Joined on stage by Nasdaq's CFO, Sarah Youngwood. With 4,500 companies on its exchange, Nasdaq is the largest listing venue in the U.S. It is, of course, a leader in both stock and options trading. But since 2017, it has been in the midst of a strategic pivot to being a scaled technology and information services provider as well. Today, nearly 80% of Nasdaq's revenue is from non-trading businesses. This includes indexing, data, corporate services, marketplace technology, regulatory reporting, and financial crime management technology. Sarah was appointed as CFO in 2023. Before coming to Nasdaq, she was the CFO for UBS, where she played a key role in modernizing the bank's infrastructure and facilitating the acquisition of Credit Suisse.
She also has 25 years of experience at JP Morgan, where she held senior roles in investment banking and investor relations, and as the CFO of Chase and JP Morgan's technology uni t. Sarah, thank you for spending some time with us.
Thanks for having me.
Sarah, to get started, my sense is that a fair number of our European clients still think of Nasdaq as an exchange. To start, why don't you talk to us about the strategic pivot that the company has undergone over the past decade, and lay out the motivation and vision behind your entry into these adjacent business lines.
Yeah. Thank you. We are the trusted fabric of the financial system. By that, we mean that we architect the world's most modern markets, we power innovation, and we build trust in the financial system. You are right. When you think about all of the exchanges that we run, including, of course, Nasdaq, that is 30% of what we do. 30%, and that includes the market services piece and the listing piece. All of that is 30% of what we do. 15%, or over 15% at this point, is actually an index business, including the Nasdaq-100, but 1 trillion in ETP AUM constitute that index business, and has grown tremendously over the last seven years. The balance of it, about 50%, is core infrastructure for the financial system. By core infrastructure, you have named many of those.
Those are really important rails and gold data that enables the financial system to run and to transform. Our vision was about, call it, a decade ago. We saw trends, technology trends, that were going to transform the financial system. To be honest, it is all happening today, but it was visible 10 years ago. The first one is the cloud, the second one is the distributed ledger, and the third one, of course, is AI. Originally algorithmic AI, and now GenAI. By catching those trends, cloud 12 years ago, the distributed ledger nine years ago, and AI 10 years ago, we were able to put ourselves in a position where today, naturally, we are at the right place at the right moment. That all started a decade ago. What is very important is that we have modernized continuously during those 10, 12 years.
As we have done so, we have prepared ourselves to be ready to modernize the financial system. Our clients, the financial system operators, need solutions that are going to be GenAI ready, that are going to be digital ledger ready, that are going to have data that they cannot buy somewhere else, that help them have the liquidity, the trust, the integrity in the financial system as the financial system changes. I think what is even more powerful is that as we did that, we did it with the shareholders in mind. We did it trying to get, okay, a higher SAM as addressable market share, like serviceable addressable market, and more alpha, more solutions revenue. You mentioned the 80%. Today, we are a rule of 70% business. If you think of the rule of 40%, we score at 70%.
There are only 18 companies that are at scale in growing mode, 8% or more, and that are at rule of 60%. It is a very good company in which we are, and it is a very rare occurrence to have rule of 70%. Rule of 70%, 80% solutions, double digit alpha growth in the last two quarters, and also mid-teens revenue growth over the last two quarters. We feel very good about where we are, and we feel that that transformation has been not only very timely, starting 10 years ago, but also really giving us an opportunity to deliver for the shareholders.
I see. Let's dig in on tokenization for a moment. You announced that you would be launching Nasdaq Equity Tokens in the second quarter of 2027. Can you help us understand how these are going to work?
Yeah. Our big principles, and you are going to hear those words all the time, hopefully they stick, are liquidity, integrity, and transparency. This transformation of the financial system is happening. You have got the convergence of AI and the digital assets with continuous transformation, and those trends reinforce each other. When we are looking at what we need to do, we need to maintain liquidity in this particular case as we introduce the digital ledger, because the digital ledger is going to provide benefits for both the issuer and for the investor. But the problem is to make sure you do that without breaking what we have today, which is a very deep liquidity pool. We provide Nasdaq Equity Tokens is maintaining one unified liquidity pool. You have all of the rights of the security itself.
It trades in the same way the current fiat security actually trades. In addition, you have the benefits, the token, which issuer benefit from having some of the actions that are written into your token or other that enable you as an issuer to have a closer relationship with your shareholders by embedding, in some ways, messaging or actions, dividend could be an action, for example, into your token. You have got no harm done on the liquidity because of the unified liquidity. You have got more potential for the issuer to have capabilities on its token. Then from the investor's point of view, you have the ability, if you are in [inaudible] , to use it more swiftly in terms of moving it as collateral, for example, to reduce your collateral needs.
I think there is probably about a dozen other competing stock tokenization initiatives at this point, including some other issuer-centric models like Superstate, Securitize. Can you maybe speak a little bit more about how what you guys are doing with stock tokenization differs from those other initiatives already in the market?
Yeah. I am going to go back to that word liquidity. To the extent that you do a wrapper, for example, and I am not saying that every solution is a wrapper, a wrapper is breaking the liquidity pool. What you really want to make sure is that you are enabling the trading to happen in the way it does because whereas you can have the ability to trade a few shares here or there in a small liquidity pool, the beauty of the financial system here is the speed at which it operates, as well as the depth with which it operates. We go back to, for us, making sure that we have something that has the transparency, all of the integrity, but very importantly, that does not break the liquidity pool. We believe that markets will decide in some ways.
Markets are valuing connectivity or valuing nanoseconds or valuing depth. There is a reason why half of the capital markets happen to be in the U.S., in the deepest liquid market. There is a reason. Money goes where liquidity is. Whether it is the corporates that are going there or whether it is the investors that want to trade there.
Got it. Let us switch gears to the other hot tech topic in our space, AI. Can you speak to how your conversations with bank executives around AI have evolved over the past six months?
Yeah, it's really an interesting trend because we talked about the cloud adoption, and it really took 10 years. GenAI adoption is on a very different pace, and the dialogue is becoming very, very deep over the last six months. There are GenAI applications, I would say, everywhere. From how you use your data, are you going to deliver my data in token-efficient way? And we do. We have even patent-pending ways to provide our data in token-efficient way, for example, for investment. What are the features that are upcoming that are GenAI, that enable the issuer to either have a co-pilot or to also have, if you are a large financial institution, a lot of the work done independently. I'll give an example. In financial crime management, which is a $4.4 trillion issue, there are lots of things that need to be done.
The first thing is we use GenAI to actually catch the fraud itself, by putting that consortium data of 2,800 banks, $13 trillion of assets into one cloud, well segregated, that enables us to give better alerts to our customers. The quality of the alert is the first GenAI output. You can go further, and you can have agents. We have 800 out of our 2,800 banks that operate with our agents, which means that they have gone through AI governance committees, and they are using on a daily basis agents. Sanctions is one that we introduced in December. We have six of them at this point, two in beta. The sanction one, for example, is going to enable you to file the sanctions with 80% of the sanctions not being touched by a human.
80% not being touched by a human can translate into real efficiencies for our clients, and that's what we're seeing with now a pretty good level of experience with 800 of our clients using that. That's just an example. If you go into our RegTech, we have different solutions that are also serving both the quality as well as the efficiency. All of the regulatory reports are generated benefiting from GenAI, write-to-code, for example, but also delivering capabilities to the clients to make sure that we help them detect the data that they are giving us in terms of, is it going to comply with the thousand ways that it needs to comply? What I think becomes more and more interesting is when you actually converge the two trends and you say Calypso.
You're going to have in the cloud GenAI capabilities, but you're also going to be able to move collateral. Now you are using digital assets and GenAI, and those solutions are enabling us to be viewed by our clients as their trusted transformation partner. They need to go on their journey. They need to meet that transformation of the financial system. The needs are very strong, and there are very few counterparties that are as trusted as we are and as innovative as we are.
You launched an MCP server for Nasdaq Data Link earlier this year. Can you talk about the extent to which that data demand has been additive and incremental versus cannibalizing other data delivery channels?
I will start to say that when we deliver the data in a better way, we charge more, not less. That is a good thing to do. When we deliver the data in a way that is easier to consume, we benefit from it as Nasdaq, and you benefit from it as our shareholders. What we have is the ability to deliver the data to you in the way you want. MCP is a very, very useful way to deliver the data. But we can do it also by API, by whatever it is that works for different financial institutions or brokerage houses. What has been very powerful is that we can really embed ourself in your trading systems. If you need to trade, again, it is not like you are going to check a screen and then trade.
We have the ability for you to embed that data at the point where you want to consume it. If you are a hedge fund and if you want to embed it in strategies, it is there. It is basically available in real time where you need it. If you are a retail brokerage house somewhere in Asia or in Europe and you want to enable your clients to trade in the U.S. financial system, especially December 6 as we go always on, you have the ability to have that data at the fingertips of your clients in whichever app they may be consuming on your behalf as a brokerage house.
Over at Verafin, a pillar of your growth strategy has been the movement up market into the Tier 1 banks. Can you update us on where Verafin stands today amongst the Tier 1s, and is it a meaningful portion of ARR yet?
Yeah. I will answer that we have three pillars really of growth in financial crime management. Financial crime management is underlying all of the majority of the $350 million that we have is small and medium-sized banks. We come in and we are the financial crime management platform for those banks. That has been how Verafin constituted its brand in the financial system. But once you have 2,800 banks, majority of which are smaller banks, you become extremely attractive to the larger banks because where fraud will go is not trust between one large bank and a second large bank. It is actually wherever fraud goes. If you are a large bank, you can maybe have an agreement with two or three large banks, or five or 10.
But what you are not going to be able to do is one by one, under being an agency of the government because you cannot mix in personal information without the right rules and frameworks, assemble 2,800 banks of data. With that, we have been able to add approximately 20 large banks. Those large banks, that would be Tier 1 and Tier 2 banks, example is Citi, example Goldman Sachs. Those are names that we can name, but there are many others that we cannot name. In Canada also, we have been very successful with some of the large banks. We have that second leg of growth, which is to date, to answer your question, still small in terms of its base, but growing in a fast way. We had 11 signings this year year to date, which is more than what we had the year before.
We are accelerating. We talked about the year before being backended in terms of those large signings, but the second half of the year is upcoming. We have a lot of potential tailwinds coming from the fact that those large banks represent half of the SAM, the serviceable addressable market share in the financial crime management. We are talking about approximately a $9 billion SAM. When you are taking half of that, it is $8 billion. We are able to have a very, very large potential share that is today untapped.
Your Calypso business is very well-known globally for its capabilities and rates, but we have seen a lot of product innovation across derivatives over the past couple of years. We have got perpetuals. We have compute futures coming. Can you talk about the opportunity to expand Calypso's capabilities across more asset classes?
Yeah. Calypso is a pre-trade, trade, post-trade, and treasury management system. When you think about that, if anybody thought that it was simple to do all of that before the proliferation of products, before the digital assets, before you could even think about moving a collateral in token form, it was probably reckless to imagine that you could do that on your Excel form. But some people did. When you add the complexity that we are seeing today, there is no doubt, even at fairly small institutions, that you need help. You are going to want to have that help from somebody who is cloud ready, GenAI ready, digital assets ready, and ready for all of those products that we are talking about. That is basically us.
We are also very modular, which means that we are not going to sell you a very large package if you are looking for something that is pretty precise. We are able to give you exactly what you need and to enable you to grow with us as you go to new geographies, as you expand into other products. So it is a very easy decision to make. This has been a product that has been very much modernized under our watch since we bought it, and that is very modern at this point and ready for all of those technologies to help to benefit the financial system.
In AxiomSL, you already count every single GSIB bank as a client.
Yeah.
Can you talk to us about the moving pieces to let that business continue to grow high single digits, low double digits, in line with your guide?
Yes. There is a very big difference between having landed in AxiomSL and having fully penetrated your opportunities. We are very fortunate that every GSIB except one actually uses AxiomSL. Beyond that, we have very large opportunities with the rest of the banks as some of the regulation is now affecting smaller banks than the GSIBs, including some of the parts of Basel that came through. When we think about that, we talked at Investor Day about a penetration that is close to approximately 10% overall in the space of regulatory tech. When you are thinking about having most of them, but having a penetration that is approximately 10%, that is really the root of our land and expand strategy. We are doing extremely well. Again, we have a cloud solution. We are selling greatly majority in the cloud for AxiomSL.
That also enables us to help our clients with the GenAI features, which are available on the cloud, and which enable them to participate in the modernization of their regulatory framework in a very simple way. Think of regulatory as thousands of updates. We have 64 countries, 150 regulators, thousands of reports, I believe it is 6,000 reports that we update. Every year you have thousands of updates that have to come through. If you are a financial institution, you definitely want the help, which is why everybody but one that we are working on is working with us and is working with us more and more, which enables us to support the medium-term outlook.
Within your index business, what new products are you excited about? Do you have anything in the lab that could be the next Nasdaq-100?
We don't think of we need the next Nasdaq-100 necessarily. What we try to have is, first of all, a very good ecosystem against the Nasdaq-100, because having the Nasdaq-100 is great. We all refer to it. We all watch it as we do one of the top three indexes that tells you how the market is doing. More importantly, it's becoming part of portfolio composition, which means that an ecosystem needs to be built around it. Whether it's the futures, which we do through a partner, whether it's the index option, which we have built from scratch and create some good ARR opportunities at a good capture within our market services business, whether it's the Nasdaq-100 binary option, which we have filed for, and we have a whole lot that can be done on that.
The next piece is we do have a lot of new products. Last quarter, for example, 34 new products, half of which were international, 11 of which were institutional. We try to fit into lots of different pockets so that we can grow our ETP AUM, and we certainly do grow them. We added $111 billion in the last 12 months, and that's on a base of $1 trillion. So a growth rate that is extremely good. Then to answer your question, is there a thematic that is the thematic? Obviously, AI infrastructure is an important thematic today. So we have indexes that are around data centers, for example, semiconductors, for example. But it could be that somebody in Australia comes to us with a need, and we will have something that is specific to that particular market.
We're very flexible to capture the opportunity and the ARR on behalf of our clients wherever it is.
Let's circle back on your oldest business, the stock exchange.
Yeah.
Based on your conversations with issuers, what does the IPO pipeline look like for the rest of the year?
Yeah. The IPO pipeline is robust. If you look at the first half, first of all, we have had the best first half we have had ever. That is $110 billion that were raised, and that is including, of course, the SpaceX IPO, but that is only, I don't want to say only, but that's $86 billion. To get from the $86 billion to $110 billion, you've got a lot of breadth of other sectors. The sectors that we're seeing as active today are, of course, the AI infrastructure, and all of it creating opportunities broadly. Second of all, there is still some fintech activity, more in insurance and real estate actually. The biotech sector, which had been not very active, is coming back, and we're very happy to see that happening. Defense is also a sector that has some tailwinds nowadays.
You are seeing a pretty broad spectrum of consumer tech also coming, and we're very fortunate as Nasdaq to be extremely well-positioned and to have a very strong pipeline.
On the trading side, I know there's been something of a drift downward of not just Nasdaq on exchange trading broadly, relative to off-exchange trading over the past 10 years. More recently, the regulatory winds have shifted around Regulation ATS. I wonder, as you look out over the next 10 years, do you think you can return to growth in cash equities market share?
Yeah. So when you think about the 50% of the market that are off-market, so it is about 50/50 of what is on market versus off market, we have a real opportunity to participate, and we were thrilled to acquire LeveL ATS, which is the third largest ATS. That ATS is not only interesting in its own right, but it has a gateway that connects it to 2,500 buy side and sell side. Now you can start to think about liquidity pools that are off markets that can be connected through a gateway. And we did not have to have cold start issues since we were able to acquire LeveL ATS.
And so that enables us to have participation in what we believe ends up being an important pocket of opportunity off market, which of course, we continue to be focused on markets, but it is great to have optionality to wherever investors would like to be.
We're going to open it up here for audience questions in a moment, but to wrap, Sarah, is there anything that we didn't hit on today that you're spending a lot of your time thinking about?
Yeah, we hit on it, but I do want to come back to at the end of the day, when you try to think about what's happening today, it's the moment of convergence of three technology trends, which are transforming the financial system. I've been in the financial system for the last 29 years, and I have never seen a time of further transformation of the financial system. When you think about that, it's the cloud GenAI distributed ledger that are meeting towards continuous markets. If somebody is very well-positioned because we operate our own markets and because we're helping as a trusted transformation partner to transform the financial system in the right way, preserving the trust, the integrity, and the liquidity of the financial system, it's absolutely Nasdaq. Being that well-positioned is also transparent in the strength of the results that we are posting.
Great. Is there any questions in the audience? There's one in the front.
Right.
Question on Verafin.
Yeah.
There's few businesses out there that are growing as fast as Verafin.
Yeah.
It looks like you're growing faster in Europe. The competitive landscape might be softer in Europe. I wanted an update on how the outlook looks in Europe relative to the broader business. Also, you've been announcing several partnerships in Verafin. What's driving that, and should we expect more partnership announcements in the future?
Yeah. In Europe, that's really our third leg of potential growth. We have the ability to work with European financial institutions first on their cross-border payments, where all of that, the depth that we have in the U.S. is very helpful, but also eventually on their local payments, too. We have several POCs that are successful. We have not yet announced that we have signed a European, so we are looking forward to the moment where we will be able to announce that, but we are highly confident that that moment will come. So good momentum, good things that are in the work, but not yet ready to announce something for Europe. When we are trying to think about the regulatory construct in Europe, it's very much evolving in a way that is productive.
The regulator is well aware of financial fraud being actually proportionately even higher in Europe than it is in the U.S., and therefore, different regulators are at different stages of readiness in enabling the banks in the right way through an intermediary like Nasdaq to pull the information. But that needs to be done, I would say, in very close cooperation with the rules being changed. The partnership question is a great one because when you think about us being the platform for banks, we can benefit from that situation where we are embedded in 70 core infrastructure systems. It's whichever core infrastructure they use, we embed ourself in it, and we are in 70 of them.
Therefore, if a partner who doesn't have the distribution that we have and the integration points that we have has great data or has great capabilities, we can actually be a way into those banks without having to put those banks through the difficult fit of having to reintegrate with somebody else. It's always very complicated for banks to do that. So we're in that position of strength, which enables us to have partnerships, and we certainly like that strategy.
Was there another question in the audience? I thought I saw one more back there. Okay. In that case, thank you, Sarah, for spending some time with us.
Thank you very much.
It was a great conversation.
Thank you.