We can get started here. Welcome, everyone, to the next session. I am delighted to have Tal Cohen, who is the President of Nasdaq. Tal leads Nasdaq's market services business, as well as the financial technology division. Tal, welcome very much to the Future of Commerce conference at Autonomous. We appreciate your time.
Thank you for having me.
Good stuff. We will get right into it, Tal. There is a lot going on at Nasdaq with regards to market structure. 23/5 equity trading is coming on in December. You are launching a bunch of event contracts around your key indices. Tokenization of equities is coming in early 2027. You have done an acquisition of LeveL. Lots going on in there. I would be curious, what are you building to in your equities business, and what does that business look like over the next couple of years?
Thanks for having me, by the way. Hopefully lunch was not heavy and people got caffeinated so we can have some excitement here. Everything you described is us building towards an always-on world, where we are trying to increase access for investors. We are trying to provide investors with choice, and we are doing it under a well-regulated umbrella. All of those activities you just mentioned, and there are just four activities, but there are many more that we are undertaking, allows us to really embrace all the possibilities and all the opportunities that come with always-on.
Okay. Well, let's stick with always-on. I think even you've noted that 23/5, for example, only about 10%ish of volume is outside of the core sessions.
Yeah.
Only 2% of that is overnight. It does not seem like a particularly big market. I would be curious, as some of these initiatives come through, how do you see that evolving over the next couple of years?
Yeah. It is really interesting. The U.S. equity markets, as you noted, just about 10% of it happens after 4:00 P.M. and before 9:30 A.M. in the morning, and the majority of that happens between 4:00 A.M. and 9:30 A.M. Nasdaq today is open 16 hours a day. We open up at 4:00 A.M., we close at 8:00 P.M., so we are not a 9:30 A.M. to 4:00 P.M. operation today. We are 16 hours. What is interesting is in the hours that we are closed, as you said, there is not a lot of volume. It is, let's call it 1% or 2%. What we envision, I should say, is when you provide an exchange that has the resilience, the operational excellence, the transparency that gets investors and regulators comfortable with trading, we expect that to be a larger percentage of the overall ADV number one. More of that ADV will be executed on exchange.
It is executed today off exchange. There are a lot of OTC facilities that are available to you, or OTC channels that are available to you today. I think we will unlock latent demand, and it will be gradual. It will happen over time. There is also a flywheel that comes with being 23/5, which I hope we have an opportunity to talk about, because there is the data side of it, the financial technology side of it, the asset servicing side of it, the collateral side of it. Most people see just the trading side of it, and what we see is a much, much bigger picture and a grow-the-pie opportunity.
Perfect. Let's hit the topic of the moment, equity tokenization. You have your offering. There's various offerings out there. Best as I can tell, under your offering, a tokenized Nasdaq share is basically the same security, trading on the same order book, settling, I think, the same way. So what exactly does an investor get once you move to a token structure? What is the benefit?
What you're referring to is the Nasdaq Equity Token. It's really important if you put it in the context of the Innovation Exemption that came out. The Innovation Exemption that just came out from the SEC talks about a few very important things. One is it's got to be issuer sponsored. Two is it's got to be a one-to-one backing conveying the full economic and governance interest of that security. Right? Three is anybody can really become a TSV. It is not just DeFi or CeFi or something like that. Okay. So we have the Nasdaq Equity Token. We were the first ones to go out there and said it should be issuer sponsored, issuer centric, so the programmability and the composability of what we've built into our token have the attributes that issuers care about, which is proxy, corporate actions, dividends.
It's really, really important for us that your rights and your protections travel with you, and that is the one thing that we're providing, which is there's many forms of tokenization. There's many forms of tokenization that don't require issuer sponsorship. We have not taken that route. One is we're trying to make sure there's more connectivity between issuers and investors, which has not been part of the tokenization story to date. We need to create more engagement between issuers and investors on that. Two is we want to make sure that while we pursue innovation, we're not sacrificing, compromising market quality, market integrity, or investor protections. That is what really differentiates the Nasdaq Equity Token.
Okay, perfect. Another version of a token is Kraken has its own versions out there. Nasdaq Ventures has a partnership and has invested in Payward, which is Kraken's parent. Maybe talk through that partnership, what you're doing there, and how you envision that working going forward.
Yeah, we're really excited about that. Thanks for noting that. It started with a conversation with regards to can we be technology partners? Is there a commercial relationship where we can structure here? It very quickly got to the point where we understood that there was a strategic partnership that we can develop with Kraken. What's really interesting is there's this discussion going on between permissioned and permissionless. By the way, that debate is like a false choice.
Okay.
It should be what is the best of a permissioned world, what is the best of a permissionless world, how do we create or combine the two, and then how do we create better investor outcomes through that? That's what we're doing with Kraken. We are growing the pie, creating interoperability, fungibility, and we're saying let me give you an example. On the permissionless side, there's real benefits to a layer one or the network layer being permissionless. Anybody can build on top of it, innovation can grow. You have a great idea for an app, you should be able to do that. But the assets and the applications that sit on top of it should be permissioned. Why? Because you care about governance. You care about compliance. Institutions care about that.
You can have the rails be permissionless, but the assets and the applications that sit on top of it be permissioned. That is what we're working through with Kraken, which is they're going to diffuse and distribute the Nasdaq equity token. So growing the pie of what we're trying to do and creating a standard with us. When they do that, like I said before, the rights and the protections carry through, but they're then bridging the permissioned to permissionless world in a way that's really constructive because what we do not want, all of us, we don't want to wake up in five years and have dual tracks, coexistence between on-chain world and off-chain world, and all of you have to figure out how to connect it back and stitch it back together. Technology can do that, but you shouldn't have to do that. That's what this partnership is trying to do.
Okay, perfect. Following up on that, around DeFi, your onshore design keeps the token moving between wallets that have been registered and screened, so they cannot be posted into a permissionless protocol. Kraken is very different. How are you thinking about that gap, particularly in terms of expanding internationally?
Kraken provides us with a great distribution, and it's a great, if you will, template and roadmap for us to have other partnerships. We can go out now and talk to others who are like-minded, share our ethos around how tokenization and securities should happen. Now we have a model that we can go out and say, "This is the model that we've put in place with Kraken. Can we put the same model in place with you?" What we didn't talk about is Kraken has taken our surveillance solution.
Yep.
That's a big deal for them to have the surveillance solution that monitors X stocks. Now not only are they taking a Nasdaq equity token, they're taking surveillance, and we're working with them on a gateway between permissioned, permissionless. That's the model we can diffuse across the globe with like-minded partners. Because again, if we can drive that level of standardization and interoperability between these chains and these networks, what we will have done is created a, if you will, a connection between regulated markets and blockchain networks. You put that together, then you can start to deliver on the full promise of tokenization that we talk about, which is 24/7 rails that are frictionless. All of that is built on the promise that all of this infrastructure and plumbing somehow connects seamlessly for you.
Okay, perfect. Let's talk money and how you monetize all this. I think you guys have done a good job of actually giving us some guardrails around potential here. You talked about the always-on opportunity being about $3 billion-$6 billion by 2030. Curious how much of that is tokenization specifically, and even more interested in how you think about that between execution trading versus software services, et cetera.
The $3 billion- $6 billion number is what we think about as a SAM. Within that SAM, there are five components to it, discrete components to it. There is the trading component to it, both in equities and derivatives, so across all asset classes, and that is material. The other one is tokenization, and we can license the Nasdaq Equity Token, so that is a revenue stream for us and an opportunity for us there. We can provide asset servicing capabilities off the back of tokenization, which is pretty cool and something that is, if you will, a new opportunity for us. There is a data opportunity for us, a real big data opportunity because as you grow the pie and you stitch it back together with data, very few people do it better than we do.
From a financial technology perspective, our financial technology solutions are natural, if you will, add-ons to this opportunity. I talked about surveillance, our trading, our post-trade solution, all fit within this always-on narrative. And allow us to really use all of our capabilities. We like to talk about it like from a one Nasdaq perspective. We can bring all of Nasdaq to always on, which is really, really unique. I do not think any other exchange can bring as many capabilities and assets and then the customer community behind us to this.
Okay. Just follow up on asset servicing. I had not heard that before. I envision Nasdaq as The Bank of New York Mellon Corporation for digital assets. Maybe flesh that out for us.
Yeah. I think in the digital world, when we think about asset servicing, there are different components to it. I think BNY does a great job. State Street Corporation does a great job. But in the digital world where you are the tokenization agent and you are working with a Computershare, and you can have a partnership with a Computershare or a Equiniti or a Proxymity or even a Securitize, there is asset servicing that you can do from a digital perspective that is kind of unique to the one that has a tokenization engine and those capabilities. I think we will work with our partners. I should say we are very open to working with partners. We actually have a really good relationship with BNY. We do not want to custody these assets.
Right.
just to separate that for a second. That's where a lot of the asset servicing happens.
Right.
We're not looking to be a custodian, to be super clear, but there are certain things as a tokenization agent or engine that you can provide.
Perfect. Okay. Let's switch to one of the hottest parts of Nasdaq's business now, your financial technology business. Particularly, trade management services has been growing pretty well. That's your connectivity and co-location business. Just curious, what's driving that growth, how you think about on-demand markets,
Mm-hmm.
always-on markets, and how that can sustain growth in that business.
Capital Markets Technology, the division you are referring to, in Q2 grew by 14% revenue-wise and 17% from an ARR perspective, and that is wonderful, and it includes Calypso, Trade Management, and Market Technology. We love all three businesses, and they are performing well. On the trade management services piece, which is really the infrastructure connectivity access part of that business, two things we have done really well, one is fortuitous. In 2021, coming off the back of COVID, we were probably one of the few exchanges that said, "Volatility and elevated volumes are here to stay." Back in 2021, we went to our data center provider and our hyperscalers that we were working with and said, "We need to build out. We need more capacity, we need more power, more compute, more space." And we were right.
By the way, we did not know how right we would be, but it ends up we were really right. That was, again, a really smart capacity planning move that started to pay dividends, by the way, this is from 2021, it started to pay dividends in 2024, 2025, 2026. It just shows you the lead time that you have to think about infrastructure. That is one.
Two is we have new services that we can offer because of Always On, to your point. We have new and existing services, so existing services that have become more popular, and we are selling more of them. Then we have been able to integrate new services into our ecosystem that really help us power the Always On movement. I think we are just at the beginning of that. It is really we are in the first or second innings of seeing what that can be over time.
It is very helpful. But wait, how long do you think it will take? I did not realize the lead time was that much. How long do you think it would take for your competitors to catch up? Because when we look at some of the data around your cabinet capacity, it is a lot higher than peers.
I do not know if it is so much a catch-up because once you have them in your ecosystem, they are not leaving your ecosystem. You have developed this ecosystem, this center of gravity around all the markets. We run six options markets to the equity markets, to SIP, the TRF. There is so much in there, and then there are dark pools and others that are in there that you have to think about this as like a network play, an ecosystem, and a center of gravity. And once you have established it is really, really powerful. I actually think all of them should do it, but it is not a I trade one for the other.
Okay. The other opportunity seems to be around collateral and collateral management. I think you have talked about Calypso potentially being a pretty big opportunity for them. Just talk through what you mean by that, how collateral management could potentially be a growth driver.
Calypso, which is our Trade Management platform, has a particular strength and capability, core competency around collateral management. Our clients love the collateral management module of Calypso. What we are doing now, and we have just done a test trade with Vanguard and Wellington that we published in July, is we are connecting Calypso to digital rails, like Canton Network and other layer ones. And by doing that, we are giving our clients, we are providing our clients with a 360-degree, real-time IM/VM view, allowing them to do scenario analysis, and allowing them now on 24/7 rails to increase the velocity and the mobility of their collateral. That is step number one. But the real unlock is this, is once you have unleashed that collateral, your clients need more sophisticated financing, margining, and optimization tools to figure out where to take that collateral and what to do with it.
Then you need to build a collateral network below that, an orchestration layer that allows them to say, "Hey, I freed up my collateral. There is more velocity and mobility with my collateral. What do I do with it? Where do I send it? How do I know that I am optimizing it?" That is a lot of work. Now what we are trying to create below that is this collateral network, this orchestration capability, which is incredibly powerful once you have freed up that collateral. Does that make sense?
Yeah.
That is the difference, really. That is taking a core competency and a strength and really building upon it and extending that on digital rails, it is a use case that is obvious to everybody.
Yeah. I do not mean to put you on the spot, but that sounds like a pretty big opportunity when I just think about the size and dollars of collateral that goes through your system. Is it something that could be a meaningful driver of business over the next few years for Nasdaq?
Yeah, I do not think we have published anything around that.
Right.
Because we are still early days, this is a Reg FD event, so I do not think we have said anything around that, but we are really excited about it.
Right. Okay, good political answer there. Let's move to rather dense regulatory topics. For years, there's been a battle between on-exchange, off-exchange volumes, and some of the advantages that you've pointed out, or Nasdaq has pointed out, that off-exchange platforms have. So curious what you're thinking now, the strategic rationale for that, and how you're thinking about dynamic between off and on-exchange.
Good question. Off-exchange is roughly 50-plus percent every day of volume. Once you take out the cross, the close and the open, it's even higher than that. This has been a trend for many, many years. For those that have been in the business, we've seen it coming for the better part of a decade. What we've done against that is we've innovated on exchange. We've done a lot of really great things, innovative things that we've introduced into the market, purpose-built innovation. Now we're taking it out to the next level, no pun intended.
Right.
We bought an ATS that we looked at and said, "Has great connectivity into the sell side, has great connectivity into the buy side, has an orchestration layer below it." We can see ourselves doing a couple things with it. We can see ourselves powering always-on and tokenization through it. We see it giving us more execution channels and more protocols and different ways of executing that we can offer investors. It allows us to play offense in different ways. We can take it global.
Right.
We can put that out there across all markets. Not only that, we're unique in that we serve 130 markets globally. Now having LeveL, I can think about that in the context of my Market Technology offering too. There's a, if you will, a flywheel there with my market tech business. I'm really excited about LeveL. We haven't closed the transaction yet. We're still under HSR. There's not much I can say other than I think it's a great platform. We would be privileged to be an owner of it. I think there's lots of great things we'll be able to do with it. Again, I think we can innovate on exchange. It just extends and complements our capabilities.
Perfect. Okay. The topic around market structure is the SEC's proposal to rescind Rule 611. If that goes through, how should we think about opportunities or risks to Nasdaq?
611, so that's the Order Protection Rule.
Yeah.
The thing that we think about is what else comes with it. What we mean by that is how do we think about best execution, access fees, the SIP or the securities information processor revenue formula? Because it kind of lives off the back of the gold standard, which is the Order Protection Rule and the National Best Bid and Offer. We've asked the SEC, "Well, what do you think of all these other elements of Regulation NMS and what will change and what won't change?" The reason for that is Nasdaq is always going to adapt. I think we're really well positioned to win in either scenario. If OPR stays, wonderful. If OPR goes away, we're not concerned at all. We have the single largest market in the U.S. in the Nasdaq flagship market.
We feel really, really good about our positioning in terms of liquidity, market quality, and what we do there. We've asked the SEC this question because we do not want to see a world where market quality suffers, that we see less depth, less liquidity in our markets as a result of that. We have great markets, robust markets. That is the moral high ground for the U.S. right now is our capital markets, and we want to keep that. We are asking questions of the SEC to make sure that investor outcomes are better and market quality is better as a consequence of all the changes they're thinking of.
But for us, if OPR stays or goes, we feel like we have a lot of runway without OPR because we just bought LeveL, like you said, and we have a strategy there that we love and we can execute on. If OPR continues to exist, we know how to compete in that regulatory world where order protection is the rule of the day. So we feel good either way.
Perfect. Okay. I have a bunch of questions around event contracts, but let me open it up to the audience first in case there was any questions people wanted to ask. I will just scan a little bit here. Okay, we will keep going. So you guys are going to launch your first event contracts around the Nasdaq indices shortly. Clearly, Kalshi, Polymarket, or you have a bunch of these sort of markets out there, you have pretty good distribution, have a good running start. Just talk to us how you think about the opportunity for Nasdaq in the context of, I would not say latecomer, but certainly others have started this already.
Yeah. So in some ways, we are an earlycomer because not many of them are regulated and the way we are regulated. And we get through the cold start problem because I have an exchange.
Yeah.
So I have an options exchange. I have six options exchanges. We can essentially create these binary outcome contracts on an options exchange that is well-regulated, goes through post-trade channels that people and our customers understood and understand. It has great risk management over it, and I do not have a cold start problem because all the broker-dealers are connected to me. And in fact, you could argue because Kalshi and Poly and others are CFTC regulated, from a broker-dealer perspective, we might actually have deeper distribution into the retail side.
Right.
I think it's really interesting, right? We use a regulated exchange that is under the SEC to launch a product that is I think core to what we do and the kinds of products we'll launch, to be clear, are going to be financial and economic.
Yeah.
We're not going to get into the sports arena. That is under litigation between the states and the federal government. We'll see what happens there. But we have the opportunity also to have proprietary contracts. That's the other thing that's really important to know. We'll do the Nasdaq-100 up/down contract. That is a proprietary contract to Nasdaq. By the way, we have the options contract on it. So we have the full complex and the full flywheel around it. Not only do we not have a cold start problem, we're doing it with everybody connected, again, well-regulated in a product that is well understood by us and our members and is potentially something that we think we have a great advantage in.
Just curious, like do you know what the demand for the sort of products are? I think about event contracts, and they look a lot like short-dated options. I'm curious. Who's asking for these products?
Yeah. Well, perpetuals are more like levered ETFs in terms of the cash and return profile, right? It's more of a linear product. There's what we say is like convexity.
Yeah.
Right? There's a convexity return and cash flows in options. It's not the same use case.
Right.
I don't think. We'll see. I guess we'll see. There may be a sliver of the zero DTE world that thinks about it in terms of risk profile and other things in the same way they do perps. But for the most part, I think, institutions will not see it as the same. To answer your question, we're going to find out. We're going to find out what retail demand is, and what's interesting is, and you could've asked me is like how much does leverage play into that?
Yeah.
Again, we see that with levered ETFs.
Yeah.
That is where that crowd tends to be. I think we will learn a little bit. I think some of these products will have a gradual role, and of course, we are not going to offer products that are going to be 50:1 and 100:1.
Right. Hopefully not anyway. On perps, you have said something along the lines of Nasdaq has an opportunity to do more on perps. What does that look like in practice? Is that trading or you mean more along surveillance and tech, I do not know, technology? Just curious.
Yeah.
Perp strategy for Nasdaq.
It is like any other super cycle around like a new asset or a new product. We have an unbelievable opportunity with surveillance and our Fintech solutions. Socalci, Kraken are customers of ours on the surveillance side.
Yeah.
We saw a lot of institutional-grade trading and post-trade technology all across the world. To the extent we're going to continue to see asset proliferation, product proliferation like perps, we have an incredible opportunity as Nasdaq to provide institutional-grade, full trade management lifecycle technology into that ecosystem. The reason we can do that is because we'll hopefully engender trust, we'll bring operational excellence, resiliency, and great technology, great performance. So to the extent that these asset classes take off, mature, and evolve, we have a great opportunity to be part of it.
Fantastic. Okay. I have one closing question, but before that, again, I'll just quickly open up to the audience in case there was any burning questions people had.
Yep. You made a point earlier on just engagement towards that tokenization. Is that something they're already asking for or where do you think we find the
Thank you. Could you repeat it? I'm so sorry. It's not you, it's me, I just couldn't hear it.
He asked about like issuer engagement.
Yeah.
Like where are we in that cycle of issuers asking for it or kind of
On tokenization?
On tokenization. Yeah.
Yeah. Great question. Sorry, it's me, not you. Ears are clogged. It's interesting. It's a great question because I think issuers are earlier in their understanding and appreciation of tokenization, there's no doubt about that. Let's separate issuers. There's ETF issuers that I think are much more advanced and understand what they would like to achieve with tokenization, distribution, access, the composability, the divisibility of tokens, I think resonates with ETF issuers, and the crowd that they can serve. On the corporate side, I think they're approaching it and saying, "Okay, what problems are you actually, what pain points are you actually solving with tokenization?" If you're a large corporate issuer in the Nasdaq-100 with a great brand and great liquidity in your stock, so buybacks aren't a problem, there's tight spread, deep markets.
We're not going to them, and I don't think anybody else should, and saying, "Hey, we can solve a liquidity problem for you." By the way, they don't want fragmentation of their liquidity as a result of this. The approach we've taken with issuers is to say, "Okay, let us tell you what the Nasdaq Equity Token is meant to achieve." We show them what we've composed within the token to say proxy, corporate actions, things that cost you money that are generally manual today, that are a pain point for you to administer. We can help with that. What we want to do is open up a conversation and say, "How much of a pain point is that?
How do we help you solve that?" Of course, we know it's part of a broader set of solutions that issuers require along the lines of corporate actions and everything else. So we're approaching them and saying, "We can help you solve pain points. How meaningful is it for you?" What we can also do, if we get this right, is put it on 24/7 rails that are interoperable and there's standards around it. That's very important for institutions and issuers to understand because they do not get the whole, "I don't understand, my stock is trading in where and what platform, in what country, under what rules? By the way, do I know any of them? Are they on my cap table?" No, it's an SPV. You've never met any of them.
They are uncomfortable if it takes them one step away from the issuer-investor engagement too, which is what we're also trying to talk to them about and saying, "How does tokenization allow for a more intimate issuer-investor engagement?" They care a lot about that. Early days, this is some of the conversations. Corporate issuers are not where investors are, they're not where retail is. They don't see the same benefits that broker-dealers would from a collateral management or cash flow management perspective. It's a different narrative that we're establishing with them. Is that
Perfect. Okay. Any other questions?
Early days, by the way.
Okay. Fantastic. All right. Put you on the spot here. When you come back two years from now, because I'm going to assume you're going to be back, what is the one number you would put in front of us or this room to say the always-on-market strategy worked?
Oh. I don't know if I have a number. Could I give you a qualitative way I would describe that?
Yeah.
If I am sitting here in two years and we have done the following, then I think Nasdaq has been successful, which is if we have engendered trust in the always-on system, because you can hear even from the questions of like, what problems are we solving? Then we have done a good job. If our solutions have led to better outcomes for issuers and investors by solving real problems like capital efficiencies, risk management, liquidity, greater transparency, and again, it is under the banner of trust, and we have created the picture I have depicted to you, which is standards and interoperability through the Nasdaq Equity Token, then we will have created an ecosystem and a market that is very, very successful and can build upon itself.
If we do all those things, and there is a lot to do, then we will feel really good about it, and we will have different conversations about issuers and investors and bringing blockchain networks and markets together.
Fantastic. We look forward to that time two years' time.
Yeah, two years.
Thank you very much, Tal. That was great. Thank you.
Thank you. Appreciate it.