ended December 31, 2016 primarily consisted of net proceeds of $2,456 million, of which $1,159 million related to the issuances of our 2023 Notes and 2026 Notes to fund our acquisition of ISE, $399 million related to net proceeds from our 2016 Credit Facility and $898 million related to proceeds from utilization of the revolving credit commitment under our 2014 credit facility to partially fund our acquisitions of Boardvantage, Marketwired and Nasdaq Canada, and other general corporate purposes. These proceeds were partially offset by the repayment of $1,156 million on the revolving credit commitment under our 2014 credit facility. We also used $200 million of cash to pay cash dividends on our common stock and $100 million of cash to repurchase our common stock.

See Note 4, “Acquisitions,” to the consolidated financial statements for further discussion of our acquisitions.

See Note 10, Debt Obligations,” to the consolidated financial statements for further discussion of our debt obligations.

See “Share Repurchase Program,” and “Cash Dividends on Common Stock,” of Note 14, “Nasdaq Stockholders’ Equity,” to the consolidated financial statements for further discussion of our share repurchase program and cash dividends paid on our common stock.

Contractual Obligations and Contingent Commitments

Nasdaq has contractual obligations to make future payments under debt obligations by contract maturity, minimum rental commitments under non-cancelable operating leases, net and other obligations. The following table shows these contractual obligations as of December 31, 2017:

Payments Due by Period
Contractual ObligationsTotalLess than 1 year1-3 years3-5 yearsMore than 5 years
(in millions)
Debt obligations by contract maturity(1)$4,844$612$1,324$1,076$1,832
Minimum rental commitments under non-cancelable operating leases, net(2)43987140102110
Other obligations(3)18144——
Total$5,301$713$1,468$1,178$1,942
(1)Our debt obligations include both principal and interest obligations. As of December 31, 2017, an interest rate of 3.09% was used to compute the amount of the contractual obligations for interest on the 2017 Credit Facility, 3.25% was used to compute the amount of the contractual obligations for interest on the 2016 Credit Facility, and 2.15% was used to compute the amount of the contractual obligations for interest on the 2019 Notes. All other debt obligations were primarily calculated on a 360-day basis at the contractual fixed rate multiplied by the aggregate principal amount as of December 31, 2017. See Note 10, “Debt Obligations,” to the consolidated financial statements for further discussion.
(2)We lease some of our office space under non-cancelable operating leases with third parties and sublease office space to third parties. Some of our leases contain renewal options and escalation clauses based on increases in property taxes and building operating costs.
(3)Other obligations primarily consist of potential future escrow agreement payments related to prior acquisitions.

Non-Cash Contingent Consideration

As part of the purchase price consideration of a prior acquisition, we have agreed to future annual issuances of 992,247 shares of Nasdaq common stock which approximated certain tax benefits associated with the transaction. Such contingent future issuances of Nasdaq common stock will be paid ratably through 2027 if Nasdaq’s total gross revenues equal or exceed $25 million in each such year. The contingent future issuances of Nasdaq common stock are subject to anti-dilution protections and acceleration upon certain events.

Off-Balance Sheet Arrangements

For discussion of off-balance sheet arrangements see:

•Note 17, “Clearing Operations,” to the consolidated financial statements for further discussion of our non-cash default fund contributions and margin deposits received for clearing operations; and
•Note 19, “Commitments, Contingencies and Guarantees,” to the consolidated financial statements for further discussion of:
•Guarantees issued and credit facilities available;
•Lease commitments;
•Other guarantees;
•Non-cash contingent consideration;
•Escrow agreements;
•Routing brokerage activities;
•Legal and regulatory matters; and
•Tax audits.

Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the potential for losses that may result from changes in the market value of a financial instrument due to changes in market conditions. As a result of our operating, investing and financing activities, we are exposed to market risks such as interest rate risk and foreign currency exchange rate risk. We are also exposed to credit risk as a result of our normal business activities.

We have implemented policies and procedures to measure, manage, monitor and report risk exposures, which are reviewed regularly by management and the board of directors. We identify risk exposures and monitor and manage such risks on a daily basis.

We perform sensitivity analyses to determine the effects of market risk exposures. We may use derivative instruments solely to hedge financial risks related to our financial positions or risks that are incurred during the normal course of business. We do not use derivative instruments for speculative purposes.

Interest Rate Risk

We are subject to the risk of fluctuating interest rates in the normal course of business. Our exposure to market risk for changes in interest rates relates primarily to our financial investments and debt obligations which are discussed below.

Financial Investments

As of December 31, 2017, our investment portfolio was primarily comprised of trading securities, mainly highly rated European government debt securities, which pay a fixed rate of interest. These securities are subject to interest rate risk and will decrease in value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 100 basis points from levels as of December 31, 2017, the fair value of this portfolio would have declined by $5 million.

Debt Obligations

As of December 31, 2017, substantially all of our debt obligations are fixed-rate obligations. While changes in interest rates will have no impact on the interest we pay on fixed-rate

obligations, we are exposed to changes in interest rates as a result of the issuance of our 2019 Notes, borrowings under our 2017 Credit Facility and 2016 Credit Facility, and amounts outstanding from the sale of commercial paper under our commercial paper program, all of which have variable interest rates. As of December 31, 2017, we had principal amounts outstanding of $500 million on the 2019 Notes, $115 million under the 2017 Credit Facility, $100 million under the 2016 Credit Facility and $480 million of commercial paper. A hypothetical 100 basis points increase in interest rates on our outstanding 2019 Notes, the 2017 Credit Facility, the 2016 Credit Facility and our outstanding commercial paper would increase interest expense by approximately $12 million based on borrowings as of December 31, 2017.

Foreign Currency Exchange Rate Risk

As a leading global exchange group, we are subject to foreign currency transaction risk. Our primary exposure to foreign currency denominated revenues less transaction-based expenses and operating income for years ended December 31, 2017 and 2016 is presented in the following table:

EuroSwedish KronaOther Foreign CurrenciesU.S. DollarTotal
(in millions, except currency rate)
Year Ended December 31, 2017
Average foreign currency rate to the U.S. dollar1.12730.1170#N/AN/A
Percentage of revenues less transaction-based expenses9.7%8.8%6.0%75.5%100.0%
Percentage of operating income15.4%3.2%(4.9)%86.3%100.0%
Impact of a 10% adverse currency fluctuation on revenues less transaction-based expenses$(24)$(21)$(14)$—$(59)
Impact of a 10% adverse currency fluctuation on operating income$(15)$(3)$(5)$—$(23)
EuroSwedish KronaOther Foreign CurrenciesU.S. DollarTotal
(in millions, except currency rate)
Year Ended December 31, 2016
Average foreign currency rate to the U.S. dollar1.10640.1168#N/AN/A
Percentage of revenues less transaction-based expenses10.0%8.5%5.9%75.6%100.0%
Percentage of operating income18.3%1.0%(5.9)%86.6%100.0%
Impact of a 10% adverse currency fluctuation on revenues less transaction-based expenses$(23)$(19)$(14)$—$(56)
Impact of a 10% adverse currency fluctuation on operating income$(15)$(1)$(5)$—$(21)
#Represents multiple foreign currency rates.
N/ANot applicable.

Our investments in foreign subsidiaries are exposed to volatility in currency exchange rates through translation of the foreign subsidiaries’ net assets or equity to U.S. dollars. Substantially all of our foreign subsidiaries operate in functional currencies other than the U.S. dollar. Fluctuations in currency exchange rates may create volatility in our results of operations as we are

required to translate the balance sheets and operational results of these foreign currency denominated subsidiaries into U.S. dollars for consolidated reporting. The translation of foreign subsidiaries’ non-U.S. dollar balance sheets into U.S. dollars for consolidated reporting results in a cumulative translation adjustment which is recorded in accumulated other

comprehensive loss within stockholders’ equity in the Consolidated Balance Sheets.

Our primary exposure to net assets in foreign currencies as of December 31, 2017 is presented in the following table:

Net AssetsImpact of a 10% Adverse Currency Fluctuation
(in millions)
Swedish Krona(1)$3,541$(354)
Norwegian Krone200(20)
Canadian Dollar193(19)
British Pound202(20)
Euro144(14)
Australian Dollar104(10)
(1)Includes goodwill of $2,662 million and intangible assets, net of $638 million.

Credit Risk

Credit risk is the potential loss due to the default or deterioration in credit quality of customers or counterparties. We are exposed to credit risk from third parties, including customers, counterparties and clearing agents. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. We limit our exposure to credit risk by rigorously evaluating the counterparties with which we make investments and execute agreements. The financial investment portfolio objective is to invest in securities to preserve principal while maximizing yields, without significantly increasing risk. Credit risk associated with investments is minimized substantially by ensuring that these financial assets are placed with governments which have investment grade ratings, well-capitalized financial institutions and other creditworthy counterparties.

Our subsidiary, Nasdaq Execution Services, may be exposed to credit risk, due to the default of trading counterparties, in connection with the routing services it provides for our trading customers. System trades in cash equities routed to other market centers for members of our cash equity exchanges are routed by Nasdaq Execution Services for clearing to the NSCC. In this function, Nasdaq Execution Services is to be neutral by the end of the trading day, but may be exposed to intraday risk if a trade extends beyond the trading day and into the next day, thereby leaving Nasdaq Execution Services susceptible to counterparty risk in the period between accepting the trade and routing it to the clearinghouse. In this interim period, Nasdaq Execution Services is not novating like a clearing broker but instead is subject to the short-term risk of counterparty failure before the clearinghouse enters the transaction. Once the clearinghouse officially accepts the trade for novation, Nasdaq Execution Services is legally removed from trade execution risk. However, Nasdaq has membership obligations to NSCC independent of Nasdaq Execution Services’ arrangements.

Pursuant to the rules of the NSCC and Nasdaq Execution Services’ clearing agreement, Nasdaq Execution Services is liable for any losses incurred due to a counterparty or a clearing

agent’s failure to satisfy its contractual obligations, either by making payment or delivering securities. Adverse movements in the prices of securities that are subject to these transactions can increase our credit risk. However, we believe that the risk of material loss is limited, as Nasdaq Execution Services’ customers are not permitted to trade on margin and NSCC rules limit counterparty risk on self-cleared transactions by establishing credit limits and capital deposit requirements for all brokers that clear with NSCC. Historically, Nasdaq Execution Services has never incurred a liability due to a customer’s failure to satisfy its contractual obligations as counterparty to a system trade. Credit difficulties or insolvency, or the perceived possibility of credit difficulties or insolvency, of one or more larger or visible market participants could also result in market-wide credit difficulties or other market disruptions.

Execution Access is an introducing broker which operates the trading platform for our Nasdaq Fixed Income business to trade in U.S. Treasury securities. Execution Access has a clearing arrangement with Cantor Fitzgerald. As of December 31, 2017, we have contributed $19 million of clearing deposits to Cantor Fitzgerald in connection with this clearing arrangement. These deposits are recorded in other current assets in our Consolidated Balance Sheets. This clearing agreement will end on July 31, 2018, and will be replaced by a clearing agreement with ICBC. Some of the trading activity in Execution Access is cleared by Cantor Fitzgerald (and similarly will be by ICBC after July 31, 2018) through the Fixed Income Clearing Corporation. Execution Access assumes the counterparty risk of clients that do not clear through the Fixed Income Clearing Corporation. Counterparty risk of clients exists for Execution Access between the trade date and settlement date of the individual transactions, which is at least one business day (or more, if specified by the U.S. Treasury issuance calendar). All of Execution Access’ obligations under the clearing arrangement with Cantor Fitzgerald are guaranteed by Nasdaq. Counterparties that do not clear through the Fixed Income Clearing Corporation are subject to a credit due diligence process and may be required to post collateral, provide principal letters, or provide other forms of credit enhancement to Execution Access for the purpose of mitigating counterparty risk.

We are exposed to credit risk through our clearing operations with Nasdaq Clearing. See Note 17, “Clearing Operations,” to the consolidated financial statements for further discussion.

We also have credit risk related to transaction and subscription-based revenues that are billed to customers on a monthly or quarterly basis, in arrears. Our potential exposure to credit losses on these transactions is represented by the receivable balances in our Consolidated Balance Sheets. On an ongoing basis, we review and evaluate changes in the status of our counterparties’ creditworthiness. Credit losses such as those described above could adversely affect our consolidated financial position and results of operations.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. The accounting policies described below are significantly affected by critical accounting estimates. Such accounting policies require significant judgments, assumptions, and estimates used in the preparation of the consolidated financial statements, and actual results could differ materially from the amounts reported based on these policies.

Revenue Recognition

Corporate Services Revenues

Listing Services Revenues

Listing services revenues primarily include annual renewal fees, initial listing fees, and listing of additional shares fees. Annual renewal fees do not require any judgments or assumptions by management as these amounts are recognized ratably over the following 12-month period. However, listing of additional shares fees and initial listing fees are recognized on a straight-line basis over estimated service periods, which are four and six years, respectively, based on our historical listing experience and projected future listing duration. Unamortized balances are recorded as deferred revenue in the Consolidated Balance Sheets.

Revenue recognition for our Listing Services business was impacted due to the adoption of ASU 2014-09, “Revenue from Contracts with Customers.” See “Recent Accounting Pronouncements,” of Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements for further discussion.

Goodwill and Related Impairment

Goodwill represents the excess of purchase price over the value assigned to the net assets, including identifiable intangible assets, of a business acquired. Goodwill is allocated to our reporting units based on the assignment of the fair values of each reporting unit of the acquired company. We test goodwill for impairment at the reporting unit level annually, or in interim periods if certain events occur indicating that the carrying amount may be impaired, such as changes in the business climate, poor indicators of operating performance or the sale or disposition of a significant portion of a reporting unit. For purposes of performing our goodwill impairment test, our five reporting units are the Market Services segment, the two businesses comprising the Corporate Services segment: Corporate Solutions and Listing Services, the Information Services segment, and the Market Technology segment. We test for impairment during the fourth quarter of our fiscal year using an October 1 measurement date. When testing goodwill for impairment, we have the option of first performing a qualitative

assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as the basis to determine if it is necessary to perform a quantitative goodwill impairment test. In performing a qualitative assessment, we consider the extent to which unfavorable events or circumstances identified, such as changes in economic conditions, industry and market conditions or company specific events, could affect the comparison of the reporting unit’s fair value with its carrying amount. If we choose not to complete a qualitative assessment for a given reporting unit, or if the initial assessment indicates that it is more likely than not that the carrying amount of a reporting unit exceeds its estimated fair value, a quantitative test is required.

When assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for a reporting unit in a given year is influenced by a number of factors, including but not limited to, the size of the reporting unit’s goodwill, the significance of the excess of the reporting unit’s estimated fair value over its carrying amount at the last quantitative assessment date, and the amount of time in between quantitative fair value assessments.

The quantitative goodwill impairment test consists of two steps performed at the reporting unit level.

•The first step compares the estimated fair value of each reporting unit to its corresponding carrying amount, including goodwill. The fair value of each reporting unit is estimated using a combination of discounted cash flow valuation, which incorporates assumptions regarding future growth rates, terminal values, and discount rates, as well as guideline public company valuations, incorporating relevant trading multiples of comparable companies and other factors. The estimates and assumptions used consider historical performance and are consistent with the assumptions used in determining future profit plans for each reporting unit, which are approved by our board of directors. If the reporting unit’s estimated fair value exceeds its estimated carrying amount, goodwill is not impaired.
•If the first step results in the carrying amount exceeding the fair value of the reporting unit, then a second step must be completed in order to determine the amount of goodwill impairment that should be recorded, if any. In the second step, the implied fair value of the reporting unit’s goodwill is determined by allocating the reporting unit’s fair value to all of its assets and liabilities other than goodwill in a manner similar to a purchase price allocation. The implied fair value of the goodwill that results from the application of this second step is then compared to the carrying amount of the goodwill and an impairment charge is recorded for any difference.

The following table presents the balances of goodwill for our reportable segments at the time of our 2017 annual impairment test:

October 1, 2017
(in millions)
Market Services$3,560
Corporate Services491
Information Services1,915
Market Technology188
$6,154

In 2017, we performed a quantitative test for our annual impairment test for goodwill as several years had elapsed since the date of certain of our quantitative valuations. The last quantitative tests were in 2013 for the Listing Services, Information Services and Market Technology reporting units and in 2015 for the Market Services reporting unit. We also performed a quantitative goodwill impairment test on the remaining businesses in our Corporate Solutions reporting unit since our Public Relations Solutions and Digital Media Services businesses have been classified as held for sale. See Note 5, “Assets and Liabilities Held for Sale,” to the consolidated financial statements for further discussion.

We performed step one of the quantitative goodwill impairment test for all reporting units and determined that fair value substantially exceeded carrying value for each of our reporting units. As a result, no goodwill impairment was recorded in 2017. No goodwill impairment was recorded in 2016 and 2015.

Although we believe our estimates of fair value are reasonable, the determination of certain valuation inputs is subject to management’s judgment. Changes in these inputs could materially affect the results of our impairment review. If our forecasts of cash flows or other key inputs are negatively revised in the future, the estimated fair value of each reporting unit would be adversely impacted, potentially leading to an impairment in the future that could materially affect our operating results.

Subsequent to our annual impairment test, no indications of impairment were identified.

Indefinite-Lived Intangible Assets and Related Impairment

Intangible assets deemed to have indefinite useful lives, primarily exchange and clearing registrations, are not amortized but instead are tested for impairment at least annually and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than its carrying amount. Similar to goodwill impairment testing, we test for impairment of indefinite-lived intangible assets during the fourth quarter of our fiscal year using an October 1 measurement date and may first perform a qualitative assessment, considering similar factors as discussed above in the goodwill impairment discussion, to determine if it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount. If we elect to perform or are required to perform a quantitative assessment,

the test consists of a comparison of the fair value of the indefinite-lived intangible asset to its carrying amount as of the impairment testing date. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment charge is recorded for the difference. The fair value of indefinite-lived intangible assets is primarily determined on the basis of estimated discounted value, using the Greenfield Approach for exchange and clearing registrations and licenses and the relief from royalty approach or excess earnings approach for trade names, both of which incorporate assumptions regarding future revenue projections and discount rates. During our annual indefinite-lived intangible asset impairment test during the fourth quarter of 2017, we performed a quantitative test as several years had elapsed since the date of our previous quantitative valuations.

There were no indefinite-lived intangible asset impairment charges in 2017. Subsequent to our annual indefinite-lived impairment test, no indications of impairment were identified.

As discussed in “Intangible Asset Impairment Charges,” of Note 6, “Goodwill and Acquired Intangible Assets,” to the consolidated financial statements, we recorded the following pre-tax, non-cash indefinite-lived asset impairment charges during 2016 and 2015:

•December 2016: $578 million to write off the full value of the eSpeed trade name; and
•March 2015: $119 million to write off the full value of the OMX trade name. In connection with our global rebranding initiative, we decided to change our company name from The NASDAQ OMX Group, Inc. to Nasdaq, Inc., which became effective in the third quarter of 2015. In connection with this action, we decided to discontinue the use of the OMX trade name.

These charges did not impact the company’s consolidated cash flows, liquidity, or capital resources. The write off of the eSpeed trade name is recorded in asset impairment charge in the Consolidated Statements of Income for 2016 and the write off of the OMX trade name is recorded in restructuring charges in the Consolidated Statements of Income for 2015.

There were no other impairments of indefinite-lived intangible assets for the years ended December 31, 2016 and 2015.

Other Long-Lived Assets and Related Impairment

We review our other long-lived assets, such as finite-lived intangible assets, equity and cost method investments, as well as property and equipment for potential impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of an asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. We evaluate our equity and cost method investments for other-than-temporary declines in value by considering a variety of factors such as the earnings capacity of the investment and the fair value of the investment compared to its carrying amount. In addition, for investments where the market value is readily determinable, we

consider the underlying stock price as an additional factor. Any required impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value and is recorded as a reduction in the carrying amount of the related asset and a charge to operating results.

We recorded pre-tax, non-cash property and equipment asset impairment charges of $9 million for the year ended December 31, 2017, $8 million for 2016 and $18 million for 2015. See Note 8, “Property and Equipment, net,” to the consolidated financial statements for further discussion. The impairment charge in 2017 is included in merger and strategic initiatives expense in the Consolidated Statements of Income and the 2016 and 2015 impairment charges are included in restructuring charges in the Consolidated Statements of Income during the respective period.

There were no other impairments of property and equipment recorded in 2017, 2016 or 2015.

In December 31, 2016, we recorded a pre-tax, non-cash impairment charge of $7 million to write off the full value of an equity method investment. See “Equity Method Investments,” of Note 7, “Investments,” to the consolidated financial statements for further discussion. No other impairments of equity method investments were recorded in 2017, 2016 or 2015.

Income Taxes

Estimates and judgments are required in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred tax assets, which arise from net operating loss carryforwards, tax credit carryforwards and temporary differences between the tax and financial statement recognition of revenue and expense. Our deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. Management is required to determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the recognition thresholds, the position is measured to determine the amount of benefit to be recognized in the consolidated financial statements. Interest and/or penalties related to income tax matters are recognized in income tax expense.

In assessing the need for a valuation allowance, we consider all available evidence including past operating results, the existence of cumulative losses in the most recent fiscal years, estimates of future taxable income and the feasibility of tax planning strategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

In addition, the calculation of our tax liabilities involves uncertainties in the application of tax regulations in the U.S. and other tax jurisdictions. We recognize potential liabilities for anticipated tax audit issues in such jurisdictions based on our

estimate of whether, and the extent to which, additional taxes and interest may be due. While we believe that our tax liabilities reflect the probable outcome of identified tax uncertainties, it is reasonably possible that the ultimate resolution of any tax matter may be greater or less than the amount accrued. If events occur and the payment of these amounts ultimately proves unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If our estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.

The Tax Cuts and Jobs Act was enacted on December 22, 2017. We are required to recognize the effect of the tax law changes in the period of enactment, such as remeasuring our U.S. deferred tax assets and liabilities, reassessing the net realizability of deferred tax assets and liabilities, and determining the applicability of the one-time mandatory transition tax on accumulated foreign earnings. SEC Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” or SAB 118, has provided guidance which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As of December 31, 2017, we have recorded a provisional estimate of the effects of the new legislation. We will continue to analyze the Tax Cuts and Jobs Act and related accounting guidance and interpretations in order to finalize any impacts within the measurement period.

Recent Accounting Pronouncements

See “Recent Accounting Pronouncements,” of Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements for further discussion of recently adopted and recently issued accounting pronouncements that are applicable to Nasdaq.

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