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.” For further discussion of our growth strategy, products and services, and competitive strengths, see “Item 1. Business.” Unless stated otherwise, the comparisons presented in this discussion and analysis refer to the year-over-year comparison of changes in our financial condition and results of operations as of and for the fiscal years ended December 31, 2020 and December 31, 2019. Discussion of fiscal year 2018 items and the year-over year comparison of changes in our financial condition and results of operations as of and for the fiscal years ended December 31, 2019 and December 31, 2018 can be found in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was previously filed with the SEC on February 25, 2020.

Business Segments

We manage, operate and provide our products and services in four business segments: Market Services, Corporate Platforms, Investment Intelligence and Market Technology. See Note 1, “Organization and Nature of Operations,” and Note 19, “Business Segments,” to the consolidated financial statements for further discussion of our reportable segments and geographic data, as well as how management allocates resources, assesses performance and manages these businesses as four separate segments.

Impact of COVID-19 on Our Business

For a discussion of the impact of COVID-19 on our business, see “Item 1A. Risk Factors - Risks Related To Our Business and Industry - The COVID-19 pandemic could have an adverse effect on our business, financial condition, liquidity or results of operations,” and “Liquidity and Capital Resources.”

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 and charts include key drivers and other metrics for our Market Services, Corporate Platforms, Investment Intelligence and Market Technology segments. In evaluating the performance of our business, our senior management closely evaluates these key drivers.


	Year Ended December 31,
		2020			2019			2018
Market Services
Equity Derivative Trading and Clearing
U.S. equity options
Total industry average daily volume (in millions)		27.7			17.5			18.2
Nasdaq PHLX matched market share		12.7		%	15.9		%	15.7		%
The Nasdaq Options Market matched market share		9.8		%	8.8		%	9.4		%
Nasdaq BX Options matched market share		0.2		%	0.2		%	0.4		%
Nasdaq ISE Options matched market share		7.8		%	9.0		%	8.8		%
Nasdaq GEMX Options matched market share		5.6		%	4.2		%	4.5		%
Nasdaq MRX Options matched market share		0.7		%	0.2		%	0.1		%
Total matched market share executed on Nasdaq’s exchanges		36.8		%	38.3		%	38.9		%
Nasdaq Nordic and Nasdaq Baltic options and futures
Total average daily volume of options and futures contracts(1)		320,204			366,289			339,139
Cash Equity Trading
Total U.S.-listed securities
Total industry average daily share volume (in billions)		10.9			7.0			7.3
Matched share volume (in billions)		508.3			348.1			358.5
The Nasdaq Stock Market matched market share		16.8		%	17.2		%	15.9		%
Nasdaq BX matched market share		0.9		%	1.7		%	2.8		%
Nasdaq PSX matched market share		0.6		%	0.7		%	0.8		%
Total matched market share executed on Nasdaq’s exchanges		18.3		%	19.6		%	19.5		%
Market share reported to the FINRA/Nasdaq Trade Reporting Facility		31.8		%	29.8		%	31.3		%
Total market share(2)		50.1		%	49.4		%	50.8		%
Nasdaq Nordic and Nasdaq Baltic securities
Average daily number of equity trades executed on Nasdaq’s exchanges		933,822			590,705			618,579
Total average daily value of shares traded (in billions)		$	5.6		$	4.5		$	5.6
Total market share executed on Nasdaq’s exchanges		78.1		%	72.8		%	68.8		%
FICC
Fixed Income
U.S. fixed income volume ($ billions traded)		$	6,169		$	10,465		$	15,983
Total average daily volume of Nasdaq Nordic and Nasdaq Baltic fixed income contracts		103,379			112,738			132,475
Commodities
Power contracts cleared (TWh)(3)		956			842			1,067
Corporate Platforms
IPOs
The Nasdaq Stock Market		316			188			186
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic		45			34			53
Total new listings
The Nasdaq Stock Market(4)		454			313			303
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic(5)		67			53			72
Number of listed companies
The Nasdaq Stock Market(6)		3,392			3,140			3,058
Exchanges that comprise Nasdaq Nordic and Nasdaq Baltic(7)		1,071			1,040			1,019
Investment Intelligence
Number of licensed ETPs		339			332			365
ETP AUM tracking Nasdaq indexes (in billions)		$	359		$	233		$	172
Market Technology
Order intake (in millions)(8)		$	240		$	366		$	223
Annualized recurring revenue, or ARR (in millions)(9)		$	283		$	260		$	222

____________

(1) Includes Finnish option contracts traded on Eurex for which Nasdaq and Eurex have a revenue sharing arrangement.

(2) 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.

(3) Transactions executed on Nasdaq Commodities or OTC and reported for clearing to Nasdaq Commodities measured by Terawatt hours (TWh).

(4) New listings include IPOs, including issuers that switched from other listing venues, closed-end funds and separately listed ETPs.

(5) 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.

(6) Number of total listings on The Nasdaq Stock Market at period end, including 412 ETPs as of December 31, 2020, 412 as of December 31, 2019 and 392 as of December 31, 2018.

(7) Represents companies listed on the Nasdaq Nordic and Nasdaq Baltic exchanges and companies on the alternative markets of Nasdaq First North.

(8) Total contract value of orders signed during the period.

(9) ARR for a given period is the annualized revenue of active Market Technology support and SaaS subscription contracts. ARR is currently one of our key performance metrics to assess the health and trajectory of our recurring business. ARR does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.

The following chart summarizes our annualized recurring revenue, or ARR (in millions):

ARR for a given period is the annualized revenue derived from subscription contracts with a defined contract value. This excludes contracts that are not recurring, are one-time in nature, or where the contract value fluctuates based on defined metrics. ARR is currently one of our key performance metrics to assess the health and trajectory of our recurring business. ARR does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.

____________

Includes:

◦Trade Management Services business, excluding one-time service requests.

◦U.S. and Nordic annual listing fees, IR and ESG products, including subscription contracts for IR Insight, Boardvantage and OneReport, and IR advisory services.

◦Proprietary market data and index data subscriptions as well as subscription contracts for eVestment, Solovis, DWA tools and services, Nasdaq Fund Network and Quandl. Also includes guaranteed minimum on futures contracts within the Index business.

◦Active Market Technology support and SaaS subscription contracts.

The following chart summarizes our SaaS revenues for the years ended December 31, 2018, 2019 and 2020 (in millions):

Financial Summary

The following table summarizes our financial performance for the year ended December 31, 2020 when compared to the same period in 2019 and for the year ended December 31, 2019 when compared with the same period in 2018. For a detailed discussion of our results of operations, see “Segment Operating Results” below.


	Year End December 31,								Percentage Change
		2020			2019			2018			2020 vs. 2019			2019 vs. 2018
	(in millions, except per share amounts)
Revenues less transaction-based expenses			$	2,903		$	2,535		$	2,526		14.5	%		0.4	%
Operating expenses			$	1,669		$	1,518		$	1,498		9.9	%		1.3	%
Operating income			$	1,234		$	1,017		$	1,028		21.3	%		(1.1)	%
Net income attributable to Nasdaq			$	933		$	774		$	458		20.5	%		69.0	%
Diluted earnings per share			$	5.59		$	4.63		$	2.73		20.7	%		69.6	%
Cash dividends declared per common share			$	1.94		$	1.85		$	1.70		4.9	%		8.8	%

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
		2020			2019			2018			2020 vs. 2019			2019 vs. 2018
	(in millions)
Market Services			$	3,832		$	2,639		$	2,709		45.2	%		(2.6)	%
Transaction-based expenses			(2,724)			(1,727)			(1,751)			57.7	%		(1.4)	%
Market Services revenues less transaction-based expenses			1,108			912			958			21.5	%		(4.8)	%
Corporate Platforms			530			496			487			6.9	%		1.8	%
Investment Intelligence			908			779			714			16.6	%		9.1	%
Market Technology			357			338			270			5.6	%		25.2	%
Other revenues(1)			—			10			97			(100.0)	%		(89.7)	%
Total revenues less transaction-based expenses			$	2,903		$	2,535		$	2,526		14.5	%		0.4	%

____________

(1) For the year ended December 31, 2019 and 2018, other revenues include the revenues from the BWise enterprise governance, risk and compliance software platform, which was sold in March 2019, and for the year ended December 31, 2018, other revenues also include revenues from the Public Relations Solutions and Digital Media Services businesses which were sold in April 2018. Prior to the sale dates, these revenues were included in our IR & ESG Services business within our Corporate Platforms segment.

The following charts show our Market Services, Corporate Platforms, Investment Intelligence, and Market Technology segments as a percentage of our total revenues less transaction-based expenses of $2,903 million in 2020, $2,535 million in 2019, and $2,526 million in 2018:

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
		2020			2019			2018			2020 vs. 2019			2019 vs. 2018
	(in millions)
Market Services Revenues:
Equity Derivative Trading and Clearing Revenues(1)			$	1,258		$	816		$	849		54.2	%		(3.9)	%
Transaction-based expenses:
Transaction rebates			(828)			(477)			(506)			73.6	%		(5.7)	%
Brokerage, clearance and exchange fees(1)			(76)			(47)			(44)			61.7	%		6.8	%
Equity derivative trading and clearing revenues less transaction-based expenses			354			292			299			21.2	%		(2.3)	%

Cash Equity Trading Revenues(2)			2,211			1,462			1,476			51.2	%		(0.9)	%
Transaction-based expenses:
Transaction rebates			(1,200)			(847)			(830)			41.7	%		2.0	%
Brokerage, clearance and exchange fees(2)			(618)			(352)			(361)			75.6	%		(2.5)	%
Cash equity trading revenues less transaction-based expenses			393			263			285			49.4	%		(7.7)	%

FICC Revenues			64			70			92			(8.6)	%		(23.9)	%
Transaction-based expenses:
Transaction rebates			(1)			(3)			(8)			(66.7)	%		(62.5)	%
Brokerage, clearance and exchange fees			(1)			(1)			(2)			—	%		(50.0)	%
FICC revenues less transaction-based expenses			62			66			82			(6.1)	%		(19.5)	%

Trade Management Services Revenues			299			291			292			2.7	%		(0.3)	%
Total Market Services revenues less transaction-based expenses			$	1,108		$	912		$	958		21.5	%		(4.8)	%

____________

(1) Includes Section 31 fees of $69 million in 2020, $43 million in 2019, and $39 million in 2018. 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 $586 million in 2020, $337 million in 2019, and $343 million in 2018. 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 2020 compared with 2019. The increase in equity derivative trading and clearing revenues was primarily due to higher U.S. industry trading volumes, a higher U.S. gross capture rate, and higher Section 31 pass-through fee revenue, partially offset by lower overall U.S. matched market share executed on Nasdaq's exchanges. The increase in equity derivative trading and clearing revenues less transaction-based expenses was primarily due to higher U.S. industry trading volumes, partially offset by a lower U.S. net capture rate and lower overall U.S. matched market share executed on Nasdaq's exchanges.

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. Section 31 fees increased in 2020 compared with 2019 primarily due to higher dollar value traded on Nasdaq's exchanges and higher average SEC fee rates.

Transaction rebates, in which we credit a portion of the per share execution charge to the market participant, increased in 2020 compared with 2019 due to higher U.S. industry trading volumes and an increase in the U.S. rebate capture rate,

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 2020 compared with 2019 primarily due to higher Section 31 pass-through fees, as discussed above.

Cash Equity Trading Revenues

Cash equity trading revenues and cash equity trading revenues less transaction-based expenses increased in 2020 compared with 2019 primarily due to higher U.S. industry trading volumes and higher European value traded, partially offset by lower overall U.S. matched market share executed on Nasdaq's exchanges. Also contributing to the increase in cash equity trading revenues were higher Section 31 pass-through fee revenue, while a higher net U.S. capture rate also contributed to the increase in cash equity trading revenues less transaction-based expenses in 2020.

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. Section 31 fees increased in 2020 compared with 2019 due to higher dollar value traded on Nasdaq’s exchanges and higher average SEC fee rates.

Transaction rebates increased in 2020 compared with 2019. For The Nasdaq Stock Market, Nasdaq PSX and Nasdaq CXC, we credit a portion of the per share execution charge to the market participant that provides the liquidity, and for Nasdaq BX and Nasdaq CX2, we credit a portion of the per share execution charge to the market participant that takes the liquidity. The increase in 2020 was primarily due to higher U.S. industry trading volumes, partially offset by lower overall U.S. matched market share executed on Nasdaq's exchanges and a lower rebate capture rate.

Brokerage, clearance and exchange fees increased in 2020 compared with 2019 primarily due to higher Section 31 pass-through fees, as discussed above.

FICC Revenues

FICC revenues and FICC revenues less transaction-based expenses decreased in 2020 compared with 2019 driven by lower U.S. fixed income volumes and the sale of the core assets of our NFX business, partially offset by higher European products revenues.

Trade Management Services Revenues

Trade management services revenues increased in 2020 compared with 2019 primarily due to higher demand for our connectivity services.

CORPORATE PLATFORMS

The following table shows revenues from our Corporate Platforms segment:


	Year Ended December 31,								Percentage Change
		2020			2019			2018			2020 vs. 2019			2019 vs. 2018
	(in millions)
Corporate Platforms:
Listing Services			$	316		$	296		$	290		6.8	%		2.1	%
IR & ESG Services			214			200			197			7.0	%		1.5	%
Total Corporate Platforms			$	530		$	496		$	487		6.9	%		1.8	%

Listing Services Revenues

Listing services revenues increased in 2020 compared with 2019. The increase was primarily due to higher U.S. listings revenues due to an increase in the overall number of listed companies and a favorable impact from foreign exchange of $2 million.

IR & ESG Services Revenues

IR & ESG Services revenues increased in 2020 compared with 2019 primarily due to increases in demand for both governance and investor relations intelligence services.

INVESTMENT INTELLIGENCE

The following table shows revenues from our Investment Intelligence segment:


	Year Ended December 31,								Percentage Change
		2020			2019			2018			2020 vs. 2019			2019 vs. 2018
	(in millions)
Investment Intelligence:
Market Data			$	409		$	398		$	390		2.8	%		2.1	%
Index			324			223			206			45.3	%		8.3	%
Analytics			175			158			118			10.8	%		33.9	%
Total Investment Intelligence			$	908		$	779		$	714		16.6	%		9.1	%

Market Data Revenues

Market data revenues increased in 2020 compared with 2019 primarily due to organic growth in proprietary products from new sales, including continued expansion geographically, partially offset by a decrease in shared tape plan revenues.

Index Revenues

Index revenues increased in 2020 compared with 2019 primarily due to higher licensing revenues from higher

average AUM in ETPs linked to Nasdaq indexes and higher licensing revenues from futures trading linked to the Nasdaq-100 Index.

Analytics Revenues

Analytics revenues increased in 2020 compared with 2019 primarily due to the acquisition of Solovis and growth in eVestment.

MARKET TECHNOLOGY

The following table shows revenues from our Market Technology segment:


	Year Ended December 31,								Percentage Change
		2020			2019			2018			2020 vs. 2019			2019 vs. 2018
	(in millions)
Market Technology			$	357		$	338		$	270		5.6	%		25.2	%

Market Technology Revenues

Market technology revenues increased in 2020 compared with 2019. The increase was primarily due to higher SaaS revenues and a favorable impact from foreign exchange of $6 million.

OTHER REVENUES

For the year ended December 31, 2019 and 2018, other revenues include the revenues from the BWise enterprise governance, risk and compliance software platform, which was sold in March 2019, and for the year ended December 31, 2018, other revenues also include revenues from the Public Relations Solutions and Digital Media Services businesses which were sold in April 2018. Prior to the sale dates, these revenues were included in our IR & ESG Services business within our Corporate Platforms segment.

Expenses

Operating Expenses

The following table shows our operating expenses:


	Year Ended December 31,								Percentage Change
		2020			2019			2018			2020 vs. 2019			2019 vs. 2018
	(in millions)
Compensation and benefits			$	786		$	707		$	712		11.2	%		(0.7)	%
Professional and contract services			137			127			144			7.9	%		(11.8)	%
Computer operations and data communications			151			133			127			13.5	%		4.7	%
Occupancy			107			97			95			10.3	%		2.1	%
General, administrative and other			142			125			120			13.6	%		4.2	%
Marketing and advertising			39			39			37			—	%		5.4	%
Depreciation and amortization			202			190			210			6.3	%		(9.5)	%
Regulatory			24			31			32			(22.6)	%		(3.1)	%
Merger and strategic initiatives			33			30			21			10.0	%		42.9	%
Restructuring charges			48			39			—			23.1	%		N/M
Total operating expenses			$	1,669		$	1,518		$	1,498		9.9	%		1.3	%

_______

N/M Not meaningful.

The increase in compensation and benefits expense in 2020 was primarily driven by an increase in headcount as a result of our strategic initiatives, higher performance incentives and higher compensation costs resulting from our recent acquisitions. Partially offsetting the higher compensation and benefits expense in 2020 was lower compensation costs resulting from our 2019 divestiture.

Headcount increased to 4,830 employees as of December 31, 2020 from 4,361 as of December 31, 2019 primarily due to our strategic initiatives, mainly growth in our Market Technology business, and recent acquisitions.

Professional and contract services expense increased in 2020 primarily due to higher consulting and legal costs.

Computer operations and data communications expense increased in 2020 primarily due to higher software and hardware maintenance costs, higher cloud costs, higher market data feed costs, and our recent acquisitions.

Occupancy expense increased in 2020 mainly due to higher costs associated with additional facility and rent costs resulting from the expansion of our new U.S. headquarters in New York.

General, administrative and other expense increased in 2020 primarily due to a higher loss on extinguishment of debt, a reserve recorded for a loss on a Market Technology implementation project, and charitable donations made to the Nasdaq Foundation, COVID-19 response and relief efforts, and social justice charities. These increases were partially offset by a higher provision for notes receivable in 2019 and lower corporate travel costs in 2020.

Depreciation and amortization expense increased in 2020 primarily due to an increase in capitalized software placed in service.

Regulatory expense decreased in 2020 primarily due to a favorable decision on a regulatory matter. In December 2016, we were issued a $6 million fine by the SFSA as a result of findings following its investigations of cybersecurity processes at our Nordic exchanges and clearinghouse. We appealed the SFSA’s decision, including the amount of the fine and received a favorable decision in the third quarter of 2020 where the court set aside the SFSA’s decision including the fine. The SFSA decided not to appeal the decision and the decision is therefore now final. As a result, the $6 million fine was reversed to regulatory expense in the consolidated statements of income for 2020.

Merger and strategic initiatives expense increased in 2020. We have pursued various strategic initiatives and completed acquisitions and divestitures 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 and will vary based on the size and frequency of the activities described above.

See Note 20, “Restructuring Charges,” to the consolidated financial statements for further discussion of our 2019 restructuring plan and charges associated with this plan.

Non-operating Income and Expenses

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


	Year Ended December 31,								Percentage Change
		2020			2019			2018			2020 vs. 2019			2019 vs. 2018
	(in millions)
Interest income			$	4		$	10		$	10		(60.0)	%		—	%
Interest expense			(101)			(124)			(150)			(18.5)	%		(17.3)	%
Net interest expense			(97)			(114)			(140)			(14.9)	%		(18.6)	%
Gain on sale of investment security			—			—			118			—	%		(100.0)	%
Net gain on divestiture of businesses			—			27			33			(100.0)	%		(18.2)	%
Other income			5			5			7			—	%		(28.6)	%
Net income from unconsolidated investees			70			84			18			(16.7)	%		366.7	%
Total non-operating income (expenses)			$	(22)		$	2		$	36		(1,200.0)	%		(94.4)	%

Interest Income

Interest income decreased in 2020 compared to 2019 primarily due to a decrease in interest rates.

Interest Expense

Interest expense decreased in 2020 compared with 2019 primarily due to the refinancing of our 3.875% senior notes in March 2020 with the 2030 Notes and the refinancing of our 5.55% senior notes in May 2019 with the 2029 Notes, both at lower interest rates, and the repayment of our senior unsecured floating rate notes in March 2019 with commercial paper issuances and cash on hand. See Note 9, “Debt Obligations,” to the consolidated financial statements for further discussion of our debt obligations.

The following table shows our interest expense:


	Year Ended December 31,								Percentage Change
		2020			2019			2018			2020 vs. 2019			2019 vs. 2018
	(in millions)
Interest expense on debt			$	93		$	115		$	140		(19.1)	%		(17.9)	%
Accretion of debt issuance costs and debt discount			6			6			7			—	%		(14.3)	%
Other fees			2			3			3			(33.3)	%		—	%
Interest expense			$	101		$	124		$	150		(18.5)	%		(17.3)	%

Net Gain on Divestiture of Businesses

The net gain on divestiture of businesses in 2019 related to the divestiture of BWise. See “2019 Divestiture,” of Note 4, “Acquisitions and Divestiture,” to the consolidated financial statements for further discussion. The net gain on divestiture of businesses in 2018 related to the sale of the Public Relations Solutions and Digital Media Services business, which was part of our IR & ESG Services business within our Corporate Platforms segment.

Net Income from Unconsolidated Investees

Net income from unconsolidated investees decreased in 2020 compared with 2019 primarily due to a decrease in income recognized from our equity method investment in OCC. See “Equity Method Investments,” of Note 6, “Investments,” to the consolidated financial statements for further discussion.

Tax Matters

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


	Year Ended December 31,										Percentage Change
		2020				2019				2018				2020 vs. 2019			2019 vs. 2018
	($ in millions)
Income tax provision			$	279			$	245			$	606			13.9	%		(59.6)	%
Effective tax rate			23.0		%		24.0		%		57.0		%

For further discussion of our tax matters, see Note 17, “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 our 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. In addition, other companies, including companies in our industry, may calculate such measures differently, which reduces their usefulness as comparative measures. Investors should not rely on any single financial measure when evaluating our business. This non-GAAP information should be considered as supplemental in nature and is not meant as a substitute for our operating results in accordance with U.S. GAAP. 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 expense therefore

provide investors with a useful representation of our businesses’ ongoing activity in each period.

Merger and strategic initiatives expense: We have pursued various strategic initiatives and completed acquisitions and divestitures in recent years that 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 comparisons in Nasdaq’s performance between periods.

Restructuring charges: We initiated the transition of certain technology platforms to advance our strategic opportunities as a technology and analytics provider and continue the re-alignment of certain business areas. See Note 20, “Restructuring Charges,” to the consolidated financial statements for further discussion of our 2019 restructuring plan. Charges associated with this plan represent a fundamental shift in our strategy and technology as well as executive re-alignment and will be excluded for purposes of calculating non-GAAP measures as they are not reflective of ongoing operating performance or comparisons in Nasdaq's performance between periods.

Net income from unconsolidated investee: See “Equity Method Investments,” of Note 6, “Investments,” to the consolidated financial statements for further discussion. Our income on our investment in OCC may vary significantly compared to prior years due to the changes in the OCC's capital management policy. Accordingly, we will exclude this income from current and prior periods for purposes of calculating non-GAAP measures which provide a more meaningful analysis of Nasdaq’s ongoing operating performance or comparisons in 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 2020, other significant items primarily included:

a provision for notes receivable associated with the funding of technology development for the CAT;
a loss on extinguishment of debt;
charges associated with duplicative rent and impairment of leasehold assets related to our global headquarter move;
charitable donations made to the Nasdaq Foundation, COVID-19 response and relief efforts, and social justice charities; and
the reversal of a $6 million regulatory fine issued by the SFSA which is recorded in regulatory expense in the Consolidated Statements of Income.

For 2019, other significant items primarily included:

a provision for notes receivable associated with the funding of technology development for the CAT;
a loss on extinguishment of debt; and
a net gain on divestiture of business which represents our pre-tax net gain of $27 million on the sale of BWise;
other items:

◦a tax reserve for certain prior year examinations; and

◦certain litigation costs which are recorded in professional and contract services expense in the Consolidated Statements of Income.

The above charges, with the exception of those noted differently above, are recorded in general, administrative and other expense in our Consolidated Statements of Income.

Significant tax items:

The non-GAAP adjustment to the income tax provision included the tax impact of each non-GAAP adjustment and:

for 2020:

◦a tax benefit related to favorable audit settlements;

◦a release of tax reserves due to statute of limitation expiration, partially offset with an increase to certain tax reserves related to certain tax filings; and

◦a tax benefit on compensation related deductions determined to be allowable.

for 2020 and 2019, excess tax benefits related to employee share-based compensation to reflect the recognition of the income tax effects of share-based awards when awards vest or are settled. 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.

*•*for 2019, a tax benefit primarily related to an adjustment to the 2018 federal and state tax returns and a tax benefit related to capital distributions from the OCC. See “Equity Method Investments,” of Note 6, “Investments,” to the consolidated financial statements for further discussion of our OCC investment.

The following table shows 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 End December 31,
		2020		2019		2018
		(in millions, except share and per share amounts)
U.S. GAAP net income attributable to Nasdaq		$	933	$	774	$	458
Non-GAAP adjustments:
Amortization expense of acquired intangible assets		103		101		109
Merger and strategic initiatives expense		33		30		21
Restructuring charges		48		39		—
Net income from unconsolidated investees		(70)		(82)		(16)
Clearing default loss		—		—		31
Provision for notes receivable		6		20		—
Extinguishment of debt		36		11		—
Net gain on divestiture of businesses		—		(27)		(33)
Gain on sale of investment security		—		—		(118)
Charitable donations		17		—		—
Other		8		17		17
Total non-GAAP adjustments		181		109		11
Adjustment to the income tax provision to reflect non-GAAP adjustments and other tax items		(77)		(43)		6
Excess tax benefits related to employee share-based compensation		(6)		(5)		(9)
Impact of enacted U.S. tax legislation		—		—		290
Reversal of certain Swedish tax benefits		—		—		41
Total non-GAAP tax adjustments		(83)		(48)		328
Total non-GAAP adjustments, net of tax		98		61		339
Non-GAAP net income attributable to Nasdaq		$	1,031	$	835	$	797

Weighted-average common shares outstanding for diluted earnings per share		166,903,941		166,970,161		167,691,299

U.S. GAAP diluted earnings per share		$	5.59	$	4.63	$	2.73
Total adjustments from non-GAAP net income		0.59		0.37		2.02
Non-GAAP diluted earnings per share		$	6.18	$	5.00	$	4.75

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. Currently, our cost and availability of funding remain healthy.

In response to the uncertainties posed by COVID-19 and related economic impacts, we took actions to strengthen our liquidity and cash position and to reduce our refinancing risk.

In March 2020, we observed that conditions in the market for Tier 2 commercial paper issuers were deteriorating, impacting both costs and actionable duration of commercial paper issues. To mitigate funding uncertainties and as a precautionary measure to maximize our liquidity and increase

our available cash on hand, Nasdaq borrowed $799 million under the revolving credit commitment of the 2017 Credit Facility. See “Early Extinguishment of 2017 Credit Facility,” of Note 9, “Debt Obligations,” to the consolidated financial statements for further discussion of the 2017 Credit Facility.

In April 2020, we issued the 2050 Notes and used the net proceeds from the 2050 Notes to repay a portion of amounts previously borrowed under the 2017 Credit Facility. For further discussion of the 2050 Notes, see “3.25% Senior Unsecured Notes Due 2050,” of Note 9, “Debt Obligations,” to the consolidated financial statements. In June 2020, the remaining outstanding amount under the 2017 Credit Facility was repaid using cash on hand. In June 2020, we also repaid all outstanding borrowings under our commercial paper program.

Other Financing Transactions

In February 2020, we issued the 2030 Notes. We primarily used the net proceeds from the 2030 Notes to redeem the 2021 Notes and for other general corporate purposes. See “0.875% Senior Unsecured Notes Due 2030,” and “Early Extinguishment of 3.875% Senior Unsecured Notes Due 2021,” of Note 9, “Debt Obligations,” to the consolidated financial statements for further discussion.

In December 2020, we issued the 2022 Notes, 2031 Notes and 2040 Notes. The net proceeds were used to partially finance the acquisition of Verafin. For further discussion of these notes, see “Senior Unsecured Notes Due 2022, 2031 and 2040,” of Note 9, “Debt Obligations,” to the consolidated financial statements. For further discussion of the acquisition of Verafin, see “Acquisition of Verafin,” of Note 4, “Acquisitions and Divestiture,” to the consolidated financial statements.

In December 2020, we also terminated the 2017 Credit Facility and entered into the 2020 Credit Facility. See “Credit Facilities,” of Note 9, “Debt Obligations,” to the consolidated financial statements for further discussion.

As of December 31, 2020, our sources and uses of cash were not materially impacted by COVID-19 and we have not identified any material liquidity deficiencies as a result of the COVID-19 pandemic. We will continue to closely monitor and manage our liquidity and capital resources. In addition, we continue to prudently assess our capital deployment strategy through balancing acquisitions, internal investments, debt repayments, and shareholder return activity including share repurchases and dividends.

Other Liquidity and Capital Considerations

In the near term, we expect that our operations and the availability under our revolving credit facility and commercial paper program will provide sufficient cash to fund our operating expenses, capital expenditures, debt repayments, any share repurchases, and any dividends. In January 2021, we increased the size of our commercial paper program from $1 billion to $1.25 billion. In February 2021, we issued $475 million of commercial paper to partially fund the acquisition of Verafin. For further discussion of the acquisition of Verafin, see “Acquisition of Verafin,” of Note 4, “Acquisitions and Divestiture,” to the consolidated financial statements.

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 through 2027. See “Non-Cash Contingent Consideration,” of Note 18, “Commitments, Contingencies and Guarantees,” to the consolidated financial statements for further discussion.

The value of various assets and liabilities, including cash and cash equivalents, receivables, accounts payable and accrued expenses, the current portion of long-term debt, and commercial paper, can fluctuate from month to month. Working capital (calculated as current assets less current

liabilities) was $2,736 million as of December 31, 2020, compared with $63 million as of December 31, 2019, an increase of $2,673 million. Current asset balance changes increased working capital by $3,370 million, with increases in cash and cash equivalents, primarily due to net proceeds of $1.9 billion from issuances of long-term debt in the fourth quarter of 2020 for the acquisition of Verafin, default funds and margin deposits, receivables, net, and restricted cash and cash equivalents, partially offset by decreases in financial investments and other current assets. Current liability balance changes decreased working capital by $697 million, due to increases in default funds and margin deposits, Section 31 fees payable to the SEC, accrued personnel costs, accounts payable and accrued expenses, and deferred revenue, partially offset by decreases in short-term debt and other current liabilities.

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;
volatility or disruption in the public debt and equity markets; and
the impact of the COVID-19 pandemic on our business.

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

Financial Assets

The following table summarizes our financial assets:


	December 31, 2020		December 31, 2019
	(in millions)
Cash and cash equivalents	$	2,745	$	332
Restricted cash and cash equivalents	37		30
Financial investments	195		291
Total financial assets	$	2,977	$	653

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents

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, 2020, our cash and cash equivalents of $2,745 million were primarily invested in bank deposits and money market funds. 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, 2020 increased $2,413 million from December 31, 2019, primarily due to:

proceeds from issuances of long-term debt, net of issuance costs. For further discussion, see “Senior Unsecured Notes Due 2022, 2031, and 2040,” of Note 9, “Debt Obligations,” to the consolidated financial statements;
net cash provided by operating activities; and
proceeds from the net sales of securities. These increases were partially offset by:

◦repayments of borrowings under our credit commitment and debt obligations;

◦repayments of commercial paper, net;

◦cash dividends paid on our common stock;

◦repurchases of our common stock;

◦purchases of property and equipment;

◦cash paid for acquisitions, net of cash and cash equivalents acquired;

◦payments related to employee shares withheld for taxes; and

◦payment of debt extinguishment costs.

See “Cash Flow Analysis” below for further discussion.

Restricted cash and cash equivalents are restricted from withdrawal due to contractual or regulatory requirements or is not available for general use. Restricted cash and cash equivalents were $37 million as of December 31, 2020 and $30 million as of December 31, 2019, an increase of $7 million. Restricted cash and cash equivalents are classified as restricted cash and cash equivalents in the Consolidated Balance Sheets.

Repatriation of Cash

Our cash and cash equivalents held outside of the U.S. in various foreign subsidiaries totaled $237 million as of

December 31, 2020 and $160 million as of December 31, 2019. The remaining balance held in the U.S. totaled $2,508 million as of December 31, 2020 and $172 million as of December 31, 2019. See “Cash and Cash Equivalents,” of Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements for discussion of the increase in cash and cash equivalents.

Unremitted earnings of certain subsidiaries outside of the U.S. are used to finance our international operations and are considered to be indefinitely reinvested.

Share Repurchase Program

See “Share Repurchase Program,” of Note 12, “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:


	2020		2019
First quarter	$	0.47	$	0.44
Second quarter	0.49		0.47
Third quarter	0.49		0.47
Fourth quarter	0.49		0.47
Total	$	1.94	$	1.85

See “Cash Dividends on Common Stock,” of Note 12, “Nasdaq Stockholders’ Equity,” to the consolidated financial statements for further discussion of the dividends.

Financial Investments

Our financial investments totaled $195 million as of December 31, 2020 and were trading securities primarily comprised of highly rated European government debt securities. As of December 31, 2019, financial investments totaled $291 million and were trading securities primarily comprised of highly rated European government debt securities, time deposits and highly rated corporate debt. Of these securities, $175 million as of December 31, 2020 and $169 million as of December 31, 2019 are assets primarily utilized to meet regulatory capital requirements, mainly for our clearing operations at Nasdaq Clearing. See Note 6, “Investments,” to the consolidated financial statements for further discussion.

Debt Obligations

The following table summarizes our debt obligations by contractual maturity:


	Maturity Date	December 31, 2020		December 31, 2019
		(in millions)
Short-term debt - commercial paper		$	—	$	391
Long-term debt:
3.875% senior unsecured notes	Repaid March 2020	$	—	$	671
$1 billion senior unsecured revolving credit facility	Terminated December 2020	—		(2)
0.445% senior unsecured notes	December 2022	597		—
1.75% senior unsecured notes	May 2023	730		668
4.25% senior unsecured notes	June 2024	498		497
$1.25 billion senior unsecured revolving credit facility	December 2025	(4)		—
3.85% senior unsecured notes	June 2026	497		497
1.75% senior unsecured notes	March 2029	726		665
0.875% senior unsecured notes	February 2030	726		—
1.650% senior unsecured notes	January 2031	643		—
2.500% senior unsecured notes	December 2040	643		—
3.25% senior unsecured notes	April 2050	485		—
Total long-term debt		$	5,541	$	2,996
Total debt obligations		$	5,541	$	3,387

In addition to the $1.25 billion revolving credit facility, we also have other credit facilities primarily to support our Nasdaq Clearing operations in Europe, as well to provide a cash pool credit line for one subsidiary. These credit facilities, which are available in multiple currencies, totaled $232 million as of December 31, 2020 and $203 million as of December 31, 2019 in available liquidity, none of which was utilized as of December 31, 2020, and of which $15 million was utilized as of December 31, 2019.

As of December 31, 2020, we were in compliance with the covenants of all of our debt obligations.

See Note 9, “Debt Obligations,” to the consolidated financial statements for further discussion of our debt obligations.

Regulatory 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, 2020, our required regulatory capital of $145 million was comprised of highly rated European government debt securities that are included in financial investments 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. As of December 31, 2020, the combined required minimum net capital totaled $1 million and the combined excess capital totaled $55 million, substantially all of which is held in cash and cash equivalents in the Consolidated Balance Sheets. The required minimum net capital is included in restricted cash and cash equivalents in the Consolidated Balance Sheets.

Nordic and Baltic Exchange Regulatory Capital Requirements

The entities that operate trading venues in the Nordic and Baltic countries are each subject to local regulations and are required to maintain regulatory capital intended to ensure their general financial soundness and liquidity. As of December 31, 2020, our required regulatory capital of $39 million was primarily invested in European debt securities that are included in financial investments in the Consolidated Balance Sheets and cash which is included in restricted cash and cash equivalents in the Consolidated Balance Sheets.

Other Capital Requirements

We operate several other businesses which are subject to local regulation and are required to maintain certain levels of regulatory capital. As of December 31, 2020, other required regulatory capital was $12 million and was primarily included in restricted cash in the Consolidated Balance Sheets.

Cash Flow Analysis

The following table summarizes the changes in cash flows:


	Year Ended December 31,						Percentage Change
	2020		2019		2018		2020 vs. 2019		2019 vs. 2018
Net cash provided by (used in):	(in millions)
Operating activities	$	1,252	$	963	$	1,028	30.0	%	(6.3)	%
Investing activities	(231)		(240)		196		(3.8)	%	(222.4)	%
Financing activities	1,383		(937)		(1,027)		(247.6)	%	(8.8)	%
Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents	16		(10)		(10)		(260.0)	%	—	%
Net increase (decrease) in cash and cash equivalents and restricted cash	2,420		(224)		187		(1,180.4)	%	(219.8)	%
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period	362		586		399		(38.2)	%	46.9	%
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	2,782	$	362	$	586	668.5	%	(38.2)	%

Net Cash Provided by Operating Activities

Net cash provided by operating activities primarily consists of net income adjusted for certain non-cash items such as: depreciation and amortization expense of property and equipment; amortization expense of acquired finite-lived intangible assets; expense associated with share-based compensation; and net income from unconsolidated investees.

Net cash provided by operating activities is also impacted by the effects of changes in operating assets and liabilities such as: accounts receivable which is impacted by the timing of customer billings and related collections from our customers; accounts payable and accrued expenses due to timing of payments; accrued personnel costs which are impacted by employee performance targets and the timing of payments related to employee bonus incentives; and Section 31 fees payable to the SEC, which is impacted by the timing of collections from customers and payments to the SEC.

Net cash provided by operating activities increased $289 million for the year ended December 31, 2020 compared with the same period in 2019. The increase was primarily driven by higher net income, an increase in Section 31 fees payable to the SEC due to elevated U.S. industry trading volumes, lower performance incentive payments made in 2020 compared with 2019 primarily due to prior year performance and lower interest paid due to a decline in average interest rates on our debt obligations, partially offset by an increase in receivables, net, due to elevated U.S. industry trading volumes and higher income taxes paid. The remaining change is primarily due to fluctuations in our working capital.

Net Cash Used in Investing Activities

Net cash used in investing activities for 2020 primarily related to $188 million of purchases of property and equipment and $157 million of cash used for acquisitions, net of cash and cash equivalents acquired, partially offset by $119 million of proceeds from the net sales of securities.

Net cash used in investing activities for 2019 primarily relates to $206 million of cash used for acquisitions, net of cash and cash equivalents acquired, $127 million of purchases of property and equipment, and $36 million of net purchases of securities, partially offset by receipt of cash of $132 million related to our 2019 divestiture.

Net Cash Used in (Provided by) Financing Activities

Net cash provided by financing activities for 2020 primarily related to $3,811 million of proceeds from issuances of long-term debt and the utilization of our credit commitment, partially offset by $1,472 million in repayments of borrowings under our credit commitment and debt obligations, $391 million of net repayments of commercial paper, $320 million of dividend payments to our shareholders, and $222 million in repurchases of common stock.

Net cash used in financing activities for 2019 primarily relates to $1,215 million in repayments of debt obligations, $305 million of dividend payments to our shareholders, and $200 million in repurchases of common stock, partially offset by $680 million from proceeds related to long-term debt issuances and $116 million in net borrowings of commercial paper.

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

See Note 9, “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 12, “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, operating lease payments, and other obligations. The following table shows these contractual obligations as of December 31, 2020.


	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in millions)
Debt obligations by contract maturity(1)	$	6,915	$	114	$	1,557	$	684	$	4,560
Operating lease obligations(2)	558		62		108		77		311
Purchase obligations(3)	43		31		12		—		—
Total	$	7,516	$	207	$	1,677	$	761	$	4,871

____________

(1) Our debt obligations include both principal and interest obligations. As of December 31, 2020, an interest rate of 1.39% was used to compute the amount of the contractual obligations for interest on the 2020 Credit Facility. All other debt obligations were primarily calculated on a 365-day basis at the contractual fixed rate multiplied by the aggregate principal amount as of December 31, 2020. See Note 9, “Debt Obligations,” to the consolidated financial statements for further discussion.

(2) Operating lease obligations represent our undiscounted operating lease liabilities as of December 31, 2020. See Note 16, “Leases,” to the consolidated financial statements for further discussion of our leases.

(3) Purchase obligations primarily represent minimum outstanding obligations due under software license agreements.

Acquisition of Verafin

For further discussion of our acquisition of Verafin, see “Acquisition of Verafin,” of Note 4, “Acquisitions and Divestiture,” to the consolidated financial statements.

No****n-Cash Contingent Consideration

See “Non-Cash Contingent Consideration,” of Note 18, “Commitments, Contingencies and Guarantees,” to the consolidated financial statements for further discussion.

Off-Balance Sheet Arrangements

For discussion of off-balance sheet arrangements see:

Note 15, “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 18, “Commitments, Contingencies and Guarantees,” to the consolidated financial statements for further discussion of:

◦Guarantees issued and credit facilities available;

◦Other guarantees;

◦Non-cash contingent consideration;

◦Routing brokerage activities;

◦Acquisition of Verafin;

◦Legal and regulatory matters; and

◦Tax audits.

Quantitative and Qualitative Disclosures About Market Risk

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, 2020, our investment portfolio was primarily comprised of highly rated European government debt securities, which pay a fixed rate of interest. These securities are subject to interest rate risk and the fair value of these securities will decrease 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, 2020, the fair value of this portfolio would have declined by $5 million.

Debt Obligations

As of December 31, 2020, the majority of our debt obligations were fixed-rate obligations. Interest rates on

certain tranches of notes are subject to adjustment to the extent our debt rating is downgraded below investment grade, as further discussed in Note 9, “Debt Obligations,” to the consolidated financial statements. 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 borrowings under our 2020 Credit Facility, as the interest rate on this facility has a variable interest rate. We are also exposed to changes in interest rates as a result of the amounts outstanding from the sale of commercial paper under our commercial paper program, which have variable interest rates. As of December 31, 2020, there were no outstanding borrowings under our 2020 Credit Facility or commercial paper program.

We may utilize interest rate swap agreements to achieve a desired mix of variable and fixed rate debt.

Foreign Currency Exchange Rate Risk

We are subject to foreign currency exchange rate risk. Our primary transactional exposure to foreign currency denominated revenues less transaction-based expenses and operating income for the years ended December 31, 2020 and 2019 are presented in the following table:











	Euro			Swedish Krona			Other Foreign Currencies			U.S. Dollar			Total
	(in millions, except currency rate)
Year End December 31, 2020
Average foreign currency rate to the U.S. dollar	1.1398			0.1086			#			N/A			N/A
Percentage of revenues less transaction-based expenses	7.7		%	6.6		%	4.7		%	81.0		%	100.0		%
Percentage of operating income	10.7		%	(4.6)		%	(4.9)		%	98.8		%	100.0		%
Impact of a 10% adverse currency fluctuation on revenues less transaction-based expenses	$	(22)		$	(19)		$	(14)		$	—		$	(55)
Impact of a 10% adverse currency fluctuation on operating income	$	(13)		$	(6)		$	(6)		$	—		$	(25)

	Euro			Swedish Krona			Other Foreign Currencies			U.S. Dollar			Total
	(in millions, except currency rate)
Year End December 31, 2019
Average foreign currency rate to the U.S. dollar	1.1193			0.1057			#			N/A			N/A
Percentage of revenues less transaction-based expenses	7.7		%	7.6		%	5.0		%	79.7		%	100.0		%
Percentage of operating income	13.9		%	(4.3)		%	(5.8)		%	96.2		%	100.0		%
Impact of a 10% adverse currency fluctuation on revenues less transaction-based expenses	$	(19)		$	(19)		$	(13)		$	—		$	(51)
Impact of a 10% adverse currency fluctuation on operating income	$	(14)		$	(4)		$	(6)		$	—		$	(24)

____________

Represents multiple foreign currency rates.

N/A Not 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. The financial statements of these subsidiaries are translated into U.S. dollars for consolidated reporting using a current rate of exchange, with net gains or losses 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, 2020 is presented in the following table:


	Net Assets		Impact of a 10% Adverse Currency Fluctuation
	(in millions)
Swedish Krona(1)	$	3,675	$	367
British Pound	212		21
Norwegian Krone	177		18
Canadian Dollar	123		12
Australian Dollar	122		12
Euro	39		4

____________

(1) Includes goodwill of $2,728 million and intangible assets, net of $665 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 evaluating the counterparties with which we make investments and execute agreements. For our investment portfolio, our 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 our introducing broker which operates the trading platform for our Fixed Income business to trade in U.S. Treasury securities. Execution Access has a clearing arrangement with ICBC. As of December 31, 2020, we have contributed $13 million of clearing deposits to ICBC in connection with this clearing arrangement. These deposits are recorded in other current assets in our Consolidated Balance Sheets. Some of the trading activity in Execution Access is cleared by ICBC through the Fixed Income Clearing Corporation, with ICBC acting as agent. 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). 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. Daily position trading limits are also enforced for such counterparties.

We 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. 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.

On January 1, 2020, we adopted ASU 2016-13. “See “Receivables, net - Measurement of Credit Losses on

Financial Instruments,” of Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements for further discussion. This ASU changes the impairment model for certain financial instruments. The new model is a forward looking expected loss model and applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures. This includes loans, held-to-maturity debt securities, loan commitments, financial guarantees and trade receivables.

We also are exposed to credit risk through our clearing operations with Nasdaq Clearing. See Note 15, “Clearing Operations,” to the consolidated financial statements for further discussion. Our clearinghouse holds material amounts of clearing member cash deposits which are held or invested primarily to provide security of capital while minimizing credit, market and liquidity risks. While we seek to achieve a reasonable rate of return, we are primarily concerned with preservation of capital and managing the risks associated with these deposits. As the clearinghouse may pass on interest revenues (minus costs) to the members, this could include negative or reduced yield due to market conditions. The following is a summary of the risks associated with these deposits and how these risks are mitigated.

*•*Credit Risk. When the clearinghouse has the ability to hold cash collateral at a central bank, the clearinghouse utilizes its access to the central bank system to minimize credit risk exposures. When funds are not held at a central bank, we seek to substantially mitigate credit risk by ensuring that investments are primarily placed in large, highly rated financial institutions, highly rated government debt instruments and other creditworthy counterparties.

*•*Liquidity Risk. Liquidity risk is the risk a clearinghouse may not be able to meet its payment obligations in the right currency, in the right place and the right time. To mitigate this risk, the clearinghouse monitors liquidity requirements closely and maintains funds and assets in a manner which minimizes the risk of loss or delay in the access by the clearinghouse to such funds and assets. For example, holding funds with a central bank where possible or investing in highly liquid government debt instruments serves to reduce liquidity risks.

*•*Interest Rate Risk. Interest rate risk is the risk that interest rates rise causing the value of purchased securities to decline. If we were required to sell securities prior to maturity, and interest rates had risen, the sale of the securities might be made at a loss relative to the latest market price. Our clearinghouse seeks to manage this risk by making short term investments of members' cash deposits. In addition, the clearinghouse investment guidelines allow for direct purchases or repurchase agreements with short dated maturities of high quality sovereign debt (for example, European government and U.S. Treasury securities), central bank certificates and supranational debt instruments.

*•*Security Issuer Risk. Security issuer risk is the risk that an issuer of a security defaults on its payment when the security matures. This risk is mitigated by limiting allowable investments and collateral under reverse repurchase agreements to high quality sovereign, government agency or supranational debt instruments.

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

Market Technology Revenues

We enter into long-term contracts with customers to develop customized technology solutions, license the right to use software and provide support and other services to our customers which results in these contracts containing multiple performance obligations. We allocate the contract transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. In instances where standalone selling price is not directly observable, such as when we do not sell the product or service separately, we determine the standalone selling price predominantly through an expected cost plus a margin approach.

We generally recognize revenue over time as our customers simultaneously receive and consume the benefits provided by our performance because our customer controls the asset for which we are creating, our performance does not create an asset with alternative use, and we have a right to payment for performance completed to date. For these services, we recognize revenue over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligation. Incurred costs represent work performed, which corresponds with, and thereby depicts, the transfer of control to the customer.

Accounting for our long-term contracts requires judgment relative to assessing risks and their impact on the estimate of revenues and costs. Our estimates are impacted by factors such as the potential for schedule and technical issues, productivity, the complexity of work performed, and logistical challenges due to the effects of COVID-19. Revenue and cost estimates for our long-term contracts are

reviewed and reassessed at least quarterly. When adjustments in estimated total contract costs are required, any changes in the estimated revenues from prior estimates are recognized in the current period for the effect of such change. If estimates of total costs to be incurred on a contract exceed estimates of total revenues, a provision for the entire estimated loss on the contract is recorded in the period in which the loss is determined. During the fourth quarter, as part of our regular review of significant implementation projects, we refined and revised our plans relating to a large-scale post-trade clearing implementation project for a specific client. At that point it became probable that we would incur a loss over the remainder of that particular project, in part due to the logistical implications of COVID-19. As a result, we recorded a $25 million provision for the estimated loss in general, administrative and other expense in our Consolidated Statements of Income and is included in other current and other non-current liabilities in our Consolidated Balance Sheets.

Due to the significance of judgment in the estimation process, as discussed above, changes in assumptions and estimates may adversely or positively affect financial performance in future periods.

For further discussion related to recognition of these fees, see “Revenue From Contracts with Customers - Revenue Recognition - Market Technology,” of Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements.

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 Platforms segment: Listing Services and IR & ESG Services, the Investment Intelligence 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.

On January 1, 2020, we adopted ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” and as a result, when performing the quantitative goodwill impairment test, we compare the fair value of each reporting unit with its carrying amount. The fair value of each reporting unit is estimated using a combination of a 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 fair value exceeds its estimated carrying amount, goodwill is not impaired. If the carrying amount exceeds the fair value of the reporting unit, an impairment charge is recognized in an amount equal to the difference, limited to the total amount of goodwill allocated to that reporting unit.

The following table presents the balances of goodwill for our reportable segments at the time of our 2020 annual impairment test:


	October 1, 2020
	(in millions)
Market Services	$	3,391
Corporate Platforms	465
Investment Intelligence	2,457
Market Technology	287
	$	6,600

In 2020, we performed a quantitative test for our annual impairment test for goodwill for all reporting units based on our policy of performing a quantitative impairment test every three years, even if qualitative considerations do not indicate the fair value of a reporting unit is less than its carrying amount. The periodic and timely calculation of the quantitative assessment provides better support for our qualitative assessment. In conducting the quantitative assessment, we determined that fair value sufficiently exceeded the carrying amount for each of our reporting units. As a result, no goodwill impairment was recorded in 2020. In 2019 and 2018, we performed a qualitative assessment and

no goodwill impairment was recorded.

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 2020, we performed a quantitative test based on our policy of performing a quantitative impairment test every three years as discussed above in the goodwill impairment discussion.

There were no indefinite-lived intangible asset impairment charges in 2020 and there were no impairment charges recorded in 2019 and 2018.

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

Other Long-Lived Assets and Related Impairment

We review our other long-lived assets, such as finite-lived intangible assets, equity method investments, equity securities, property and equipment, and operating lease assets

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. Fair value of finite-lived intangible assets and property and equipment is based on various valuation techniques. We evaluate our equity 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. For equity securities, when assessing investments in private companies for impairment, we consider such factors as, among others, the share price from the investee's latest financing round, the performance of the investee in relation to its own operating targets, the investee's liquidity and cash position, and general market conditions. 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 $4 million in 2020 and $24 million in 2019. The asset impairment charges in 2020 and 2019 primarily related to capitalized software that was retired and are included in restructuring charges in the Consolidated Statements of Income for 2020 and 2019. See Note 20, “Restructuring Charges,” to the consolidated financial statements for a discussion of our 2019 restructuring plan. For the year ended December 31, 2018, there were no material property and equipment asset impairment charges.

No material impairments were recorded to reduce the carrying value of our other long-lived assets during 2020, 2019 or 2018.

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.

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.

Recent Accounting Pronouncements Not Yet Adopted

We have considered all recent accounting pronouncements and have concluded that no accounting pronouncements that have not yet been adopted would have a material impact on our financial position or results of operations.

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