Greifeld made a number of attempts to establish Nasdaq’s global credentials by trying to buy the London Stock Exchange in 2006 and eventually settled with buying Nordic group OMX in 2008.
But the momentum in recent years has been with rivals whose mix of big deals and strength in fast-growing derivatives, data or Asian markets have led to the creation of an elite group of global players – leaving Nasdaq just hanging onto the bottom of the top five global exchange groups by market capitalisation (see table).
That assumes the LSE and Deutsche Börse tie-up gets the green light; and should CBOE Holdings’ acquisition of Bats Global Market go ahead as planned, it would be nipping at Nasdaq’s heels with an $ 8.5 billion valuation – putting CBOE one deal away from potentially pushing Nasdaq out of the top five altogether.
Therein lies perhaps the most immediate challenge facing Friedman, Nasdaq’s chief operating officer, who will succeed Greifeld in January 2017. Greifeld, a legendary figure within the industry, will remain with the group as a non-executive chairman.
Friedman has a path that could keep Nasdaq in the top tier. She could pursue a transformational deal, with the likes of a data giant such as IHS Markit, S&P or FactSet, to pitch Nasdsq’s market cap into the big league and go from there with bolt-on acquisitions and more diversification. She has already shown herself to be keen on data businesses and led Nasdaq’s bidding for Interactive Data Corporation, a fixed-income data provider eventually acquired by Intercontinental Exchange in 2015, according to people familiar with the situation.
Freidman, apart from a three-year spell as CFO at private equity firm Carlyle Group between 2011 and 2014, is a Nasdaq lifer. She joined as an intern in 1993, and has held roles including head of market data, head of strategy and CFO. She rejoined in June 2014 to run all of Nasdaq’s non-trading businesses, adding the COO role in 2015.
She will have seen first-hand Greifeld’s transformation of Nasdaq from essentially a US stock exchange to a diversified financial infrastructure provider operating across the globe. Deals under Greifeld have included the acquisitions of the options markets ISE and the eSpeed treasuries platform.
The group will forever be associated in the public’s mind with trading of tech stocks in the dotcom boom – and the near-80% fall in the Nasdaq index afterwards. Greifeld took the CEO slot in the aftermath of that collapse, and like many of its rivals has seen value in building a suite of business around its core trading activities. If you dig deep into Nasdaq’s financials, they reveal that the vast majority of its revenues, or around 75%, are non-transaction based, coming from listings, technology, and market data.
This non-trading business is a mixed blessing. It’s stable, but it means the group does not benefit as much as others do when market volumes surge (as they have done around the US elections). And Nasdaq is most lacking a futures franchise, with its energy market NFX in the US and fixed-income platform NLX in London having struggled to make serious headway.
Major deals aside, Friedman’s to-do list looks like many of her counterparts: diversification, achieving scale, and improved efficiency through the greater use of technology.
Nasdaq’s golden days of the 1990s were in part because of its superior technology. But today all the exchanges know their survival depends on great technology (and big tech spending).
Friedman knows this better than most, making her succession look smart and standing Nasdaq out for appointing a CEO from within, a rare move for the modern-day exchange group.
The London Stock Exchange Group in Xavier Rolet, Deutsche Börse with Carsten Kengeter and Euronext with Stephane Boujnah, have all turned to executives outside their company, and outside the exchange sector, to lead them.
Friedman knows Nasdaq’s business inside out and, crucially, is well-plugged into the new technologies that many expect to influence the next stage of evolution of financial market infrastructures. Nasdaq, under Friedman’s guidance, has been at the forefront of developments in blockchain and has also closely followed developments in artificial intelligence and machine learning.
In Europe, however, there remain questions to be answered about its ambitions, which may be why it recently named Hans-Ole Jochumsen as vice-chairman and moved him to Europe full-time.
Nasdaq remains a relatively US-centric business and its activity in Europe is limited largely to the several stock exchanges it runs in Scandinavia – the remnants of the OMX Group it acquired in 2008. Europe is an uncertain region for exchanges to operate in at the moment, both politically and because of the upheaval being caused by the LSE-Deutsche Börse tie-up, creating challenges and also opportunities.
Watch this space.