Nasdaq management top line growth estimate through 2013 is 9% (vs. consensus forecast of 6%-7% in 2012 and 2013).

Faces high competition in all major markets. The Company has highest cash flow yield per BMO Capital Markets report among its comps (13% for NDAQ vs. 9% on industry average).

NASDAQ produces a 46% operating margin and, with the exception of the European cash market, has improved market share in recent quarters. NASDAQ has been able to grow PHLX options market share from 16% at the time of the merger to ~24% through an innovative pricing structure combining the aspects of maker/taker and traditional customer-priority pricing. The exchange has also successfully launched the NASDAQ Options Market from scratch, and in less than two years' time, has gained nearly 5% market share. NASDAQ has the highest financial leverage of any of the exchanges. NASDAQ has targeted a debt-to-trailing 12-month EBITDA ratio of 2.0x, but is currently at 2.8x. We believe the companys IDCG rate swap clearing venture (arguably the initiative with the largest potentially addressable revenue pool) has a very small chance of success. Other new initiatives such as the third US equity venue, PSX, and the development of UK power and natural gas derivatives face headwinds related to competitors already active in the space. Finally, we believe a number of the companys targeted new markets like physical US power clearing, Nordic repo, and Nordic rate swaps appeal to a relatively limited audience of users, which will limit growth potential. Presently, we believe all these initiatives remain so small as to be immaterial to the bottom line, and they are likely to remain so for the foreseeable future. while futures exchanges should benefit from increased usage of on-exchange contracts (given higher OTC capital requirements), only a small portion of NASDAQs traded products are futures (futures make up only 6%-8% of the companys net revenue). NDAQs equities and options operations are highly competitive Weve also seen signs of increased competitive pressure in the US options markets recently. Although NASDAQ has been able to build significant share in equity options (roughly 10% in the past two years), the average rate earned per contract has declined by more than 20%. The company has grown revenue at an 8% CAGR over the past five years on a purely organic basis, though after factoring in a slew of acquisitions, the all-in rate has been just north of 20%. We should point out that the company assumed 8-9 billion US equity average daily volume (ADV) in its expectations (outlined below). Were currently trending slightly below that run rate at 7.9 billion per day

in 1Q11 and 7.1 billion per day 2Q-to-date. However, were modeling ~8.4 billion shares per day traded in 2012 and ~9.1 billion ADV for 2013. Weve heard from a number of management teams as well as our private industry contacts that competitive pressure in the US equity space has eased. Average pricing has reached a trough and has actually rebounded somewhat (see Exhibit 4), and market share, at least among the lit venues, has stabilized. The wild card with respect to US cash markets, however, is the interplay between the offexchange venues (broker internal crossing and dark pools) and the lit markets like NASDAQ.

Since the onset of the credit crisis in the back half of 2008, the off-exchange venues have posted dramatic share improvement. During the crisis, as volatility surged and share prices plummeted, the high concentration of trading in a few low priced, highly volatile stocks, made it substantially easier for broker/dealers to match trades on their own books. Although these market conditions have moderated, we are certainly still seeing market share traded away from the lit venues, potentially owing to more aggressive market-making by the recovering broker/dealer community. TRF share (off-exchange transactions reported to the Trade Reporting Facility) has increased from roughly 15% in early 2008 to upwards of 30% presently, and it is this dynamic more so than market share gains at competing lit venues like BATS or Direct Edge that has pressured NASDAQ share lower recently.

The level of internalization is somewhat correlated with market volatility, as its more risky for traders to transact in dark markets when price is moving more dramatically. Downside risk as we see it would be a low-volatility environment with no regulatory interference in which off-exchange trading could increase as a percent of the market. Upside could come from more meaningful traction in the companys third US cash equities market, PSX, a price/size priority pricing venue. The platform, launched in October 2010, has slowly built share and is now trading 1.1% of the total US equity market. Given the fact that weve essentially come to a bottom in terms of pricing competition in equities, the primary way for new venues to gain traction is to offer differentiated trading rules that appeal to different trading niches. NASDAQs new exchange appeals to institutional investors that find it increasingly difficult to cost-effectively execute large block trades in todays trading environment (essentially taking the fight right to the off-exchange markets). Additionally, if we see rule changes on dark pool trading (unlikely before 2012) that could potentially benefit the exchange in the future. NASDAQ has had strong success building market share in US options over the past two years. The company has grown the PHLX from 14% share at the time of its acquisition to a 23%-24% share. This was achieved primarily through a transition of the venues pricing structure from pure customer priority to a hybrid customer priority with maker/taker aspects and migration onto NASDAQs technologically

superior trading platform. The company also built the NASDAQ Options Market from scratch, and since launch (January 2008), has been able to grow to over 5% of the total options market. Currently, NASDAQ is the largest options exchange group in the US. However, the revenue impact of this share expansion has been offset to some extent by increasing pricing pressure in the US options space for securities with multiple listings. The companys average capture rate for US options has declined notably over the past two years.

We see competitive pressure in this market continuing to grow, though at a slower pace, and we expect a slow but steady decline in revenue capture over the next two years. exchange valuations should appropriately be ordered in line with the level of competition inherent and growth rate expected for the product traded. In our view, futures models are the most attractive, options exchanges the next most attractive, with equity or other spot/cash market venues generally the least valuable. We believe that futures trading including futures market data at NDAQ contributes only 6%-8% of total net revenues. Multiple-listed options have been a fast-growing market over the past few years, and the product is certainly less commoditized than equities at present, but ultimately, options are cleared by a central utility making the contracts fungible. Furthermore, as mentioned earlier in this report, we believe competition and resulting fee compression has intensified in the US options market and will likely

continue for the next year or two. NASDAQ, NYSE, and Deutsche Borse all have a meaningful US options market presence, and we estimate that options trading and options-related data combined at NDAQ contribute about 12%-13% of total net revenues. Finally, we believe equity exchanges in general have an unattractive business model. In the US, margins are very tight owing to years of intense pricing pressure, and in Europe, trends are following closely in the USs footsteps. NASDAQ faces significant competition within its core equity operations (about 25%30% of net revenues, primarily related to the data piece).

US Equity trading and pricing: After rising 45% in 2008 and 10% in 2009, industry volumes have struggled to regain positive momentum, falling (-13%) in 2010 and (-5%) in 2011 on the back of (a) broad deleveraging, (b) decreased investor confidence, and (c) a shift toward passive investing. We anticipate a modest reversal in 2012-13 and project 6% CAGR during these years. Market share trends for Nasdaq deteriorated as well since 2008 as new entrants (BATS and DirectEdge in particular) challenged traditional exchanges. As a result, NDAQ's matched volume declined from 30% in 2008 to 20% in 2011E. We anticipate stabilization at the current 20-22%. Similarly, pricing seems to have troughed after falling from a high of $0.045 per 100 shares in 2Q07 to a low of $0.018 in 3Q09, leveling out between $0.030 and $0.035. US Options trading and pricing: Our forward estimates are based upon assumptions for (a) U.S. equity options industry volume, (b) Nasdaq OMX market share, and (c) realized fee per contract.

Total U.S. equity options have experienced roughly 15% CAGR since 2007 throughout the financial crisis on pricing reductions and increased adoption by investors (retail, high frequency, and institutional) versus the more mature cash equities product category. Currently, nine exchanges compete as trading venues, differentiating themselves via (a) pricing, (b) technology, and (c) order flexibility. Nasdaq OMX has been a beneficiary of market share trends, moving from just 15% share of total trading to roughly 26% recently (topping out at 32% in December 2011). This increase in market share was driven by the acquisition of PHLX, the launch of Nasdaq Options Market (NOM), and several key pricing/order changes. Since 2007, Nasdaq OMX's pricing has fallen by roughly 45%, or 13% per year, as a result of increased competition among exchanges.

Risks: Competition. Following the transition of broker-owned exchanges to for-profit companies, the industry has experienced a rise in competition across all lines of business. This has been fostered by (a) regulatory authorities, which sought to encourage competition for businesses that were once thought of as natural monopolies, and (b) the relationship between brokers and exchanges, which transitioned from owners to customers when exchanges demutualized. Trading: For cash equities, the U.S. was the first to encourage privately owned execution platforms to compete with exchanges, spurring the launch of dozens of electronic communication networks (ECNs) and alternative trading systems (ATSs). The impact on traditional exchanges was pronounced, with severe declines in market share and net price capture per matched trade. Across the Atlantic, Europe continued this trend by passing the Markets in Financial Instruments Directive (MiFID) in 2007 that served to integrate various Euro markets and enhance competition among market operators. New entrants have enjoyed several advantages, the most prominent of which is much lower overhead that

has allowed for extremely competitive pricing. While it may be argued that current pricing is unsustainable in the long term, exchanges have been forced to adjust internal pricing strategies to limit already material share losses during the past decade. Equity options trading has faced a different set of market dynamics as its structure has been competitive for some time in the U.S., but this product continues to respond to changing customer demands for technology, pricing, and order flexibility. Derivatives trading has been the slowest product group to respond to competition due to the natural barrier to entry via vertically-integrated clearinghouses. Listings: In the U.S., the company's primary competitor for listings is NYSE Euronext, but it also faces a new threat from BATS and DirectEdge, which have announced their intentions to compete for listings. In Europe, the landscape is characterized by a large number of exchanges competing for new or secondary listings. Market Data: As a result of disruption to the market share held by traditional exchanges, it follows that Nasdaq OMX faces competition in the sale of order information and trade data. This outcome is ultimately predicated on the extent to which new competitors gain market share as the value of market data is ultimately realized by the main venue at which share prices are determined. Market Technology: Arguably the most pure-play growth segment within Nasdaq OMX, market technology demand has increased in recent years as market operators are recognizing the cost savings made possible by buying / leasing pre-packaged technology. This off-the-shelf technology includes trading, clearing, settlement, and deposit solutions. Nasdaq OMX currently provides technology to over 70 exchanges and trading-related businesses worldwide. Clearing. A key structural consideration, regulation has the potential to benefit Nasdaq OMX by lowering trading execution costs (for cash equities in particular) and by removing barriers to entry in derivatives markets, which reflect a smaller portion of the company's total revenues and thus present upside opportunity through share gains. NDAQ holds the position that the clearing business in both the U.S. and Europe would benefit from competition, and it continues to lobby for interoperability.

Transaction-based business. Nasdaq OMX generates roughly one-third of its net revenues from transaction-oriented fees, which are dependent on industry trading volumes. This environment is largely outside of the company's control and is currently facing a host of dampening factors: (a) depressed markets, (b) tightening capital requirements, (c) decreased credit availability, (d) outflows of client funds, (e) trend towards passive investing, and (f) general investor malaise. Balancing these factors, all traditional asset classes have enjoyed a healthy growth trajectory over a long history, propelled by (a) increased money supply, (b) lower trading costs, (c) adoption of new asset classes, (d) new technology, and (e) increased confidence in capital markets. Regulatory changes: While the regulatory backdrop for exchanges is generally positive from our perspective, Nasdaq OMX remains exposed to some negative developments, the most prominent of which include transaction taxes or position limits. Both of these items have been discussed by U.S. and

European governments and regulators, which should give rise to some concern for investors. However, we generally regard the earnings risk as muted for position limits, which are likely to be mostly benign, and transaction taxes, which appear unlikely to receive approval and are generally regarded as harmful to a broader set of constituents than the financial industry itself.