© copyright 2005, the nasdaq stock market, inc. all rights

© Copyright 2005, The Nasdaq Stock Market, Inc. All rights reserved. 1© Copyright 2005, The Nasdaq Stock Market, Inc. All rights reserved.

The NASDAQ Stock Market

Jeff Singer

Vice President

December 7, 2005

2© Copyright 2005, The Nasdaq Stock Market, Inc. All rights reserved.

The NASDAQ Overview

Four lines of Businesses:Four lines of Businesses: Nasdaq in presence in CT:Nasdaq in presence in CT:

1. Security Listing

2. Transaction

3. Market Information

4. Financial Products

• 43 companies; predominately in Fairfield County

• Financial, Industrial, IT, and Health care are strongest sectors

• People’s Bank, Silgan, and United Natural Foods are the 3 largest companies

• ~ 300 employees in Trumbull, CT


How did we get here?


The Evolution of The NASDAQ Stock Market

First trading day on February 8th, with quotes on

2,500 securities

1971 1985

Apple and Microsoft list on

NASDAQ

2000 1991 / 1996First market to launch television advertising

campaign and WebSite

Decimalization&

SEC Regulation NMS

1981


$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

Jan-9

5

Jul-

95

Jan-9

6

Jul-

96

Jan-9

7

Jul-

97

Jan-9

8

Jul-

98

Jan-9

9

Jul-

99

Jan-0

0

Jul-

00

Jan-0

1

Jul-

01

Jan-0

2

Jul-

02

Jan-0

3

Jul-

03

Jan-0

4

Jul-

04

Jan-0

5

NASDAQ

NYSE

Relative quoted spread is the difference between the inside bid and ask for each trade averaged for the month.Contains all NASDAQ National Market stocks and all NYSE issues.Source: NASDAQ Economic Research.

Decimalization and technology enhancements have reduced transaction costs

ManningRules

Order Handling Rules

(Limit Order Display, ECN Integration)

1/16 QuoteIntegration

SelectNetEnhancements

Launch of SuperSoes

SuperMontage

Decimalization

Historic Spreads and NASDAQ Market Improvements

NASDAQ Market Center


How Decimalization Changed the Markets

1. The number of entry points to buy/sell increased 525%

2. Created incentive to “Step Ahead”

3. Required Large orders to be broken up, and

4. Order depth became less transparent

5. Use of electronic trading increased (60% of fund managers now use algorithmic trading)

6. Investors saved $$

7. Intermediaries lost money

• 500 to 260 market makers for NASDAQ

• 25 to 7 specialists on NYSE

• Charging service fees and other fees to recoup lost trading margins


0

4,000

8,000

12,000

16,000

20,000

24,000

28,000

Jan 01

Tra

nsacti

on

/sec.

0

.4

.8

1.2

1.6

2.0

2.4

2.8

3.2

3.6

Sh

are

Vo

lum

e

in B

illio

ns

Transaction Peaks

Avg Daily Share Volume

Today

NASDAQ Market CenterPeak Transactions Rates versus Share Volume

Decimalization’s Impact on NASDAQ: Transaction Rates up 25-fold

Average daily Volume remains unchanged


Next Major Change: SEC’s Reg NMS Reforms

February 25, 2004: The SEC publishes Reg NMS (National Market System) proposal. Features of the proposal include: sub-penny trading, market access, trade-through and market data pricing.

February 2005: Manual markets begin to communicate their transition to an electronic model.

April 6, 2005: The SEC approves Reg NMS, a reform designed to interlink domestic exchanges/markets to enhance competition and provide equal market access for all market participants.

Floor-Based Trading to Emulate NASDAQ’s Electronic Model

REg NMS Clip


Total NYSE Market Share is Declining even before Reg NMS

Source: NYSEData.com.

Reflects market share of consolidated tape volume. Off-floor Includes all volume in NYSE-listed securities not reported by the NYSE

74.00%

75.00%

76.00%

77.00%

78.00%

79.00%

80.00%

81.00%

Sep-04 Jan-05 May-05

Market share in trading of NYSE listed stocks

0%

2%

4%

6%

8%

10%

Sep-04 Jan-05 May-05

Source: NASDAQ

Data includes NASDAQ, Brut, ARCA, INET, and other electronic venues. Does not include routing.

NYSE Market Share Off-Floor Electronic Markets


$934.5mm cash acquisitionannounced April 22, 2005

Deal, cleared by DOJ and expected to close this year, will provide:

Superior execution opportunities for customers

Consolidation on to one trading platform in same timeframe as standalone

Efficient combined company with low cost structure to deliver returns to investors

Platform for future innovation and growth

Strong competitor in post NMS world

$190mm cash acquisition ofBrut in September 2004

Brut acquisition had a significant impact:

Provided deeper pools of liquidity and routing to other liquidity pools

Direct connectivity with customers who did not historically access the NASDAQ system

Enhanced routing capabilities, including routing for listed securities

Combined order books of the NASDAQ Market Center and Brut, giving customers the benefit of one liquidity pool

Synergies further strengthen operating margins and profitability

NASDAQ Consolidates Marketplaces Consolidation -- Efficiency -- Competition


What does market structure mean to you? Market Reaction

On November 17, 2004, Kmart Holding Corporation and Sears, Roebuck and Co agreed to merge.

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

9:30:00 AM 10:15:00 AM 11:00:00 AM 11:45:00 AM 12:30:00 PM 1:15:00 PM 2:00:00 PM 2:45:00 PM 3:30:00 PM

Quoted Spread November 17, 2004KMART

SEARSOn the day of the merger announcement, Kmart’s spread traded in a narrow band between $0.00 and $0.12, while Sears’ spread ranged from $0.01 to $0.57.

(Ce

nts)

SearsTrade Halt

Source: NASDAQ Economic Research

20,485,800(44%)

26,198,600(56%)

17,425,500(77%)

5,196,700(23%)

3,060,300(13%)

21,001,900(87%)

Total Volume Non-Block Volume Block Volume

Sears Share Volume November 17, 2004

9,821,300(14%)

59,248,500(86%)

6,553,500(13%)

45,593,600(87%)

3,267,800(19%)

13,654,900(81%)

Total Volume Non-Block Volume Block Volume

Sears Share Volume October 2004

NASDAQ AND OTHER OFF-BOARD NYSE

© Copyright 2005, The Nasdaq Stock Market, Inc. All rights reserved. 12

WHERE NASDAQ IS TODAY


SHARES EXECUTED AT OR INSIDE THE QUOTE

82.3%91.4%

80.7%91.8%

82.0%91.8%

EFFECTIVE SPREADS (Cents)

1.961.37

1.791.18

1.821.17

SPEED (Seconds)

20.16.0

17.74.2

18.55.1

NYSENASDAQ

Russell 1000 Stocks

Dow Jones US Large Cap Index Stocks

S&P 500 Stocks

Independent, Third-party Execution Quality Statistics as mandated by SEC Rule 11Ac1-5. Averages are share-weighted. Includes all domestic common stocks on NASDAQ National Market and NYSE. Data represent all marketable orders less than 10,000 shares traded by Primary Market only. Source: Market Systems, Inc., 01/2005..

NYSENASDAQ NYSENASDAQ

Stocks of All Sizes Trade Better on NASDAQ

Investors on NASDAQ are more likely to get the prices they are quoted, or better, and pay lower transaction costs.

In SummaryNASDAQ’s Speeds are

3.7x FasterNASDAQ’s Spreads are

0.62¢ CheaperNASDAQ’s Executions

are 10% Better


28%19%

2%

15%

3%

11%22%

2%

NASDAQ IS A Market of Industry Leaders

Health Care

Information Technology

Financials

Telecom

Industrials

Energy & Utilities

Consumer

Materials

NASDAQ is home to category-defining companies drawn from all sectors of the economy.

By number of companies. Consumer is consumer discretionary and consumer staples.Source: FactSet Research Systems, Inc. 10/2005.

NASDAQ’s 3,200 Listed Companies

Health Care

Consumer

Industrials

Financials

Information Technology

Telecom


7 81

4

2532

43

19

4 2

9

2000 2001 2002 2003 2004 2005*

NASDAQ Dual Listed

NYSE SwitchesNASDAQ Switches

397

63 51 56

113

48 34 35 23

80 64

3 4 4 9 14

170

6

2000 2001 2002 2003 2004 2005*

NASDAQ NYSE

AMEX

NASDAQ Continues Momentum in 2005

NASDAQ continues to dominate IPO listings, reduce switches, and build the Dual List program

IPO section: Includes domestic and foreign IPOs (NNM and SCM), best-efforts and bank demutualizations. Excludes unit investment trusts and fully classified closed-end funds.Does not include ARCX IPOs for 2004 (1 company). •Source: NASDAQ, EquiDesk. Data as of 11/31/2005.

Number of IPOs by Market

► NASDAQ has captured 59% of the IPO market in 2005.

► NASDAQ has successfully switched 4 companies from the NYSE in 2005 – Sears Holdings, Cadence Design Systems, Tasty Baking, and Nashua Corporation.

► A total of 8 companies are currently dual listed on NASDAQ. In 2005, 3 additional companies; Chicago Mercantile Exchange, Nuveen, and Harmony Gold Mining Company, have joined the Dual List program.

Number of Companies that Switched per Year

Dual List Program


And most recently…

2002 2005

BRUT Acquisition

2004

Sears Holdings lists with NASDAQ after a 100-year

history with NYSE

Jet Blue

http://www.sears.com/sr/javasr/home.do?adCell=P1&BV_UseBVCookie=Yes


Conclusion

1. MARKETS ARE EVOLVING

2. MARKETS FAVOR INNOVATORS

© copyright 2005, the nasdaq stock market, inc. all rights

Business

nasdaq national market

market access

market makers

market information4

nasdaq economic research

market data pricing

unchanged8 copyright

ct3 copyright