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NASDAQ : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/05/2020 | 01:07pm


The following discussion and analysis of the financial condition and results of
operations of Nasdaq should be read in conjunction with our condensed
consolidated financial statements and related notes included in this Form 10-Q.
Impact of COVID-19 on Our Business
We continue to closely monitor developments related to COVID-19 and to assess
its impact on our business. COVID-19 has caused significant economic and
financial turmoil both in the U.S. and around the world. We have implemented
risk management and contingency plans and have taken preventive measures and
other precautions to maintain normal business operations. As COVID-19 spread
across the world, we moved quickly to transition our global workforce to a
remote operating environment, through a combination of work-from-home and split
teams for critical on-site employees.
As of June 30, 2020, the vast majority of our global team remain working from
home. For the limited staff around the world who are performing critical on-site
functions in our offices, we have deployed extra precautions to protect their
safety. We are working to reopen certain offices in a deliberate manner. The
majority of our re-opened offices are located in countries or, in certain cases,
cities with favorable health data. We will monitor conditions, guidance from
health officials, and local regulations in these locations and, if circumstances
change, we may close these offices again if necessary in order to safeguard our
employees and stakeholders. We have reiterated to our global workforce that,
through at least the end of 2020, an employee's return to the office from remote
work is entirely voluntary.
During the second quarter of 2020, our operations have continued with minimal
disruption. As of June 30, 2020, COVID-19 did not have a significant negative
impact on our business operations, employee availability, financial condition,
liquidity or cash flows.
As further discussed in Note 8, "Debt Obligations," to the condensed
consolidated financial statements and Item 2. "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources," given the market uncertainties posed by COVID-19 and related
economic impacts, in March 2020, we took actions to strengthen our liquidity and
cash position and address refinancing risks and borrowed $799 million under the
revolving credit commitment of the 2017 Credit Facility. In April 2020, we
further enhanced the strength of our balance sheet and issued the 2050 Notes. We
used the net proceeds from this offering to repay a portion of amounts
previously borrowed under the 2017 Credit Facility, and in June 2020 the
remaining outstanding amount under the 2017 Credit Facility was repaid using
cash on hand. Additionally, during June 2020, we repaid all of our outstanding
commercial paper borrowings.
Although we have not experienced any significant negative impacts to our
operations as a result of COVID-19, due to the continuing effect of the
pandemic, particularly in the United States, it is possible that the outbreak
may impact our results of operations for the remainder of the year and possibly
beyond as an economic downturn could adversely impact the demand for our
services. The current, and potential, impact to each of our segments is
discussed below.
Market Services
We believe that it is difficult to predict trading volumes from quarter to
quarter. Trading volumes, particularly in equity and equity-linked derivatives,
were unusually high during the second quarter of 2020. We believe that this
increased volume was due to the implications of the pandemic and significant
sector rotations in the market, such as increased demand for technology and
healthcare. We continue to believe that the combination of continued global
economic uncertainty, and the upcoming U.S. election, may lead to elevated
volumes for our markets in the months ahead. However, there is no assurance that
volumes will continue at this level during the remainder of 2020.
Corporate Services
In Listing Services, we experienced increased demand for IPOs in the second
quarter of 2020 compared with the first quarter of 2020. We remain positive
regarding our listed issuer base due to the increase in IPOs and the pipeline
for new offerings, but we cannot predict investor demand for new IPOs for the
remainder of the year, and we believe investor demand may be reduced in the
period prior to the U.S. election due to macroeconomic uncertainties.
In Corporate Solutions, we have seen increased demand for our investor relations
advisory services, which assist our corporate clients in analyzing their
investor bases and understanding buy-side priorities, as well as rising demand
for our ESG solutions. However, we have experienced reduced demand from certain
customers that have been significantly adversely affected by COVID-19, including
our customers in the travel, retail, and energy sectors. We have observed that
sales cycles with customer prospects are longer as a result of operating in a
virtual environment. We continue to work with our affected customers regarding
their payment obligations to ensure the long-term success of these customer
relationships.
Information Services
In our Information Services segment, we continue to experience varied
implications of the current environment on each of our businesses.
Our Market Data business has demonstrated resilience and a stable performance,
but is not completely immune when economic downturns are more protracted.
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Our Index business continues to demonstrate strong resilience and growth. This
business has benefited from inflows into Nasdaq-licensed ETPs, continued growth
in the volumes of Nasdaq-listed futures, and from the market rebound. In
particular, we have observed strong net inflows to our flagship index, the
Nasdaq 100. While this business is sensitive to reversals in exogenous market
beta and futures volume trends, we believe that the second quarter's positive
results may result in continued positive results for the remainder of the year.
In our Investment Data & Analytics business, while growth in eVestment has been
impacted by reduced customer demand, the addition of the Solovis offerings
provides us with additional opportunities to expand our solutions and usage for
our eVestment customers.
Market Technology
In our Market Technology segment, our large, diverse, and well-established
customer base across market infrastructure operators and banks and brokers, with
long-term contracts, has helped support this business during the current
environment.
During the second quarter of 2020, our technical support teams have continued to
adapt to a remote work environment to support our customers. We have observed
increased interest from customers in our next-generation technology,
particularly the SaaS capabilities we have developed for our market
infrastructure and surveillance products, which assist our customers with the
challenges of scalability and flexibility concerns arising from the effects of
COVID-19.
However, implementation projects and new order intake levels have been affected
and we continue to face short-term, logistical growth challenges for this
business that may moderate the revenue growth of the Market Technology business
in 2020.
Our Community Initiatives
The second quarter was marked not only by the widespread impact of the global
COVID-19 health crisis, but also by the increased focus on inequality and social
injustice in communities throughout the United States. We are committed to
creating lasting, positive change within our company and the communities we
serve. In June 2020, we announced actions to strengthen our continued commitment
to diversity and inclusion. We pledged $3 million in cash donations to
organizations serving underserved, minority communities in fighting the impact
of the health crisis, and we increased our resources devoted to our internal
programs, which include programs focused on diversity-oriented professional
development, the employee experience, and talent acquisition, as we continue to
foster a diverse and inclusive corporate culture. Additionally, we contributed
$10 million to support the Nasdaq Foundation and plan to annually fund the
Nasdaq Foundation with approximately one quarter of one percent of our operating
profits beginning in 2021.








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Nasdaq's Operating Results
Key Drivers
The following table includes key drivers for our Market Services, Corporate
Services, Information Services and Market Technology segments. In evaluating the
performance of our business, our senior management closely evaluates these key
drivers.
Six Months Ended June
Three Months Ended June 30, 30,
2020 2019 2020 2019
Market Services
Equity Derivative Trading and Clearing
U.S. equity options
Total industry average daily volume (in millions) 26.6 17.3 26.0 17.3
Nasdaq PHLX matched market share 11.4 % 16.0 % 12.1 % 16.0 %
The Nasdaq Options Market matched market share 10.4 % 8.9 % 10.5 % 9.1 %
Nasdaq BX Options matched market share 0.2 % 0.2 % 0.2 % 0.3 %
Nasdaq ISE Options matched market share 8.3 % 9.3 % 8.3 % 8.9 %
Nasdaq GEMX Options matched market share 5.6 % 3.9 % 4.7 % 4.0 %
Nasdaq MRX Options matched market share 0.5 % 0.2 % 0.5 % 0.2 %
Total matched market share executed on Nasdaq's
exchanges 36.4 % 38.5 % 36.3 % 38.5 %


Nasdaq Nordic and Nasdaq Baltic options and futures
Total average daily volume of options and futures
contracts(1)


292,551 384,692 377,201 368,561
Cash Equity Trading
Total U.S.-listed securities
Total industry average daily share volume (in
billions) 12.35 6.93 11.67 7.22
Matched share volume (in billions) 142.7 87.7 269.9 178.2
The Nasdaq Stock Market matched market share 16.8 % 17.5 % 16.8 % 17.2 %
Nasdaq BX matched market share 0.9 % 1.8 % 1.1 % 2.0 %
Nasdaq PSX matched market share 0.6 % 0.8 % 0.6 % 0.7 %
Total matched market share executed on Nasdaq's
exchanges 18.3 % 20.1 % 18.5 % 19.9 %
Market share reported to the FINRA/Nasdaq Trade
Reporting Facility 31.5 % 29.9 % 30.9 % 29.8 %
Total market share(2) 49.8 % 50.0 % 49.4 % 49.7 %
Nasdaq Nordic and Nasdaq Baltic securities
Average daily number of equity trades executed on
Nasdaq's exchanges 937,245 581,987 980,637 577,963
Total average daily value of shares traded (in
billions) $ 5.6


$ 4.6 $ 6.0 $ 4.8
Total market share executed on Nasdaq's exchanges


76.4 % 70.3 % 75.5 % 68.6 %


FICC



Fixed Income
U.S. fixed income volume ($ billions traded) $ 1,246


$ 2,921 $ 3,313 $ 5,636
Total average daily volume of Nasdaq Nordic and Nasdaq
Baltic fixed income contracts


116,057 126,323 115,586 121,128


Commodities



Power contracts cleared (TWh)(3) 184 170 475 420
Corporate Services
IPOs
The Nasdaq Stock Market 42 60 69 97
Exchanges that comprise Nasdaq Nordic and Nasdaq
Baltic 9 14 16 18
Total new listings
The Nasdaq Stock Market(4) 55 81 111 140
Exchanges that comprise Nasdaq Nordic and Nasdaq
Baltic(5) 13 19 22 28
Number of listed companies
The Nasdaq Stock Market(6) 3,156 3,080 3,156 3,080
Exchanges that comprise Nasdaq Nordic and Nasdaq
Baltic(7) 1,042 1,029 1,042 1,029
Information Services
Number of licensed ETPs 323 341 323 341
ETP AUM tracking Nasdaq indexes (in billions) $ 272


$ 203 $ 272 $ 203
Market Technology
Order intake (in millions)(8)


$ 38


$ 46 $ 116 $ 100
Annualized recurring revenue, or ARR (in millions)(9) $ 268


$ 247 N/M N/M


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____________



(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
410 ETPs as of June 30, 2020 and 374 as of June 30, 2019.
(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 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.
N/M Not meaningful.
* * * * * *
Financial Summary
The following table summarizes our financial performance for the three and six
months ended June 30, 2020 as compared to the same periods in 2019. For a
detailed discussion of our results of operations, see "Segment Operating
Results" below.
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Percentage Change 2020 2019 Percentage Change
(in millions, except per (in millions, except per share
share amounts) amounts)
Revenues less transaction-based expenses $ 699 $ 623 12.2 % $ 1,400 $ 1,257 11.4 %
Operating expenses 384 367 4.6 % 810 726 11.6 %
Operating income 315 256 23.0 % 590 531 11.1 %
Interest expense (26) (31) (16.1) % (52) (68) (23.5) %

Net gain on divestiture of business - - - % - 27 (100.0) %
Net income from unconsolidated investees 26 10 160.0 % 43 55 (21.8) %
Income before income taxes 316 239 32.2 % 589 552 6.7 %
Income tax provision 75 65 15.4 % 145 131 10.7 %
Net income attributable to Nasdaq $ 241 $ 174 38.5 % $ 444 $ 421 5.5 %
Diluted earnings per share $ 1.45 $ 1.04 39.4 % $ 2.67 $ 2.52 6.0 %
Cash dividends declared per common share $ 0.49 $ 0.47 4.3 % $ 0.96 $ 0.91 5.5 %


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 3.
Quantitative and Qualitative Disclosures about Market Risk."
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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:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Percentage Change 2020 2019 Percentage Change
(in millions) (in millions)
Market Services $ 975 $ 665 46.6 % $ 1,908 $ 1,304 46.3 %
Transaction-based expenses (699) (438) 59.6 % (1,351) (843) 60.3 %
Market Services revenues less
transaction-based expenses 276 227 21.6 % 557 461 20.8 %
Corporate Services 126 123 2.4 % 254 243 4.5 %
Information Services 213 194 9.8 % 424 387 9.6 %
Market Technology 84 79 6.3 % 165 156 5.8 %
Other revenues(1) - - - % - 10 (100.0) %
Total revenues less transaction-based
expenses $ 699 $ 623 12.2 % $ 1,400 $ 1,257 11.4 %


____________
(1) Includes the revenues from the BWise enterprise governance, risk and
compliance software platform which was sold in March 2019. Prior to the sale
date, these revenues were included in our Corporate Solutions business within
our Corporate Services segment. See "2019 Divestiture," of Note 4, "Acquisitions
and Divestiture," to the condensed consolidated financial statements for further
discussion.

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The following charts show our Market Services, Corporate Services, Information
Services, and Market Technology segments as a percentage of our total revenues
less transaction-based expenses of $699 million for the three months ended
June 30, 2020, $623 million for the three months ended June 30, 2019, $1,400
million
for the six months ended June 30, 2020, and $1,257 million for the six
months ended June 30, 2019:
[[Image Removed: ndaq-20200630_g4.jpg]] [[Image Removed: ndaq-20200630_g5.jpg]]


[[Image Removed: ndaq-20200630_g6.jpg]] [[Image Removed: ndaq-20200630_g7.jpg]]






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MARKET SERVICES
The following table shows total revenues, transaction-based expenses, and total
revenues less transaction-based expenses from our Market Services segment:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Percentage Change 2020 2019 Percentage Change
(in millions) (in millions)
Market Services Revenues:
Equity Derivative Trading and Clearing
Revenues(1) $ 297 $ 203 46.3 % $ 583 $ 396 47.2 %
Transaction-based expenses:
Transaction rebates (199) (119) 67.2 % (371) (231) 60.6 %
Brokerage, clearance and exchange
fees(1) (15) (12) 25.0 % (35) (21) 66.7 %
Equity derivative trading and clearing
revenues less transaction-based
expenses 83 72 15.3 % 177 144 22.9 %

Cash Equity Trading Revenues(2) 590 372 58.6 % 1,147 724 58.4 %
Transaction-based expenses:
Transaction rebates (331) (211) 56.9 % (638) (429) 48.7 %
Brokerage, clearance and exchange
fees(2) (153) (95) 61.1 % (306) (160) 91.3 %
Cash equity trading revenues less
transaction-based expenses 106 66 60.6 % 203 135 50.4 %

FICC Revenues 15 17 (11.8) % 33 38 (13.2) %
Transaction-based expenses:
Transaction rebates - (1) (100.0) % - (1) (100.0) %
Brokerage, clearance and exchange fees (1) - N/M (1) (1) - %
FICC revenues less transaction-based
expenses 14 16 (12.5) % 32 36 (11.1) %

Trade Management Services Revenues 73 73 - % 145 146 (0.7) %
Total Market Services revenues less
transaction-based expenses $ 276 $ 227 21.6 % $ 557 $ 461 20.8 %


____________
(1) Includes Section 31 fees of $14 million in the second quarter of 2020, $31
million
in the first six months of 2020, $11 million in the second quarter of
2019, and $19 million in the first six months of 2019. 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 $145 million in the second quarter of 2020, $290
million
in the first six months of 2020, $90 million in the second quarter of
2019, and $152 million in in the first six months of 2019. Section 31 fees are
recorded as cash equity trading revenues with a corresponding amount recorded in
transaction-based expenses.
N/M Not meaningful.
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 the second
quarter and first six months of 2020 compared with the same periods in 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
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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 the second quarter and first six months of 2020
compared with the same periods in 2019 primarily due to higher average SEC fee
rates and higher dollar value traded on Nasdaq's exchanges.
Transaction rebates, in which we credit a portion of the per share execution
charge to the market participant, increased in the second quarter and first six
months of 2020 compared with the same periods in 2019 primarily 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 the second quarter and first
six months of 2020 compared with the same periods in 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 the second quarter and first six months
of 2020 compared with the same periods in 2019 primarily due to higher U.S. and
European industry trading volumes, 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 and, for the first six months of 2020, a higher U.S. gross capture rate,
while a higher net U.S. capture rate also contributed to the increase in cash
equity trading revenues less transaction-based expenses for the second quarter
and first six months of 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 the
second quarter and first six months of 2020 compared with the same periods in
2019, primarily due to higher average SEC fee rates and higher dollar value
traded on Nasdaq's exchanges.
Transaction rebates increased in the second quarter and first six months of 2020
compared with the same period in 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 the second quarter and
first six months of 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 the second quarter and first
six months of 2020 compared with the same periods in 2019 primarily due to
higher Section 31 pass-through fees, as discussed above, and higher routing
fees.
FICC Revenues
FICC revenues and FICC revenues less transaction-based expenses decreased in the
second quarter and first six months of 2020 compared with the same periods in
2019 primarily due to lower U.S. fixed income products revenues 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 were unchanged in the second quarter and
decreased slightly in the first six months of 2020 compared with the same
periods in 2019.
* * * * * *
CORPORATE SERVICES
The following table shows revenues from our Corporate Services segment:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Percentage Change 2020 2019 Percentage Change
(in millions) (in millions)
Corporate Services:
Listing Services $ 74 $ 74 - % $ 149 $ 145 2.8 %
Corporate Solutions $ 52 $ 49 6.1 % 105 98 7.1 %
Total Corporate Services $ 126 $ 123 2.4 % $ 254 $ 243 4.5 %


Listing Services Revenues
Listing services revenues were unchanged in the second quarter of 2020 and
increased in the first six months of 2020 compared with the same periods in
2019. In both periods, revenues increased due to higher U.S. listings revenues.
In the second quarter of
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2020, the increase was offset by lower event-related revenues at the Nasdaq
MarketSite and lower NPM program activity, both mainly due to the impact of
COVID-19.
Corporate Solutions Revenues
Corporate solutions revenues increased in the second quarter and first six
months of 2020 compared with the same periods in 2019 reflecting an increase in
governance solutions revenues and investor relations intelligence revenues.
INFORMATION SERVICES
The following table shows revenues from our Information Services segment:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Percentage Change 2020 2019 Percentage Change
(in millions) (in millions)
Information Services:
Market Data $ 101 $ 100 1.0 % $ 198 $ 200 (1.0) %
Index 68 55 23.6 % 141 109 29.4 %
Investment Data & Analytics 44 39 12.8 % 85 78 9.0 %
Total Information Services $ 213 $ 194 9.8 % $ 424 $ 387 9.6 %


Market Data Revenues
Market data revenues increased slightly in the second quarter of 2020 compared
with the same period in 2019 primarily due to organic growth in U.S. proprietary
products from new sales, including continued expansion geographically, partially
offset by lower shared tape plan revenues. The slight decrease in the first six
months of 2020 compared with the same period in 2019 was primarily due to lower
under-reported data usage, partially offset by new sales, including continued
geographic expansion globally.
Index Revenues
Index revenues increased in the second quarter and first six months of 2020
compared with the same periods in 2019
primarily due to higher licensing revenue from higher average AUM in ETPs linked
to Nasdaq indexes, higher licensing revenues from futures trading linked to the
Nasdaq 100 Index, and higher index data revenues.
Investment Data & Analytics Revenues
Investment data & analytics revenues increased in the second quarter and first
six months of 2020 compared with the same periods in 2019 primarily due to the
acquisition of Solovis and growth in eVestment.
* * * * * *
MARKET TECHNOLOGY
The following table shows revenues from our Market Technology segment:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Percentage Change 2020 2019 Percentage Change
(in millions) (in millions)
Market Technology $ 84 $ 79 6.3 % $ 165 $ 156 5.8 %


Market Technology Revenues
Market technology revenues increased in the second quarter and first six months
of 2020 compared with the same periods in 2019. The increase in the second
quarter was primarily due to an increase in SaaS surveillance revenues. The
increase for the first six months was due to increases in SaaS surveillance
revenues and software delivery and support projects.
OTHER REVENUES
Other revenues include the revenues from the BWise enterprise governance, risk
and compliance software platform, which was sold in March 2019. Prior to the
sale date, these revenues were included in our Corporate Solutions business. See
"2019 Divestiture," of Note 4, "Acquisitions and Divestiture," to the condensed
consolidated financial statements for further discussion of this divestiture.
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Expenses



Operating Expenses
The following table shows our operating expenses:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Percentage Change 2020 2019 Percentage Change
(in millions) (in millions)
Compensation and benefits $ 189 $ 169 11.8 % $ 384 $ 344 11.6 %
Professional and contract services 31 30 3.3 % 58 68 (14.7) %
Computer operations and data
communications 35 33 6.1 % 70 65 7.7 %
Occupancy 26 24 8.3 % 51 48 6.3 %
General, administrative and other 25 40 (37.5) % 86 56 53.6 %
Marketing and advertising 4 10 (60.0) % 14 20 (30.0) %
Depreciation and amortization 50 48 4.2 % 98 96 2.1 %
Regulatory 7 8 (12.5) % 14 15 (6.7) %
Merger and strategic initiatives 4 5 (20.0) % 10 14 (28.6) %
Restructuring charges 13 - N/M 25 - N/M
Total operating expenses $ 384 $ 367 4.6 % $ 810 $ 726 11.6 %


_______
N/M Not meaningful.
The increase in compensation and benefits expense in the second quarter and
first six months of 2020 was primarily due to higher performance incentives and
higher compensation costs resulting from our recent acquisitions. Partially
offsetting the higher compensation and benefits expense in the first six months
of 2020 was lower compensation costs resulting from our 2019 divestiture. The
favorable impact from foreign exchange was $2 million for the second quarter of
2020 and $5 million for the first six months of 2020.
Headcount increased to 4,670 employees as of June 30, 2020 from 4,296 as of June
30, 2019
primarily due to our recent acquisitions and growth in our Market
Technology and Investment Data & Analytics businesses.
Professional and contract services expense increased slightly in the second
quarter of 2020 compared with the same period in 2019. The decrease in the first
six months of 2020 was primarily due to lower consulting costs and our 2019
divestiture.
Computer operations and data communications expense increased in the second
quarter and first six months of 2020 primarily due to higher market data feed
costs.
Occupancy expense increased in the second quarter and first six months of 2020
mainly due to higher costs associated with additional facility and rent costs
resulting from expansion of our new U.S. headquarters in New York.
General, administrative and other expense decreased in the second quarter of
2020 reflecting a loss on the early
extinguishment of our 2020 Notes in the second quarter of 2019 and lower
corporate travel costs, partially offset by charitable contributions made to the
Nasdaq Foundation and to social justice charities. The increase in the first six
months of 2020 was primarily due to a loss on the early extinguishment of our
2021 Notes and charitable contributions made to the COVID-19 response and relief
efforts and the contributions described above.
Marketing and advertising expense decreased in the second quarter and first six
months of 2020 primarily due to lower event spending.
Merger and strategic initiatives expense decreased in the second quarter and
first six months of 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.
Restructuring charges were $13 million in the second quarter and $25 million in
the first six months of 2020. See Note 19, "Restructuring Charges," to the
condensed consolidated financial statements for further discussion of our 2019
restructuring plan and charges associated with this plan.

42
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Non-operating Income and Expenses
The following table shows our non-operating income and expenses:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Percentage Change 2020 2019 Percentage Change
(in millions) (in millions)
Interest income $ 1 $ 3 (66.7) % $ 3 $ 6 (50.0) %
Interest expense (26) (31) (16.1) % (52) (68) (23.5) %
Net interest expense (25) (28) (10.7) % (49) (62) (21.0) %

Net gain on divestiture of business - - - % - 27 (100.0) %
Other income - 1 (100.0) 5 1 400.0 %
Net income from unconsolidated
investees 26 10 160.0 % 43 55 (21.8) %
Total non-operating income (expenses) $ 1 $ (17) (105.9) % $ (1) $ 21 (104.8) %


Interest Expense
Interest expense decreased in the second quarter and first six months of 2020
compared with the same periods in 2019 primarily due to the refinancing of our
3.875% senior notes in March 2020 with the 2030 Notes at a lower interest rate,
the refinancing of our 5.55% senior notes in May 2019 with the 2029 Notes at a
lower interest rate and the repayment of our senior unsecured floating rate
notes in March 2019 with commercial paper issuances and cash on hand. See Note
8, "Debt Obligations," to the condensed consolidated financial statements for
further discussion of our debt obligations.
The following table shows our interest expense:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Percentage Change 2020 2019 Percentage Change
(in millions) (in millions)
Interest expense on debt $ 24 $ 29 (17.2) % $ 48 $ 64 (25.0) %
Accretion of debt issuance costs
and debt discount 1 1 - % 3 3 - %
Other fees 1 1 - % 1 1 - %
Interest expense $ 26 $ 31 (16.1) % $ 52 $ 68 (23.5) %


Net Gain on Divestiture of Business
The net gain on divestiture of business in the first six months of 2019
primarily related to our divestiture of BWise. See "2019 Divestiture," of Note
4, "Acquisitions and Divestiture," to the condensed consolidated financial
statements for further discussion.
Net Income from Unconsolidated Investees
Net income from unconsolidated investees increased in the second quarter and
decreased in the first six months of 2020 compared with the same periods in 2019
primarily due to income recognized from our equity method investment in OCC. See
"Equity Method Investments," of Note 6, "Investments," to the condensed
consolidated financial statements for further discussion.
Tax Matters
The following table shows our income tax provision and effective tax rate:
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Percentage Change 2020 2019 Percentage Change
($ in millions) ($ in millions)
Income tax provision $ 75 $ 65 15.4 % $ 145 $ 131 10.7 %
Effective tax rate 23.7 % 27.2 % 24.6 % 23.7 %


For further discussion of our tax matters, see Note 16, "Income Taxes," to the
condensed 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
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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 Quarterly Report on Form 10-Q, including our condensed
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 19,
"Restructuring Charges," to the condensed 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 Note 6, "Investments," to the
condensed consolidated financial statements for further discussion. Our income
on our investment in OCC may vary significantly compared to prior years due to
the disapproval of the OCC's capital plan. 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 the three and six months ended June 30, 2020, other significant items
included charitable contributions made to the Nasdaq Foundation, COVID-19
response and relief efforts, and social justice charities which are recorded in
general, administrative and other expense in our Condensed Consolidated
Statements of Income. The first six months of 2020 also included a loss on
extinguishment of debt which is recorded in general, administrative and other
expense in our Condensed Consolidated Statements of Income.
For the three and six months ended June 30, 2019, other significant items
primarily included a loss on extinguishment
of debt which is recorded in general, administrative and other expense in our
Condensed Consolidated Statements of Income. The first six months of 2019 also
included a net gain on divestiture of business which represents our pre-tax net
gain of $27 million on the sale of BWise.
Significant tax items:
The non-GAAP adjustment to the income tax provision included the tax impact of
each non-GAAP adjustment and:
44
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•for the three and six months ended June 30, 2020, a tax benefit on compensation
related deductions determined to be allowable in the current period;
•for the six months ended June 30, 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; and
•for the six months ended June 30, 2019, a tax benefit related to capital
distributions from the OCC.
* * * * * *



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:



Three Months Ended June 30,
Three Months Ended June 30, 2020 2019
(in millions, except share and per share amounts)
Diluted Earnings Diluted Earnings Per
Net Income Per Share Net Income Share
U.S. GAAP net income attributable to Nasdaq and
diluted earnings per share $ 241 $ 1.45 $ 174 $ 1.04
Non-GAAP adjustments:
Amortization expense of acquired intangible assets 26 0.16 26 0.16
Merger and strategic initiatives expense 4 0.02 5 0.03
Restructuring charges 13 0.08 - -
Net income from unconsolidated investee (25) (0.15) (9) (0.05)

Extinguishment of debt - - 11 0.06

Charitable donations 12 0.07 - -
Other 2 0.01 3 0.02
Total non-GAAP adjustments 32 0.19 36 0.22
Adjustment to the income tax provision to reflect
non-GAAP adjustments and other tax items (17) (0.10) (7) (0.04)

Total non-GAAP adjustments, net of tax 15 0.09 29 0.18


Non-GAAP net income attributable to Nasdaq and diluted
earnings per share


$ 256 $ 1.54 $ 203 $ 1.22
Weighted-average common shares outstanding for diluted
earnings per share 166,073,354 167,041,419


45



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Six Months Ended June 30,
Six Months Ended June 30, 2020 2019
(in millions, except share and per share amounts)
Diluted Earnings Diluted Earnings Per
Net Income Per Share Net Income Share
U.S. GAAP net income attributable to Nasdaq and
diluted earnings per share $ 444 $ 2.67 $ 421 $ 2.52
Non-GAAP adjustments:
Amortization expense of acquired intangible assets 50 0.30 51 0.31
Merger and strategic initiatives expense 10 0.06 14 0.08
Restructuring charges 25 0.15 - -
Net income from unconsolidated investees (41) (0.25) (54) (0.32)

Extinguishment of debt 36 0.22 11 0.06
Net gain on divestiture of business - - (27) (0.16)

Charitable donations 17 0.10 - -
Other 4 0.03 6 0.04
Total non-GAAP adjustments 101 0.61 1 0.01
Adjustment to the income tax provision to reflect
non-GAAP adjustments and other tax items (36) (0.22) (11) (0.07)


Excess tax benefits related to employee share-based
compensation


(3) (0.02) (4) (0.02)
Total non-GAAP tax adjustments (39) (0.24) (15) (0.09)
Total non-GAAP adjustments, net of tax 62 0.37 (14) (0.08)


Non-GAAP net income attributable to Nasdaq and diluted
earnings per share


$ 506 $ 3.04 $ 407 $ 2.44
Weighted-average common shares outstanding for diluted
earnings per share 166,424,676 167,034,783



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 "2017 Credit Facility" of Note 8, "Debt
Obligations," to the condensed consolidated financial statements for further
discussion of our 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 8, "Debt Obligations,"
to the condensed consolidated financial statements. In June 2020, the remaining
outstanding amount under the 2017 Credit Facility was repaid using cash on hand.
As of June 30, 2020, the total remaining amount available under the 2017 Credit
Facility was $999 million, which excludes the amount that supports a letter of
credit.
Also in June 2020, we repaid all outstanding borrowings under our commercial
paper program.
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 8, "Debt
Obligations," to the condensed consolidated financial statements for further
discussion. This offering reduced our borrowing costs and also eliminated
near-term bond maturities until May 2023.
As of June 30, 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,
46
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debt repayments, and shareholder return activity including share repurchases and
dividends.
In the near term, we expect that our operations and the availability under our
revolving credit commitment and commercial paper program will provide sufficient
cash to fund our operating expenses, capital expenditures, debt repayments, any
share repurchases, and any dividends.
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 17,
"Commitments, Contingencies and Guarantees," to the condensed 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 $467 million as of June 30, 2020, compared with $63 million as of December
31, 2019
, an increase of $404 million. Current asset balance changes increased
working capital by $426 million, with increases in cash and cash equivalents,
default funds and margin deposits, and receivables, net, partially offset by
decreases in financial investments and other current assets. Current liability
balance changes decreased working capital by $22 million, due to increases in
Section 31 fees payable to the SEC, deferred revenue, default funds and margin
deposits and other current liabilities, partially offset by decreases in
short-term debt, accrued personnel costs, and accounts payable and accrued
expenses.
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:
June 30, 2020 December 31, 2019
(in millions)
Cash and cash equivalents $ 711 $ 332
Restricted cash 30 30
Financial investments 206 291
Total financial assets $ 947 $ 653


Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents includes all non-restricted cash in banks and highly
liquid investments with original maturities of 90 days or less at the time of
purchase. The balance retained in cash and cash equivalents is a function of
anticipated or possible short-term cash needs, prevailing interest rates, our
investment policy, and alternative investment choices. As of June 30, 2020, our
cash and cash equivalents of $711 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 June 30, 2020 increased
$379 million from December 31, 2019, primarily due to:
•proceeds from issuances of long-term debt, net of issuance costs and
utilization of credit commitment;
•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;
•cash paid for acquisitions, net of cash and cash equivalents acquired;
•repurchases of our common stock;
•purchases of property and equipment; and
•payment of debt extinguishment cost.
See "Cash Flow Analysis" below for further discussion.
Restricted cash is restricted from withdrawal due to contractual or regulatory
requirements or is not available for general use. Restricted cash was $30
million
as of June 30, 2020, unchanged from December 31, 2019. Restricted cash
is classified as restricted cash in the Condensed Consolidated Balance Sheets.
Repatriation of Cash
Our cash and cash equivalents held outside of the U.S. in various foreign
subsidiaries totaled $131 million as of June 30, 2020 and $160 million as of
December 31, 2019. The remaining balance held in the U.S. totaled $580 million
47
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as of June 30, 2020 and $172 million as of December 31, 2019.
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 11, "Nasdaq Stockholders' Equity," to
the condensed 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

Total $ 0.96 $ 0.91


See "Cash Dividends on Common Stock," of Note 11, "Nasdaq Stockholders' Equity,"
to the condensed consolidated financial statements for further discussion of the
dividends.
Financial Investments
Our financial investments totaled $206 million as of June 30, 2020 and $291
million
as of December 31, 2019 and are primarily comprised of highly rated
European government debt securities and highly rated corporate debt. Of these
securities, $175 million as of June 30, 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 condensed consolidated financial statements for further
discussion.
* * * * * *
Debt Obligations
The following table summarizes our debt obligations by contractual maturity:
December 31,
Maturity Date June 30, 2020 2019
(in millions)
Short-term debt - commercial paper $ - $ 391
Long-term debt:
3.875% senior unsecured notes Repaid March 2020 - 671
1.75% senior unsecured notes May 2023 670 668
$1 billion senior unsecured revolving credit facility April 2022 (2) (2)
4.25% senior unsecured notes June 2024 498 497
3.85% senior unsecured notes June 2026 497 497
1.75% senior unsecured notes March 2029 667 665
0.875% senior unsecured notes February 2030 667 -
3.25% senior unsecured notes April 2050 485 -
Total long-term debt 3,482 2,996
Total debt obligations $ 3,482 $ 3,387



In addition to the $1 billion senior unsecured revolving credit facility, we
also have other credit facilities primarily related to our Nasdaq Clearing
operations in order to provide further liquidity. Other credit facilities, which
are available in multiple currencies, totaled $205 million as of June 30, 2020
and $203 million as of December 31, 2019 in available liquidity, none of which
was utilized as of June 30, 2020, and of which $15 million was utilized as of
December 31, 2019.
As of June 30, 2020, we were in compliance with the covenants of all of our debt
obligations.
See Note 8, "Debt Obligations," to the condensed 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 June 30, 2020, our required
regulatory capital of $153 million was comprised of highly rated European
government debt securities that are included in financial investments in the
Condensed Consolidated Balance Sheets.

48
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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 June 30, 2020, the combined required minimum net
capital totaled $1 million and the combined excess capital totaled $52 million,
substantially all of which is held in cash and cash equivalents in the Condensed
Consolidated Balance Sheets. The required minimum net capital is included in
restricted cash in the Condensed 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 June 30, 2020, our required regulatory
capital of $35 million was invested in European government debt securities that
are included in financial investments and restricted cash in the Condensed
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 June 30,
2020
, other required regulatory capital was $11 million and was primarily
included in restricted cash and financial investments in the Condensed
Consolidated Balance Sheets.

* * * * * *
Cash Flow Analysis
The following table summarizes the changes in cash flows:
Six


Months Ended June 30,



2020 2019 Percentage Change
Net cash provided by (used in): (in millions)
Operating activities $ 821 $ 523 57.0 %
Investing activities (145) (163) (11.0) %
Financing activities (294) (573) (48.7) %
Effect of exchange rate changes on cash and cash
equivalents and restricted cash (3) (10) (70.0) %


Net increase (decrease) in cash and cash equivalents and
restricted cash


379 (223) (270.0) %
Cash and cash equivalents and restricted cash at
beginning of period 362 586 (38.2) %
Cash and cash equivalents and restricted cash at end of
period $ 741 $ 363 104.1 %



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 $298 million for the six
months ended June 30, 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 as a result of
unusually high U.S. industry trading volumes, lower performance incentive
payments made in the first six months of 2020 compared with the same period in
2019 primarily due to prior year performance, lower income taxes paid, 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 higher
U.S. industry trading volumes.
Net Cash Used in Investing Activities
Net cash used in investing activities for the six months ended June 30, 2020
primarily related to $157 million of cash used for acquisitions, net of cash and
cash equivalents acquired and $68 million of purchases of property and
equipment, partially offset by $85 million of proceeds from the net sales of
securities.
Net cash used in investing activities for the six months ended June 30, 2019
primarily related to $193 million of cash used for the acquisition of Cinnober,
$63 million of purchases of
49
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property and equipment, partially offset by receipt of cash of$108 million
related to the sale of the BWise enterprise governance, risk and compliance
software platform.
Net Cash Used in Financing Activities
Net cash used in financing activities for the six months ended June 30, 2020
primarily related to $1,470 million in repayments of borrowings under our credit
commitment and debt obligations, $391 million of net repayments of commercial
paper, $158 million of dividend payments to our shareholders, $152 million in
repurchases of common stock, and a $36 million payment for debt extinguishment
costs, partially offset by $1,928 million of proceeds from issuances of
long-term debt and the utilization of our credit commitment.
Net cash used in financing activities for the six months ended June 30, 2019
primarily related to $1,215 million in repayments of debt obligations, $150
million
of dividend
payments to our shareholders, and $50 million in repurchases of common stock,
partially offset by $680 million from the utilization of our credit commitment
and issuances of long-term debt and $192 million in net borrowings of commercial
paper.
See Note 4, "Acquisitions and Divestiture," to the condensed consolidated
financial statements for further discussion of our acquisitions and divestiture.
See Note 8, "Debt Obligations," to the condensed consolidated financial
statements for further discussion of our debt obligations.
See "Share Repurchase Program," and "Cash Dividends on Common Stock," of Note
11, "Nasdaq Stockholders' Equity," to the condensed 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
June 30, 2020.

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