All right, good afternoon, everybody. My name is Michael Cho. I'm the JP Morgan equity analyst here covering Nasdaq, and welcome to the 2:30 P.M. session with Nasdaq's Chair and CEO, Adena Friedman. So, Adena, welcome again.
It's great to be here.
Thank you for coming. Look, for format, we will do about 20 minutes of Q&A, and then we'll do the last 5 to 10 minutes opening up for audience Q&A and call it a wrap. So, Adena, again, I'll just kick off big picture. You've been with Nasdaq 30-plus, and I think you're entering your ninth year of CEO tenure. And so, again, you've seen a lot, you've been through a lot, multiple cycles, multiple administrations. Clearly, Nasdaq's on this strategic journey over the last number of years in kind of a business model shift and really changing the way you deliver value to clients. And I think you've highlighted a few key pillars that kind of ground your strategic guidance or trajectory ahead, right? And so I think it's liquidity, transparency, and integrity.
So I guess if you think about those pillars and where the most opportunity lies for Nasdaq, again, you've been on a ship for a number of years, and you're guided by these pillars. Can you kind of talk through the Nasdaq story in the eyes of these pillars and where you see the most opportunity?
Sure, yeah, thank you. Yeah, as you all know, we have been expanding the business to make sure that we can be a deeper partner to the financial industry. And we do use those pillars as a way to guide our strategy. So we've also used those pillars as a way to kind of structure our divisions. We have our Market Services business, which is really the liquidity pillar in terms of us operating our markets and driving liquidity into the markets that we own and operate here in the U.S. and Europe. And also, I would also point to Calypso, which is a risk management platform in our fintech division, where if we can encourage or use if our clients use that technology to manage risk more effectively, it unlocks liquidity back into the markets around the world.
We also provide technology to exchanges around the world that help them unlock liquidity within their own economies. So that liquidity pillar really crosses over between Market Services and part of our fintech division. Our fintech division, as I mentioned, is really geared towards that liquidity pillar and integrity. So we have our RegTech suite with AxiomSL, which is a regulatory reporting tool, as well as with surveillance and then Anti-Financial Crime. I mean, all of those tools are there to really drive the integrity of the financial system. And then we have our transparency pillar, which is our Capital Access Platforms division, where we provide transparency between corporates and investors. We obviously have our listings business, our data business out of the markets, but we also provide services that really connect corporates more successfully with investors and IR and governance.
And then we have solutions that cater to eVestment management community in terms of making smarter asset allocation decisions with a transparency tool called eVestment and then driving transparent investable products with our index business. So it's been, I think, a really great way for us to demonstrate the way that we can use technology to bring markets forward, to make markets more higher integrity, and to drive transparency across the system to make people work better together. So that's how we look at it.
Wonderful. Okay, and I'm going to. I promised to dig into each of the businesses and segments. But before we even go there, I mean, look, we had the election last week. We were just talking about this. And so, look, there's a lot of conjecture around, and I'm not going to ask you how many IPOs or how much I made, but from a regulatory or policy perspective with the new administration, Republican-led Congress, and a number of kind of other factors at play, clearly there's a. I don't want to call it maybe an expectation or some perspective of less or changes in regulation and policy ahead.
And so I guess as you look at your businesses that you kind of just talked through now, I mean, are there any areas or potential areas that you're just kind of keeping an eye on that could have some development as it relates to Nasdaq? And again, your business kind of touches a lot of different areas, so I'm just kind of curious if there are areas that you are just keeping an eye on as potential changes.
Yeah, I mean, I think the one area that people are most focused on just is, will this be more of a catalyst towards more capital raising in 2025? And we've been saying for a few quarters now, frankly, but we've been expecting that the 2025 will be a better environment for IPOs. We're continuing to expect that. I do think that the conversations with companies that are thinking about the public markets in 2025 have become a little bit more confident in their tone. But I would also say that we are not expecting the floodgates to open. I think that there are a lot of companies already looking to go out. I think they just have more confidence that they will have the opportunity. They might be a little bit more certain on their timing.
We've talked about the first half of 2025 as being where we hope to start to see some real pickup. That will also. That's been an area, like, if I look at the business, I think our business has performed remarkably well over multiple cycles over the last eight years, but that's an area where that's the one business inside of Nasdaq that's had a tougher beta over the last couple of years, so what that does is it makes it so our listings business just doesn't grow at the same rate. We have a great balance in that business with 5,000 listed companies across the U.S. and Europe, but so IPOs kind of, they create a little bit of a growth tailwind or headwind, but generally, it's a very stable business. But it has been a growth headwind over the last couple of years.
Then also it parlays into our corporate services, corporate solutions business, which is part of our workflow and insights subdivision in our cap division. That also has seen growth come down as companies just are in more of a capital preservation mode, particularly kind of mid-small cap companies that have not had as much success in the markets the last couple of years have been more conservative in their buying behaviors on those products. We haven't had what we call new inventory in terms of new companies coming out. If that can lift up and we can see the market performance be more broad-based and uplifting, broad-based, I think that could create also a positive trend for the corporate services business. Other than that, our business is a great business. It performs well in a lot of different cycles.
The structural trends that we have really invested in across our fintech division, Anti-Financial Crime, regulatory tech, capital markets tech, those are areas that are really long-term trends that we see as being good, consistent trends, and the demand and buying behaviors have been quite consistent over periods of time, so we're not expecting significant changes there.
Great. You talked about this maybe growth flywheel. I don't think you'd said that, but this kind of growth flywheel that may or that occurs as capital markets activity picks up, and so maybe you could kind of flesh that out a little bit more in terms of how that actually happens from an operational perspective, what you've seen over the number of years you've been at Nasdaq, and maybe talk about any lags in time or kind of timing of how and the magnitude of how much that flywheel kind of comes into effect as this happens.
It's a great question, so it is a flywheel. I would put it, we have described it that way in the past, so I'll call it that now, so if you have companies come into the capital markets, they suddenly need to mature. They need to get to know all of you as investors, and they need to know how to target the right investors for their programs. They want to make sure they're maturing in terms of their relationships to this new constituent, and we provide a great deal of services, the largest and I would say most successful investor relations intelligence business in the world, and we have thousands of clients where we help them understand who are the underlying buyers and sellers of their stock, how is that changing and shifting, who should they target, what is the perception that investors have of them.
And as that flywheel is a positive flywheel, you have capital raising going on, the markets are performing well, potentially their companies are growing, the stock's growing, then that is a positive flywheel against the trends there because they want to understand how they can attract themselves to new investors and they get engaged. When the capital markets are not as robust, and certainly it's been kind of a tale of two cities in the markets over the last few years between large cap and small cap and the performance there, that has made it so that they're more in, let me just, I might keep the service, but I might come down in terms of the number of users or I might not take some of the discretionary services there. So we have seen that as being a little bit of a growth drag, but not necessarily.
We, again, have thousands of customers, so it's a very good balance. In terms of then the second flywheel is in trading. If you have no more companies going public, you've got more stocks coming into the market, it's obviously that drives some trading. Being the listing exchange gives us an opportunity to be their provider of the opening closing cross, which of course is a good event for us in our markets. It also drives our indexes and kind of participation in our indexes in terms of how we can structure indexes and have exciting companies in our indexes. That's obviously a growth business for us as well.
Okay, wonderful. Before I move on, just on capital access, I mean, as you said, over the last maybe year or two in a depressed capital markets activity environment, I mean, Nasdaq has cited some elongated sales cycles in some of its products, as you just mentioned now. I mean, do you think, again, this is kind of the moment where everything kind of comes back into?
It's hard to know. I mean, I think it's too early to know that. But I would say there is one thing you brought up is how immediate is the impact. And I would say that there is a lag in a couple of ways. First, the initial listing fees that we collect from companies as they go public are amortized over multiple years. So you have both a delay in kind of it kind of creates a little bit of a slow-moving train, is how I say it, both on the upside and the downside. And so we've kind of hit, we've talked about the fact that we've had more of a downside view of that over the last 18 months. And so we're starting to see the delisting slow down, we're starting to see listings pick up.
But they still will have. There'll be a tail effect of that. It's not instantaneous. And then the second thing is on the corporate services and particularly in IR. That's where you talk to the company, and there's a sales cycle associated with IR. There's getting to. We give them an introductory package as part of their listing for free for a period of time. So it's really when they roll off or we add additional services. So again, there's a lagged effect to that as well.
Okay, great. Let's go to everybody's favorite, other favorite topic, AxiomSL and Calypso. So you've owned or closed the transaction, I guess, a little over a year now, year into integration. ARR continues at solid double-digit levels. As you progress through this integration period, I mean, even over the last year and prospectively ahead, I mean, what are you hearing from clients in terms of what they like, what they don't like, and areas maybe where you think there's more opportunity across that set of clients?
Yeah, so I'll level set a little bit. So we have now a fintech division that has three subdivisions. We have our Capital Markets Technology suite, which is our exchange business, so how we provide technology to other exchanges, as well as the Calypso platform, which is a scaled risk management platform for the trading firms. And then we also have our Trade Management Services business that supports all the connectivity services we have. And that's one subdivision. Then we have our Reg Tech, which is AxiomSL and our surveillance business. And that's all regulatory reporting and trade surveillance. And then we have our Anti-Financial Crime suite with our Verafin platform. And all of them have kind of, they've all, it's really been fantastic to see, frankly, number one, the team come together really successfully. Tal Cohen is the leader of that team with our markets team as well.
He's just, he's a tremendous leader. He's also been bringing the team together, getting them to gel, work together. We have a divisional structure in terms of divisional level leaders of sales, our Chief Revenue Officer, CTO, Head of Client Success, client delivery, CFO, et cetera, within that division. They've worked really well together. What's resulted from that is great engagement with clients. Both Tal and I are. We love meeting with clients. We do. It's been amazing to hear from them what they're looking for. I do feel like they understand now that we can be a very complete provider of capabilities across their key risk vectors, whether that's managing the regulators, managing risk, and managing criminals out of their networks. Therefore, they see us as a provider that, number one, understands their challenge because we're highly regulated too.
We obviously have an incredible focus on cybersecurity as a company. And that I think gives them confidence. And then we also can structure an MSA, a master services agreement that allows us to come in with a solution, land and expand, and work with them more holistically. And the dialogue with the clients has been really strong along that. One thing that's of note in terms of where do we see opportunities to continue to expand, number one, the TAM is giant. And so is the SAM. So the serviceable, addressable market is in the, I'm looking at, Matt, it's in the $30 billion range across that division. And it's growing because there's just a general growth trend. And it's probably growing closer to like 6%-8%, around 8%. That allows us to just have a lift in terms of just being in that space.
But then if we can actually win share or if we can grow our presence as the clients are growing across the world, or if there's a new risk that comes and we can be their provider, it just allows us to grow even faster. Market modernization has been one major trend. And that's driving demand across our services. And regulatory reporting is another major trend. And that's a global business. It's the largest global business, a global technology platform with AxiomSL. And then, of course, Anti-Financial Crime is a major trend. And there, we're really in North America today. So we have an opportunity to globalize that business over time as well. So those are the major trends that we're really focused on.
Wonderful. I'll touch on Verafin and financial crime in a second. But you kind of talked about bringing a number of teams together, particularly within fintech, to ultimately drive kind of greater value, greater products into clients. And so One Nasdaq is something you've frequently talked about. And this is kind of part of, and you gave some examples here. But I mean, can you kind of flesh out in day-to-day practice, what does One Nasdaq look like as you execute go-to-market with some of these newer initiatives to ultimately increase market share in different markets?
Yeah, we talk about One Nasdaq because we have three divisions. We have two co-presidents that oversee those three divisions. And while the divisions themselves have organized now in a divisional structure, there's a lot of work at the enterprise level to drive everyone together. And honestly, we all work really, really well together. So I think that as a result, in addition to making sure the divisions are working, we're driving cross-sells within the divisions. We're making capital allocation decisions across those, within those divisions. We're also driving enterprise programs throughout the whole company across those divisions. And those programs will be, one is client data management and kind of creating an infrastructure that allows us to look at our clients holistically. And we're well underway with that. That's really helped develop our cross-sell capabilities. And then the other, of course, is the application of AI.
And we talk about AI both in the product and on the business. And we have a kind of a holistic enterprise approach to AI adoption and implementation, both in our products and making sure the teams are well supported and they have the expertise they need and they have very specific use cases that they're deploying for our clients, but also on the business as to how we bring this and integrate it across the organization to drive productivity, efficiency, and all those things. So those are the One Nasdaq kind of initiatives that we've been most focused on.
Okay, great. I was going to go to Verafin. You mentioned AI. Let me just do that while we're on topic. So you mentioned GenAI. You have a number of products out there and I assume plenty more behind it. Like you said, Nasdaq operates in kind of three key segments, but a lot of businesses even within those segments, right? And so when you think about Nasdaq's approach to GenAI and product development and areas of focus, I mean, is there a guiding principle or strategy behind how you approach and allocate resources across these different businesses for the potential behind this?
The first thing is we have an ROI approach to all of our investments, including AI investments. AI has been a pretty, I mean, it's not a heavy investment against, because we've been making investments for a decade to kind of position ourselves to be able to play offense on AI. The most important thing a product company can do, a technology product company can do, is position them with modern architecture, modern platform, and modern data management. We have been on a journey for eight years of just drumbeating that through the company so that we have our capabilities. They're developed in cloud, cloud native, they're available through cloud, and we're taking advantage of the modern data management that's available. We also have very scaled data sets that are proprietary to Nasdaq. Of course, our market data is proprietary to us coming off our trading engines.
But within eVestment, which is our investment management platform, we have 25 years of history across thousands of asset managers and asset owners in terms of asset allocation decisions and strategies and success that then we can mine that for intelligence. We now have all the Mercer data incorporated into that platform, so all the research is in there. And that then allows us to provide efficiencies to you guys. So if you're an asset manager and you want to understand what strategies pensions are deploying, we now summarize all the pension meeting minutes using GenAI to make it much more accessible to you. And then you look at a product like our governance platform, which is our board portal platform or our IR platform. There's an enormous amount of information across those. So how do we make meeting minutes more efficient, but also meeting materials?
We can summarize meeting materials in our governance platform and make it easier for board directors. We can make it so that we have better data, sustainability data for IR and understanding and comparing your sustainability practices versus your peers, so we kind of look at how we enhance our products using GenAI because we're able to play offense very quickly. I think the one that's been noticed the most and one that we're really, really excited about is in our Anti-Financial Crime tool because it's such a huge efficiency generator for the clients, but Verafin's always been AI first, and we use Bayesian models. We're actually even fine-tuning those Bayesian models even more, using a lot more algorithmic AI to drive alerting, but we also have automated the entity research process for banks.
As you can imagine, you have a lot of analysts who are looking at the alerts and trying to figure out what's a false positive and what's not. They go out and they look at known sources, they pull data in, and they write up a report. We can automate all of that and give them the report, here's all the sites, so they can be much more efficient. That obviously is a major value driver to that platform. Those are the types of things that we're already in market, in production with.
Wonderful. And you said you kind of approach from a financial perspective, there's an ROI attached to eVestments that you make. I mean, do you think there's a real kind of monetization opportunity for AI products?
I do. But I also would say this. So everything we've mentioned has all been within the construct of our budgets. And this is a very efficient implementation of these technologies. So we have the teams, we're already agile, we're already on cloud, we already have our data in good state. So it's really just deploying the tech. And we can either show, number one, we want to prove value. So I think one thing that we've been hearing, and I really ascribe to this, is you want to prove value so that you then can demonstrate to your clients and say, we know you're getting a lot of value because we can see you're using it. We can see the fact that we've saved you hours of time on certain activities.
And therefore, as we talk about the next contract or we talk about the next module or we go in and look at also client retention, all of those KPIs should be a net result of having delivered this value to you. And that's, I think, we're so early in the use cases of AI that it's important at this point to prove value. And then if you prove value, you're going to get returns from that. And we will make sure that we do drive those returns. But that's the approach we're taking. There are a couple of modules where we are actually just going out and saying, this is a new module, it's an upsell. But most of it's being embedded into the platforms at this point.
Okay. If I just take a step back just on this topic, I mean, and it's really not Nasdaq specific, but just kind of your Nasdaq's place in the world and Nasdaq's place in serving large financial institutions and financial services companies around the world. When you think about GenAI and adoption of AI, what are you kind of hearing from clients or what do you think in terms of the kind of the largest hurdles for more adoption of this from other financial services companies?
Yeah, I mean, I think first you have to have really good governance that you establish right up front in how you're evaluating the models, testing the models, implementing them in your company, making sure you have a secure enclave to be able to bring the models in for use in your products and on the business. And we've done all of that. I think it's really important, particularly if you're serving a financial institution because they do a lot of work on you. They audit you. They really want to understand exactly how you've deployed the technology. But then the second thing is the discoverability of the models and the auditability of the models. So our Bayesian models in anti-fin crime, we have to prove complete discoverability of the inputs resulting in the output, which is actually difficult to do sometimes.
So it does hold, I would say, service providers back or technology providers back sometimes from bringing certain models in if you can't prove complete auditability to a financial institution. And so that work has got to be done upfront using advisory teams or client groups that allow you to kind of prove things out and then you go. But I have to say what we do is we have clients that we go to early. We work with them to make sure they can accept the technology. Then we beta test it out to the clients and then we roll it out. And so it's a little bit more of a concentrated process. And algorithmic AI is kind of we already have all those muscles from the work that we've already done. So this next wave is not that different.
Okay, wonderful. We have a little bit more than five minutes left. I want to make sure there's question time. So if there's, please just wait for Mike.
You know, what are the incremental costs of going from being a private company to a public company in terms of regulatory, incremental D&O costs, compliance? Is that $20 million for a company annually?
Well, I mean, it definitely depends on the size. I would not put it at that level for most companies, but it depends on the size of the company and the complexity of the company, but I can give you the major drivers, and then so you've got Sarbanes-Oxley, so that's a control infrastructure you really have to put in place, and that includes both audit costs, people, process, systems, so you've got incremental costs associated with that. Probably need to modernize your financial consolidation system, and that can be, that's a big project for some firms, and then you also have to pay for the audit firms, and that's completely dependent on how many controls you're putting in place, so if you've got 80 controls, it's not going to be nearly as expensive if you have hundreds of controls, so that's one.
I think that's the biggest ongoing incremental cost plus the IR team. Usually IR teams that are really small, like two to three people. Sorry, Matt and Alex. But they're small and the tools are actually quite affordable. So that's not a huge cost driver. But then the last thing is the proxy process. And the proxies, we're talking sub-million, but you probably, I think on average, I think we came up with somewhere in the range of like $500,000 to manage through a proxy process for a mid-sized company. But a small company would be less than that.
My supposition is that as we've seen over the last 30 years, we've seen public company count go from 8,000 to 4,000. And I'm wondering what are the biggest reasons why we have seen, yes, we've had an IPO downturn the last couple of years, but if you look over the past 30 years, we've seen negative growth in listed companies.
Yeah. I think there are a few things. I don't think it's just about the cost. I mean, I think that's a component. But I think it's more to do with two things. Certainly there's cycles. So let's just recognize there are always going to be cycles, right? But if you look broadly, I do think that the burden of being a public company today versus 20 years ago is definitely higher. So Sarbanes-Oxley came on about 20 years ago. You also have Reg FD and other regulations that came on. You also have, in my opinion, the plaintiff's bar. You go public and you suddenly position yourself for other liabilities and risks. So you get D&O insurance and other things. And then you've got the proxy process. And I think the proxy process should be more streamlined than it is.
And that's an area that we've been really, really, we've been advocating for over a decade with the SEC to drive a more streamlined proxy process. But so it's not the, I mean, the cost is one thing. The time and attention and the sense of, wow, this is a big decision instead of this is a natural progression is another. And then, of course, you have a lot more private capital available to keep the companies private longer as you've seen kind of a shift in pensions and other investment vehicles towards private capital. So those are all things that we care a lot about. And we've been actually advocating for a long time with the government to try to make some of those burdens more rational to make it so that being public is actually a great experience. And it often is.
I mean, it's a huge growth driver for the company. I can give you all the right reasons to go public, but those are the burdens that they do face.
Final question, do you think that this administration is more open to reducing that burden for those private companies coming public?
I don't think we'll know until we know who's in the key roles, and we don't know who's going to be in the key roles, so we'll have to see where that comes out.
Thank you.
Verafin.
Okay.
Verafin adds something around 50-100 new clients every single quarter. And it's been doing that for a while now. And so the natural question we get a lot, at least from our sell-side, and I assume you get it too, is if you think about the SMB market, there's probably a saturation point at some point. And it doesn't seem that we're anywhere near that yet. I'm just curious on your take in terms of the penetration left ahead in the SMB market. And even if we get there, will that even matter for Verafin at that point? And maybe the answer is no, we have tier ones and international. But I'm just kind of curious from your seat, if you think about the SMB market that Verafin is penetrating, how do you think about saturation?
Yeah. So I think first of all, I'll do it in broad strokes and then we'll talk a little bit more in detail. But the number one thing to remember is if we look at the SAM, which is, I want to say $8 billion. I'm looking at my notes, yeah, it's between $6 billion and $8 billion. That half the SAM, which means we have a product that's fit for purpose that is a vended product that banks take. Half the SAM comes from the tier one and tier two banks. And half the SAM comes from the SMBs. $6 billion. Thank you. $6 billion on the SAM. And so if you think about that just in and of itself, we have only really addressed half the SAM available up until two years ago when we signed our first tier one client.
And so we have a huge runway of opportunity as we go up market. But the second thing to realize is there are about 5,000 banks and credit unions just in the United States that would qualify as SMB. So that means that, and we have about 2,500 total clients in the U.S. and in Canada. So we have a lot of opportunity to continue to sell to the SMB space as we continue to demonstrate the value of the product. And what's really cool about it, and to get a little bit more in the weeds, but is as we bring on the tier one and tier two banks, they're excited about being able to get the insights from the consortium data lake that we've created with Verafin. So we have a consortium data lake that brings all the transactions across those 2,500 banks together.
As you bring in tier one and tier twos, they add significant value to that consortium data lake, which then makes the product better for everyone, and that, of course, then makes it so that as we go to the next SMB, we're saying, look, we can offer you even more value. And it makes it so that products are more valuable to our existing clients that allow us to offer them more things, but also to continue to upsell them over time, so our view is that there's like this beautiful virtuous cycle that's created as we move up market and penetrate into half the SAM we weren't in, and at the same time continue to create more value for the SMBs that we have and new ones that we could bring on. So that's how we look at it.
Wonderful. Back to the audience. Any final Q&A before we wrap up here? Okay?
Okay. Great. Thank you.
Thank you so much.
Thank you very much.