Adena Friedman, president and chief executive of Nasdaq, said the group is delivering on its strategy to become a major technology and analytics provider to the global capital markets as Market Services reported record quarterly revenues.
Market Services reported a quarterly net revenue record of $338m (€280m) in the first three months of this year, a 20% increase from the prior year period, led by higher US options and cash equities trading volumes. US equities set a quarterly record of 153 million shares traded, an increase of 20% year-on-year.
Friedman said on the results call that options trading rose 57% to set a quarterly record of 892 million contracts traded. Nasdaq said in a statement: “We led all exchanges during the period in total volume traded for options inclusive of both multiply-listed equity options and index options products.”
In the first quarter Nasdaq also agreed to sell its US fixed income business to Tradeweb Markets.
“The decision to sell aligns with our strategy to maximise our potential as a major technology and analytics provider to the global capital markets,” said Friedman.
The chief executive added that Nasdaq was excited that Gary Gensler has started as chairman of the US Securities and Exchange Commission as he understands markets and market structure.
“I think that on the back of some of the retail trading trends and the hearings in Washington this will be a focus area for the SEC,” said Friedman.
The US House Committee on Financial Services held hearings after shares in GameStop rose1 ,600% in January. Retail investors drove up the price after users of online forum Reddit had posted that hedge funds had taken a large short position in the US video game retailer. Broker Robinhood was forced to temporarily suspend trading in GameStop and other “hot” stocks in order to cover its clearing margins which led to allegations of market manipulation and unfair treatment of retail investors
Friedman said the SEC is already working on a white paper on the issue and will also look at volumes of off-exchange trading.
“I would say about 45% of total equity trading volume is done in the dark and the vast majority of that is retail,” she added. “Retail orders are not getting exposed to the exchanges and they are therefore not contributing to price discovery.”
She continued that other priorities for the SEC are likely to include shortening the settlement of US equities from two days after a trade to T+1, providing more clarity on margin calculations and short sale disclosures.
“Another priority we would like to see is trying to level the playing field between exchanges and other venues to allow us all to compete successfully,” she added. “One of those examples would be minimum tick sizes and minimum trade sizes.”
Nasdaq said it led US exchanges for initial public offerings during the first quarter of this year with 275 IPOs raising $74bn in capital including 79 operating company IPOs and 196 IPOs from special purpose acquisition companies (SPACs). Last year Nasdaq had 314 IPOs in total.
Friedman continued that SPACs come to the market because they want to pay the lowest possible fees so only contribute about 5% of total listing revenues. In addition, she added that Nasdaq had 32 new listings in the Nordics in the first quarter as well. “That’s really bucking the trend in Europe,” she said.
She highlighted the direct listing of Coinbase, a cryptocurrency trading venue.
“The Coinbase listing represents the largest direct listing in history, and was the largest ever initial public listing opening cross on Nasdaq,” she said.
The listing business was also boosted by the success of Nasdaq Private Market, which streamlines the process for private companies to sell shares.
“More private companies are seeing NPM is a good way for them to manage the long-term liquidity needs of their employees and investors without having to go public,” she said.
Friedman added that Coinbase had used NPM before their direct listing to create an investor base.
“I think companies are increasingly using the private markets as a lead into a direct listing,” she added. “If more crypto-oriented companies want to go public then Nasdaq Private Market is a natural way for them to manage that private liquidity ahead of an IPO.”
Nasdaq’s initial involvement in the crypto market has been to provide technology for trading venues for surveillance and scalability.
“We have launched a crypto index with a partner outside the US,” she added. “We’re hoping to bring that into the US in the coming months with a second partner.”
The Nasdaq Crypto Index was developed by Nasdaq and Brazilian asset manager Hashdex. In February this year the fund manager launched the Hashdex Nasdaq Crypto Index ETF on the Bermuda Stock Exchange for accredited non-US investors.
Revenues in the index business increased 40% to $29m, primarily driven by higher licensing revenues from more average assets under management in exchange-traded products (ETPs) linked to Nasdaq indexes and a rise in licensing revenues from futures trading linked to the Nasdaq-100 Index.
Overall assets under management in ETPs benchmarked to Nasdaq’s proprietary indexes reached a record $385bn as at March 31 2021, an increase of 87% from a year ago.
In addition, the number of futures and options on futures contracts tracking Nasdaq indexes set a quarterly record with 105 million contracts traded, an increase of 31%. There are 17 products tracking Nasdaq indexes which launched in the first quarter of 2021, including 13 outside the US.
“I’m pleased to see increasing adoption of some of our recent product innovations,” added Friedman.
She continued there was an intersection between the listings and index businesses.
“Listing the next generation of innovators, including many of the largest IPOs that have come to Nasdaq in recent years, creates strong synergies to drive new product development in collaboration with our index business,” she said.
For example, the Nasdaq Next Gen 100 Index ETF has been one of the fastest growing funds for Invesco and includes companies such as Etsy and Roku that have listed on the exchange.
First quarter 2021 net revenues were $851m, an increase of 21% over the first quarter of 2020.
In addition to selling its fixed index business, Nasdaq completing its acquisition of Verafin, an anti-financial crime technology provider to banks and broker-dealers.
Friedman said: “We are also making fundamental progress in Nasdaq’s strategic repositioning this year, with the close of the Verafin acquisition, and the consequent expansion of our addressable market and long-term performance potential.”
Ann Dennison, chief financial officer at Nasdaq, said the acquisition accelerates the company’s evolution as a leading software as a service (SaaS) technology provider. She continued that two main factors will drive margin expansion over the coming years.
“First, our mix of SaaS subscription revenues within market technology is increasing significantly,” she added. “Second, we accelerated hiring in certain areas of our market technology business in recent quarters, and on a temporary basis allocated more of our existing resources to relatively low margin installation work. We expect the margin impact to gradually diminish over the coming years.”