As filed with the U.S. Securities and Exchange Commission on November 16, 2001

                                                             File No. 000-32651

                               UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549
                              Amendment No. 5

                                     To

                                  Form 10

                GENERAL FORM FOR REGISTRATION OF SECURITIES
                 PURSUANT TO SECTION 12(b) OR 12(g) OF THE
                      SECURITIES EXCHANGE ACT OF 1934

                       The Nasdaq Stock Market, Inc.

                        (Exact Name of Registrant as
                         Specified in its Charter)

                    Delaware                                  52-1165937
(State or Other Jurisdiction of Incorporation or           (I.R.S. Employer
                  Organization)                          Identification No.)

               One Liberty Plaza                                10006
              New York, New York                              (Zip Code)
             (Address of Principal
              Executive Offices)
       
                       Registrant's telephone number,
                            including area code:
                                212-858-4750

                                 Copies to:

    Edward S. Knight, Esq.                       Matthew J. Mallow, Esq.
The Nasdaq Stock Market, Inc.                    Eric J. Friedman, Esq.
      One Liberty Plaza                Skadden, Arps, Slate, Meagher & Flom LLP
   New York, New York 10006                         Four Times Square
                                                 New York, New York 10036

     Securities to be registered pursuant to Section 12(b) of the Act:

                               Not Applicable

       Title of each class                      Name of each exchange on which
       to be so registered                       each class to be registered

     Securities to be registered pursuant to Section 12(g) of the Act:

                   Common Stock, par value $.01 per share
                              (Title of class)



                             TABLE OF CONTENTS

                                                                           Page

Item 1.      Business.........................................................1

Item 2.      Financial Information...........................................39

Item 3.      Properties......................................................57

Item 4.      Security Ownership of Certain Beneficial 
             Owners and Management...........................................57

Item 5.      Directors and Executive Officers................................61

Item 6.      Executive Compensation..........................................65

Item 7.      Certain Relationships and Related Transactions..................69

Item 8.      Legal Proceedings...............................................71

Item 9.      Market Price of and Dividends on the 
             Registrant's Common Equity and Related Stockholder Matters......71

Item 10.     Recent Sales of Unregistered Securities.........................72

Item 11.     Description of Registrant's Securities to be Registered.........72

Item 12.     Indemnification of Directors and Officers.......................76

Item 13.     Financial Statements and Supplementary Data.....................76

Item 14.     Changes in and Disagreements with 
             Accountants on Accounting and Financial Disclosure..............78

Item 15.     Financial Statements and Exhibits...............................78

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..................................F-1



Certain statements in this registration statement (the "Registration
Statement") contain or may contain forward-looking statements that are
subject to known and unknown risks, uncertainties and other factors which
may cause actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. These forward-looking
statements were based on various factors and were derived utilizing
numerous assumptions and other factors that could cause actual results to
differ materially from those in the forward-looking statements. These
factors include, but are not limited to, The Nasdaq Stock Market, Inc.'s
("Nasdaq") ability to implement its strategic initiatives, economic,
political and market conditions and fluctuations, government and industry
regulation, interest rate risk, U.S. and global competition, and other
factors. Most of these factors are difficult to predict accurately and are
generally beyond our control. You should consider the areas of risk
described in connection with any forward-looking statements that may be
made herein. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of November 16, 2001.
Readers should carefully review this Registration Statement in its
entirety, including but not limited to Nasdaq's financial statements and
the notes thereto and the risks described in "Item 1. Business-Risk
Factors." Except for Nasdaq's ongoing obligations to disclose material
information under the Federal securities laws, Nasdaq undertakes no
obligation to release publicly any revisions to any forward-looking
statements, to report events or to report the occurrence of unanticipated
events. For any forward-looking statements contained in any document,
Nasdaq claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of
1995.

Item 1.    Business.

Nasdaq Overview

Nasdaq operates The Nasdaq Stock Market(R), the world's largest electronic,
screen-based equity securities market and the largest equity securities
market in the world based on dollar volume. Since its inception in 1971,
Nasdaq has been a leader in utilizing technology to democratize and extend
the reach of the securities markets, with a current goal of becoming a
truly global securities market.

Nasdaq provides products and services in the following three principal
categories:

         o        Corporate Client Group services (formerly known as
                  issuer services) provide information services and
                  products to Nasdaq-listed companies and is responsible
                  for obtaining new listings on The Nasdaq Stock Market. In
                  fiscal year 2000, Corporate Client Group services
                  accounted for revenues of $149.3 million, which
                  represented approximately 17.9% of Nasdaq's total
                  revenues. For the nine months ended September 30, 2001,
                  Corporate Client Group services accounted for revenues of
                  $116.5 million, which represented approximately 18.2% of
                  Nasdaq's total revenues. See "--Products and
                  Services--Corporate Client Group Services" and "--
                  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations."

         o        Transaction services include collecting, processing and
                  disseminating price quotes of Nasdaq-listed securities,
                  the routing and execution of buy and sell orders for
                  Nasdaq-listed securities and transaction reporting
                  services. Market participants in The Nasdaq Stock Market,
                  consisting of market makers, electronic communication
                  networks ("ECNs") and order entry firms, each of which is
                  described below, are the users of Nasdaq's transaction
                  services. In fiscal year 2000, transaction services
                  accounted for revenues of $395.1 million, which
                  represented approximately 47.4% of Nasdaq's total
                  revenues. For the nine months ended September 30, 2001,
                  transaction services accounted for revenues of $305.8
                  million, which represented approximately 47.6% of
                  Nasdaq's total revenues. See "--Products and
                  Services--Transaction Services" and "-- Management's
                  Discussion and Analysis of Financial Condition and
                  Results of Operations."

         o        Market information services provide varying levels of
                  quote and trade information to data vendors, who in turn
                  sell it to the public. In fiscal year 2000, market
                  information services accounted for revenues of $258.3
                  million, which represented approximately 31.0% of
                  Nasdaq's total revenues. For the nine months ended
                  September 30, 2001, market information services accounted
                  for revenues of $176.9 million, which represented
                  approximately 27.6% of Nasdaq's total revenues. See
                  "--Products and Services--Market Information Services"
                  and "--Management's Discussion and Analysis of Financial
                  Condition and Results of Operations."

Nasdaq's growth and operating results are directly affected by the trading
volume of Nasdaq-listed securities and the number of companies listed on The
Nasdaq Stock Market. The following table illustrates Nasdaq's performance:

<TABLE>
<CAPTION>

                                  For the 12 months ended      For the 12 months ended        For the nine months
                                     December 31, 1996            December 31, 2000         ended September 30, 2001
------------------------------- ---------------------------- ---------------------------- -----------------------------
<S>                                                   <C>                          <C>                    <C>
Total share volume (billions)                         138.1                        442.8                         352.1
                                           (124.7 */13.4**)              (424.0*/18.8**)                (347.8*/4.3**)
------------------------------- ---------------------------- ---------------------------- -----------------------------
Percentage of total shares                            55.6%                        61.6%                         59.7%
traded in the primary United
States markets
------------------------------- ---------------------------- ---------------------------- -----------------------------
Dollar volume of equity                            $3,301.7                    $20,395.4                      $8,587.3
securities traded on The                ($3,225.8*/$75.9**)        ($20,273.7*/$121.7**)           ($8,571.1*/$16.2**)
Nasdaq Stock Market (billions)
------------------------------- ---------------------------- ---------------------------- -----------------------------
Percentage of dollar volume                           44.3%                        62.9%                         49.9%
of all equity securities
traded in the primary United
States markets
------------------------------- ---------------------------- ---------------------------- -----------------------------
Average Daily Share Volume                            543.7                     1,756.9                        1,913.8
(millions)                                  (490.9*/52.8**)            (1,682.4*/74.5**)             (1,890.4*/23.4**)
------------------------------- ---------------------------- ---------------------------- -----------------------------
Average Daily Dollar Volume                           $13.0                        $81.0                         $46.7
(billions)                                  ($12.7*/$0.3**)              ($80.5*/$0.5**)               ($46.6*/$0.1**)
------------------------------- ---------------------------- ---------------------------- -----------------------------
Number of Nasdaq-listed                               5,556                        4,734                         4,218
companies (at period end)                  (4,147*/1,409**)               (3,827*/907**)                (3,434*/784**)
------------------------------- ---------------------------- ---------------------------- -----------------------------
Total domestic shares                                  76.2                        164.2                         160.9
outstanding (billions)                       (64.7*/11.5**)               (156.3*/7.9**)                (152.6*/8.3**)
(at period end)
------------------------------- ---------------------------- ---------------------------- -----------------------------
Market value of Nasdaq-listed                      $1,517.1                     $3,597.1                      $2,303.1
companies (billions)(at period end)     ($1,471.1*/$46.0**)          ($3,579.4*/$17.7**)           ($2,282.4*/$20.7**)
------------------------------- ---------------------------- ---------------------------- -----------------------------
</TABLE>


*     Indicates figures of companies listed on The Nasdaq National Market
      tier of The Nasdaq Stock Market.

**    Indicates figures of companies listed on The Nasdaq SmallCap Market
      tier of The Nasdaq Stock Market.

As a result of this business growth, Nasdaq's pro forma total revenues
increased from $305.0 million in 1996 to $832.7 million in 2000. During the
same period, Nasdaq's pro forma net income increased from $24.1 million in
1996 to $124.4 million in 2000. For the nine months ended September 30,
2001, Nasdaq's total revenues were $641.8 million and net income was $53.7
million. Pro forma amounts assume the change in accounting principle
adopted as of January 1, 2000 is applied retroactively. See "Item 2.
Financial Information--Selected Consolidated Financial Data," "--

Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Consolidated Financial Statements--Note 4."

As of September 30, 2001 there were 4,218 companies listed on The Nasdaq
Stock Market, consisting of 3,434 companies listed on The Nasdaq National
Market tier and 784 on The Nasdaq SmallCap Market tier. As of September 30,
2001, The Nasdaq Stock Market was home to the highest percentage of
publicly-traded technology and service companies in the U.S., including
approximately 77% of computer hardware and peripherals companies, 96% of
computer networking companies, 85% of computer software and data processing
companies, 86% of semiconductor companies, 70% of telecommunications and
electronic companies, and 81% of biotechnology and health care companies.
In addition, as of September 30, 2001, there were 458 foreign companies
listed on The Nasdaq Stock Market, more than on any other U.S. equities
market, consisting of 366 foreign companies listed on The Nasdaq National
Market tier and 92 on The Nasdaq SmallCap Market tier. The number of listed
companies includes those companies that may have otherwise been subject to
delisting if not for a temporary suspension of certain listing standards
effective as of September 26, 2001. See "--Products and Services--Corporate
Client Group Services."

Nasdaq's Market Model

Nasdaq's market model is one of "open architecture." Participation in the
trading activities on The Nasdaq Stock Market is not limited to any fixed
number of market participants. This allows a large number of broker-dealers
with widely different business models and trading technologies to
participate in the Nasdaq network and compete with one another. The Nasdaq
network, called the "Enterprise Wide Network II," is a telecommunications
network that Nasdaq uses to deliver transaction and market information
services to its market participants. See "--Products and
Services-Transaction Services-Access Services." Market participants can
access the network via the Nasdaq Workstation II, Nasdaq's proprietary
operating system for the network, or through other customized operating
systems. See "--Products and Services--Transaction Services--Access
Services."

Market makers, also known as dealers, provide liquidity (the ability of a
stock to absorb a large amount of buying and selling without substantial
movement in price) by being willing to buy or sell securities at all times
at publicly-quoted prices for their own account and by maintaining an
inventory of securities for their customers. Market makers in a particular
stock are required at all times to post their bid and offer prices (i.e.,
price at which they will buy and sell) into the Nasdaq network where they
can be viewed and accessed by all market participants. Over 400 market
makers participate in The Nasdaq Stock Market. On average, stocks listed on
The Nasdaq Stock Market have 13 market makers. The minimum number of market
makers for any Nasdaq-listed stock is two and some stocks have over 80
market makers.

In addition to traditional market makers, the Nasdaq network also includes
other broker-dealers operating as ECNs. ECNs provide electronic facilities
for investors to trade directly with one another without going through a
market maker. ECNs operate as order-matching and order-routing mechanisms
and do not maintain inventories of securities themselves. Nasdaq also
connects to other registered exchanges through SelectNet(R), SOES(sm) and
SuperSoes(sm) (which are described below) for Nasdaq-listed stocks and
through the Intermarket Trading System for exchange-listed stocks. The
flexibility of the Nasdaq network means that innovators with new trading
technologies or strategies have an opportunity to implement them quickly in
The Nasdaq Stock Market.

An order entry firm is a broker-dealer, but not a market maker or an ECN.
An order entry firm can use Nasdaq services to view price quotations and
route customer orders for securities to a market maker or ECN posting
quotes in The Nasdaq Stock Market for that security so that such orders can
be executed.

Nasdaq's electronic systems centralize the price quotations from all market
participants in a given Nasdaq-listed stock to help them compete and allow
them to choose with whom they are going to trade. Nasdaq also gathers the
trade and quote information from all of these market participants and
passes it on to data vendors who resell this information to the investment
community and the general public.

Nasdaq's History

Founded in 1971, Nasdaq was a wholly-owned subsidiary of the National
Association of Securities Dealers, Inc. (the "NASD") until June 2000. The
NASD, which operates subject to the oversight of the U.S. Securities and
Exchange Commission (the "SEC"), is the largest self-regulatory
organization ("SRO") in the United States with a membership that includes
virtually every broker-dealer that engages in the securities business with
the U.S. public. See "-- The Restructuring." In 2000, the NASD implemented
a separation of Nasdaq from the NASD by restructuring and broadening the
ownership in Nasdaq (the "Restructuring") through a two-phase private
placement of securities commencing in June 2000. The principal goals of the
Restructuring, among others, were to (i) raise proceeds to create a
financially stronger Nasdaq better able to invest in new technologies and
address competitive challenges and global opportunities, (ii) raise
proceeds to support the operations of the NASD, which would remain the
principal SRO responsible for the securities markets, and (iii) realign
strategically the ownership of Nasdaq by enlisting a broad class of
strategic investors interested in Nasdaq's long-term success. In the
private placements, (i) the NASD sold (A) an aggregate of 10,806,794
warrants to purchase an aggregate amount of 43,227,176 shares of
outstanding Common Stock and (B) 4,543,291 shares of outstanding Common
Stock and (ii) Nasdaq sold an aggregate of 28,692,543 newly-issued shares
of Common Stock. Securities in the private placements were offered to all
NASD members, certain issuers listed on The Nasdaq Stock Market and certain
investment companies. See "-- The Restructuring." As of November 15, 2001,
the NASD beneficially owned approximately 25% of Nasdaq on a fully diluted
basis, which assumes (i) the full exercise of all outstanding warrants sold
by the NASD, (ii) the conversion of Nasdaq's outstanding securities that
are convertible into shares of Common Stock, and (iii) the exercise of
outstanding options to purchase shares of Common Stock. As of November 15,
2001, the NASD beneficially owned approximately 69% of Nasdaq on a
non-diluted basis. As a result of the private placements of its Common
Stock, pursuant to Section 12(g) of the Exchange Act, as of June 29, 2001,
Nasdaq became subject to the reporting requirements under Sections 13, 14
and 16 of the Exchange Act of 1934, as amended (the "Exchange Act"). See
"--The Restructuring."

In connection with the Restructuring, Nasdaq has filed an application with
the SEC to become registered as a national securities exchange ("Exchange
Registration"). In general, Exchange Registration is a change in legal
status for Nasdaq as opposed to a change in the way Nasdaq operates. There
is no assurance that Nasdaq's application for Exchange Registration will be
granted or as to the exact timing of Exchange Registration. See"--Risk
Factors--The SEC may challenge or not approve Nasdaq's plan to become a
national securities exchange or it may require changes in the manner Nasdaq
conducts its business before granting its approval." Information relating
to Nasdaq's application can be found at the SEC's web site at
http://www.sec.gov/rules/other/34-44396.htm. The SEC has stated that its
approval of Exchange Registration is linked to the NASD's ability to
provide an alternative facility to NASD members to assist in the quotation
and transaction reporting of exchange-listed securities. As a registered
national securities association, pursuant to the Exchange Act, the NASD is
required to provide a facility and mechanisms for "collecting bids, offers,
quotation sizes and aggregate quotation sizes from responsible brokers or
dealers who are members of such exchange or association, processing such
bids, offers and sizes, and making such bids, offers and sizes available to
quotation vendors." Upon Exchange Registration, Nasdaq would no longer
satisfy this requirement for the NASD. As a result, the SEC's present
position appears to be that the NASD must have a quotation and transaction
reporting facility for securities listed on The Nasdaq Stock Market, the
New York Stock Exchange, Inc. (the "NYSE") and the American Stock Exchange
LLC ("Amex") in place upon Exchange Registration. The NASD has retained a
third-party vendor to assist it in the establishment of this facility and
contemplates that the facility will not be operational until at least the
second quarter of 2002.

Until such time as Nasdaq may obtain Exchange Registration, Nasdaq's legal
authority to operate as a stock market is delegated to it by the NASD under
a plan approved by the SEC (the "Delegation Plan"). Pursuant to the
Delegation Plan, the NASD must retain greater than 50% of the voting
control over Nasdaq. For a more detailed discussion of Exchange
Registration and certain of the related agreements between Nasdaq and the
NASD, see "--The Restructuring" and "--Exchange Registration."

If Nasdaq obtains Exchange Registration it will receive its own SRO status,
separate from that of the NASD. Pursuant to the Exchange Act, SROs include
any recognized national securities exchange, registered securities
association (of which the NASD is currently the only one), or registered
clearing agency, or, for certain purposes, the Municipal Securities
Rulemaking Board. In general, a SRO is responsible for regulating its
members through the adoption and enforcement of rules and regulations
governing the business conduct of its members. As a SRO, Nasdaq will have
its own rules pertaining to its members and listed companies regarding
listing, membership and trading that are distinct and separate from those
rules applicable generally to broker-dealers as administered by the NASD.
Broker-dealers will be able to choose to become members of Nasdaq, in
addition to their other SRO memberships, including membership in the NASD.
In addition, Exchange Registration will enable the NASD to achieve its
stated intention to divest itself completely of an ownership interest in
Nasdaq. See "--Exchange Registration" and "--Other Recent Transactions."

Whether or not Nasdaq is granted Exchange Registration is not expected to
have a financial impact on Nasdaq in the short-term. In the long-term,
however, Exchange Registration is expected to improve the competitive
position of Nasdaq. An independent Nasdaq will have greater access to the
capital markets in order to raise funds for service enhancements and the
flexibility to use its Common Stock in connection with acquisitions or
other strategic partnerships.

In April 2001, the Nasdaq Board of Directors (the "Nasdaq Board") approved
in principle taking steps to prepare for an initial public offering ("IPO")
of its Common Stock. Nasdaq's ability to consummate an IPO, and the timing
of an IPO, will be determined at the Nasdaq Board's discretion and will
depend on a variety of factors which may include SEC action on Nasdaq's
Exchange Registration application, the progress of several important
technology initiatives such as the Nasdaq Order Display Facility
("SuperMontage(sm)"), and favorable market conditions. Currently, Nasdaq
does not expect to proceed with an IPO without first obtaining Exchange
Registration; however, Nasdaq can proceed with an IPO without Exchange
Registration if the Nasdaq Board so determines. In light of current market
conditions it is not expected that an IPO of Nasdaq's Common Stock will
occur in 2001. However, whether or not Nasdaq proceeds with an IPO in the
near term is not expected to have a material impact on its business.

Industry Overview

Traditional stock exchanges, such as the NYSE, require that all trades in a
single stock take place in a single physical location on a trading floor.
At that location, a member of the exchange known as a designated dealer
oversees the trading in that stock. The designated dealer has an obligation
to maintain a "fair and orderly market" and acts as both a market maker and
an auctioneer. Similar to any one of The Nasdaq Stock Market's market
makers, the designated dealer is required to post bid and offer price
quotations at all times. When interest is shown in a displayed order, the
designated dealer solicits additional interest from brokers present on the
floor, or for his own account. The designated dealer oversees the "order
book" of orders that are routed to the floor of the NYSE. This order book
has traditionally been unavailable for the public to view; however,
Nasdaq's quote montage is available to the public. As a fully electronic
market, The Nasdaq Stock Market itself does not have a central trading
floor.

In addition to the NYSE's designated dealer, there are numerous floor
brokers who negotiate larger orders face-to-face for their customers.
Typically, a floor broker receives an order from a brokerage firm and then
walks over to the specialist post where the stock is traded. The floor
broker then negotiates with the designated dealer and any other floor
brokers interested in the same stock to try to fill the order. Smaller
orders on a traditional exchange are generally routed electronically to the
designated dealer's order book.

Exchanges usually limit the number of their members. In order to become a
member, one has to purchase a membership, called a seat, from another
member who wants to sell.

Stock exchanges naturally sprang up in many cities to accommodate the needs
of local investors. Advances in communication reduced the need for so many
exchanges, and many of them merged with other stock exchanges in regional
or national alliances. A number of regional stock exchanges still survive
albeit in different form. Some of these exchanges have a few exclusive
"local" stocks, but most compete in the business of trading the more active
NYSE- and Nasdaq-listed stocks. Although some of the regional exchanges
still have physical trading floors, for the most part their designated
dealers are acting as dealers filling electronically submitted orders from
retail firms. The regional exchanges include the Boston, Chicago,
Cincinnati, Pacific and Philadelphia exchanges.

Regulatory and technological developments have led to gradual changes in
the industry and have resulted in greater competition in the trading of
securities. The emergence of alternative trading systems-a term that refers
generally to internal trading systems that are designed to match buyers and
sellers of securities on an agency basis and includes ECNs-has provided an
additional venue for investors to transact certain trades. Nasdaq
encourages the use of internal or alternative systems to trade securities
and considers these systems an important component of The Nasdaq Stock
Market in that they report trades through The Nasdaq Stock Market and
display their best bid and offer on the market and transact on The Nasdaq
Stock Market. For the quarter ended September 30, 2001, ECNs accounted for
approximately 32% of the total share volume on The Nasdaq Stock Market and
approximately 37% of the total dollar volume on The Nasdaq Stock Market.

The following table sets forth information comparing the primary U.S.
markets for 1996, 2000 and the nine month period ended September 30, 2001:

<TABLE>
<CAPTION>

------------------------------- ------------------------------ ------------------------------ ------------------------------
                                   For the 12 months ended        For the 12 months ended       For the nine months ended
                                      December 31, 1996              December 31, 2000             September 30, 2001
                                ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------
                                The        NYSE       Amex     The        NYSE       Amex     The        NYSE       Amex
                                Nasdaq                         Nasdaq                         Nasdaq
                                Stock                          Stock                          Stock
                                Market                         Market                         Market
------------------------------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------
<S>                             <C>        <C>        <C>      <C>        <C>        <C>      <C>        <C>        <C> 
Total share volume (billions)   138.1      104.6        5.6     442.8      262.5      13.3     352.1      225.1      12.5
------------------------------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------
Total dollar volume              $3.3       $4.1       $0.1     $20.4      $11.1      $1.0      $8.6       $8.0      $0.6
(trillions)
------------------------------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------
Average daily share volume        0.5        0.4        0.0       1.8        1.0       0.1       1.9        1.2       0.1
(billions)
------------------------------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------
Average daily dollar            $13.0      $16.0       $0.4     $80.9      $43.9      $3.8     $46.7      $43.4      $3.5
volume
(billions)
------------------------------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------
Number of listed companies      5,556      2,907        751     4,734      2,862       765     4,218      2,813       697
(at period end)
------------------------------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------
</TABLE>



National Market System

Until the 1970s, each exchange acted independently to disseminate its
market information on its own terms. In the 1970s, Congress passed
legislation and the SEC adopted rules to create a national market system.
As a result, participants in U.S. securities markets have access to a
consolidated stream of quotation and transaction information from all the
exchanges and The Nasdaq Stock Market (acting under the Delegation Plan)
for most equity securities. The exchanges and The Nasdaq Stock Market act
jointly to collect and disseminate this information under national market
system plans approved by the SEC. The price and transaction information
collected under these national market system plans is sold to data vendors,
who in turn sell the information to the public. After costs are deducted,
the revenue generated by the sale of the information to the data vendors is
distributed among the participants in each of the national market system
plans based on their transaction volume. The national market system plans
include:

      o     the Nasdaq Unlisted Trading Privileges Plan ("UTP Plan"), which
            collects and disseminates price and transaction information for
            approximately 1,000 securities listed on The Nasdaq National
            Market (sm). Members of the plan are the NASD and certain
            regional exchanges. 
      o     the Consolidated Quotation Plan, which collects and
            disseminates quotation information for securities listed on the
            NYSE and Amex. All of the exchanges and the NASD are members of
            this plan. 
      o     the Consolidated Tape Association Plan, which collects and
            disseminates transaction information for NYSE and Amex
            securities. All of the exchanges and the NASD are members of
            this plan. 
      o     the Intermarket Trading System, which is a communications
            system that allows orders to be sent to the exchange or market
            quoting the best price. All of the exchanges and the NASD are
            members of the Intermarket Trading System Plan.

Nasdaq, operating under the Delegation Plan, currently acts on behalf of
the NASD in each of these plans and intends to become a member in its own
right of each of these plans when and if it becomes an exchange.

Products and Services

Nasdaq's products and services fall into three principal categories:

(1) Corporate Client Group services;

(2) transaction services; and

(3) market information services.

Set forth below are descriptions of each of these categories and their
respective fee structures as of the date of this filing. These fees are
subject to change. See "--Fee Changes."

Corporate Client Group Services. Corporate Client Group services provide
information and services and products to Nasdaq-listed companies and is
responsible for obtaining new listings on The Nasdaq Stock Market. The
Nasdaq Stock Market is the flagship market of Nasdaq and has two tiers of
listed companies. As of September 30, 2001, The Nasdaq Stock Market listed
4,218 domestic and international companies, the largest number of listings
of any equity market in the world. These listings included 3,434 companies
listed on The Nasdaq National Market, and 784 smaller, emerging growth
companies on The Nasdaq SmallCap Market. As of September 30, 2001, The
Nasdaq Stock Market had the highest percentage of publicly traded
technology and service companies in the United States and had 458 foreign
companies listed, more than any other U.S. equities market, consisting of
366 foreign companies listed on The Nasdaq National Market tier and 92 on
The Nasdaq SmallCap Market tier. The number of listed companies at
September 30, 2001 includes those companies that may have otherwise been
subject to delisting if not for a temporary suspension of certain listing
standards effective as of September 26, 2001, as discussed below.

From January 1, 1996 through September 30, 2001, 2,367 IPOs, approximately
84% of all IPOs on primary U.S. markets during this period, listed on The
Nasdaq Stock Market. These IPOs raised over $166 billion, approximately 45%
of the total dollar value raised in U.S. IPOs during this period. Of all
U.S. IPOs during the year ended December 31, 2000, 397 companies,
approximately 88% of U.S. IPOs during this period, listed on The Nasdaq
Stock Market. These IPOs raised over $52.5 billion, approximately 47% of
the total dollar value raised in U.S. IPOs during this period. Of all the
U.S. IPOs in the nine months ended September 30, 2001, 39 companies,
approximately 60% of U.S. IPOs during this period, listed on The Nasdaq
Stock Market. These IPOs raised over $5.7 billion, approximately 19% of the
total dollar value raised in U.S. IPOs during this period. The reduction in
The Nasdaq Stock Market's percentage of U.S. IPOs during the first nine
months of 2001 reflects a decline in general market and economic
conditions, which have impacted the ability of traditional growth companies
to access the public equity markets. In addition, during this period there
has been an increased number of IPOs of companies being spun-off from
already public parent companies that, in general, have not operated in
traditional growth industries. During the first nine months of 2001, these
spin-offs accounted for 15% of all U.S. IPOs and approximately 56% of the
total dollar value raised in all U.S. IPOs during this period. Of the 10
spin-offs during this period, nine of the spin-offs were subsidiaries of
NYSE-listed companies, six of which also listed on the NYSE. In comparison,
during the first nine months of 2000, the number of IPO spin-offs from
public companies accounted for only 5% of all U.S. IPOs and approximately
14% of the total dollar value raised in U.S. IPOs during this period.

Over 72% of all the IPOs that have listed on The Nasdaq Stock Market from
January 1, 1996 through September 30, 2001 have listed on The Nasdaq
National Market and the remaining companies have listed on The Nasdaq
SmallCap Market.

The Nasdaq Stock Market's overall number of listings has declined from a
high of 5,556 listings at December 31, 1996 to 4,218 listings at September
30, 2001. During this period, the net number of listings on The Nasdaq
National Market has declined by 713 and the net number of listings on The
Nasdaq SmallCap Market has declined by 625. However, despite the decline in
the number of listings, the total number of shares outstanding on The
Nasdaq Market has increased from approximately 76.2 billion (approximately
64.7 billion of which were outstanding on The Nasdaq National Market) at
December 31, 1996 to approximately 160.9 billion (approximately 152.6
billion of which were on The Nasdaq National Market) at September 30, 2001.

Companies cease being listed on The Nasdaq Stock Market for three primary
reasons: (i) the failure to meet The Nasdaq Stock Market's listing
standards, in particular, the more rigorous listing standards instituted in
1997, (ii) the consolidation of listings due to merger and acquisition
activity, and (iii) Nasdaq-listed companies switching their listing to
another market, such as the NYSE or Amex. See "--Competition--Corporate
Client Group Services." The 1997 implementation of more rigorous listing
standards included an increase in the minimum requirements for an issuer's
net tangible assets, market capitalization and net income, an increase in
the minimum bid price requirement, an increase in the number of market
makers required for an issuer's security and the imposition of more
stringent corporate governance standards. From January 1, 1996 through
September 30, 2001, an aggregate of 4,221 issuers have ceased being listed
on The Nasdaq Stock Market. Of these 4,221 issuers, 2,063 issuers on The
Nasdaq Stock Market have been delisted by Nasdaq for failure to satisfy
listing standards (primarily the failure to satisfy the minimum bid
requirement), 1,674 issuers on The Nasdaq Stock Market have ceased being
listed due to mergers and consolidations, and 484 companies ceased being
listed as a result of switches to a competing market.

For the year ended December 31, 2000, 486 issuers ceased being listed on
The Nasdaq National Market and 164 issuers ceased being listed on The
Nasdaq SmallCap Market. One hundred twenty-eight issuers on The Nasdaq
National Market and 112 issuers on The Nasdaq SmallCap Market were delisted
by Nasdaq for failure to satisfy listing standards; 320 issuers on The
Nasdaq National Market and 40 issuers on The Nasdaq SmallCap Market were
delisted due to mergers and consolidations; and 38 issuers on The Nasdaq
National Market and 12 issuers on The Nasdaq SmallCap Market ceased being
listed as a result of switches to a competing market. For the nine months
ended September 30, 2001, 382 issuers ceased being listed on The Nasdaq
National Market and 195 issuers ceased being listed on The Nasdaq SmallCap
Market. One hundred seventy-five issuers on The Nasdaq National Market and
162 issuers on The Nasdaq SmallCap Market were delisted by Nasdaq for
failure to satisfy listing standards; 180 issuers on The Nasdaq National
Market and 33 issuers on The Nasdaq SmallCap Market were delisted due to
mergers and consolidations; and 27 issuers on The Nasdaq National Market
ceased being listed as a result of switches to a competing market.

The Nasdaq Stock Market has historically attracted traditional growth
companies and, as of September 30, 2001, it was home to the highest
percentage of publicly-traded technology and service companies in the U.S.
See "--Nasdaq Overview." From January 1, 1996 through September 30, 2001,
3,069 new companies listed on The Nasdaq Stock Market, 2,471 on The Nasdaq
National Market and 598 on The Nasdaq SmallCap Market. For the year ended
December 31, 2000, 579 new companies listed on The Nasdaq Stock Market, 485
on The Nasdaq National Market and 94 on The Nasdaq SmallCap Market. For the
nine months ended September 30, 2001, 101 new companies have listed on The
Nasdaq Stock Market, 80 on The Nasdaq National Market and 21 on The Nasdaq
SmallCap Market.

A company must meet all of the requirements under at least one of three
listing standards, as summarized below, for initial listing on The Nasdaq
National Market and must meet at least one continued listing standard below
to maintain its listing:


<TABLE>
<CAPTION>

------------------------ -------------------------------------------------- ---------------------------------
                                          Initial Listing                          Continued Listing
------------------------ -------------------------------------------------- ---------------------------------
     Requirements          Standard 1       Standard 2       Standard 3       Standard 1       Standard 2
------------------------ ---------------- ---------------- ---------------- ---------------- ----------------
<S>                        <C>              <C>                 <C>            <C>                 <C>
 Stockholders' Equity      $15 million      $30 million          N/A          $10 million          N/A

------------------------ ---------------- ---------------- ---------------- ---------------- ----------------
 Market Capitalization         N/A              N/A          $75 million          N/A          $50 million
                                                                 or                                or
     Total Assets
                                                             $75 million                       $50 million
                                                                 and                               and
     Total Revenue
                                                             $75 million                       $50 million
------------------------ ---------------- ---------------- ---------------- ---------------- ----------------
   Pretax Income (in       $1 million           N/A              N/A              N/A              N/A
  latest year or 2 of
     last 3 years)

------------------------ ---------------- ---------------- ---------------- ---------------- ----------------
 Public Float (shares)     1.1 million      1.1 million      1.1 million     0.75 million      1.1 million

------------------------ ---------------- ---------------- ---------------- ---------------- ----------------
   Operating History           N/A            2 years            N/A              N/A              N/A

------------------------ ---------------- ---------------- ---------------- ---------------- ----------------
Market Value of Public     $8 million       $18 million      $20 million      $5 million       $15 million
        Float*

------------------------ ---------------- ---------------- ---------------- ---------------- ----------------
  Minimum Bid Price*           $5               $5               $5               $1               $3

------------------------ ---------------- ---------------- ---------------- ---------------- ----------------
  Shareholders (round          400              400              400              400              400
     lot holders)

------------------------ ---------------- ---------------- ---------------- ---------------- ----------------
     Market Makers              3                3                4                2                4
------------------------ ---------------- ---------------- ---------------- ---------------- ----------------
 Corporate Governance          Yes              Yes              Yes              Yes              Yes
------------------------ ---------------- ---------------- ---------------- ---------------- ----------------
</TABLE>


* Effective September 26, 2001, Nasdaq has suspended the application of
this requirement for continued listings only, until January 2, 2002. (See
discussion below)

For initial and continued listing on The Nasdaq SmallCap Market, a company
must meet the list of requirements summarized below:


<TABLE>
<CAPTION>

------------------------------------------------------------ ---------------- --------------------
                       Requirements                          Initial Listing   Continued Listing
------------------------------------------------------------ ---------------- --------------------
<S>                                                            <C>               <C>         
                   Stockholders' Equity                        $5 million        $2.5 million
                                                                   or                 or

                   Market Capitalization                       $50 million        $35 million
                                                                   or                 or

   Net Income (in last fiscal year or 2 of last 3 fiscal      $0.75 million      $0.5 million
                          years)

------------------------------------------------------------ ---------------- --------------------
                   Public Float (shares)                        1 million         0.5 million

------------------------------------------------------------ ---------------- --------------------
               Market Value of Public Float*                   $5 million         $1 million

------------------------------------------------------------ ---------------- --------------------
                    Minimum Bid Price*                             $4                 $1

------------------------------------------------------------ ---------------- --------------------
             Shareholders (round lot holders)                      300                300

------------------------------------------------------------ ---------------- --------------------
                     Operating History                           1 year               N/A
                                                                   or
                   Market Capitalization                       $50 million

------------------------------------------------------------ ---------------- --------------------
                       Market Makers                                3                  2
------------------------------------------------------------ ---------------- --------------------
                   Corporate Governance                            Yes                Yes
------------------------------------------------------------ ---------------- --------------------
</TABLE>


* Effective September 26, 2001, Nasdaq has suspended the application of
this requirement for continued listings only, until January 2, 2002. (See
discussion below)

As used in the tables above, "Public Float" refers to those shares that are
not directly or indirectly held by any officer or director of the issuer or
any beneficial owner of more than 10 percent of the total number of shares
outstanding, and "Shareholders" is defined as a holder of 100 shares or
more.

In response to the general economic and market uncertainty after the
terrorist attacks on the United States on September 11, 2001, effective as
of September 26, 2001, Nasdaq formally suspended until January 2, 2002 two
requirements for continued listing on both The Nasdaq National Market and
The Nasdaq SmallCap Market. The two requirements are (1) minimum bid price,
and (2) market value of public float. All issuers that were under review or
in the hearings process for either of these requirements were taken out of
the deficiency review process with respect to these requirements. The
suspension had an immediate impact on 209 issuers--159 on The Nasdaq
National Market and 50 on The Nasdaq SmallCap Market. In addition to these
209 issuers, 47 issuers on The Nasdaq National Market and 30 issuers on The
Nasdaq SmallCap Market, while deficient in the minimum bid price and/or
market value of public float requirements, were also deficient in another
requirement. As such, these 77 issuers remained in the deficiency review
process.

The rules governing issuers on The Nasdaq Stock Market require that issuers
whose securities fall below the minimum bid price or fail to meet the
market value of public float requirement for 30 consecutive business days
are given a 90 day grace period to regain compliance. An issuer may
demonstrate compliance by meeting the applicable standard for a minimum of
10 consecutive business days. Issuers that fail to regain compliance within
the 90-day grace period are subject to delisting. In general, an issuer
may, upon receipt of a written determination from Nasdaq that it does not
qualify for initial or continued listing, request a hearing before a
Listing Qualifications Panel (the "Panel"), an independent panel composed
of at least two persons who are not employees of Nasdaq or its affiliates.
The request for a hearing stays the delisting action until the issuance of
a written determination from the Panel. An issuer may request review of the
Panel's decision by the Nasdaq Listing and Hearing Review Council (the
"Council"), a committee of eight to 18 members appointed by the Nasdaq
Board. No more than 50% of the Council's members may be engaged in
market-making activity or employed by an NASD member whose revenues from
market-making activity exceed 10% of its total revenues. The Council also
must include non-industry members, i.e., representatives of issuers on The
Nasdaq Stock Market or individuals who have no material business
relationship with a broker-dealer, Nasdaq, or its affiliates. A request for
such review does not operate as a stay of the Panel's decision. The Council
will consider the written record and may, in its discretion, hold
additional hearings. The Council will then issue a written decision
affirming, modifying, reversing the Panel's decision, or referring the
matter for further consideration. An issuer may appeal the final decision
regarding its status to the SEC pursuant to Section 19 of the Exchange Act.

Nasdaq charges issuers an initial listing fee, a listing of additional
shares ("LAS") fee, and an annual fee. The initial listing fee for
securities listed on The Nasdaq National Market or The Nasdaq SmallCap
Market includes a one-time listing application fee of $5,000 and a total
shares outstanding fee. The total maximum fee for the initial listing
application is $95,000 for The Nasdaq National Market and $10,000 for The
Nasdaq SmallCap Market. The estimated service period for initial listing
fees is six years. For the years ended December 31, 2000, 1999 and 1998,
Nasdaq's revenues from initial listing fees were $33.9 million, $27.4
million and $23.8 million, respectively. Revenue figures for 1999 and 1998
are pro forma, assuming a retroactive application of the 2000 change in
accounting principle. See "Item 2. Financial Information--Selected
Consolidated Financial Data," "--Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Consolidated Financial
Statements--Note 4." Nasdaq's initial listing fee revenues accounted for
approximately 4.1% of Nasdaq's total revenues for the year ended December
31, 2000. For the nine months ended September 30, 2001, Nasdaq's initial
listing fee revenues were $27.6 million, which accounted for approximately
4.3% of Nasdaq's total revenues for the period.

The fee for LAS is based on the total shares outstanding, which Nasdaq
reviews quarterly. The current fee is $2,000 beginning after the company
has issued 49,999 additional shares per quarter, or $.01 per additional
share, whichever is higher, up to a maximum of $22,500 per quarter and an
annual maximum of $45,000. The estimated service period for LAS fees is
four years. For the years ended December 31, 2000, 1999 and 1998, Nasdaq's
revenues from LAS fees were $33.6 million, $30.0 million and $28.1 million,
respectively. Revenue figures for 1999 and 1998 are pro forma, assuming a
retroactive application of the 2000 change in accounting principle. See
"Item 2. Financial Information--Selected Consolidated Financial Data," "--
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Consolidated Financial Statements Note 4." Nasdaq's LAS
fee revenues accounted for approximately 4.0% of Nasdaq's total revenues
for the year ended December 31, 2000. For the nine months ended September
30, 2001, Nasdaq's LAS fee revenues were $26.6 million, which accounted for
approximately 4.1% of Nasdaq's total revenues for the period.

Annual fees for securities listed on The Nasdaq National Market are based
on total shares outstanding and range from $10,710 to $50,000. The annual
fee for securities listed on The Nasdaq SmallCap Market is $4,000 for the
first class of securities and $1,000 for each additional class of
securities. For the years ended December 31, 2000, 1999 and 1998, Nasdaq's
revenues from all annual listing and other Corporate Client Group fees were
$81.8 million, $78.9 million and $79.3 million, respectively. Nasdaq's
annual listing fees and other Corporate Client Group services revenues
accounted for approximately 9.8% of Nasdaq's total revenues for the year
ended December 31, 2000. For the nine months ended September 30, 2001,
Nasdaq's annual listing fees and other Corporate Client Group services
revenues were $61.6 million, which accounted for approximately 9.6% of
Nasdaq's total revenues for the period.

In October 2001, Nasdaq filed with the SEC a proposed rule change to
increase listing related fees beginning January 1, 2002. See "--Fee Changes."

Following the initial listing, Nasdaq provides information services,
products and programs to Nasdaq-listed companies. Executives of
Nasdaq-listed companies are invited to participate in a variety of programs
on a wide range of topics, such as industry sector-specific seminars and
investor relation forums. These executives also have access to Nasdaq
Online(sm), a strategic planning tool provided free of charge to
Nasdaq-listed companies that was rated number one in a recent survey of the
top 10 favorite investor relations web sites by the National Investor
Relations Institute. Nasdaq Online presents market data on all U.S. traded
companies and real-time quotes for Nasdaq-listed stocks, as well as
information on institutional ownership, research coverage and performance
ratios. This combination of on-line real time data and analytical
information, along with a series of other seminars and programs, is
designed to help management of listed companies make better equity
management decisions. See "--Strategic Initiatives--Developing a Corporate
Client Center."

Each listed company is assigned a Corporate Client Group director who
oversees the listed company's relationship with Nasdaq. A schedule of calls
and visits along with invitations to various industry and market forums are
used to enhance customer satisfaction, keep companies informed of new
developments at Nasdaq, and discuss the benefits of a listing on The Nasdaq
Stock Market. Nasdaq also has created a program to educate investment
bankers, capital market dealers, institutional investors, and other
constituencies that influence listing decisions.

For the years ended December 31, 2000, 1999 and 1998 Nasdaq's total
revenues from Corporate Client Group services were $149.3 million, $136.4
million and $131.3 million, respectively. Corporate Client Group services
accounted for approximately 17.9% of Nasdaq's total revenues for the year
ended December 31, 2000. Revenue figures for 1999 and 1998 are pro forma,
assuming the retroactive application of the 2000 change in accounting
principle. See "Item 2. Financial Information--Selected Consolidated
Financial Data", "--Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Consolidated Financial Statements
Note 4." For the nine months ended September 30, 2001, Corporate Client
Group services revenues were $116.5 million, which accounted for
approximately 18.2% of Nasdaq's total revenues for the period.

Transaction Services. Transaction services are the core set of products
designed to provide market participants with price discovery tools
supported by the Enterprise Wide Network II communications network and the
Nasdaq Workstation II. As part of its price discovery function, Nasdaq
provides collection, processing and dissemination of price quotations of
Nasdaq-listed securities to its market participants. Price quotations are
made up of two parts-the bid and the offer. The bid is the displayed price
at which the quoting market maker or ECN is prepared to buy the security
from any seller in the marketplace. The offer is the displayed price at
which the quoting market maker or ECN is prepared to sell the security to
any buyer in the marketplace. Since market makers and ECNs may wish to pay
differing amounts to buy or sell a particular security, Nasdaq looks at all
the price quotations of the market makers and ECNs in that security and
independently ranks the bids and offers so that one can easily determine
the one who is willing to sell the security for the lowest price and the
one who is willing to buy the security at the highest price. This
combination of the best bid and the best offer is the "inside market" or
"inside quote." Included in the price quotations collected by Nasdaq are
the quotes of the exchanges that trade Nasdaq-listed securities under the
UTP Plan. As of November 8, 2001, the Chicago Stock Exchange, the
Cincinnati Stock Exchange, and the Boston Stock Exchange display quotes on
The Nasdaq Stock Market pursuant to the UTP Plan.

Once price quotations have been entered into the Nasdaq system, Nasdaq
processes the price quotations by updating the posted price and size (i.e.,
number of shares the posting party will buy or sell at that price) in
response to messages received from the party posting the price quotation.
Only registered market makers, ECNs and UTP Plan exchanges have the ability
to adjust their price and size quotations in the Nasdaq system.

In addition to quotations in Nasdaq-listed securities, Nasdaq also collects
and disseminates quotations in securities authorized for trading on the OTC
Bulletin Board Service(R) ("OTC Bulletin Board") as well as exchange-listed
securities that are traded in the over-the-counter market by NASD members.
See "--Other Markets--Nasdaq InterMarket" and "--OTC Bulletin Board."

Nasdaq's primary transaction services include (i) Order Routing and
Execution, (ii) Trade Reporting and Comparison and (iii) Access Services.

Order Routing and Execution. Historically, orders for Nasdaq-listed stocks
were communicated via the telephone. However, advances in technology made
routing of orders with electronic systems prevalent. Since the late 1980s,
Nasdaq has provided electronic routing of buy and sell orders for
Nasdaq-listed stocks to and from a market maker or ECN and the execution of
those orders through the use of automated systems. Order routing and
execution are the terms generally used to describe how orders to buy and
sell securities are directed to market participants as well as how these
orders are handled once they reach their destination. Order routing refers
to the act of transmitting orders to another market participant for action.
Order execution is a legally binding step in which orders are executed, or
responded to, once received by a market participant. During the last few
years Nasdaq has experienced increased usage of its electronic order
routing and execution systems. Approximately 27.0% of Nasdaq's share volume
(based on the aggregate number of shares traded) comes from orders routed
and executed using a Nasdaq system. The remaining 73.0% comes from internal
or alternative trading systems.

Nasdaq has the following systems that provide for order routing and/or
execution:

         o        The Nasdaq National Market Execution System (also known
                  as "SuperSoes(sm)") is a new, improved system for the
                  execution of buy and sell orders designed to provide
                  automatic execution capability for market makers, ECNs
                  and all their institutional and retail customers, and
                  streamline Nasdaq's transaction systems. The SuperSoes
                  system is only available for securities listed on The
                  Nasdaq National Market. Securities listed on The Nasdaq
                  SmallCap Market will continue to be traded through the
                  Small Order Execution System ("SOES(sm)") and SelectNet
                  (which are described below). SuperSoes was fully
                  implemented on July 30, 2001. SuperSoes combines features
                  of the existing SelectNet and SOES. Like SOES, SuperSoes
                  permits the automatic execution of trades against the
                  best price quotations of other market participants in The
                  Nasdaq National Market without the need for an agreement
                  to trade from the party providing the price quotation.
                  SuperSoes also relaxes the usage restrictions of SOES,
                  including the share size restriction. This system allows
                  the entry of single orders of up to 999,999 shares as
                  opposed to the SOES limit of 1,000 shares. In addition,
                  the time delay between executions of trades with the same
                  market maker at the same price for a single security is
                  eliminated.

                  SuperSoes is designed to encourage market participants to
                  make more shares available for trading. Using the
                  system's reserve size feature, market makers can enter
                  both a displayed share amount and an un-displayed
                  "reserve" size number of shares at the same price. Other
                  market participants see only the displayed number of
                  shares. However, if an order that is routed through the
                  system is of a size that would execute more than all of
                  the displayed quantity of shares, the system will also
                  automatically execute the remainder against the hidden
                  reserve shares. This capability is important to market
                  makers because many are reluctant to post a price
                  quotation for a large number of shares. Such a quotation
                  can cause other traders to quickly adjust their price
                  quotations knowing that the market maker, or the market
                  maker's customer, has a large amount of shares to buy or
                  sell. The reserve size feature allows market makers to
                  limit the price impact of displaying a large amount of
                  shares while still making these shares available for
                  trading in the market.

                  SuperSoes' restrictions on the use of SelectNet are
                  designed to prevent the situation that occurred
                  previously (as described below) in which a market maker's
                  price quotation could be accessed by both SOES and
                  SelectNet at the same time, resulting in the automatic
                  execution of the trade on SOES and the receipt of a
                  SelectNet message obligating the market maker to trade
                  such shares. The result of this process was that the
                  market maker became obligated to trade a number of shares
                  greater than the number for which it had made a price
                  quotation. To remedy this problem of the market maker's
                  liability to two trading systems, the rules of SuperSoes
                  are designed to ensure that all market participants are
                  obligated to trade only in response to orders received
                  from one system. Nasdaq believes that by eliminating the
                  potential for unintended trade obligations, it will
                  encourage market makers to commit more shares to the
                  market. The fees for SuperSoes as of November 1, 2001, to
                  be paid by the originating party, are as follows:

                  o        Order entry charge:        $0.10 per order entry

                  o        Order execution charge:    $0.002 per share executed

                  o        Cancellation fee:          $0.25 per order cancelled

                  As of November 1, 2001, Nasdaq will rebate a portion of
                  its per share execution fees received to market
                  participants in certain circumstances.

                  For the nine months ended September 30, 2001, Nasdaq's
                  total revenues from SuperSoes, which was implemented on
                  July 30, 2001, accounted for less than 2% of Nasdaq's
                  total revenues for the period.

         o        SelectNet is an automated Nasdaq market service that
                  facilitates order execution by linking all market
                  participants that trade Nasdaq-listed stocks. Prior to
                  the implementation of SuperSoes, SelectNet was the
                  primary system that market makers used to trade with one
                  another. It is also the Nasdaq system used to access ECN
                  price quotations and through which ECNs receive the price
                  quotations of other market makers. SelectNet operates as
                  a messaging system, allowing market participants to
                  direct an order message to a particular counter-party or
                  to broadcast such an order to all market participants
                  offering to buy or sell a security at a particular or
                  market price. If the order routed via SelectNet and the
                  posted price quotation to which the order is directed are
                  of a price and size such that a trade should take place,
                  SEC and NASD rules generally require the party making the
                  price quotation to respond through SelectNet agreeing to
                  the trade. Once the poster of the price quotation sends
                  its agreement to the trade back to the party directing
                  the order, the trade is executed and both parties receive
                  a confirmation of the transaction. SelectNet is available
                  for use by all market participants and also provides the
                  capability for users to independently negotiate the terms
                  of trades.

                  With the implementation of SuperSoes, SelectNet becomes
                  primarily a tool to be used by market makers to negotiate
                  trades. Market makers are now prohibited from sending
                  each other SelectNet messages that obligate the receiving
                  party to a trade. However, market makers that wish to
                  trade with ECNs still have the ability to send SelectNet
                  order messages that require an agreement to trade from
                  the ECN using SelectNet prior to execution of the trade.
                  ECNs also have the option to use SuperSoes to elect to
                  receive automatic executions against their price
                  quotations, unlike market makers who are mandated to
                  provide automatic executions against their price
                  quotation. If ECNs so elect, they are protected from
                  receiving SelectNet order messages priced and sized in a
                  manner that would obligate the ECN to a trade in response
                  to the SelectNet order message.

                  The current fees for SelectNet are as follows: (i) $0.10
                  per order entry, (ii) a $0.90 activity fee for the
                  originating party (i.e., the sender) for directed orders
                  executed on a non-liability basis (i.e., by the market
                  participants, primarily market makers, that are not
                  obligated to execute the order), (iii) for orders
                  executed on a liability basis (i.e., by market
                  participants, primarily ECNs and ATSs, that are obligated
                  to execute the orders), the activity fees for the
                  originating party are as follows: $0.90 per trade for the
                  first 25,000 executions in a month, $0.60 per trade for
                  the next 25,000 trades in a month, $0.10 per trade for
                  the next 200,000 trades in a month and no charge for any
                  additional trades in the month, (iv) a $0.25 fee for
                  cancelled orders, and (v) for broadcast orders, $2.50 per
                  side of an executed order. For the years ended December
                  31, 2000, 1999 and 1998 Nasdaq's total revenues from
                  SelectNet were $113.5 million, $83.1 million and $42.4
                  million, respectively. SelectNet accounted for
                  approximately 13.6% of Nasdaq's total revenues for the
                  year ended December 31, 2000. For the nine months ended
                  September 30, 2001, Nasdaq's total revenues from
                  SelectNet were $75.9 million, which accounted for
                  approximately 11.8% of Nasdaq's total revenues for the
                  period.

         o        SOES routes small orders of public customers to market
                  makers and, based on their quotes, immediately executes
                  trades without a formal response from the market maker.
                  The SOES system is restricted to orders of no greater
                  than 1,000 shares and cannot be used by market makers for
                  their own trading activity. As of August 1, 2001, SOES is
                  only available to trade securities listed on The Nasdaq
                  SmallCap Market. It is also not available to access ECN
                  price quotations or for ECNs to receive the price
                  quotations of other market participants. Unlike
                  SelectNet, a trade on SOES is executed without the
                  requirement for the party providing the price quotation
                  to respond with an agreement to trade. After execution,
                  the party providing the price quotation is informed by
                  SOES that a trade has been executed and sent to
                  settlement. Under current NASD rules, all market makers
                  that provide price quotations for a security listed on
                  The Nasdaq National Market must participate in SOES and
                  consent to its automatic executions. If a market maker
                  has posted the best price quotation to buy or sell a
                  security and has posted a share size amount that would
                  satisfy multiple SOES orders, the system automatically
                  delays 17 seconds between the delivery of each SOES
                  execution to give the market maker an opportunity to
                  adjust its price quotation to a new level. The current
                  fees for SOES, to be paid by the originating party, are
                  as follows:

                  o        $0.50 per trade for the first 150,000 
                            trades in a month

                  o        $0.30 per trade for all additional trades

                  o        $0.25 per cancellation

                  SOES accounted for approximately 3.9% of Nasdaq's total
                  revenues for the year ended December 31, 2000 and
                  approximately 3.4% of Nasdaq's total revenues for the
                  nine months ended September 30, 2001.

         o        Advanced Computerized Execution System ("ACES"), is an
                  order routing service that is used by market makers to
                  execute order flow from order entry firms. Order entry
                  firms generally route buy and sell orders to the best
                  price quotes displayed in the market or enter into
                  agreements with a particular market maker where the
                  market maker agrees to fill the order entry firm's orders
                  at the best price displayed in the market. Order entry
                  firms can route buy and sell orders directly to specified
                  market makers through Nasdaq Workstation II or their own
                  proprietary systems. These orders are executed within the
                  market makers' internal trading systems and execution
                  reports are routed back to the order entry firms. ACES is
                  often used by market makers to connect with firms whose
                  order volume is too low to justify the fixed costs of
                  establishing a proprietary network linkage. The current
                  fee for ACES, charged to the market maker only, is a
                  $0.70 activity fee per execution for the first 25,000
                  executions in a month, $0.50 per execution for the next
                  25,000 executions and $0.10 per execution for all
                  additional executions. ACES accounted for approximately
                  2.1% of Nasdaq's total revenues for the year ended
                  December 31, 2000 and approximately 1.0% of Nasdaq's
                  total revenues for the nine months ended September 30,
                  2001.

         o        Computer Assisted Execution System(sm) ("CAES(sm)") is
                  the transaction service system for Nasdaq InterMarket,
                  which is an electronic marketplace where NASD members can
                  trade securities listed on the NYSE or Amex. CAES is
                  linked to the Intermarket Trading System. CAES allows
                  users to direct orders in exchange-listed securities to
                  other Nasdaq InterMarket market makers for automated
                  response and execution, and also provides access to the
                  Intermarket Trading System. The Intermarket Trading
                  System is a communications system that allows
                  exchange-designated dealers, exchange floor brokers and
                  NASD members to send orders for execution to the market
                  quoting the best price. Access to both systems
                  (CAES/Intermarket Trading System) costs Nasdaq
                  InterMarket participants $100 per month, per terminal.
                  The current fee for CAES orders is $0.50 for the
                  originating party (i.e., the sender). CAES and
                  Intermarket Trading System fees accounted for less than
                  1% of Nasdaq's total revenues for both the year ended
                  December 31, 2000 and for the nine months ended September
                  30, 2001.

For the years ended December 31, 2000, 1999, and 1998, Nasdaq's total
revenues from Order Routing and Execution were $170.3 million, $125.3
million, and $69.5 million, respectively. Order Routing and Execution fees
accounted for approximately 20.5% of Nasdaq's total revenues for the year
ended December 31, 2000. For the nine months ended September 30, 2001,
Nasdaq's total revenues from Order Routing and Execution were $117.2
million, which accounted for approximately 18.3% of Nasdaq's total revenues
for the period.

In March 2000, Nasdaq entered into an agreement with Primex Trading N.A.,
LLC to provide investors and market makers with a new electronic trading
platform. The new system is expected to allow users to seek price
improvement opportunities for their customers' orders by electronically
exposing them to market participants who compete for the orders based on
price within the context of the best quotes publicly displayed. The
technology will be offered exclusively on The Nasdaq Stock Market and is
scheduled to launch in early 2002.

Trade Reporting and Comparison--Automated Confirmation Transaction
Service(sm) ("ACT(sm)"). U.S. securities laws require that all registered
stock exchanges and securities associations establish a transaction
reporting plan by which price and volume information concerning trades
executed in qualified securities in those markets is centrally collected.
Transactions in Nasdaq-listed securities, exchange-listed securities traded
over-the-counter, and other equity securities traded over-the-counter are
reported to ACT. A protocol establishes which of the two parties to the
trade are assigned reporting responsibility. During market open hours,
market participants are to report trades within 90 seconds. Alternative
procedures are in place for reporting trades executed after hours. ACT has
a schedule of fees that reflect the services it provides. Trade reports are
assessed a nominal fee, while trades that require comparison matching
generally are assessed a higher fee depending upon the size of the trade.
The function that ACT performs depends on the information provided to ACT
by the parties to the trade. ACT risk management fees are $17.25 per month
plus $0.035 for each correspondent per transaction. A cap on ACT risk
management fees was implemented in April 2000, limiting the monthly payment
by clearing firm by correspondent to $10,000. This led to over a $1 million
decrease in ACT risk management revenue from fiscal year 1999 to fiscal
year 2000 despite the significantly higher trading volumes in the year
2000. Further changes to the pricing structure currently under
consideration might have additional downward effect on ACT revenues. In a
current filing with the SEC, Nasdaq proposes an interpretation of which
firms classify as effectively "self-clearing" with respect to affiliated
correspondents, and relieves them of the obligation of paying ACT risk
management fees. Nasdaq is contemplating a further clarification to this
rule, which would require SEC approval and which specifies that clearing
firms will only be charged ACT risk management fees for those
correspondents they choose to monitor through ACT risk management. This
means that firms will selectively have the ability to discontinue the use
of this service for certain correspondents and not pay ACT risk management
fees, thus reducing Nasdaq's revenue.

For the years ended December 31, 2000, 1999 and 1998 Nasdaq's total
revenues from ACT were $100.0 million, $68.1 million and $38.2 million,
respectively. ACT fees accounted for approximately 12.0% of Nasdaq's total
revenues for the year ended December 31, 2000. For the nine months ended
September 30, 2001, Nasdaq's total revenues from ACT were $65.6 million,
which accounted for approximately 10.2% of Nasdaq's total revenues for the
period.

Access Services. The vast majority of Nasdaq's transaction services are
delivered via the Enterprise Wide Network II telecommunications network,
which was jointly designed by Nasdaq and WorldCom Inc. In November 1997,
Nasdaq committed to a six-year, $600 million dollar contract for WorldCom
Inc. to build and maintain the Enterprise Wide Network II, a custom
extranet to expand Nasdaq's daily trading capacity to four billion shares a
day, with the capability of scaling up to eight billion shares a day. The
Enterprise Wide Network II is one of the world's largest and most
sophisticated information systems, delivering time-sensitive information
from Nasdaq's Trumbull, Connecticut technology center to traders nationwide
and giving Nasdaq sophisticated routing and information collection
capabilities. WorldCom charges Nasdaq monthly for use of the network. The
contract with WorldCom will automatically renew for successive renewal
periods without the prior termination by a party. In the event of
termination, the contract provides that the services will continue for a
sufficient time to allow for a smooth transition. The technology and
services provided by WorldCom are available to Nasdaq through a variety of
alternative sources. Pursuant to the contract, WorldCom is not prevented
from providing the same network services it provides to Nasdaq to third
parties.

The Enterprise Wide Network II employs technology that is designed to
ensure delivery of information to market participants without delay. This
technology provides market participants with simultaneity; that is,
absolutely equal access to the information they need to make trading
decisions. Thus, response times and the ability to enter quotes, make
trades, and see changes in the market is identical for all market
participants. With simultaneity, Nasdaq is able to provide the same high
level of service to investors and traders across a wide geographic range,
which includes the continental United States, and parts of Canada.

Users connect to the Enterprise Wide Network II through a Nasdaq
Workstation II or a workstation replacement developed using Nasdaq's
application program interface. Connections to the Enterprise Wide Network
II use two separate communications lines, so that if there is a failure on
one line, messages are routed through the backup line. The Enterprise Wide
Network II data center is located in Trumbull, Connecticut, with a backup
facility in Rockville, Maryland.

The Enterprise Wide Network II is presently capable of handling a four
billion share-trading day. The architecture of the network is designed so
that resources can be added to the infrastructure to allow for higher
levels of traffic as Nasdaq continues to grow. Since the introduction of
the Enterprise Wide Network II in August 1999, the capacity of the network
has been doubled to meet growing market demand. Trade reporting, SOES
trades and the distribution of market data to vendors is accomplished
through separate networks, which are now being integrated with the
Enterprise Wide Network II.

Introduced in 1995, Nasdaq Workstation II is a proprietary operating system
for the Enterprise Wide Network II. This operating system gives securities
traders access to a centralized processing complex, which provides
quotation service, automated trade executions, real-time reporting, trade
negotiations, and clearing. Nasdaq's trading terminals are now on the desks
of approximately 10,000 users. With Nasdaq Workstation II, traders are
immediately connected to the Enterprise Wide Network II. Nasdaq Workstation
II employs advanced Windows(R) technology to create a fast, flexible, and
convenient trading environment running on a variety of platforms that can
be integrated with most in-house systems. An application programming
interface allows approximately 2,700 users currently to customize Nasdaq
Workstation II to meet their own presentation needs. A member firm can use
their own computer to perform these functions. Customers include market
makers, order entry firms, ECNs and UTP Plan exchanges. Services are
distributed through sophisticated computers and high-speed
telecommunications networks. Customers are invoiced for the Enterprise Wide
Network II connection and their respective logins. For the years ended
December 31, 2000, 1999 and 1998, Nasdaq's total revenues from Nasdaq
Workstation II were $121.6 million, $87.6 million and $49.3 million,
respectively. Nasdaq Workstation II fees accounted for approximately 14.6%
of Nasdaq's total revenues for the year ended December 31, 2000. For the
nine months ended September 30, 2001, Nasdaq's total revenues from Nasdaq
Workstation II were $111.6 million, which accounted for approximately 17.4%
of Nasdaq's total revenues for the period.

In addition to the Nasdaq Workstation II application program interface,
Nasdaq provides a Computer-to-Computer Interface ("CTCI") for users to
report trades, enter orders into SuperSoes and receive execution messages.
The CTCI links Nasdaq to automated firm systems via an x.25 protocol.
Nasdaq is currently transitioning CTCI users to a TCP/IP protocol at line
speeds of up to 1,536kbs. CTCI revenues accounted for less than 1% of
Nasdaq's total revenues for the year ended December 31, 2000 and less than
2% of Nasdaq's total revenues for the nine months ended September 30, 2001.

For the years ended December 31, 2000, 1999, and 1998, Nasdaq's total
revenues from Access Services were $124.8 million, $90.3 million, and $52.8
million, respectively. Access Services fees accounted for approximately
15.0% of Nasdaq's total revenues for the year ended December 31, 2000. For
the nine months ended September 30, 2001, Nasdaq's total revenues from
Access Services were $123.0 million, which accounted for approximately
19.2% of Nasdaq's total revenues for the period.

For the years ended December 31, 2000, 1999 and 1998 Nasdaq's total
revenues from transaction services were $395.1 million, $283.7 million and
$160.5 million, respectively. Transaction services accounted for
approximately 47.4% of Nasdaq's total revenues for the year ended December
31, 2000. For the nine months ended September 30, 2001, Nasdaq's total
revenues from transaction services were $305.8 million, which accounted for
approximately 47.7% of Nasdaq's total revenues for the period.

Market Information Services. As a market operator, Nasdaq collects and
disseminates price quotations and information regarding price and volume of
executed trades. Market participants in The Nasdaq Stock Market have
real-time access to quote and trade data. Interested parties that are not
direct market participants in The Nasdaq Stock Market also can receive
real-time information through a number of market information services
products.

Nasdaq has two primary market information services products designed to
provide the varying levels of detail desired by different broker-dealers
and their customers. The first product is called Level 1. This product
provides subscribers with the current inside quote and most recent price at
which the last sale or purchase was transacted for a specific security.
Professional subscribers, e.g., broker-dealers and other employees of
broker-dealers, to this product currently pay $20 per terminal per month
for the service, which is typically delivered to the subscriber through a
third-party data vendor. A vendor or a broker-dealer can provide
non-professional customers, i.e., individual investors, with Level 1
information at a reduced fee calculated on a per query basis of $.005 with
a cap of $1 per month per user. The growth in on-line investing has
increased the usage of these fee structures by on-line brokerage firms and
other Internet services.

For the years ended December 31, 2000, 1999 and 1998, Nasdaq's revenues
from Level 1 fees were $159.6 million, $135.0 million and $107.3 million,
respectively. Nasdaq's Level 1 fees accounted for approximately 19.2% of
Nasdaq's total revenues for the year ended December 31, 2000. For the nine
months ended September 30, 2001, Nasdaq's total revenues from Level 1 were
$105.1 million, which accounted for approximately 16.4% of Nasdaq's total
revenues for the period.

The second data product, the Nasdaq Quotation Dissemination Service,
provides subscribers with the quotes of each individual market maker and
ECN, in addition to the inside quotes and last transaction price. This
service is currently priced at $50 per terminal per month for professional
subscribers and $10 per terminal per month for non-professional customers.
This service is not priced on a per query basis. Professional subscribers
can also access historical data via a subscription to Nasdaq Trader, a
non-UTP Plan product. For the years ended December 31, 2000, 1999 and 1998,
Nasdaq's revenue from Nasdaq Quotation Dissemination Service fees were
$74.8 million, $32.5 million and $21.2 million, respectively. Nasdaq's
Quotation Dissemination Service fees accounted for approximately 9.0% of
Nasdaq's total revenue for the year ended December 31, 2000. For the nine
months ended September 30, 2001, Nasdaq's total revenues from Nasdaq's
Quotation Dissemination Service fees were $45.8 million, which accounted
for approximately 7.1% of Nasdaq's total revenues for the period.

In addition, Nasdaq serves as a securities information processor ("SIP")
for purposes of collecting and disseminating quotation and last sale
information for all transactions effected on The Nasdaq Stock Market. In
creating the national market system, Congress intended for participants in
U.S. securities markets to have access to a consolidated stream of
quotation and transaction information for the exchanges and The Nasdaq
Stock Market. To accomplish this objective, SIPs consolidate information
with respect to quotations and transactions in order to increase
information availability and thus create the opportunity for a more
transparent and effective market. Nasdaq is the exclusive SIP pursuant to
the UTP Plan. Under the UTP Plan, each participant can choose up to 1,000
securities from among The Nasdaq National Market securities from which to
quote and trade, and Nasdaq collects quotation and last sale information
from competing exchanges (currently the Boston Stock Exchange, the Chicago
Stock Exchange and the Cincinnati Stock Exchange) and consolidates such
information with the information for all the securities listed on The
Nasdaq Stock Market. Nasdaq sells this information to vendors for a fee
("Tape Fees"), and the data vendors in turn sell the last sale and
quotation data publicly. Under the revenue sharing provision of the UTP
Plan, Nasdaq is permitted to deduct certain costs associated with acting as
an exclusive SIP from the total amount of Tape Fees collected. After these
costs are deducted from the Tape Fees, Nasdaq distributes to the respective
UTP Plan participants their share of Tape Fees based on a combination of
trade volume and share volume.

While Nasdaq is currently the exclusive SIP for the UTP Plan, it is working
with the other UTP Plan participants to enter into a Request-for-Proposal
process to select a new SIP. This process is the result of the SEC's
conditions for extending the UTP Plan beyond its March 2001 termination
date. The SEC has required that there be good faith negotiations among the
UTP Plan participants on a revised UTP Plan that provides for either (i) a
fully viable alternative exclusive SIP for all The Nasdaq National Market
securities, or (ii) a fully viable alternative non-exclusive SIP. To avoid
conflicts of interest, the SEC cautioned that, in the event the revised UTP
Plan provides for an exclusive SIP, a UTP Plan participant--particularly
Nasdaq--should not operate as the exclusive SIP unless (i) the SIP is
chosen on the basis of bona fide competitive bidding and the participant
submits the successful bid, and (ii) any decision to award a contract to a
UTP Plan participant, and any ensuing renewal of such contract, is made
without that UTP Plan participant's direct or indirect voting
participation. The UTP Plan participants unanimously approved the
Request-for-Proposal on November 7, 2001; however, it will likely take
months to solicit competing bids and come to a joint decision on a new SIP.

The SEC explored the issues relating to the regulation of market
information fees and revenues in its 1999 concept release (no. 34-42208). A
number of developments in the securities industry led the SEC to initiate
its review of the arrangements currently in place for disseminating market
information. Each of these developments is attributable, in large part, to
improved technology for communicating and organizing information,
including:

      o     the increased demand of retail investors for high-quality
            information; and

      o     the changing structure of the securities industry, particularly
            the growth of alternative trading systems that compete with
            markets operated by SROs and the creation of investor-owned
            SROs and markets (such as Nasdaq).

Because the value of a market's information is dependent on the quality of
the market's operation and regulation, the SEC was concerned that the
current arrangements for setting fees and distributing revenues may have
needed to be revised in light of the changes in the industry.

In July 2000, the SEC established an Advisory Committee on Market
Information to assist it in evaluating issues relating to the public
availability of market information. The issues addressed by the committee
include (i) alternative models for disseminating and consolidating
information from multiple markets, (ii) how market information fees should
be determined, including the role of public disclosure of market
information costs, fees, revenues and how the fairness and reasonableness
of fees should be evaluated, and (iii) appropriate governance structures
for joint market information plans and their administration.

Nasdaq participated in the meetings of the Advisory Committee. The Advisory
Committee's discussions touched on potentially fundamental changes to SEC
rules and policies that govern SIPs and national market system plans.
Nasdaq's written positions on these issues present two alternative
approaches that ensure the continuation of broad dissemination of
consolidated national best-bid-and-offer and consolidated last sale
information and that focus on the ability for exchanges to compete in an
open environment. The first alternative is to eliminate mandatory
participation in the national market system plans, including the UTP Plan,
and allow exchanges to choose among several competing SIPs to distribute
their data. The second alternative, as an interim approach, is to maintain
a single national market system plan with a single exclusive SIP, but one
that is more limited in scope and function.


In September 2001, the Advisory Committee presented its report to the SEC.
Among other things, the report recommends that:


      o     Markets should be permitted to distribute additional market
            information free from the mandatory consolidation requirements
            that currently apply to last sale transaction reports and best
            bid and offer quotations;


      o     The SEC should permit a new system of competing market
            information consolidators to evolve from the current system;


      o     If the SEC chooses not to adopt a new system, the SEC should
            adopt specific improvements to the current system, including
            selecting the SIP by competitive bidding and broadening
            governance through a non-voting advisory committee; and


      o     The proposal for SEC review of market information fees under a
            cost-based standard somewhat similar to a utility commission
            review of rates should be rejected.

The SEC is reviewing the report and any comments it may receive on it. The
SEC has not indicated whether it will act on the report's recommendations.

Nasdaq does not expect its revenues to be affected if it loses its status
as an exclusive SIP and no longer serves as a SIP; however, if this were to
happen, Nasdaq would lose certain control over the costs deducted from the
Tape Fees that help to cover its expenses. See "--Risk Factors--Nasdaq's
costs may increase if it loses its status as an exclusive SIP."

For the years ended December 31, 2000, 1999 and 1998 Nasdaq's total
revenues from market information services were $258.3 million, $186.5
million and $152.7 million, respectively. Market information services
accounted for approximately 31.0% of Nasdaq's total revenues for the year
ended December 31, 2000. For the nine months ended September 30, 2001,
Nasdaq's total revenues from market information services were $176.9
million, which accounted for approximately 27.6% of Nasdaq's total revenues
for the period.

Other Markets

Nasdaq operates the Nasdaq InterMarket as well as the OTC Bulletin Board.

Nasdaq InterMarket. Nasdaq InterMarket is an electronic marketplace where
NASD members can trade securities listed on the NYSE and Amex. Users can
trade on Nasdaq InterMarket among themselves using Nasdaq's CAES order
delivery system, or with another participating stock exchange through the
Intermarket Trading System. CAES allows users to direct orders in
exchange-listed securities to other NASD members for automatic response and
automatic execution, and also provides access to the Intermarket Trading
System. Nasdaq InterMarket revenues accounted for approximately 2.8% of
Nasdaq's total revenues for the year ended December 31, 2000 and
approximately 3.6% of Nasdaq's total revenues for the nine months ended
September 30, 2001. Approximately 90% of the revenues generated from the
Nasdaq InterMarket are derived from the sale of data and are reflected in
market information services revenues, and the remaining amount is derived
from transaction service fees for CAES and Intermarket Trading System
transactions.

For the nine months ended September 30, 2001, Nasdaq InterMarket accounted
for approximately 7% of trades in stocks listed on the NYSE and
approximately 30% of trades in stocks listed on Amex. All Nasdaq
InterMarket trades are reported and disseminated in real-time to the
Consolidated Tape Association ("CTA"), which is the operating authority for
exchange-listed securities information, and as such, Nasdaq shares in the
revenues generated by the CTA. Two NASD members that are major wholesale
market makers and one ECN report most trades. Other ECNs report trades
through Nasdaq systems to the CTA and some are planning to begin quoting in
Nasdaq InterMarket. NASD members who trade exchange-listed stocks away from
the exchanges account for a significant amount of Nasdaq InterMarket
trading activity.

OTC Bulletin Board. The OTC Bulletin Board is an electronic screen-based
market for equity securities that, among other things, are not listed on
The Nasdaq Stock Market or any primary national securities exchange in the
United States. At present, the OTC Bulletin Board is a quotation service,
as companies do not list on the OTC Bulletin Board. NASD members may post
quotes only for companies that file periodic reports with the SEC and/or
with a banking or insurance regulatory authority. In addition, such
companies are required to be current with their periodic filings. Market
makers are billed based on their number of positions during a month. A
position is defined as any price quotation or indication of interest
entered by a market maker in a security quoted on the OTC Bulletin Board.
The monthly fee for participation is $6.00 per position. There are no fees
charged to companies whose securities are quoted on the OTC Bulletin Board.
The OTC Bulletin Board revenues accounted for less than 1% of Nasdaq's
total revenues for both the year ended December 31, 2000 and for the nine
months ended September 30, 2001. Revenues generated from the OTC Bulletin
Board are included in transaction services revenues.

Last year, in conjunction with Exchange Registration, the Nasdaq Board and
the NASD Board of Governors (the "NASD Board" and, together with the Nasdaq
Board, the "Boards"), approved several rule changes that are designed to
enhance the OTC Bulletin Board and permit Nasdaq to continue to operate it
after Exchange Registration. First, the Boards approved a program for
Nasdaq to enter into a listing agreement with each OTC Bulletin Board
issuer and impose new listing standards to ensure the quality of these
issuers. Second, both Boards approved the creation of an automated order
delivery system for the OTC Bulletin Board that would allow orders to be
delivered and executed via the Nasdaq Workstation II. Finally, to accompany
the new listing standards and order delivery system, the Boards approved
enhanced market rules that provide for limit order protection, short
interest reporting, and intraday trading halt authority. Nasdaq has
submitted to the SEC the appropriate proposed rules and plans to submit
exemption requests that would allow Nasdaq to continue to operate the OTC
Bulletin Board after Exchange Registration. The SEC has not yet approved
the rules or the exemption request.

Therefore, it is not certain whether Nasdaq will continue to operate the
OTC Bulletin Board following Exchange Registration. If the SEC does not
approve the exemption request, these securities could continue to trade
over the counter through a non-Nasdaq facility.

Fee Changes

Nasdaq may change the pricing of its products and services in response to
competitive pressures or changes in market or general economic conditions.
Pursuant to the requirements of the Exchange Act, Nasdaq must file all
proposals for a change in its pricing structure with the SEC. For example,
in October 2001, Nasdaq filed with the SEC a proposed rule change to
increase listing-related fees beginning January 1, 2002. Nasdaq has
proposed raising initial listing fees for companies listed on The Nasdaq
National Market with up to 30 million total shares outstanding from the
current range of $34,525-$95,000 to a flat rate of $100,000. For companies
with 30 to 50 million total shares outstanding, the fee would increase from
$95,000 to $125,000, and for companies with over 50 million total shares
outstanding, the fee would increase from $95,000 to $150,000. Nasdaq has
also proposed raising the annual fees charged to companies listed on The
Nasdaq National Market, which currently range from $10,710-$50,000,
depending on the number of total shares outstanding, to a range of $21,225
to $60,000 depending on the number of total shares outstanding. With
respect to initial listing fees for companies listed on The Nasdaq SmallCap
Market, Nasdaq has proposed to increase the total maximum initial listing
fee from $10,000 to $47,500. Nasdaq has also proposed to increase The
Nasdaq SmallCap Market annual fee (1) from $4,000 to $8,000 for the first
class of securities, and (2) from $1,000 to $2,000 for each additional
class of securities. Similar changes have been proposed for non-U.S.
companies and American Depositary Receipts listed on The Nasdaq National
Market. The revenue expected to be generated from these proposed
listing-related fee increases will be used primarily to fund enhancements
to the services offered Nasdaq-listed companies, including the
establishment of a corporate client information center. See "--Nasdaq's
Strategic Initiatives-Developing a Corporate Client Center." In addition,
by the beginning of 2002, Nasdaq expects to offer preferential pricing and
rebates for market participants that report substantially all their trades
to Nasdaq.

Nasdaq's Strategic Initiatives

Nasdaq's strategic initiatives include enhancing its products and services,
creating a market for listing and trading single stock futures, and
pursuing global market expansion through the creation of Nasdaq Japan, Inc.
("Nasdaq Japan") and Nasdaq Europe S.A./N.V. ("Nasdaq Europe") and
exploring alliances with foreign exchanges.

Enhancing Products and Services.

Nasdaq Order Display Facility. On January 10, 2001, the SEC approved a rule
proposal to establish the Nasdaq Order Display Facility
("SuperMontage(sm)"). SuperMontage is an improved user interface on the
Nasdaq Workstation II designed to refine how market participants can
access, process, display, and integrate orders and quotes in The Nasdaq
Stock Market. SuperMontage has several strategic implications. It is
intended to attract more orders to The Nasdaq Stock Market by providing a
comprehensive display of the interest at or near the inside market, thus
increasing competition and market transparency. SuperMontage also will
provide pre-trade anonymity to market participants using a Nasdaq system,
i.e., prior to execution no one will know the identity of the firm
displaying the order unless such firm reveals its identity. Anonymous
trading can contribute to improved pricing for securities by reducing the
potential market impact of large transactions and transactions by certain
investors whose trading activity, if known, may be more likely to influence
others.

By allowing (but not requiring) market participants to give the Nasdaq
system multiple orders at a single as well as at multiple price levels,
SuperMontage will assist market participants with the management of their
back book, i.e., orders that are not at the best price in the market
maker's book/system. This functionality will also assist market
participants with compliance with the SEC's order handling rules, which
among other things, require the display of customer limit orders priced
better than a Nasdaq market maker's or a designated dealer's quote or that
are for a larger number of shares at the same price. Other system
enhancements may make it easier for ECNs to accept automatic execution via
Nasdaq systems.

In the January 10, 2001 approval order, the SEC imposed certain conditions
on both Nasdaq and the NASD that must be met prior to the implementation of
SuperMontage. These conditions addressed the SEC's concern that
participation in the SuperMontage system would be viewed as involuntary due
to Nasdaq's role as the exclusive SIP. See "-Market Information Services"
for a description of Nasdaq's role as an exclusive SIP. The conditions
imposed by the SEC require that:

      o     the NASD will offer a quote and trade reporting alternative
            that satisfies the SEC's rules;

      o     NASD quotes disseminated through the exclusive SIP will
            identify the alternative trading system or market maker source
            of the quote; and

      o     participation in SuperMontage will be entirely voluntary.

Assuming these conditions can be met and Nasdaq can successfully implement
SuperMontage, Nasdaq will add SuperMontage to the Nasdaq Workstation II and
show the top three price levels in any quoted security: the best bid and
offer in The Nasdaq Stock Market, and the two next best bids and offers. In
each case, this display will be accompanied by the aggregate order size at
each price level. Market makers in The Nasdaq Stock Market and ECNs will be
able to display their orders anonymously at these price levels in
SuperMontage, thus encouraging display of greater trading interest. As
currently envisioned, SuperMontage will display the aggregate trading
interest in a security at the top of the screen by aggregating the trading
interest of all identified market participants and any anonymous interest,
which is entered into the Nasdaq system. Market participants will be able
to access the best prices in SuperMontage electronically using enhanced
versions of Nasdaq's SuperSoes and SelectNet services. Thus, Nasdaq will
provide order delivery and automatic execution against the prices displayed
in SuperMontage. Nasdaq will continue to offer the ability to market
participants to negotiate transactions with specific market makers and ECNs
electronically at sizes above the quote size in The Nasdaq Stock Market.
Nasdaq currently contemplates that it will begin user testing of
SuperMontage in the second quarter of 2002.

Creating a Single Stock Futures Market. On June 1, 2001, Nasdaq and the
London International Financial Futures and Options Exchange ("LIFFE")
formed Nasdaq LIFFE, LLC, a new U.S. joint venture company to list and
trade single stock futures. On August 21, 2001, the Commodity Futures
Trading Commission approved Nasdaq LIFFE as a futures market and SRO. In
addition, the U.K. Treasury has recognized Nasdaq LIFFE as an overseas
investment exchange in the United Kingdom, allowing Nasdaq LIFFE to provide
direct access to its market to members in the United Kingdom. Nasdaq LIFFE
is currently positioning itself to be ready to commence trading in single
stock futures sometime after December 21, 2001, when it becomes legally
permissible to do so. Established in 1982, LIFFE is an electronic exchange
that enables its users to manage their exposure to foreign exchange rates
and interest rates through the offering of markets for a range of financial
and non-financial derivative instruments. These instruments include futures
and options products on short-term interest rates, government bonds,
equities (including equities in the U.S., the U.K. and continental Europe),
indices and commodity products. In 1998, LIFFE transformed its market from
a floor-based trading system to a screen-based electronic system through
the implementation of its LIFFE CONNECT(TM) electronic system. The products
of the new joint venture are expected to be traded through a modified
version of the LIFFE CONNECT electronic system.

Developing a Corporate Client Center. On October 26, 2001, Nasdaq announced
that it has begun to develop a corporate client center that is aimed at
being a "one-stop shop" for information and client services. The corporate
client center is expected to provide Nasdaq-listed companies with a host of
integrated products and services in a centralized and timely manner.
Through the use of computer telephony and a myriad of information systems,
the corporate client center will leverage Nasdaq's current customer
relations management. Nasdaq expects to launch the first phase of the
corporate client center in early 2002. In conjunction with the development
of the corporate client center, Nasdaq will be enhancing Nasdaq Online with
the goal of improving the user experience.

Pursuing Global Market Expansion. The forces of technology and deregulation
are accelerating the pace of globalization in the trading and processing of
securities. Nasdaq believes that the "open architecture" of its trading
platform, including unlimited electronic access, has led to the
"democratization" of equity markets in the United States (approximately 50%
of U.S. citizens directly or indirectly own stocks vs. approximately 18% in
Europe and approximately 15% in Japan) and can do the same abroad. Nasdaq
also believes that the foundation to create a global market should be built
on a strong regional presence in the dominant capital centers of the world.
At this time, those centers are the United States, Europe and Asia,
particularly Japan. Establishing centers for price discovery and trading in
these key regions will develop the foundation for electronically linking
these pools of capital within a global platform. Senior officers of Nasdaq
have conducted exploratory discussions with a number of major U.S. and
foreign securities exchanges, regarding inter-exchange cooperation, joint
ventures, marketing affiliations, combinations, or other collaborative
activities. Nasdaq anticipates that such discussions will continue but
cannot predict the results of any such discussions.

Nasdaq Japan. In June 1999, a joint venture agreement to capitalize a new
company, Nasdaq Japan Planning Company, Inc. (subsequently renamed Nasdaq
Japan, Inc.) was entered into by the NASD and SOFTBANK Corp. of Japan
("SOFTBANK"), a provider of information, distribution and infrastructure
services in the digital information industry. The NASD and SOFTBANK had
each made capital contributions of approximately $2.6 million to Nasdaq
Japan. The NASD's investment was subsequently transferred to Nasdaq Global
Holdings ("Nasdaq Global"), which is a wholly-owned subsidiary of Nasdaq.

Under the joint venture agreement, Nasdaq and SOFTBANK agreed to jointly
operate and provide management support, technology and services to Nasdaq
Japan in its development and implementation of a new electronic stock
market in Japan as a section of the Osaka Securities Exchange (the "OSE").
The OSE is one of Japan's oldest securities exchanges, with over 1,200
listed companies, and is Japan's largest derivatives market. Nasdaq also
provided Nasdaq Japan with licenses to its technology and trademarks. On
April 19, 2000, Nasdaq Japan signed a Business Collaboration Agreement with
the OSE to establish the Nasdaq Japan Market as a new market section of the
OSE. The OSE provides regulatory and listing review as well as clearance
and settlement services to Nasdaq Japan under the agreement. The Nasdaq
Japan Market began operations on June 19, 2000. In its first phase of
operations, prior to its deployment of a SuperMontage-like trading platform
technology, Nasdaq Japan will recruit IPOs of companies for listing and
will trade these securities on the existing OSE system. As of May 1, 2001,
52 companies were trading on the interim trading platform with an average
monthly share volume of 5,281,728 shares. In addition, Nasdaq Japan,
subject to regulatory approvals, is seeking to become competitive in the
trading of U.S. listed securities and exchange traded funds in Japan,
including the Nasdaq-100 QQQ exchange-traded fund. In October 2001,
Starbucks Coffee Japan, Ltd. had an IPO of its common stock and listed on
Nasdaq Japan. Starbucks Corporation, a U.S. based Nasdaq-listed Company, is
a major shareholder of Starbucks Coffee Japan, Ltd.

In October 2000, Nasdaq Japan's owners approved a private placement
transaction in which Nasdaq Japan sold an approximate 15% stake for
approximately $48.0 million to a group of 13 major Japanese, U.S. and
European brokerages, thereby reducing the ownership interest of Nasdaq
Global in Nasdaq Japan to approximately 39%. Ten of the new investors sit
on an advisory council that recently elected one director to represent them
on Nasdaq Japan's seven-member board. The proceeds of this private
placement will be used primarily for working capital and the development of
a more sophisticated and efficient share-trading platform. As a start up
operation, Nasdaq Japan has had only operating losses since its inception.
In July 2001, the Nasdaq Board approved an $8.0 million capital
contribution to Nasdaq Japan.

Nasdaq Japan competes for transactions and listings with the Tokyo Stock
Exchange and Jasdaq Market, Inc., an over-the-counter market. The Tokyo
Stock Exchange is the dominant equities market in Japan, capturing
approximately 90% of the overall equities trading in Japan. In particular,
Nasdaq Japan competes for new, growth companies that historically had a
difficult time accessing the Japanese equity markets. See "--Risk Factors--
Nasdaq may not be successful in executing its international strategy."

Nasdaq Europe S.A./N.V. In March 2001, Nasdaq invested $12.5 million to
acquire an initial 68% stake in EASDAQ S.A./N.V. ("EASDAQ"), with an
immediate aim to dilute its interest through the introduction of other
strategic partners as shareholders. EASDAQ was a pan-European stock market
for emerging growth companies and was headquartered in Brussels. Pursuant
to the investment agreement with EASDAQ, Nasdaq obtained the right to
appoint a majority of EASDAQ's board of directors and granted EASDAQ a loan
in the amount of approximately $2.6 million. In connection with this
investment Nasdaq also restructured EASDAQ into Nasdaq Europe with the goal
to make Nasdaq Europe a globally linked pan-European market. Nasdaq has
granted Nasdaq Europe a free non-exclusive license to use the Nasdaq
trademark and brand name.

A variety of firms, representing a cross-section of U.S. and foreign-based
investment banking, financial services and securities firms, have joined
Nasdaq as investors in Nasdaq Europe. Among these firms is Knight Trading
Group, which holds an approximately 8.7% ownership stake in Nasdaq Europe
through its earlier investment in EASDAQ. As of September 30, 2001,
Nasdaq's ownership stake in Nasdaq Europe was 60.5%. On November 13, 2001,
Nasdaq Europe announced that three large financial institutions and market
participants have agreed to make an equity investment in Nasdaq Europe.
Nasdaq expects additional investors in Nasdaq Europe. Nasdaq continues to
explore opportunities for expanding its presence in Europe, including
possible combinations or other collaborative activities with one or more
major European institutions. In connection with its strategy of forging
partnerships with leading markets, on November 14, 2001, Nasdaq Europe
announced the formation of a partnership with the Berlin Stock Exchange.
The partnership will provide Nasdaq Europe with direct access to the German
market, and is the first time an international partnership has been
established with a German market. Pursuant to the partnership, each partner
is expected to take a minority interest in the other. Nasdaq Europe expects
to launch trading in Germany during the first half of 2002.

Nasdaq Europe has also launched the newly developed European Trading
System. The European Trading System offers functions similar to The Nasdaq
Stock Market while being adaptable to the needs and requirements of the
European market. In addition, Nasdaq Europe intends to introduce a system
later this year that will integrate certain functions of the SuperMontage
system customized to European best practices. This market model will
integrate market maker quotes into an anonymous, voluntary limit order book
and provide expanded negotiation facilities and trade reporting. As of
September 30, 2001, there were 314 companies traded on Nasdaq Europe, 55 of
which are listed on Nasdaq Europe and 259 are admitted for trading, and 70
different member firms. For the nine months ended September 30, 2001,
Nasdaq Europe's monthly trading volume averaged 9,170 trades and monthly
share volume averaged approximately 22.6 million shares.

Nasdaq Europe's main competitors for listings and trading are the three
primary exchanges in Europe--Deutsche Borse AG, Euronext N.V. and the
London Stock Exchange. Nasdaq Europe expects the competition for retail and
institutional order flow to be based in large part on the ability of firms
to operate within an exchange environment that offers optimum market
structures and services within a well-regulated marketplace. Nasdaq Europe
believes that its approach to key issues-market structure, clearance and
settlement, product development, and branding-can offer an exchange
platform for market participants to compete successfully in Europe.

Nasdaq Europe is in its nascent stages and has only operating losses since
the acquisition by Nasdaq. See "--Risk Factors-- Nasdaq may not be
successful in executing its international strategy."

Canadian Alliance. In April 2000, Nasdaq entered into a cooperative
agreement with the Provincial Government of Quebec for the development of a
new securities market within Canada called Nasdaq Canada. To facilitate
this development, the Provincial Government of Quebec has agreed to
undertake the necessary legislative and/or regulatory initiatives to
promote the assimilation of Nasdaq Canada into Quebec, including the
recognition of Nasdaq as a securities exchange within Quebec and the
recognition of Nasdaq-listed securities for trading through Nasdaq Canada
without further regulatory action. Nasdaq Canada will be developed in
stages and may culminate in the creation of an autonomous pan-Canadian
market. The first stage commenced on November 21, 2000 with the
installation of Nasdaq terminals in 10 Canadian securities firms in
Montreal, Canada and the establishment of the Nasdaq Canada Index which
tracks the market performance of Canadian-listed Nasdaq stocks. These
terminals allow these firms to trade Nasdaq-listed securities directly
through their local broker, including the over 40 Canadian firms previously
listed solely on The Nasdaq Stock Market in the United States. The second
stage is scheduled to commence following the implementation of SuperMontage
and is expected to involve participation by new Canadian broker-dealers,
trading in both U.S. and Canadian dollars and the opportunity to list
Canadian companies exclusively on Nasdaq Canada. The planned third stage
will result in the linking of Nasdaq Canada with The Nasdaq Stock Market,
Nasdaq Europe and Nasdaq Japan. The timing of the second and third stages
will be dependent on the success of the alliance's first stage.

Technology

The Nasdaq Stock Market was the world's first electronic screen-based stock
market and its use of state-of-the-art computer networking,
telecommunications, and information technologies distinguishes it from
other U.S. securities markets. Nasdaq embraces automation through the
effective use of technology as the key to the future of financial markets.
Using technology, Nasdaq eliminates the need for a physical trading floor
and enables qualified investors across the country to compete freely with
one another in a screen-based environment. Nasdaq also employs technology
to maximize its ability to communicate with investors, issuers, traders,
the media, and others. In addition to the Enterprise Wide Network II and
the Nasdaq Workstation II, Nasdaq technologies include:

The Processing Complex. Nasdaq's quote, trade execution, and trade
reporting systems are based on mainframe technology and are located in a
processing complex in Trumbull, Connecticut. The systems routinely handle
trade volume of over two billion shares daily and over 4,000 transactions
per second. In addition, these systems have substantial reserve capacity to
handle far greater levels of activity. An alternate processing complex
located in Rockville, Maryland backs up the Trumbull technology center.

Data Repository. Market data from Nasdaq's quote and trade execution
systems are transferred via high-speed communications links to a market
data repository in Rockville, Maryland. At this facility, eight terabytes
of on-line data are available for real-time analysis, historical analysis,
market surveillance and regulation, and data mining. The information is
provided to applications and users through relational database and
higher-level access facilities. The data is also available for delivery to
Internet applications.

Nasdaq Tools. On March 7, 2000, Nasdaq purchased Financial Systemware,
Inc., a manufacturer of software products. Financial Systemware became a
wholly-owned subsidiary of Nasdaq that has been named Nasdaq Tools, Inc.
Nasdaq Tools has an order routing and quote management product that allows
for, among other things, automatic execution of a liability order,
automatic updating of a security's market, and the ability to decline
subsequent orders at the same price. Nasdaq Tools is in the process of
introducing a new service bureau product, "Tools Plus" that is a position
management system with real-time valuation, including profit and loss
calculations, automatic execution and display of orders, risk management
features, direct ECN access (for SEC Ordering Handling Rule compliance),
and storage of information in a database and/or report format. It also
provides an Order Audit Trail System compliance feature that handles
transaction reporting via e-mail to regulatory agencies.

Strategic Technology Alliances. Historically, Nasdaq has demonstrated an
ability to adapt current technology to provide an efficient, robust, and
fault tolerant price discovery network. To continue its successful
evolution, Nasdaq has formed partnerships and alliances with innovative
technology leaders, including the following:

Microsoft. Nasdaq uses Microsoft technology to drive Nasdaq.com and other
Web sites. In addition, Microsoft products are in broad use throughout
Nasdaq, including Microsoft Exchange for e-mail and sharing information; NT
and Windows 2000 servers for application, file, and print support; and
Windows workstations for applications and professional productivity. Future
potential technology alliances with Microsoft include site and information
linkages between Nasdaq.com and Microsoft's MoneyCentral Web site. The
alliance may sponsor industry standard solutions for Internet-based
financial information exchange and management.

TIBCO. Nasdaq has formed an alliance with TIBCO Software Inc. ("TIBCO") to
develop a series of innovative applications utilizing TIBCO information bus
technology, which simplifies and manages communications between diverse
systems and platforms. These applications include the real-time
dissemination of market data, population of data on the Nasdaq.com Web
site, and planned use of the technology in next-generation workstation
products. Future uses of TIBCO technology may include the development and
deployment of next-generation market systems, and extension of
publish-and-subscribe technology to additional data distribution channels
inside and outside Nasdaq.

IndigoMarkets. IndigoMarkets(sm) Ltd., a joint venture with SSI Ltd. of
India, was established in May 2000. Nasdaq Global currently has a 55%
interest in the venture, which will create market platforms for Nasdaq
global markets, including Nasdaq Japan. IndigoMarkets is also expected to
license its products to other customers worldwide. In October 2000, Indigo
Markets created a wholly-owned Indian subsidiary, Indigo Markets India
Private Ltd. The purpose of the new subsidiary is to license products to
Indian customers as well as to provide ongoing maintenance and consulting
services.

BIOS Group. On June 25, 1999, Nasdaq and the BIOS Group, a research and
development organization based in Santa Fe, New Mexico, formed the
Nasdaq/BIOS R&D Joint Venture, LLC (the "Nasdaq BIOS JV"). This joint
venture is owned 50% by Nasdaq and 50% by the BIOS Group. The purpose of
the joint venture is to spawn new product and/or system ideas to advance
the business objectives of Nasdaq. Nasdaq will retain a right of first
refusal on any intellectual property generated as a result of the joint
venture. Nasdaq has the exclusive right to any technologies related to its
business objectives.

Competition

The securities markets are intensely competitive and they are expected to
remain so. Nasdaq competes globally and on a product and/or specific
geographical basis. Nasdaq competes based on a number of factors, including
the quality of its technological and regulatory infrastructure, total
transaction costs, the depth and breadth of its markets, the quality of its
value-added customer services (e.g., market forums and educational
programs), international capabilities, reputation and price. In the U.S.,
Nasdaq is one of the leaders in each of its principal businesses. Some of
Nasdaq's most significant challenges and opportunities will arise outside
the United States as globalization is likely to result in a need for a
worldwide network for linking global pools of capital and offering
investors maximum access to invest in companies anywhere at anytime. In
order to take advantage of these opportunities, Nasdaq has formed alliances
in key financial centers around the world in order to build on its
successes in the United States and its strong, worldwide brand.
Nevertheless, most of Nasdaq's competitors overseas are currently larger
and have a longer operating history in their markets than does Nasdaq.

In light of recent technological and regulatory changes and new product
introductions, Nasdaq expects to compete with a number of different
entities varying in size, business objectives and strategy.

Corporate Client Group Services. Nasdaq's strategies for maintaining its
current listings in both The Nasdaq National Market and The Nasdaq SmallCap
Market and gaining new listings include building global brand identity,
developing joint marketing opportunities with listed companies, better
communication with key decision makers, and providing other value-added
services to Nasdaq-listed companies. Nasdaq's marketing efforts have
centered on creating a valuable brand-an important factor in attracting and
retaining large world-class growth companies.

In terms of obtaining new listings, Nasdaq will continue to focus its
efforts primarily on growth companies. Over the last 12 -18 months, general
market and economic conditions have made it difficult for many companies to
access the public equity markets. Nevertheless, Nasdaq believes that its
market model, strong global reputation and value-added services will enable
it to compete successfully for listings. Nasdaq employs a variety of
initiatives and tools in its marketing efforts, including media
advertising, Internet publishing (Nasdaq.com), and international road
shows. Historically, Nasdaq's communication has focused on potential
issuers and the general investing community. Going forward, Nasdaq will
seek to broaden its marketing efforts to incorporate all those interacting
with its business.

Nasdaq competes primarily with the NYSE for larger company listings on The
Nasdaq National Market. As of September 30, 2001, there were 3,434
companies listed on The Nasdaq National Market with an aggregate domestic
market capitalization of $2.3 trillion compared to 2,813 companies listed
on the NYSE with an aggregate domestic market capitalization of $10.7
trillion. This playing field has never been even as historically Rule 500
of the NYSE, which required supermajority stockholder approval before a
listed company could delist from the NYSE, made it extremely difficult for
issuers on the NYSE to leave voluntarily. On July 21, 1999 the SEC approved
an amendment to Rule 500 to allow a company to delist from the NYSE if it
obtains the approval of its board of directors and its audit committee,
publishes a press release announcing its proposed delisting and sends a
written notice to its largest 35 stockholders of record (U.S. stockholders
of record if a non-U.S. issuer) alerting them to the proposed delisting.
Because of these affirmative steps imposed on an issuer's board of
directors, in particular the notice requirements, Nasdaq believes that Rule
500 in its modified form continues to constitute an impediment to Nasdaq's
ability to compete for NYSE listings. Since Rule 500 was amended, only one
company has transferred from the NYSE to The Nasdaq Stock Market. From
January 1, 1996 to September 30, 2001, 343 companies have switched to the
NYSE from The Nasdaq National Market. The number of such transfers has
declined significantly, however, from a high of 96 in 1996 to 25 in 2000.
There have been 26 transfers for the first nine months of 2001.

Nasdaq competes primarily with the Amex for listings on The Nasdaq SmallCap
Market. From January 1, 1996 to September 30, 2001, 53 companies have
switched to Amex from The Nasdaq SmallCap Market. There have been no
transfers to Amex for the first nine months of 2001.

Companies also have a choice of not listing on any market. In that case,
broker-dealers may still make markets for such securities and post their
quotes on the OTC Bulletin Board or the Pink Sheets, owned by Pink Sheets
LLC, a privately owned company. In the fall of 1999, Pink Sheets LLC began
operating an electronic version of the Pink Sheets, allowing for the more
frequent updating of quotes and information about over-the-counter
securities. Many broker-dealers have adopted the electronic version thereby
facilitating the centralization of quotations and adding to the
transparency of quotes for over-the-counter securities. This enhancement to
the Pink Sheets may lead some companies to reconsider the value and
associated costs of listing on The Nasdaq Stock Market and increase the
level of listing competition Nasdaq faces at the small-company end of the
spectrum.

Transaction Services. Nasdaq's core trading service is the provision of the
Nasdaq network that provides for the entry and real-time broadcast of
quotes to market makers and ECNs. Nasdaq expects to face competition from a
number of different sources in providing these services including:

      o     Competing stock exchanges or network providers that develop
            ways to effectively replicate Nasdaq's network and offer quote,
            execution and reporting services at a lower cost and/or a
            greater speed and persuade a critical mass of market
            participants to switch to the new network/market;

      o     Competing stock exchanges that are able to find ways to
            effectively link into Nasdaq's network while avoiding the
            subscription fees paid by member firms. The SEC could require
            Nasdaq to distribute the quotations of independent exchanges or
            the NASD through the Nasdaq network without permitting Nasdaq
            to charge the same quotation fees that Nasdaq may assess on
            Nasdaq quote providers. If this were to occur, Nasdaq would, in
            effect, incur added costs potentially without an opportunity to
            recover such costs from its full user base;

      o     ECNs and third-party service bureaus that may join together to
            form one dominant service provider, thereby diminishing
            Nasdaq's competitive position; and

      o     Companies that could provide trading services for products and
            services, including software companies, information and media
            companies and other companies that are not currently in the
            securities business.

The net effect of these additional competitors, along with continuing
advances in technology and regulatory changes may put downward pressure on
the prices Nasdaq may charge for its transaction services.

To address this competition, Nasdaq has looked to enhance its technology
and the services it provides to its market participants and refine its
pricing approach by reviewing each component of its transaction services,
including access services, execution services and post-trade services. For
each component, Nasdaq has attempted to make pricing more attractive in
order to retain usage of its services. In addition, Nasdaq has looked to
increase member awareness of The Nasdaq Stock Market's role as a provider
of liquidity in the United States and internationally. For example, Nasdaq
has enhanced its order routing and execution services through the
implementation of SuperSoes, and will add to that Primex, a new price
improvement system, and the introduction of SuperMontage. Nasdaq has also
commenced operations in Europe and Japan to extend the benefits of its
information and trading platform internationally.

Market Information Services. Nasdaq's market information services revenue
is under competitive threat from other stock exchanges that trade
Nasdaq-listed stocks, including the established regional exchanges. Current
SEC regulations permit these regional exchanges to trade certain securities
that are not listed on a national securities exchange, including securities
listed on The Nasdaq National Market, pursuant to Nasdaq's UTP Plan.
Nasdaq's UTP Plan entitles these exchanges to a share of Nasdaq's data
revenue, roughly proportional to such exchange's share of trading as
measured by share volume and number of trades. Currently, the Boston Stock
Exchange, the Chicago Stock Exchange, and the Cincinnati Stock Exchange
trade Nasdaq-listed securities pursuant to the UTP Plan. For the years
1998, 1999 and 2000, the Chicago Stock Exchange's share of trading was
0.15%, 1.11% and 2.50%, respectively. The Cincinnati Stock Exchange did not
commence trading under the UTP Plan until 2001. The Boston Stock Exchange
commenced trading on November 8, 2001. For the nine month period ended
September 30, 2001, the Chicago Stock Exchange's share of trading was 3.01%
and the Cincinnati Stock Exchange's share of trading was less than 0.01%.
Amex and the Philadelphia Stock Exchange have indicated their intent to
commence trading in Nasdaq-listed securities pursuant to the UTP Plan. In
addition, at least two ECNs (Pacific/Archipelago and Island) have applied
for exchange registration and expressed interest in becoming UTP Plan
participants; the SEC approved Pacific/Archipelago's proposal to establish
the Archipelago Exchange as an equities trading facility of the Pacific
Exchange in October 2001. Current active participants in the UTP Plan have
established payment for order flow arrangements with their members and
customers through sharing tape revenues.

During the last few years, there has been an increase in the number of
ECNs. In general, ECNs subscribe to the network service, report trades to
ACT, and use Nasdaq's order routing systems. On one level, an ECN performs
the same function as an order entry firm by bringing buyers and sellers
together. However, ECNs pose a potential threat to Nasdaq's market
information services business because, under the new SEC guidelines, they
may register as securities exchanges. In this case, they would be eligible
for a share of the UTP Plan revenue generated by the sale of Nasdaq's
market information products, and their use of Nasdaq's systems could
diminish.

Despite the potential threat, Nasdaq's market share of trade and share
volume under the UTP Plan remains at approximately 97.0% at present, as
participants tend to seek the market with greatest liquidity. Nonetheless,
there is potential for significant erosion in The Nasdaq Stock Market's
market share of trading activity and the related market information
services revenue if new exchanges arise or existing exchanges increase
their market share. However, there are substantial steps that must first be
taken in order for present and future alternative exchanges to compete with
The Nasdaq Stock Market in a meaningful way. These alternative exchanges
must first register and be approved as a national securities exchange with
the SEC, which can be a lengthy process. In addition, these competitors
would have to establish a regulatory structure to ensure the quality of
data and support their responsibility of being SROs. In addition, a
competitor would need a technological infrastructure in place to ensure the
integrity and reliable transmission of data to the SIP.

Other Markets. The Nasdaq Stock Market competes for trading volume in NYSE
and Amex exchange-listed securities by offering customers quality trade
executions at a reasonable price and derives revenues from the sale of
related data. A significant amount of investor self-directed, on-line
trading activity in listed securities is today executed on Nasdaq
InterMarket. These orders forgo the exposure of the auction trading systems
of the exchanges in favor of the execution services provided by Nasdaq
InterMarket participants.

Nasdaq is engaged in a vigorous effort to increase market share in the
Nasdaq InterMarket by encouraging additional market makers and ECNs to
participate through Nasdaq InterMarket. Nasdaq InterMarket has implemented
a program designed to lower costs for Nasdaq InterMarket participants
executing trades through Nasdaq facilities. The program allows Nasdaq
InterMarket participants to share in the tape revenue Nasdaq receives as
the participant in the CTA Plan. In addition, in May 2000, Nasdaq
redesigned certain systems to improve Nasdaq InterMarket trading
environment.

Employees

As of September 30, 2001, Nasdaq had 1,257 employees. In connection with
efforts to maximize revenues, reduce costs and improve organizational
efficiency, Nasdaq implemented an approximate 10% reduction in workforce on
June 27, 2001. None of its employees is subject to collective bargaining
agreements or is represented by a union. Nasdaq considers its relations
with its employees to be good.

The Restructuring

The NASD founded Nasdaq in 1971. Beginning in 1996, the NASD began an
internal reorganization, a major feature of which was to separate the
regulation of the broker-dealer professionals and surveillance of Nasdaq
from Nasdaq, which included establishing NASD Regulation, Inc. ("NASDR") as
a separate, independent wholly-owned subsidiary of the NASD. NASDR was
created to regulate securities markets for the benefit and protection of
the investor. In carrying out this mission, NASDR assumed a substantial
portion of the NASD's responsibilities of being the securities industry's
largest self-regulator. In 2000, the NASD formed a new wholly-owned
subsidiary called NASD Dispute Resolution Inc. ("NASD Dispute Resolution"),
formerly known as the NASD Regulation Office of Dispute Resolution. NASD
Dispute Resolution administers the NASD's arbitration, mediation and other
alternative dispute-resolution services. Until June 2000, Nasdaq was a
wholly-owned subsidiary of the NASD.

At a special meeting of NASD members held on April 14, 2000, more than a
majority of NASD members approved the Restructuring through a two-phase
private placement of securities. In the first phase of the Restructuring
("Phase I"), on June 28, 2000, Nasdaq sold an aggregate of 23,663,746
shares of Common Stock at $11.00 per share for an aggregate consideration
of $260,301,206. The NASD sold an aggregate of 6,415,649 warrants to
purchase an aggregate amount of 25,662,596 shares of Common Stock at $11.00
per warrant and an aggregate of 323,496 shares of Common Stock owned by the
NASD at $11.00 per share for an aggregate consideration of $74,130,595.

In the second phase of the Restructuring ("Phase II"), on January 18, 2001,
Nasdaq sold an aggregate of 5,028,797 shares of Common Stock at $13.00 per
share for an aggregate consideration of $65,374,361. The NASD sold an
aggregate of 4,391,145 warrants to purchase an aggregate amount of
17,564,580 shares of Common Stock at $14.00 per warrant and an aggregate of
4,219,795 shares of Common Stock owned by the NASD at $13.00 per share for
an aggregate consideration of $116,333,365.

Securities in the private placement were offered to (i) all NASD members in
good standing as of a record date established for each offering, (ii)
approximately 750 of the leading issuers whose stock was listed on The
Nasdaq Stock Market based on historic trading activity and market
capitalization, and (iii) leading investment companies based on their
holdings of all Nasdaq-listed securities. All the securities sold in the
private placement are subject to restrictions on transfer until June 2002,
and subject to certain additional restrictions in the event of an IPO of
the Common Stock. As of October 31, 2001, the NASD's ownership in Nasdaq
was reduced to approximately 25% on a fully-diluted basis (approximately
69% on a non-diluted basis).

The Restructuring benefits Nasdaq, its employees and investors and the
investing public because it:

      o     realigned strategically the ownership of Nasdaq with a broad
            class of strategic investors interested in Nasdaq's long-term
            success;

      o     will facilitate the streamlining of Nasdaq's corporate
            governance and, once Nasdaq is reconstituted as an SRO, Nasdaq
            will not need the NASD's consent (other than as a stockholder)
            to take corporate actions;

      o     fosters the separation of Nasdaq from the NASD and NASDR in an
            attempt to minimize potential conflicts of interest;

      o     generated over $325 million in gross proceeds for Nasdaq and it
            created a financially stronger Nasdaq better able to address
            competitive challenges and invest in new technologies. This
            will assist Nasdaq in the implementation of its strategic
            initiatives including (i) deploying new technology like
            SuperMontage, (ii) forming global alliances and (iii)
            implementing competitive pricing of its services;

      o     provides Nasdaq with greater access to the public capital
            markets to fund future capital needs;

      o     provides Nasdaq with the flexibility to use its Common Stock as
            acquisition currency, making it easier to make acquisitions or
            enter into strategic partnerships; and

      o     provides Nasdaq with the ability to incentivize employees by
            allowing them to become part owners of Nasdaq through its
            equity plans.

The Restructuring benefits the NASD because it:

      o     permits the NASD to focus more on its original mission of being
            solely a membership-focused organization; and

      o     generated gross proceeds of over $190 million from the private
            placements, with the potential to raise another approximately
            $625 million if all the warrants sold are fully exercised, and
            approximately $240 million from the sale of shares of Common
            Stock to Nasdaq. It is also expected that the NASD will receive
            fees of approximately $9 million per year from Nasdaq pursuant
            to the Separation and Common Services Agreement and the NASDR
            is expected to receive fees of approximately $90 million per
            year pursuant to the Regulatory Services Agreement. The NASD
            would also receive proceeds from any sale of its remaining
            33,767,995 shares of Common Stock that do not underlie any
            outstanding warrants. These aggregate proceeds will help
            support the operations of the NASD, which will continue to own
            NASDR, and will remain the principal SRO responsible for the
            securities markets. These proceeds will allow the NASDR to
            better utilize technological advances to regulate the markets
            more effectively and efficiently.

The Nasdaq Board recognized that by virtue of the broadening of Nasdaq's
ownership and the corresponding applicability of the reporting requirements
under Sections 13, 14 and 16 of the Exchange Act, Nasdaq will have to
devote management time and expense to satisfy the increased disclosure
obligations, including information about its operations which would not
otherwise be required to be publicly disclosed, and it will become subject
to heightened scrutiny of the investing community. The Nasdaq Board also
recognized that although the separation of Nasdaq from the NASD is intended
to minimize potential conflicts of interests, conflicts may arise between
the NASD and Nasdaq relating to their continuing contractual relationships
and, until Exchange Registration, the NASD will retain voting control over
Nasdaq and, accordingly, will continue to exert influence over Nasdaq's
management and affairs.

In furtherance of the goals of the Restructuring, the NASD indicated its
intention to sell by June 30, 2002 those shares of Common Stock that it
owns (other than shares underlying outstanding warrants), subject to market
conditions and the NASD's ability to obtain a fair price. Although it is
contemplated that the NASD will eventually divest completely its ownership
interest in Nasdaq, there may still exist certain contractual relationships
between the parties once this happens. For example, prior to the
Restructuring, Nasdaq had access to many support functions of the NASD,
including cash management and other financial services, real estate, legal,
surveillance and other regulatory services, information services and
corporate and administrative services. On June 28, 2000, the NASD and
Nasdaq entered into a Separation and Common Services Agreement, which
continues until December 31, 2001 and automatically renews for one year if
another agreement between the parties does not supercede this agreement,
pursuant to which the NASD continues to provide these services to Nasdaq.
Under this contract, Nasdaq pays to the NASD the costs of the services
provided, including any incidental expenses associated with such services.
Nasdaq has contracted with the NASD to provide such services because of the
NASD's expertise and experience in providing such services to Nasdaq,
resulting in cost savings and greater efficiency for Nasdaq. Nasdaq expects
the cost of the services provided by the NASD to be approximately $9
million per year under this agreement. Nasdaq expects to review in the
future the provision of these services to determine whether it will be more
efficient to internalize these services or to seek alternative third party
providers. See "--Risk Factors--Nasdaq faces potential conflicts of
interest with related parties," "--Risk Factors--The intercompany
agreements may not be effected on terms as favorable to Nasdaq as could
have been obtained from unaffiliated third parties" and "Item 7.
Certain Relationships and Related Transactions."

In addition, on June 28, 2000, Nasdaq and NASDR, a wholly-owned subsidiary
of the NASD, entered into a Regulatory Services Agreement pursuant to which
NASDR or its subsidiaries will provide regulatory services to Nasdaq and
its subsidiaries commencing upon the effectiveness of Exchange
Registration. The term of the Regulatory Services Agreement is 10 years.
The services will be of the same type and scope as are provided by NASDR to
Nasdaq under the Delegation Plan. Each service is to be provided for a
minimum of five years, after which time the parties may determine to
terminate the provision by NASDR of a particular service. The termination
of a particular service will generally be based upon a review of pricing
and the need for such services. Nasdaq expects the cost of these services
provided by the NASDR to be approximately $90 million per year. See "--Risk
Factors--Nasdaq faces potential conflicts of interest with related
parties," "--Risk Factors--The intercompany agreements may not be effected
on terms as favorable to Nasdaq as could have been obtained from
unaffiliated third parties" and "Item 7. Certain Relationships and Related
Transactions."

Market Oversight

Virtually all facets of the operation of The Nasdaq Stock Market are
subject to the SEC's oversight, as prescribed by the Exchange Act.

SROs in the securities industry are an essential component of the
regulatory scheme of the Exchange Act for providing fair and orderly
markets and protecting investors. The Exchange Act and the rules thereunder
impose on the SROs many regulatory and operational responsibilities,
including the day-to-day responsibilities for market and broker-dealer
oversight. In general, a SRO is responsible for regulating its members
through the adoption and enforcement of rules and regulations governing the
business conduct of its members. The NASD is the largest SRO in the United
States, with a membership that includes virtually every U.S. broker-dealer.
The NASD's status as a national securities association registered pursuant
to the terms of Section 15A of the Exchange Act establishes it as a SRO, on
par with registered exchanges (such as the NYSE and Amex), which are also
SROs. To date, the NASD is the only registered securities association,
though there is nothing in the Exchange Act precluding the formation of
other similar associations. The NASD was organized to standardize the
securities industry's principles and practices, to promote high standards
of commercial honor, to advance just and equitable principles of trade for
investor protection, to adopt and enforce rules of fair practice and to
foster member observance of federal and state securities laws. In keeping
with its regulatory obligations, the NASD is also currently responsible for
the regulation of the activity on The Nasdaq Stock Market as well as the
over-the-counter market.

Section 19 of the Exchange Act lays out the SEC's authority with respect to
SROs. In brief, SROs must submit proposed changes of their rules to the
SEC. The SEC will typically publish the proposal for public comment,
following which the SEC may approve, abrogate or amend the proposal, as it
deems appropriate. The SEC's action is designed to ensure that SRO rules
and procedures are consistent with the aims of the Exchange Act. In 1996,
investigations by the SEC and the U.S. Department of Justice found
deficiencies in the NASD's oversight of The Nasdaq Stock Market and the
NASD's enforcement of broker-dealer compliance with the NASD rules and the
requirements of the federal securities laws. In particular, the SEC's order
and report found that the NASD responded inadequately to information
suggesting that its members engaged in anticompetitive pricing practices
and that the NASD failed to enforce its trade reporting, firm quote, and
membership rules. As a consequence, the NASD made certain undertakings as
part of an order issued by the SEC, including assuring that adequate
resources are available to monitor the systems for compliance, providing
greater independence to the regulatory staff, ensuring greater non-industry
participation in deliberations relating to regulatory and policy making and
providing the NASDR with the day-to-day responsibility for regulation,
surveillance, examination and disciplining of members. Other undertakings
included hiring professional hearing officers to preside over disciplinary
proceedings; applying consistent standards for regulatory and other access
issues, such as membership admission; ensuring the existence of a
substantial internal audit staff; implementing an order audit trail;
improving order handling and trade reporting and the enforcement of the
firm quote rule; preventing anticompetitive pricing practices among market
makers; and retaining an independent consultant to report on the
implementation of all of these undertakings to the NASD Board and the SEC.
It is the SEC's current position that Nasdaq is subject to the order and,
as applicable, bound by its requirements.

Under the Delegation Plan, the NASD has delegated responsibility for
market-operation functions to Nasdaq. Although Nasdaq exercises primary
responsibility for market-related functions, including market-related
rulemaking, all actions taken by Nasdaq pursuant to its delegated authority
are subject to review, ratification or rejection by the NASD. As long as
the Delegation Plan remains in effect, the NASD will continue to have
authority over Nasdaq in this respect. The current structure will continue
until Nasdaq is reconstituted as an SRO, which will become effective upon
Exchange Registration. As a SRO, like other registered exchanges, Nasdaq
will have its own rules regarding listing, membership, trading and
regulation that are distinct and separate from those administered by the
NASD. Broker-dealers will be able to choose to become members of Nasdaq, in
addition to their other SRO memberships (including the NASD). As a SRO,
Nasdaq will regulate only those who elect to become members of Nasdaq while
the NASD will still be responsible for regulating all its members. At the
time Nasdaq becomes an SRO, the NASD will no longer be responsible for
Nasdaq meeting its SRO obligations.

Pursuant to a long-term contract, NASDR will perform substantially the same
type and scope of regulatory functions as those NASDR performs for Nasdaq
now prior to Exchange Registration. See "Item 7. Certain Relationships and
Related Transactions" and "-Risk Factors-Nasdaq faces potential conflicts
of interest with related parties" and "-The intercompany agreements may not
be effected on terms as favorable to Nasdaq as could have been obtained
from unaffiliated third parties." In general, under this contract NASDR
will perform automated surveillance of trading on the markets operated by
Nasdaq and review member firm compliance with the rules and regulations
applicable to trading and market-making functions.

Exchange Registration

Nasdaq has initiated the process with the SEC for Exchange Registration by
filing an application with the SEC. If Nasdaq obtains Exchange Registration
it will receive its own SRO status separate from that of the NASD. Exchange
Registration is primarily a change in legal status for Nasdaq as opposed to
a change in the manner that Nasdaq operates. Exchange Registration is not
expected to have a material effect on Nasdaq's operating results in the
short term.

Nasdaq is seeking Exchange Registration for a number of reasons. Exchange
Registration will allow Nasdaq to separate fully from the NASD, further
minimizing potential conflicts between Nasdaq and the NASDR and thereby
furthering certain of the principal goals of the Restructuring. In
addition, separation from the NASD will allow Nasdaq to more easily raise
capital for technology and for operational improvements. Exchange
Registration will also eliminate the disparity of treatment under certain
state laws between securities that are "listed on an exchange" and those
that are not. Nasdaq's domestic and global profile will be enhanced as
Nasdaq will become known as a securities exchange on the same terms as
other U.S. registered-exchange markets allowing Nasdaq to better respond to
the competition it faces. In addition, Exchange Registration will allow
Nasdaq to better compete with European exchanges which have, or plan to,
become publicly-traded companies by enhancing its ability to raise capital
and respond quickly to changes in the industry.

Nasdaq's application for Exchange Registration was published by the SEC for
public comment on June 13, 2001. Information relating to Nasdaq's
application can be found at the SEC's web site at
http://www.sec.gov/rules/other/34-44396.htm. In connection with Exchange
Registration, the SEC is conducting a review of Nasdaq's current rules and
operations. The SEC also has requested certain changes be made to the
national market system plans and is reviewing issues relating to the future
control and operation of the OTC Bulletin Board. In addition, the SEC has
also stated that its approval of Exchange Registration is linked to the
NASD's ability to provide an alternative facility to NASD members to assist
in the quotation and transaction reporting of exchange-listed securities.
As a result, the SEC's present position appears to be that the NASD may
have to have a quotation and transaction reporting facility for securities
listed on The Nasdaq Stock Market, the NYSE and Amex in place upon Exchange
Registration. The SEC is reviewing comment letters received and then will
issue an order granting Exchange Registration or begin proceedings to
disapprove the application. The comment period or the SEC's time for review
of Nasdaq's application also may be extended. There is no assurance that
Exchange Registration will be granted or as to the timing of Exchange
Registration. See"--Risk Factors--The SEC may challenge or not approve
Nasdaq's plan to become a national securities exchange or it may require
changes in the manner Nasdaq conducts its business before granting its
approval."

Exchange Registration will provide investors in Nasdaq with greater
governance rights, as the NASD will no longer be required to retain voting
control over Nasdaq. Until Nasdaq becomes an exchange, the shares
underlying unexercised and unexpired warrants as well as shares of Common
Stock purchased through the valid exercise of warrants, will be voted by a
trustee at the direction of the NASD, assuring that the NASD will retain
voting control over Nasdaq. Upon Exchange Registration, the shares of
Common Stock purchased through the valid exercise of warrants will be voted
by the holder of the shares and the shares underlying unexercised and
unexpired warrants will be voted at the direction of the respective warrant
holder. In addition, the NASD has stated that, commencing upon Exchange
Registration, it will vote its shares of Common Stock (other than shares
underlying then-outstanding warrants) in the same proportion as the other
common stockholders of Nasdaq. For example, if 60% of all holders of Common
Stock (other than the NASD) vote in favor of a proposal and 40% vote
against, the NASD will vote 60% of its shares of Common Stock in favor of
the proposal and 40% against it. On May 22, 2001, Robert Glauber of the
NASD and Hardwick Simmons of Nasdaq, issued a joint letter to the members
of the NASD announcing an arrangement between the two companies whereby
there will continue to be a certain overlap between the members of the NASD
Board and the Nasdaq Board only until such time as Nasdaq is granted
Exchange Registration.

Other Recent Transactions

On May 3, 2001, Nasdaq issued and sold $240.0 million in aggregate
principal amount of its 4% convertible subordinated debentures due 2006
(the "Subordinated Debentures") to Hellman & Friedman Capital Partners IV,
L.P. and certain of its affiliated limited partnerships (collectively,
"Hellman & Friedman"). The Subordinated Debentures are convertible at any
time into an aggregate of 12,000,000 shares of Common Stock, reflecting a
conversion price of $20.00 per share, subject to adjustment, in general,
for any stock split, dividend, combination, recapitalization or other
similar event. Hellman & Friedman owns approximately 9.7% of Nasdaq on an
as-converted basis. In connection with the transaction, Nasdaq has agreed
to use its best efforts to seek stockholder approval of a charter amendment
that would provide for voting debt in order to permit Hellman & Friedman to
vote on an as-converted basis on all matters on which common stockholders
have the right to vote, subject to the 5% voting limitation in Nasdaq's
Restated Certificate of Incorporation (the "Certificate of Incorporation").
In addition, Nasdaq has also agreed that in the event that the Nasdaq Board
approves an exemption from the foregoing 5% limitation for any person
(other than an exemption granted in connection with a strategic market
alliance) and seeks the concurrence of the SEC with respect thereto, Nasdaq
will grant Hellman & Friedman a comparable exemption from such limitation
and use its best efforts to obtain SEC concurrence of such exemption. In
connection with the transaction, Nasdaq granted Hellman & Friedman certain
registration rights with respect to the shares of Common Stock underlying
the Subordinated Debentures. Additionally, Hellman & Friedman is permitted
to designate one person reasonably acceptable to Nasdaq for nomination as a
director of Nasdaq for so long as Hellman & Friedman owns Subordinated
Debentures and/or shares of Common Stock issued upon conversion
representing at least 50% of the shares of Common Stock issuable upon
conversion of the Subordinated Debentures initially purchased. Effective
May 3, 2001, F. Warren Hellman was elected to the Nasdaq Board pursuant to
the foregoing provision.

On May 3, 2001, Nasdaq used the net proceeds from the sale of the
Subordinated Debentures to purchase 18,461,538 shares of Common Stock from
the NASD for $13.00 per share for an aggregate purchase price of
$239,999,994. These repurchased shares are no longer outstanding. In
connection with the transaction, Nasdaq and the NASD have agreed to enter
into an Investor Rights Agreement pursuant to which Nasdaq will grant the
NASD (i) certain demand and piggyback registration rights with respect to
the shares of Common Stock owned by it and (ii) certain rights such that,
prior to Exchange Registration, Nasdaq would need the consent of the NASD
before any issuance of Common Stock (or securities convertible into Common
Stock) that would dilute the NASD's ownership by 5% or more.

Risk Factors

This Registration Statement contains forward-looking statements that
involve risks and uncertainties. Nasdaq's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including the risks faced by Nasdaq described
below and elsewhere in this Registration Statement.

The risks and uncertainties described below are not the only ones facing
Nasdaq. Additional risks and uncertainties not presently known to Nasdaq or
that Nasdaq currently believes to be immaterial may also adversely affect
Nasdaq's business. If any of the following risks actually occur, Nasdaq's
business, financial condition, or operating results could be materially
adversely affected.

Nasdaq's operating results could fluctuate significantly in the future.

Nasdaq's operating results may fluctuate significantly in the future as a
result of a variety of factors, including: (i) a decrease in the trading
volume in The Nasdaq Stock Market; (ii) increased competition from
alternative market venues that might reduce market share and create pricing
pressure; (iii) competition from the NYSE or new competing exchanges for
new listings; (iv) a reduction in market data revenue; (v) the rate at
which The Nasdaq Stock Market obtains new listings and maintains its
current listings; (vi) regulatory changes and compliance costs; (vii)
Nasdaq's ability to utilize its capital effectively; (viii) Nasdaq's
ability to manage personnel, overhead, and other expenses, in particular
technology expenses; and (ix) general market and economic conditions.

Nasdaq's business could be harmed by market fluctuations and other risks
associated with the securities industry generally.

A substantial portion of Nasdaq's revenues is tied to the trading volume of
its listed securities. Trading volume is directly affected by economic and
political conditions, broad trends in business and finance, and changes in
volume and price levels of securities transactions. An adverse change
affecting the economy or the securities markets could result in a decline
in trading volume. Nasdaq is also particularly affected by declines in
trading volume in technology and Internet-related stocks because a
significant portion of its customers trade in these types of stocks and a
large number of technology and Internet-related companies are listed on The
Nasdaq Stock Market. A decline in trading volume would lower transaction
services revenues, and Nasdaq's profitability may be adversely affected if
it is unable to reduce costs at the same rate. A downturn in the initial
public offering market is also likely to have an adverse effect on Nasdaq's
revenues, including, in particular, revenues from listing fees. For
example, in the first nine months of 2001, 39 IPOs were brought to market
on The Nasdaq Stock Market compared to 350 in the first nine months of
2000. There were also 596 delisted companies in the first nine months of
2001 compared to 428 during the same time period last year. Further
downward trends in general market conditions could adversely affect
Nasdaq's revenues and reduce its profitability if Nasdaq cannot reduce its
costs at the same rate to offset such trends.

Substantial competition could reduce The Nasdaq Stock Market's market
share and harm Nasdaq's financial performance.

It is possible that a competing securities exchange, network provider, or
technology company could develop ways to replicate Nasdaq's network more
efficiently than Nasdaq and persuade a critical mass of market participants
to switch to a new network. The NYSE has announced that it might buy or
build its own electronic network for trading Nasdaq-listed stocks and has
announced that it is in discussions with nine other exchanges in Europe,
Asia, and the Americas to form a set of global alliances that would be
intended to allow investors to trade throughout the day. This could have an
adverse effect on Nasdaq's business, financial condition, and results of
operation.

If there is an increase in the number of market makers or ECNs that
determine they do enough order routing traffic to justify setting up a
proprietary network for their traffic, Nasdaq may be forced to reduce its
fees further or risk losing its share of the order routing or execution
business. In addition, certain system providers link many market makers in
The Nasdaq Stock Market. These systems may be able to increase the number
of orders executed through their systems versus the Nasdaq systems. A
reduction in Nasdaq's order routing or execution business could have an
adverse effect on Nasdaq's business, financial condition, and operating
results.

The traditional products and services offered by markets are being
unbundled. Historically, Nasdaq has provided listings, execution services,
information services, and regulatory services to the investing public.
Currently, there are many competitors operating in the execution services
market. Nasdaq has not historically implemented pricing strategies that
isolate its various businesses. Due to competition in the execution
services business, as well as Nasdaq's past practice of bundling products
and services, it is uncertain whether Nasdaq will be able to compete
successfully in this business. Furthermore, Nasdaq faces multiple pricing
constraints, including in particular, regulatory constraints that may
prevent it from competing effectively in certain markets.

Substantial competition could reduce Nasdaq's Corporate Client Group
services revenues.

The Nasdaq Stock Market faces competition for listings from other primary
exchanges, especially from the NYSE. In addition to competition for initial
listings, The Nasdaq Stock Market also competes with the NYSE to maintain
listings. In the past, a number of issuers listed on The Nasdaq Stock
Market have left for the NYSE each year. The largest 50 Nasdaq-listed
issuers (based on U.S. market value) accounted for approximately 43% of
total dollar volume traded on The Nasdaq Stock Market for the nine months
ended September 30, 2001. Therefore, the loss of one or more of these
issuers would result in a significant decrease in revenues from Nasdaq's
Corporate Client Group services.

ECNs do not currently provide listing venues, although such systems can
register as an exchange and compete with traditional exchanges and The
Nasdaq Stock Market for the execution and market data business. At least
two ECNs (Pacific/Archipelago and Island) have applied to become registered
as a national securities exchange, and in October 2001, the SEC approved
Pacific/Archipelago's proposal to establish the Archipelago Exchange as an
equities trading facility of the Pacific Exchange. If these new exchanges
are successful in attracting trading volume and do not continue to use
Nasdaq transaction systems, traditional listings will become less
profitable to Nasdaq as they will not provide corresponding revenue from
trade executions and the sale of market data. In addition, if ECNs become
exchanges, they may enter the competition for issuer listings. There can be
no assurances that Nasdaq will be able to maintain or increase its listing
revenues. The reduction in initial listings or the loss of a top issuer
could have an adverse effect on Nasdaq's business, financial condition, and
operating results.

Nasdaq's market information services revenues are threatened by other
exchanges trading Nasdaq stocks.

Current SEC regulations permit national securities exchanges to trade
certain securities that are listed on The Nasdaq Stock Market pursuant to
the UTP Plan. If the UTP Plan participants' share of trades in
Nasdaq-listed stocks increases substantially, Nasdaq's financial condition
and operating results could be adversely affected. In addition, since the
allowable costs that are shared by UTP Plan participants and the fees
Nasdaq can charge for data products are not exclusively set by Nasdaq,
Nasdaq's control over its revenue and cost base under the UTP Plan is
limited. Current amendments to the UTP Plan under review by the SEC include
(i) an increase in the number of the eligible securities over a one year
period from 1,000 to all securities on The Nasdaq National Market and The
Nasdaq SmallCap Market, and (ii) the elimination of the floor and ceiling
limits on the amount of market data revenue Nasdaq must share with the UTP
Plan participants. These and other amendments could have a materially
adverse effect on Nasdaq's business, financial condition, and operating
results.

Nasdaq's costs may increase if it loses its status as the exclusive SIP
under the UTP Plan.

Under the UTP Plan, Nasdaq collects quotation and last sale information
from competing exchanges (currently the Boston Stock Exchange, the Chicago
Stock Exchange, and the Cincinnati Stock Exchange) and consolidates such
information with its own. Nasdaq sells this information for a Tape Fee.
Under the revenue sharing provision of the UTP Plan, Nasdaq is permitted to
deduct certain costs associated with acting as the exclusive SIP from the
total amount of Tape Fees collected. The SEC has stated that as a condition
of extending the UTP Plan, the parties to the UTP Plan must negotiate in
good faith to revise the UTP Plan so that it provides for either a fully
viable alternative exclusive SIP for all Nasdaq-listed securities or a
fully viable alternative non-exclusive SIP. Each UTP participant will have
to share in the development costs to create the new SIP. Therefore, if
Nasdaq loses its status as the exclusive SIP under the UTP Plan, its
ongoing costs may increase.

Nasdaq may lose trade reporting revenues if more market participants bypass
the comparison feature of its trade reporting system.

As market participants continue to establish automated trading links with
one another and lock-in transactions externally from The Nasdaq Stock
Market, the use of the ACT comparison function, as a percentage of total
trading volume, may continue to decrease. This negatively affects revenue,
since firms are using ACT for trade reporting, but not for comparison.

Certain Congressional and SEC reviews could result in a reduction in data
fees that could reduce Nasdaq's revenues.

The SEC is reviewing concerns by industry members that the present levels
of data fees do not properly reflect the costs associated with their
collection, processing and distribution. As noted above, the SEC is
considering the report of its Advisory Committee on Market Information and
comments on the report. The SEC may or may not act on the report's
recommendations. Nasdaq has argued that there are regulatory, market
capacity, and other related costs of operating the market. A fee
realignment that does not recognize the full market costs of creating and
delivering high quality market data could reduce overall data revenues in
the future and adversely affect Nasdaq's business, financial condition, and
operating results.

Legislation was introduced and hearings were held in the last session of
Congress pertaining to whether stock exchanges and markets have a property
right to quote and trade data. Hearings were held again on this subject in
March, April, and July 2001. Since securities firms are required to supply
the market operator with quote and trade information, some have argued that
the operator has no right to be able to validate the data, consolidate the
data with other market participant data, and sell the data back to the
securities firms. This issue continues to be debated and the outcome could
have a significant impact on the viability of Nasdaq's data revenue and, as
a consequence, on its business, financial condition, and operating results.

Nasdaq is subject to extensive regulation that may harm its ability to
compete with less regulated entities.

Under current federal securities laws, changes in Nasdaq's rules and
operations, including its pricing structure, must be approved by the SEC.
The SEC may approve, disapprove, or recommend changes to proposals
submitted by Nasdaq. In addition, the SEC may delay the initiation of the
public comment process or the approval process. This delay in approving
changes, or the altering of any proposed change, could have an adverse
effect on Nasdaq's business, financial condition, and operating results.

System limitations and failures could harm Nasdaq's business.

Nasdaq's business depends on the integrity and performance of the computer
and communications systems supporting it. If Nasdaq's systems cannot be
expanded to cope with increased demand or fail to perform, Nasdaq could
experience: (i) unanticipated disruptions in service, (ii) slower response
times, and (iii) delays in the introduction of new products and services.
These consequences could result in lower trading volumes, financial losses,
decreased customer service and satisfaction, litigation or customer claims,
and regulatory sanctions. Nasdaq has experienced occasional systems
failures and delays in the past and it could experience future systems
failures and delays.

Nasdaq uses internally developed systems to operate its business, including
transaction processing systems to accommodate increased capacity. However,
if The Nasdaq Stock Market's trading volume increases unexpectedly, Nasdaq
will need to expand and upgrade its technology, transaction processing
systems and network infrastructure. Nasdaq does not know whether it will be
able to project accurately the rate, timing, or cost of any increases, or
expand and upgrade its systems and infrastructure to accommodate any
increases in a timely manner.

Nasdaq's systems and operations also are vulnerable to damage or
interruption from human error, natural disasters, power loss, sabotage or
terrorism, computer viruses, intentional acts of vandalism, and similar
events. Nasdaq currently maintains multiple computer facilities that are
designed to provide redundancy and back-up to reduce the risk of system
disruptions, and has facilities in place that are expected to maintain
service during a system disruption. Any system failure that causes an
interruption in service or decreases the responsiveness of Nasdaq's service
could impair its reputation, damage its brand name, and negatively impact
its revenues. Nasdaq also relies on a number of third parties for systems
support. Any interruption in these third-party services or deterioration in
the performance of these services could also be disruptive to Nasdaq's
business and have a material adverse effect on its business, financial
condition, and operating results.

Nasdaq may not be able to keep up with rapid technological and other
competitive changes affecting the structure of the securities markets.

The markets in which Nasdaq competes are characterized by rapidly changing
technology, evolving industry standards, frequent enhancements to existing
services and products, the introduction of new services and products, and
changing customer demands. These market characteristics are heightened by
the emerging nature of the Internet and the trend for companies from many
industries to offer Internet-based products and services. In addition, the
widespread adoption of new Internet, networking, or telecommunications
technologies or other technological changes could require Nasdaq to incur
substantial expenditures to modify or adapt its services or infrastructure.
Nasdaq's future success will depend on its ability to respond to changing
technologies on a timely and cost-effective basis. Nasdaq's operating
results may be adversely affected if it cannot successfully develop,
introduce, or market new services and products. In addition, any failure by
Nasdaq to anticipate or respond adequately to changes in technology and
customer preferences, or any significant delays in other product
development efforts, could have a material adverse effect on Nasdaq's
business, financial condition, and operating results.

Nasdaq may have difficulty managing its growth.

Over the last several years, Nasdaq has experienced significant growth in
its business and the number of its employees. Nasdaq may not be able to
continue to manage its growth successfully. In an attempt to stimulate
future growth, Nasdaq has undertaken several initiatives to increase its
business, including enhancing existing products, developing new products,
and forming strategic relationships. The increased costs associated with
Nasdaq's initiatives may not be offset by corresponding increases in its
revenues. The growth of Nasdaq's business has required, and will continue
to require, Nasdaq to increase its investment in technology, management
personnel, market regulatory services, and facilities. No assurance can be
made that Nasdaq has made adequate allowances for the costs and risks
associated with this expansion, that its systems, procedures, or controls
will be adequate to support its operations, or that its management will be
able to offer and expand its services successfully. If Nasdaq is unable to
manage its growth effectively, its business, financial condition, and
operating results could be adversely affected.

Nasdaq may need additional funds to support its business plan.

Nasdaq depends on the availability of adequate capital to maintain and
develop its business. Nasdaq believes that its current capital requirements
will be met from internally generated funds and from the funds raised in
connection with the Restructuring. However, based upon a variety of
factors, including the rate of market acceptance of Nasdaq's new products,
the cost of service and technology upgrades, and regulatory costs, Nasdaq's
capital requirements may vary from those currently planned. There can be no
assurance that additional capital will be available on a timely basis, or
on favorable terms or at all.

Nasdaq may not be successful in executing its international strategy.

In order to take advantage of anticipated opportunities that will arise
outside the United States, Nasdaq intends to invest significant resources
in developing strategic partnerships with non-U.S. stock markets. Nasdaq
has had only very limited experience in developing localized versions of
its services and in marketing and operating its services internationally.
To date, Nasdaq's international efforts have not yet achieved
profitability. There can be no assurance that Nasdaq will be able to
succeed in marketing its branded services and developing localized services
in international markets. Nasdaq may experience difficulty in managing its
international operations because of, among other things, competitive
conditions overseas, difficulties in supervising foreign operations,
managing currency risk, established domestic markets, language and cultural
differences, political and economic instability, and changes in regulatory
requirements or the failure to obtain requested regulatory changes and
approvals. Any of the above could have an adverse effect on the success of
Nasdaq's international operations and, consequently, on Nasdaq's business,
financial condition, and operating results. See "Item 1. Business--Nasdaq's
Strategic Initiatives--Pursuing Global Market Expansion."

Extended hours trading may have a negative impact on Nasdaq's business.

Today, market participants, including some ECNs, are trading beyond
traditional market hours (9:30 a.m. to 4:00 p.m., Eastern time). Extending
trading hours may put additional stress on the financial services industry.
Nasdaq has extended the availability of its trade reporting and quotation
systems from 8:00 a.m. until 6:30 p.m. Eastern time. Specifically, the
systems involved include ACT, ACES, CAES/Intermarket Trading System,
SelectNet, the Nasdaq Quotation Display System, Nasdaq Trade Dissemination
Service, and Nasdaq Level 1 Service (which disseminates real-time, inside
quote updates, as well as the 4:00 p.m. closing prices). Certain Nasdaq
market participants have been unable to modify their technology to
accommodate the expansion of trading hours and attendant regulatory
requirements. To date, volume in extended hours trading remains relatively
low. However, to the extent that a large extended hours session develops
and Nasdaq market participants are not prepared to handle the additional
capacity, The Nasdaq Stock Market may lose trading volume to more
technologically advanced competitors. In addition, insufficient interest in
extended hours trading could result in decreased liquidity, increased
volatility, or degeneration of price discovery, all of which could
potentially undermine the public confidence in The Nasdaq Stock Market and
adversely affect Nasdaq's business, financial condition, and operating
results. In addition, the revenues generated by trading in the extended
hours market may not be sufficient to cover costs associated with such
trading.

Failure to protect its intellectual property rights could harm Nasdaq's
brand-building efforts and ability to compete effectively.

To protect its rights to its intellectual property, Nasdaq relies on a
combination of trademark laws, copyright laws, patent laws, trade secret
protection, confidentiality agreements, and other contractual arrangements
with its employees, affiliates, clients, strategic partners, and others.
The protective steps Nasdaq has taken may be inadequate to deter
misappropriation of its proprietary information. Nasdaq may be unable to
detect the unauthorized use of, or take appropriate steps to enforce, its
intellectual property rights. Nasdaq has registered, or applied to
register, its trademarks in the U.S. and in 40 foreign jurisdictions and
has pending U.S. and foreign applications for other trademarks. Effective
trademark, copyright, patent, and trade secret protection may not be
available in every country in which Nasdaq offers or intends to offer its
services. Failure to protect its intellectual property adequately could
harm its brand and affect its ability to compete effectively. Further,
defending its intellectual property rights could result in the expenditure
of significant financial and managerial resources, which could adversely
affect Nasdaq's business, financial condition, and operating results.

Lack of operating history as a for-profit entity with private ownership
interests.

While Nasdaq has an established operating history, it has only operated as
a for-profit company with private ownership interests since June 28, 2000.
Therefore, Nasdaq is subject to the risks and uncertainties associated with
any newly independent company. Nasdaq has had access to many support
functions of the NASD, including: cash management and other financial
services, real estate, legal, surveillance, and other regulatory services,
information services, and corporate and administrative services. Nasdaq has
entered into, and intends to enter into, various intercompany arrangements
with the NASD and its affiliates for the provision of these services on an
on-going or transitional basis. See "-Nasdaq faces potential conflicts of
interest with related parties" and "-The intercompany agreements may not be
effected on terms as favorable to Nasdaq as could have been obtained from
unaffiliated third parties" and "Item 7. Certain Relationships and Related
Transactions." In addition, Nasdaq's initiatives designed to increase
operating efficiencies may not yield the expected benefits or efficiencies
and may be subject to delays, unexpected costs, and cost overruns, all of
which could have an adverse effect on Nasdaq's business, financial
condition, and operating results.

Failure to attract and retain key personnel may adversely affect Nasdaq's
ability to conduct its business.

Nasdaq's future success depends on the continued service and performance of
its senior management and certain other key personnel. For example, Nasdaq
is dependent on specialized systems personnel to operate, maintain, and
upgrade its systems. The inability of Nasdaq to retain key personnel or
retain other qualified personnel could adversely affect Nasdaq's business,
financial condition, and operating results. See "Item 5. Directors and
Executive Officers."

Nasdaq is subject to risks relating to litigation and potential securities
laws liability.

Many aspects of Nasdaq's business potentially involve substantial risks of
liability. While Nasdaq enjoys immunity for certain self-regulatory
organization activities, it could be exposed to substantial liability under
federal and state securities laws, other federal and state laws and court
decisions, as well as rules and regulations promulgated by the SEC and
other federal and state agencies. These risks include, among others,
potential liability from disputes over the terms of a trade, the claim that
a system failure or delay cost a customer money, that Nasdaq entered into
an unauthorized transaction or that it provided materially false or
misleading statements in connection with a securities transaction. As
Nasdaq intends to defend any such litigation actively, significant legal
expenses could be incurred. An adverse resolution of any future lawsuit or
claim against Nasdaq could have an adverse effect on its business,
financial condition, and operating results.

Nasdaq's networks may be vulnerable to security risks.

As with other computer networks, it is possible that Nasdaq's networks may
be vulnerable to unauthorized access, computer viruses, and other security
problems. Persons who circumvent security measures could wrongfully use
Nasdaq's information or cause interruptions or malfunctions in Nasdaq's
operations. Nasdaq is required to continue to expend significant resources
to protect against the threat of security breaches or to alleviate problems
caused by any such breaches. Although Nasdaq intends to continue to
implement industry-standard security measures, these measures may prove to
be inadequate and result in system failures and delays that could lower
trading volumes and have an adverse effect on Nasdaq's business, financial
condition, and operating results.

Nasdaq faces potential conflicts of interest with related parties.

As of November 15, 2001, the NASD beneficially owns, on a fully diluted
basis, approximately 25% of Nasdaq's outstanding Common Stock
(approximately 69% on a non-diluted basis). See "Item 10. Recent Sales of
Unregistered Securities." Until Exchange Registration, the shares of Common
Stock underlying any unexpired and unexercised tranches of warrants sold in
the Restructuring by the NASD, as well as the shares of Common Stock
purchased through the valid exercise of such warrants, will be voted at the
direction of the NASD. In addition, five of the 18 members of the Nasdaq
Board are currently members of the NASD Board. Until Exchange Registration,
the NASD will be in a position to continue to control substantially all
matters affecting Nasdaq, including any determination with respect to the
direction and policies of Nasdaq, acquisition or disposition of assets,
future issuances of securities of Nasdaq, Nasdaq's incurrence of debt, and
any dividend payable on the Common Stock.

Conflicts of interest may arise between Nasdaq and the NASD, or its
affiliates, in a number of areas relating to their past and ongoing
relationships, including the nature, quality, and pricing of services
rendered; shared marketing functions; tax and employee benefit matters;
indemnity agreements; sales or distributions by the NASD of all or any
portion of its ownership interest in Nasdaq; or the NASD's ability to
influence certain affairs of Nasdaq prior to Exchange Registration. There
can be no assurance that the NASD and Nasdaq will be able to resolve any
potential conflict or that, if resolved, Nasdaq would not receive more
favorable resolution if it were dealing with an unaffiliated party.

Conflicts may also arise between Nasdaq and Amex by virtue of commitments
made by the NASD in connection with its acquisition of Amex.

The intercompany agreements may not be effected on terms as favorable to
Nasdaq as could have been obtained from unaffiliated third parties.

For purposes of governing their ongoing relationship, Nasdaq and the NASD,
or their affiliates, have entered into, or intend to enter into, various
agreements involving the provision of services such as market surveillance
and other regulatory functions, cash management and other financial
services, legal, facilities sharing, information services, corporate, and
other administrative services. However, as of the date hereof, Nasdaq has
only fully negotiated a contract with the NASDR pursuant to which NASDR
will regulate Nasdaq trading activity commencing upon the effectiveness of
Exchange Registration. The NASDR will continue regulating trading activity
on Nasdaq under a new long-term contract that establishes the various
functions NASDR will perform and the price that Nasdaq will pay for these
functions. The functions covered under this contract are substantially the
same type and scope as those NASDR performs under the Delegation Plan.

The terms of the other intercompany agreements have not yet been fully
negotiated. Although it is the intention of the parties to negotiate
agreements that provide for arm's length, fair market value pricing, there
can be no assurance that these contemplated agreements, or the transactions
provided in them, will be effected on terms as favorable to Nasdaq as could
have been obtained from unaffiliated third parties. The cost to Nasdaq for
such services could increase at a faster rate than its revenues and could
adversely affect Nasdaq's business, financial condition, and operating
results. See "Item 7. Certain Relationships and Related Transactions."

The SEC may challenge or not approve Nasdaq's plan to become a national
securities exchange or it may require changes in the manner Nasdaq conducts
its business before granting this approval.

The SEC may not approve Nasdaq's proposal to be registered as a national
securities exchange or may require changes in the manner Nasdaq conducts
its business before granting this approval. Failure to be so registered
could adversely effect Nasdaq's competitive position and could have a
material adverse effect on Nasdaq's business conditions and business
prospects.

In connection with Exchange Registration, certain changes must be made to
the national market system plans. Certain participants in the plans may
object to, or request modifications to, amendments proposed by Nasdaq.
Failure to resolve these issues in a timely manner could delay Exchange
Registration. In addition, the SEC has also stated that its approval of
Exchange Registration is linked to the NASD's ability to provide an
alternative facility to NASD members to assist in the quotation and
transaction reporting of exchange-listed securities. Any significant delay
or failure on the part of the NASD to build this residual market could also
delay the SEC's approval of Exchange Registration.

There can be no assurance that Exchange Registration will occur or that the
registration process will occur in a timely manner. Because of the nature
of the regulatory process and the variety of market structure issues that
would have to be resolved across all markets, the registration process
could be lengthy. In the long-term, the failure to be approved as an
exchange by the SEC may have negative implications on the ability of Nasdaq
to fund its planned initiatives.

In addition, the SEC has not yet agreed and may not agree to Nasdaq's
proposal to continue to operate the OTC Bulletin Board after Exchange
Registration.

Nasdaq may face competition from the establishment of a "residual market"
by the NASD.

In the SEC's January 2001 order approving SuperMontage, it noted that in
order to address concerns that Nasdaq's position as an exclusive SIP would
compel participation in SuperMontage, the NASD has committed to provide
NASD members with the ability to opt-out of SuperMontage by providing an
alternative quotation and transaction reporting facility for NASD members.
In addition, the SEC has also stated that the approval of Exchange
Registration is linked to the NASD's obligation to provide an alternative
facility to allow NASD members to report trades and disseminate quotations
in exchange-listed securities. If this market becomes a viable alternative
to The Nasdaq Stock Market, then Nasdaq faces the risk of reduced market
share in transactions and market information services revenues, which would
adversely affect Nasdaq's business, financial condition, and operating
results.

Nasdaq will not pay cash dividends for the foreseeable future.

Nasdaq anticipates that earnings, if any, will be retained for the
development of its business and that no cash dividends will be declared on
the Common Stock for the foreseeable future.

Provisions of Delaware law and Nasdaq's governing documents may delay or
prevent its takeover.

Nasdaq is organized under the laws of the State of Delaware and was
incorporated in 1979. Certain provisions of Delaware law may have the
effect of delaying or preventing a transaction that would cause a change in
Nasdaq's control. In addition, certain provisions of the Certificate of
Incorporation and Nasdaq's By-Laws (the "By-Laws") may delay, defer, or
prevent this type of transaction, even if Nasdaq's stockholders consider
the transaction to be in their best interests. For example, the Certificate
of Incorporation places limitations on the voting rights of persons, other
than the NASD or any other person as may be approved by the Nasdaq Board
prior to the time such person owns more than 5% of the then outstanding
shares of Common Stock, who otherwise would be entitled to exercise voting
rights in respect of more than 5% of the then outstanding shares of Common
Stock. As a result, third parties are limited from exercising voting
control over Nasdaq. Moreover, it is possible that the SEC might object to
any action of the Nasdaq Board that would permit certain persons from being
exempted from the foregoing restriction on voting power. In addition, in
response to the SEC's concern about a concentration of ownership of Nasdaq,
Nasdaq's Exchange Registration application includes a rule that prohibits
any Nasdaq member or any person associated with a Nasdaq member from
beneficially owning more than 5% of the outstanding shares of Common Stock.
Other provisions make the removal of incumbent directors and the election
of new directors more time consuming and difficult, which may discourage
third parties from attempting to obtain control of Nasdaq, even if the
change in control would be in the best interests of its stockholders. See
"Item 11. Description of Registrant's Securities to be Registered."

I
tem 2.  Financial Information.

The following table presents summary consolidated financial and operating
data for Nasdaq. The data presented in this table are derived from
"Selected Consolidated Financial Data of Nasdaq" and the consolidated
financial statements and notes thereto which are included elsewhere in this
Registration Statement. You should read those sections for a further
explanation of the financial data summarized here. You should also read the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Nasdaq" section, which describes a number of factors which
have affected Nasdaq's financial results.





<TABLE>
<CAPTION>

                                                    Selected Consolidated Financial Data


                                                             Year Ended December 31,                           Nine Months Ended
                                                                                                                 September 30,
      Statements of Income Date:             1996          1997         1998         1999          2000         2000        2001
                                        ------------- ------------ ------------ ------------ -------------- ----------- ------------
                                              (in thousands, except share and per share data and number of listed companies)
                                                                                               (Restated)    (Restated)
Revenues:
<S>                                         <C>          <C>         <C>           <C>            <C>         <C>          <C>     
     Transaction services                   $118,500     $174,741    $ 160,506     $283,652       $395,123    $291,231     $305,772
     Market information services              99,446      126,436      152,665      186,543        258,251     200,796      176,925
     Corporate Client Group services         111,832      113,019      137,344      163,425        149,297     109,566      116,463
     Other                                     2,452        2,530          308          628         30,040      19,646       42,621
                                        ------------- ------------ ------------ ------------ -------------- ----------- ------------
        Total revenues                       332,230      416,726      450,823      634,248        832,711     621,239      641,781

Expenses:
     Compensation and benefits                54,080       64,324       78,565       98,129        137,284      91,929      131,131
     Marketing and advertising                34,356       53,817       42,483       62,790         45,908      32,034       17,597
     Depreciation and amortization            24,405       31,336       34,984       43,696         65,645      45,614       65,558
     Professional and contract services       17,233       22,259       35,127       35,282         61,483      36,877       54,424
     Computer operations and data
          communications                      45,757       61,438       72,111      100,493        138,228      98,545      131,875
     Travel, meetings, and training            6,547        7,310        7,750       10,230         12,113       8,312       11,193
     Occupancy                                 4,380        4,883        5,354        6,591         14,766      11,462       19,866
     Publications, supplies, and postage       4,512        5,223        5,208        4,670          7,181       4,601        8,538
     Disaster related                              -            -            -            -              -           -          843
     Other                                     8,995       13,763       14,742       22,666         25,561      13,249       43,054
                                        ------------- ------------ ------------ ------------ -------------- ----------- ------------
         Total direct expenses               200,265      264,353      296,324      384,547        508,169     342,623      484,079

     Support cost from related
       parties, net                           70,293       85,880      100,841      115,189        128,522      90,197       76,121
                                        ------------- ------------ ------------ ------------ -------------- ----------- ------------
         Total expenses                      270,558      350,233      397,165      499,736        636,691     432,820      560,200

Net operating income                          61,672       66,493       53,658      134,512        196,020     188,419       81,581
Interest income                                6,341        7,522        9,269       12,201         20,111      10,924       16,649
Interest expense                                (136)        (797)      (1,962)      (2,143)        (2,130)     (1,677)      (5,447)
Minority interests                                 -            -            -            -            872           -        5,234
Provision for income taxes                   (27,522)     (33,187)     (26,010)     (58,421)       (90,477)    (83,988)     (44,297)
                                        ------------- ------------ ------------ ------------ -------------- ----------- ------------
Income before cumulative effect of
     change in accounting principle           40,355       40,031       34,955       86,149        124,396     113,678       53,720
Cumulative effect of change in
     accounting principle                          -            -            -            -       (101,090)   (101,090)           -
                                        ------------- ------------ ------------ ------------ -------------- ----------- -----------
Net income                                   $40,355      $40,031      $34,955      $86,149        $23,306     $12,588      $53,720
                                        ============= ============ ============ ============ ============== =========== ===========
Weighted average common shares
     outstanding (1)                     100,000,000  100,000,000  100,000,000  100,000,000    112,090,493 108,204,583  119,314,785

Basic earnings per share:
      Before cumulative effect of
          change in accounting
          principle                            $0.40        $0.40        $0.35        $0.86          $1.11        $1.05      $0.45
                                        ------------- ------------ ------------ ------------ -------------- ----------- -----------
      Cumulative effect of change in
          accounting principle                     -            -            -            -          (0.90)       (0.93)         -
                                        ------------- ------------ ------------ ------------ -------------- ----------- -----------
      Net income                               $0.40        $0.40        $0.35        $0.86          $0.21        $0.12      $0.45
                                        ============= ============ ============ ============ ============== =========== ===========
Diluted earnings per share:
      Before cumulative effect of
          change in accounting
          principle                            $0.40        $0.40        $0.35        $0.86          $1.11        $1.05      $0.44
                                        ------------- ------------ ------------ ------------ -------------- ----------- -----------
      Cumulative effect of change in
          accounting principle                     -            -            -            -          (0.90)       (0.93)         -
                                        ------------- ------------ ------------ ------------ -------------- ----------- -----------
       Net income                              $0.40        $0.40        $0.35        $0.86          $0.21        $0.12      $0.44
                                        ============= ============ ============ ============ ============== =========== ===========
Pro forma amounts assuming the change in
       accounting principle is applied
       retroactively:

         Total revenues                     $305,041     $401,774     $444,764     $607,203       $832,711    $621,239          N/A
         Net income                           24,095       31,090       31,332       69,944        124,396     113,678          N/A
         Basic and diluted earnings
            per share                          $0.24        $0.31        $0.31        $0.70          $1.11       $1.05          N/A


Other Data:
EBITDA (2)                                   $86,077      $97,829      $88,642     $178,208      $261,665     $234,033    $147,139
Capital expenditures                          54,361       79,887       33,605       94,193       119,040       48,979      55,939
Net cash provided by operating
  activities                                  62,469       76,755       56,723      134,625       249,320      197,839      95,838
Net cash used in investing activities        (50,726)    (123,064)     (58,150)    (130,657)     (286,009)    (192,506)    (72,456)
Net cash provided by financing
  activities                                      21       29,766          156        3,876       288,348      282,071      43,460
Number of listed companies (at period end)     5,556        5,487        5,068        4,829         4,734        4,880       4,218
Shares traded (in thousands)             138,100,000  163,900,000  202,000,000  272,600,000   442,800,000  314,600,000 352,100,000

</TABLE>






<TABLE>
<CAPTION>

                                                  As of December 31,                              As of
                                                                                              September 30,
                            ---------------------------------------------------------------------------------
                                1996            1997         1998       1999        2000              2001
                            ---------------------------------------------------------------------------------
Balance Sheet Data:(3)                                                          (Restated)
<S>                            <C>             <C>          <C>        <C>        <C>               <C>     
Cash and cash equivalents      $20,547         $4,025       $2,754     $10,598    $262,257          $329,099
Working capital(4)              92,953         84,668      120,831     154,372     432,767           534,871
Total assets                   270,654        353,134      403,745     578,254   1,171,133         1,318,455
Total long term obligations     14,097         41,362       41,248      78,965     220,705           497,273
Total stockholders' equity     189,135        229,166      266,255     352,012     645,159           526,474
</TABLE>



----------------------

(1)      Gives effect to the June 28, 2000, 49,999-for-one stock dividend
         of the shares of Common Stock for years ended 1996-2000.

(2)      EBITDA represents income before net interest, income taxes, and
         depreciation and amortization expense. EBITDA is not a measure of
         performance under generally accepted accounting principles and
         should not be considered as an alternative to net income as a
         measure of operating results or cash flows as a measure of
         liquidity. Nasdaq believes that investors find EBITDA a good
         measure of Nasdaq's cash flow and ability to incur and service
         indebtedness. EBITDA as defined may not be comparable to similarly
         titled measures reported by other companies. EBITDA for 2000
         represents income before cumulative change in accounting
         principle, net interest, income taxes, minority interest and
         depreciation and amortization expense.

(3)      Balance sheet data for 1996-1999 has not been restated for the
         change in accounting principle adopted as of January 1, 2000.

(4)      Working capital is calculated as current assets (reduced for
         held-to-maturity investments classified as current assets) less
         current liabilities.




Management's Discussion and Analysis of Financial Condition and Results of
Operations

The following discussion of the financial condition and results of
operations of Nasdaq should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this
Registration Statement. This discussion contains forward-looking statements
that involve risks and uncertainties. Nasdaq's actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, but not limited to, those set forth
under "Item 1. Business-- Risk Factors" and elsewhere in this Registration
Statement.

Overview

As of December 31, 2000, the NASD owned approximately 60% of Nasdaq
assuming all warrants purchased in Phase I are fully exercised
(approximately 81% assuming no warrants are exercised). Phase II of the
Restructuring closed in January 2001. Subsequent to the closing of Phase II
and the repurchase by Nasdaq of 18,461,538 shares of Common Stock from the
NASD on May 3, 2001, the NASD beneficially owns approximately 25% of Nasdaq
on a fully diluted basis (approximately 69% on a non-diluted basis).
Transactions between Nasdaq and the NASD are on a cost basis and are
allocated on a monthly basis through transfer pricing mechanisms.

Business Environment

In the first half of 2000, the economy continued the expansion experienced
in 1999 as the U.S. enjoyed high productivity levels, low unemployment and
low inflation. This expansionary atmosphere provided a strong environment
for equity issuers and for the broker-dealer industry that drives Nasdaq's
transaction services and market information services businesses. New issues
were at high levels with 342 initial listings, including IPOs, occurring on
The Nasdaq Stock Market in the first half of 2000, leading to strong growth
in Corporate Client Group services revenues. Additional shares listed by
Nasdaq issuers enjoyed similar growth. The broker-dealer industry continued
its expansion leading to increased subscriptions for market information
services. Both share and trade volume hit record levels as the Nasdaq
Composite Index posted its record high in March 2000, resulting in
increased transaction services revenues. Daily share volume for the first
six months of 2000 averaged 1.70 billion shares a day compared to 992
million shares a day in the first half of 1999, a 71% increase.

To alleviate potential inflationary pressure due to the expansion, the
Federal Reserve gradually raised interest rates to the highest level in
recent years. Economic growth decelerated in the second half of 2000 as
corporate earnings growth and investment slowed, combined with a slowdown
in consumer spending. The equity markets declined significantly creating a
difficult new issue environment and resulting in a decline in Corporate
Client Group services revenue in the latter part of the year. Despite
difficult market conditions, trading volumes remained strong, resulting in
continued growth in transaction services revenue. Daily share volume in the
second half and full year of 2000 averaged 1.81 billion and 1.76 billion
shares a day, respectively, compared to 1.15 billion and 1.07 billion
shares a day in the second half and full year of 1999, respectively. Market
information revenue from professional services remained strong in the
second half of the year despite a leveling off in growth, while the
decrease in on-line retail activity led to declines in non-professional
market information revenue.

The U.S. economy continued to weaken throughout 2001. In response, the
Federal Reserve began in January 2001 to reverse the rate increases
previously imposed in an attempt to stimulate the economy. With the outlook
for the economy uncertain, Nasdaq's primary revenue components have
experienced a slowdown and may remain under pressure for the rest of 2001.
A continuing weak equity market may lead to fewer companies proceeding with
IPOs or issuing additional shares, resulting in lower Corporate Client
Group services revenue. In addition, a weak equity market and corporate
earnings environment provide increased risk of delistings. A difficult
capital raising environment may also slow the pace of merger and
acquisition activity, which combined with a decreased level of new
offerings, may provide significant challenges to the broker-dealer
industry. Further reductions in on-line retail trade activity and
reductions in the staff at the broker-dealers could reduce the demand for
both market information and transaction services. In addition, the
difficulties faced by Nasdaq customers may lead to increased pricing
pressure across various product lines.

The weakening economy and business environment extended into the third
quarter. Daily share volume in the third quarter of 2001 slowed to 1.63
billion shares per trading day (excluding the four-day trading halt due to
the September 11th terrorist attacks) compared to 1.95 billion shares in
the second quarter of 2001 and 1.59 billion shares in the third quarter of
2000. Total trading activity for the third quarter decreased as a result of
the four-day market closure. While some of the decline in average volume in
the third quarter is due to historical seasonal patterns, the third quarter
was adversely impacted by a further softening economy and exceptionally
weak volumes for August. Although an increase in volume is expected in the
fourth quarter of 2001, the uncertainty of the recessionary environment and
current military actions, as further discussed below, may produce unstable
market conditions for the remainder of the year. However, Federal Reserve
and federal government attempts to respond to the slowdown with a
combination of monetary and fiscal stimulus may heighten trading interest
and somewhat mitigate the negative impact on fourth quarter share volume.

All of Nasdaq's primary revenue streams were negatively affected in the
third quarter by the continued market slow-down. Lower trading volumes
resulted in reduced transaction services revenues. Market information
services revenue experienced a similar decline as the demand for both
professional and non-professional information softened. While reported
revenues associated with Corporate Client Group activities were favorable
due to the accounting methodology for revenue recognition as discussed in
"Change in Accounting Principle" below, actual Corporate Client Group
services revenues were down significantly with no IPOs in the U.S. equity
markets in September for the first time in 25 years. Total new issues of
companies listed on The Nasdaq Stock Market, including IPOs, were 32 in the
third quarter of 2001 compared to 38 in the second quarter of 2001 and 163
in the third quarter of 2000. Further decline or future recovery of these
revenue streams will depend largely upon general market and economic
conditions.

The unprecedented terrorist attacks on the United States on September 11,
2001 have had a significant impact on general economic conditions in the
United States and the operations of Nasdaq and the other U.S. securities
marketplaces. In connection with the attacks, The Nasdaq Stock Market was
closed for four consecutive trading days in an effort to coordinate with
the other U.S. marketplaces so that all would be prepared to open and
operate effectively. The closure of the market and disruption in business
operations of market participants as a result of the terrorist attacks has
adversely affected Nasdaq's operating results for the third quarter of
2001.

As a result of the attacks, Nasdaq's executive offices in New York City
have been temporarily closed and its New York-based employees have been
relocated. In addition, it has been necessary for Nasdaq to make certain
non-budgeted expenditures. September 11th disaster related expenses
include, but will not be limited to, costs related to the efforts to
restore services to market participants; the testing of trading systems;
and required reconfiguring of technology, telecommunications and
alternative office facilities due to the temporary relocation of employees.
September 11th disaster related expenses of $0.84 million were recorded in
the third quarter of 2001. Nasdaq is in the process of determining the
total loss of revenues and additional expenses incurred as well as any
applicable insurance recoveries. Additional expenses and recoveries will be
recorded in future periods.

These attacks have caused uncertainty in the global financial markets, and
have contributed to downward pressure on stock prices of U.S. publicly
traded companies. This uncertainty may cause customers of Nasdaq's products
and services to reassess their operations, capital raising needs and
employment needs. Any curtailment in the businesses of its customers or a
reduction in the number of users of its services would negatively impact
Nasdaq's operations. The occurrences of similar events and the related
responsive military actions may further exacerbate negative economic,
market or business conditions and uncertainties. In response to the general
economic and market uncertainty after the terrorist attacks, effective as
of September 26, 2001, Nasdaq formally suspended until January 2, 2002 two
requirements for continued listing on both The Nasdaq National Market and
The Nasdaq SmallCap Market. The two requirements are (1) minimum bid price,
and (2) market value of public float. The implementation of the moratorium
is not expected to have a material positive effect on Nasdaq's operating
results. However, if weak economic conditions in the United States continue
or worsen or if a wider global recession materializes, Nasdaq's business,
financial condition and results of operations may be materially adversely
affected.

On October 26, 2001, Nasdaq announced a proposed increase in services and
listing fees for Nasdaq-listed companies beginning January 1, 2002, subject
to SEC approval. This would be the first increase in annual listing fees in
10 years for American Depositary Receipts and The Nasdaq SmallCap Market,
and the first such increase in four years for The Nasdaq National Market.
The revenue expected to be generated from the proposed fee increase will be
used primarily to fund enhancements to the services offered Nasdaq-listed
companies, including the establishment of a corporate client information
center. See "Item 1. Business--Fee Changes."

Change in Accounting Principle

On August 17, 2001, Nasdaq concluded discussions with the SEC with respect
to the implementation in its financial statements of Staff Accounting
Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"),
which became effective for SEC reporting companies in the fourth quarter of
2000. Nasdaq became a SEC public reporting company on June 29, 2001, the
effective date of its Registration Statement on Form 10. As a result of the
discussions with the SEC, Nasdaq changed its method of accounting for
revenue recognition for certain components of its Corporate Client Group
services revenues.

In accordance with generally accepted accounting principles, as SAB 101 was
adopted effective the fourth quarter of 2000, the change in accounting
principle has been applied as of January 1, 2000. In accordance with
applicable accounting guidance prior to SAB 101, Nasdaq recognized revenue
for issuer initial listing fees and listing of additional shares ("LAS")
fees in the month the listing occurred or in the period additional shares
were issued, respectively. Nasdaq now recognizes revenue related to initial
listing fees and LAS fees on a straight line basis over estimated service
periods, which are six and four years, respectively.

As a result of this change in accounting principle, pro forma net income
for the nine months ended September 30, 2000, excluding the cumulative
effect of the change in accounting principle on prior years' results,
decreased $21.2 million ($0.20 per share) to $113.7 million ($1.05 per
share). In addition, Nasdaq recognized a one-time cumulative effect of a
change in accounting principle in the first quarter of 2000. This
cumulative effect of a change in accounting principle decreased net income
in the first nine months of 2000 by $101.1 million ($0.93 per share),
resulting in net income of $12.6 million ($0.12 per share). The adjustment
to first quarter 2000 net income for the cumulative change to prior years'
results consists of the following:

(amounts in millions)
Deferred initial listing fees                                      $108.5
Deferred LAS fees                                                    60.6
                                                                -------------
Total deferred fees                                                 169.1
Deferred income tax benefit                                         (68.0)
                                                                -------------
Cumulative effect of change in accounting principle                $101.1
                                                                =============

For the nine months ended September 30, 2001 and 2000, Nasdaq recognized
$34.9 million and $42.8 million in revenue, respectively, that was included
in the cumulative effect adjustment as of January 1, 2000. This revenue
contributed $20.9 million (after income taxes of $14.0 million) and $25.6
million (after income taxes of $17.2 million) to net income for the nine
months ended September 30, 2001 and 2000, respectively.

As a result of the change in accounting principle, for the year ended
December 31, 2000, revenues decreased $35.5 million and pro forma net
income, excluding the cumulative change in accounting principle, decreased
$20.8 million ($0.19 per share).

For the year ended December 31, 2000, Nasdaq recognized $55.7 million in
revenue that was included in the cumulative effect adjustment as of January
1, 2000. This revenue contributed $33.3 million (after income taxes of
$22.4 million) to net income for the year ended December 31, 2000.

Deferred revenue as of December 31, 2000 is included in Note 4 to the
Consolidated Financial Statements for the year ended December 31, 2000.

Results of Operations

Nine Months Ended September 30, 2001 Compared to Nine Months Ended 
September 30, 2000

Nasdaq reported net income of $53.7 million for the nine months ended
September 30, 2001, compared to net income of $12.6 million for the nine
months ended September 30, 2000. Compared to pro forma net income for the
nine months ended September 30, 2000 of $113.7 million, excluding the
cumulative effect of the change in accounting principle, net income
decreased by $60.0 million, or 52.7%.

Revenues

Nasdaq's revenues increased from $621.2 million for the nine months ended
September 30, 2000 to $641.8 million for the nine months ended September
30, 2001, representing a $20.6 million or a 3.3% increase.

Transaction Services

For the nine months ended September 30, 2001, transaction services revenues
of $305.8 million increased $14.6 million from $291.2 million for the nine
months ended September 30, 2000, an increase of 5.0%. Transaction services
consist of SelectNet, SOES, SuperSoes, ACT, the Nasdaq Workstation II,
CTCI, and other related execution services.

SelectNet, the high-volume automated execution service, provided revenues
of $75.9 million, a decrease of $9.0 million or 10.6%, for the nine months
ended September 30, 2001 from $84.9 million for the nine months ended
September 30, 2000, due to a decrease in trade volume related to the
introduction of SuperSoes and the closing of The Nasdaq Stock Market for
four consecutive days in September following the terrorist attacks.
SelectNet fees are charged on a per transaction basis.

SOES, a system providing for the automatic execution of small orders,
provided revenues of $22.1 million, a decrease of $0.3 million or 1.3% for
the nine months ended September 30, 2001 from $22.4 million for the nine
months ended September 30, 2000, due to the migration of SOES trading
activity into the new SuperSoes system for securities listed on The Nasdaq
National Market. SOES will continue to operate as an execution system
solely for securities listed on The Nasdaq SmallCap Market. The closing of
The Nasdaq Stock Market for four consecutive days in September following
the terrorist attacks also had a negative impact on revenues. SOES revenues
are not expected to be material in future periods. SOES fees are charged on
a per transaction basis.

On July 30, 2001, Nasdaq fully implemented SuperSoes. SuperSoes is designed
to provide capability for automatic execution of buy and sell orders for
market makers, ECNs and institutional and retail customers, as well as
streamline Nasdaq's transaction systems. SuperSoes combines features of the
existing SelectNet and SOES execution systems and is only available for
securities listed on The Nasdaq National Market tier of The Nasdaq Stock
Market. Securities listed on The Nasdaq SmallCap Market will continue to be
traded through SOES and SelectNet. SuperSoes has resulted in the migration
of significant transaction volume, and its corresponding revenue, from
SelectNet and SOES to SuperSoes. The changes in the fee schedule for
SelectNet and the introduction of the SuperSoes fee schedule at the time of
implementation of SuperSoes has had a negative effect on revenues in the
third quarter, but a new fee structure implemented October 1, 2001 for
SuperSoes and SelectNet is expected to mitigate this negative effect.
SuperSoes provided revenues of $8.2 million for the nine months ended
September 30, 2001. SuperSoes fees are charged on a per transaction basis.

ACT, an automated service that provides the post-execution steps of
reporting price, volume comparison and clearing of pre-negotiated trades as
well as risk management services, provided revenues of $65.6 million, a
decrease of $9.7 million or 12.9% for the nine months ended September 30,
2001 from $75.3 million for the nine months ended September 30, 2000, due
to the closing of The Nasdaq Stock Market for four consecutive days in
September following the terrorist attacks, and various fee changes enacted
subsequent to March 31, 2000. These changes include a cap on risk
management fees, fee reductions on certain existing services, and a rule
change that eliminated charges for certain transactions. ACT fees are
generally charged on a per transaction basis.

The Nasdaq Workstation II is the trader's direct connection to Nasdaq's
quote and trade execution facilities, providing quotation services,
automated trade executions, real-time reporting, trade negotiations and
clearing. This trading device, along with application programming
interfaces, provided $111.6 million, an increase of $23.5 million or 26.7%
for the nine months ended September 30, 2001 from $88.1 million for the
nine months ended September 30, 2000. This increase is due to a larger
customer base as well as higher fees associated with expanded network
capacity. Nasdaq Workstation II fees are charged monthly based upon the
number of authorized logon identifications.

Nasdaq provides CTCI for users to report trades, enter orders into
SuperSoes and receive execution messages. The CTCI links market
participants' automated systems to Nasdaq. This interface is presently
being upgraded to a new protocol and increased line speeds. CTCI revenues
for the nine months ended September 30, 2001 are $11.4 million, up $9.3
million from $2.1 million for the same period prior year. New fees
associated with the upgraded interface are driving the increase in
revenues. Users are charged a monthly fee based upon the size of the line.

Market Information Services

For the nine months ended September 30, 2001, market information services
revenues of $176.9 million decreased $23.9 million or 11.9% from $200.8
million for the nine months ended September 30, 2000.

Nasdaq's Level 1 service provides subscribers with current inside quote and
most recent price at which the last sale or purchase was transacted for a
specific security. Fees for professional users are based on monthly
subscriptions to terminals or access lines. Non-professional users have the
option to access this information through either a flat monthly rate or a
per query usage charge. Level 1 revenues decreased by approximately $16.7
million or 13.7% to $105.1 million for the nine months ended September 30,
2001 from $121.8 million for the nine months ended September 30, 2000. The
reduction in revenues is due primarily to a decrease in demand for
non-professional per query service and the closing of The Nasdaq Stock
Market for four consecutive days in September following the terrorist
attacks.

Nasdaq Quotation Dissemination Service provides subscribers with the quotes
of each individual market maker and ECN, in addition to the inside quotes
and last transaction prices. Nasdaq Quotation Dissemination Service
revenues decreased by approximately $13.7 million or 23.0% to $45.8 million
for the nine months ended September 30, 2001 from $59.5 million for the
nine months ended September 30, 2000. This reduction reflects the
introduction of the new reduced non-professional service fee and the
closing of The Nasdaq Stock Market for four consecutive days in September
following the terrorist attacks. Although the number of Nasdaq Quotation
Dissemination Service subscribers increased in total, those eligible for
the new reduced non-professional fee led to a decrease in total revenues.
Nasdaq Quotation Dissemination Service revenues are derived from monthly
subscriptions.

Nasdaq InterMarket tape revenues are derived from data revenue generated by
the Consolidated Quotation Plan and the CQ/CTA Plans. The information
collected under the CQ/CTA Plans is sold to data vendors, who in turn sell
it to the public. Nasdaq's InterMarket revenue is directly related to the
percentage of trades in exchange listed securities that are executed in a
Nasdaq facility and reported through the CQ/CTA Plans. Nasdaq InterMarket
tape revenues increased by approximately $6.2 million or 39.0% to $22.1
million for the nine months ended September 30, 2001, from $15.9 million
for the nine months ended September 30, 2000.

Corporate Client Group Services

Corporate Client Group services revenues increased to $116.5 million for
the nine months ended September 30, 2001 from $109.6 million for the nine
months ended September 30, 2000, an increase $6.9 million or 6.3%.

Corporate Client Group services revenues are derived from fees for initial
listings, LAS, and annual renewal fees for companies listed on The Nasdaq
Stock Market. Fees are generally calculated based upon total shares
outstanding for the issuing company. These fees are initially deferred and
amortized over the estimated periods for which the services are provided.
Revenues from initial listings and LAS are amortized over six and four
years, respectively, and annual fees are amortized on a pro-rata basis over
the calendar year.

Initial listing revenues increased $2.7 million or 10.8% from $24.9 million
in the nine months ended September 30, 2000 to $27.6 million in the nine
months ended September 30, 2001. LAS revenues increased $1.9 million or
7.7% from $24.7 million in the nine months ended September 30, 2000 to
$26.6 million in the nine months ended September 30, 2001.

Actual initial listing and LAS fees charged during the nine months ended
September 30, 2001 decreased due to significantly reduced IPO activity and
capital raising activity by current issuers. Initial listings on The Nasdaq
Stock Market declined from 505 companies in the nine months ended September
30, 2000 to 101 companies in the nine months ended September 30, 2001.
Initial listing fees charged decreased $36.6 million or 78.2% from $46.8
million in the nine months ended September 30, 2000 to $10.2 million in the
nine months ended September 30, 2001. LAS fees charged decreased $14.8
million or 35.8% from $41.3 million in the nine months ended September 30,
2000 to $26.5 million in the nine months ended September 30, 2001.

Annual renewal revenues increased by $2.3 million or 3.9% from $59.3
million for the nine months ended September 30, 2000 to $61.6 million for
the nine months ended September 30, 2001.

Other Revenues

Other revenues for the nine months ended September 30, 2001 totaled $42.6
million, up from $19.6 million in the nine months of 2000, an increase of
$23.0 million or 117.3%. This growth was primarily due to increased
trademark and licensing revenues related to the Nasdaq-100 Trust and
related products. Nasdaq earns revenues based on the licensing of the
Nasdaq brand name as well as the asset size of the Nasdaq-100 Trust, a unit
investment trust that holds shares of the top 100 U.S. and international
non-financial stocks listed on The Nasdaq Stock Market that comprise the
Nasdaq-100 Index.

Direct Expenses

Direct expenses increased $141.5 million or 41.3% to $484.1 million for the
nine months ended September 30, 2001 from $342.6 million for the nine
months ended September 30, 2000.

Compensation and benefits expense increased to $131.1 million for the nine
months ended September 30, 2001 from $91.9 million for the nine months
ended September 30, 2000, an increase of $39.2 million or 42.7%. This
increase is due primarily to the transfer of positions from the NASD
associated with the Restructuring and new positions required to support
strategic initiatives. It also includes severance and outplacement expenses
associated with the staff reduction made during the period. In response to
softening market conditions, Nasdaq implemented a staff reduction plan in
June 2001 that eliminated 137 positions, or approximately 10% of the
workforce.

Marketing and advertising expense decreased to $17.6 million for the nine
months ended September 30, 2001 from $32.0 million for the nine months
ended September 30, 2000, a decrease of $14.4 million or 45.0%, due to a
reduced spring campaign and the postponement of the fall advertising
campaign.

Depreciation and amortization expense increased $20.0 million or 43.9% to
$65.6 million for the nine months ended September 30, 2001 from $45.6
million for the nine months ended September 30, 2000 due to a higher
overall asset base to support current initiatives, such as SuperMontage and
Primex.

Professional and contract services expense increased to $54.4 million for
the nine months ended September 30, 2001 from $36.9 million for the nine
months ended September 30, 2000, an increase of $17.5 million or 47.4%, in
support of SuperMontage and Primex development, and future technology
design planning.

Computer operations and data communications expense increased $33.4 million
or 33.9% to $131.9 million for the nine months ended September 30, 2001
from $98.5 million for the nine months ended September 30, 2000. The
computer operations component of the costs increased $6.5 million from the
nine months ended September 30, 2000 to the nine months ended September 30,
2001 due to increases in maintenance to support a higher asset base. Data
communications costs increased $26.9 million due to increased charges for
upgraded bandwidth and processing speed that is commensurate with the
increase in Nasdaq Workstation II revenues as discussed above.

Bad debt expense increased to $14.5 million for the nine months ended
September 30, 2001 from $3.4 million for the nine months ended September
30, 2000 reflecting a $7.5 million reserve relating to the bankruptcy
filing by Bridge Information Systems, Inc. Prior to its bankruptcy filing,
Bridge Information Systems, Inc. was a vendor of Nasdaq's market
information. The remaining increase in bad debt expense was commensurate
with the growth of Nasdaq's accounts receivable.

Occupancy expense increased $8.4 million or 73.0% to $19.9 million for the
nine months ended September 30, 2001 from $11.5 million for the nine months
ended September 30, 2000. This increase was primarily due to Nasdaq's new
corporate offices, located at One Liberty Plaza, New York, New York, new
office space in Trumbull, Connecticut and the amortization of leasehold
improvements to the Rockville, Maryland data center. These increased costs
were slightly offset by an abatement due to closure of One Liberty Plaza on
September 11th.

The remaining direct expenses increased $26.4 million or 115.8% to $49.2
million for the nine months ended September 30, 2001 from $22.8 million for
the nine months ended September 30, 2000, due to increased travel and
supply expenses from the expanded Nasdaq workforce, a write-off related to
the impairment of certain assets taken during the second quarter of 2001,
disaster expenses related to the terrorist attacks and losses in foreign
equity investments.

Support Costs

Support costs from related parties decreased by $14.1 million to $76.1
million for the nine months ended September 30, 2001 from $90.2 million for
the nine months ended September 30, 2000. Surveillance and other regulatory
charges from NASDR increased by $2.3 million to $61.7 million for the nine
months ended September 30, 2001 from $59.4 million for the nine months
ended September 30, 2000. Support costs from the NASD decreased $9.4
million to $25.3 million for the nine months ended September 30, 2001 from
$34.7 million for the nine months ended September 30, 2000. In addition,
contributing to the decrease was an increase in the amount of Nasdaq costs
charged to the American Stock Exchange LLC of $7.0 million to $10.9 million
for the nine months ended September 30, 2001 from $3.9 million for the nine
months ended September 30, 2000. Amounts charged to related parties are
netted against charges from related parties in the "Support costs from
related parties, net" line item on the Condensed Consolidated Statements of
Income.

Income Taxes

Nasdaq's income tax provision was $44.3 million for the nine months ended
September 30, 2001 compared to $84.0 million for the nine months ended
September 30, 2000. The effective tax rate was 45.2% for the nine months
ended September 30, 2001 compared to 42.5% for the nine months ended
September 30, 2000. The increase in Nasdaq's effective tax rate was
primarily due to its foreign losses for which no tax benefit is taken,
offset by the recognition of permanent items for tax advantaged items such
as tax-exempt interest and dividends received deductions.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Nasdaq reported net income of $23.3 million for the year ended December 31,
2000, compared to net income of $86.1 million for the year ended December
31, 1999. Compared to pro forma net income for the year ended December 31,
2000 of $124.4 million, excluding the cumulative effect of the change in
accounting principle, net income increased by $54.5 million or 77.9% from
pro forma net income of $69.9 million for the year ended December 31, 1999.

Revenues

Total revenues were $832.7 million for the year ended December 31, 2000,
representing an increase of $198.5 million or 31.3% from $634.2 million for
the year ended December 31, 1999. This increase was largely driven by
growth in trading volumes. Overall average daily share volume on The Nasdaq
Stock Market increased by 64.5%, from 1.07 billion shares per day for the
year ended December 31, 1999 to 1.76 billion shares per day for the year
ended December 31, 2000. Pursuant to the change in accounting principle for
Corporate Client Group services revenues adopted as of 2000, pro forma
total revenues for 1999 would have been $607.2 million and the increase for
2000 would have been $225.5 million, or 37.1%.

Transaction Services

For the year ended December 31, 2000 transaction services revenues of
$395.1 million increased $111.4 million or 39.3% from $283.7 million for
the year ended December 31, 1999.

SelectNet provided revenues of $113.5 million, an increase of $30.4 million
or 36.6% for the year ended December 31, 2000 from $83.1 million for the
year ended December 31, 1999, due to an increase in trade volume.

SOES provided revenues of $32.2 million for the year ended December 31,
2000, an increase of $12.5 million or 63.5% from $19.7 million for the year
ended December 31, 1999, due to an increase in volume of SOES executions.

ACT provided revenues of $100.0 million for the year ended December 31,
2000, an increase of $31.9 million or 46.8% from $68.1 million for the year
ended December 31, 1999, due to increases in trade volume.

The Nasdaq Workstation II, along with application programming interfaces,
provided over $121.6 million in revenues for the year ended December 31,
2000, an increase of $34.0 million or 38.8% from $87.6 million in revenues
for the year ended December 31, 1999. This increase is due to a larger
customer base.

Market Information Services

For the year ended December 31, 2000, market information revenues of $258.3
million increased $71.8 million or 38.5% from $186.5 million for the year
ended December 31, 1999.

Level 1 revenues increased by approximately $24.6 million or 18.2% to
$159.6 million for the year ended December 31, 2000 from $135.0 million for
the year ended December 31, 1999, primarily driven by an increase in demand
for non-professional services including both per month and per query usage.

Nasdaq Quotation Dissemination Service revenues increased by approximately
$42.3 million or 130.2% to $74.8 million for the year ended December 31,
2000 from $32.5 million for the year ended December 31, 1999. This increase
is due to growth in the customer population.

Nasdaq InterMarket tape revenues increased by approximately $4.7 million or
27.3% to $21.9 million for the year ended December 31, 2000, from $17.2
million for the year ended December 31, 1999.

Corporate Client Group Services

Corporate Client Group services revenues decreased from $163.4 million for
the year ended December 31, 1999 to $149.3 million for the year ended
December 31, 2000, a decrease of $14.1 million or 8.6%. Initial listing
revenues decreased from $54.9 million to $33.9 million, a decrease of $21.0
million or 38.3%, due to the effect of the change in accounting principle.
Revenue related to LAS increased from $29.6 million to $33.6 million, an
increase of $4.0 million or 13.5%, driven by an increase in the number of
LAS events offset by the change in accounting principle. Annual listing and
other issuer listing revenues increased from $78.9 million to $81.8
million, an increase of $2.9 million or 3.7%.

Pro forma Corporate Client Group services revenues increased from $136.4
million for the year ended December 31, 1999, to $149.3 million for the
year ended December 31, 2000, an increase of $12.9 million or 9.5%. Actual
initial listing and LAS fees charged during 2000 increased due to higher
IPO activity and capital raising activity by current issuers. Revenue
related to LAS increased from $30.0 million to $33.6 million, an increase
of $3.6 million or 12.0%. Initial listing revenues increased from $27.4
million to $33.9 million, an increase of $6.5 million or 23.7%. Pro forma
amounts assume the change in accounting principle adopted as of January 1,
2000 is applied retroactively.

Other Revenues

Other revenues for fiscal year 2000 totaled $30.0 million, up significantly
from $0.6 million in 1999. This growth is attributable to increased
trademark and licensing revenues, new banner advertising revenues for
Nasdaq.com, revenue generated by the newly opened Nasdaq MarketSite(sm)
("MarketSite"), and revenues related to Nasdaq Tools, which was acquired in
2000.

Direct Expenses

Direct expenses increased $123.7 million or 32.2% to $508.2 million for the
year ended December 31, 2000 from $384.5 million for the year ended
December 31, 1999.

Compensation and benefits costs increased $39.2 million or 40.0% to $137.3
million for the year ended December 31, 2000 from $98.1 million for the
year ended December 31, 1999. This increase is primarily due to growth in
the number of employees required to support business and operational
demands created by the rapid expansion of the market during 2000. The
number of employees increased by 171 or 16.4% to 1,214 employees as of
December 31, 2000, from 1,043 employees as of December 31, 1999. As a
result, salaries for the period increased $20.8 million. Also contributing
were increases in incentive compensation and retirement and savings plan
expenses. Approximately 30% of the overall increase in compensation and
benefits costs related to the transfer of directors and executive officers
from the NASD to Nasdaq as well as new executive officer hires and existing
directors and executive officers.

Marketing and advertising costs decreased $16.9 million or 26.9% to $45.9
million for the year ended December 31, 2000 from $62.8 million for the
year ended December 31, 1999, primarily due to a decrease in scale of the
media advertising campaign in the fall of 2000 as compared to the fall
campaign in 1999. During 1999, additional media events were scheduled to
establish the Nasdaq and Amex brand following the NASD's 1998 acquisition
of Amex.

Depreciation and amortization expense increased $21.9 million or 50.1% to
$65.6 million for the year ended December 31, 2000 from $43.7 million for
the year ended December 31, 1999, primarily due to purchases of computer
hardware necessary to handle the growth in trading volumes. Also
contributing to this increase is the opening of the MarketSite and
broadcast facility located in Times Square, New York.

Professional and contract services costs increased $26.2 million or 74.2%
to $61.5 million for the year ended December 31, 2000 from $35.3 million
for the year ended December 31, 1999. The main projects driving this
increase include Nasdaq Global and related international initiatives,
design costs related to Nasdaq.com and Nasdaq on-line, vendor services for
the new MarketSite and broadcast facility located in Times Square, New
York, and helpdesk and desktop support costs provided by Electronic Data
Systems Corporation.

Computer operations and data communications costs increased $37.7 million
or 37.5% to $138.2 million for the year ended December 31, 2000 from $100.5
million for the year ended December 31, 1999. This overall increase was
required to support additional capacity. The Nasdaq Stock Market's total
share volume for the year ended December 31, 2000 increased approximately
64.5% compared to the year ended December 31, 1999. The computer operations
and data communications complex was upgraded to provide the capability for
processing four billion shares on a peak day. The computer operations
component of the costs increased $14.4 million between 1999 and 2000 to
support this capacity. This increase resulted from help desk and network
license increases of $2.3 million, hardware maintenance increases of $5.4
million, Tandem lease increases of $1.3 million, software leases and
maintenance increases of $3.9 million, and computer supplies and cabling
increases of $1.5 million. Data communications costs increased $23.3
million due to the increased Enterprise Wide Network II charges from
WorldCom for T-1 communications lines for new customers and upgraded
bandwidth and processing speed.

The remaining direct expenses increased $15.4 million or 34.8% to $59.6
million for the year ended December 31, 2000 from $44.2 million for the
year ended December 31, 1999. This was primarily due to an increase in
occupancy costs as a result of the MarketSite and broadcast facility in
Times Square, New York, new office space in Trumbull, Connecticut,
increased travel to support international initiatives, and losses in
foreign equity investments.

Support Costs

Support costs from related parties increased by $13.3 million or 11.5% to
$128.5 million for the year ended December 31, 2000 from $115.2 million for
the year ended December 31, 1999. Specifically, Nasdaq incurred increased
surveillance and other regulatory charges from NASDR. Surveillance and
other regulatory charges are comprised primarily of the costs relating to
technological investments for market surveillance as well as direct costs
for enforcement and other regulation services. Surveillance and other
regulatory charges from NASDR increased by $14.7 million or 22.6% to $79.8
million for the year ended December 31, 2000 from $65.1 million for the
year ended December 31, 1999. Additionally, contributing to the increase is
a decline in the amount of Nasdaq costs charged to Amex of $9.1 million or
65.0% to $4.9 million for the year ended December 31, 2000 from $14.0
million for the year ended December 31, 1999. Nasdaq provides systems and
technology support to Amex in the form of market data storage and
dissemination, web development and hosting and customer relationship
management application support. The support cost increases are partially
offset by a decrease in support costs from the NASD of $10.5 million or
16.4% to $53.6 million for the year ended December 31, 2000 from $64.1
million for the year ended December 31, 1999, primarily since support of
Nasdaq's computer desktop operations was outsourced to Electronic Data
Systems effective June 1, 1999. Prior to June 1, 1999, the NASD provided
these services to Nasdaq. The NASD provides certain administrative,
corporate and infrastructure services, including cash management and other
financial services, real estate, legal and human resource services.

Income Taxes

Nasdaq's income tax provision was $90.5 million for 2000 compared to $58.4
million for 1999. The effective tax rate was 42.1% for 2000 compared to
40.4% for 1999. The increase in Nasdaq's effective tax rate was primarily
due to an increase in its foreign losses for which no tax benefit is taken.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Nasdaq reported net income of $86.1 million for the year ended December 31,
1999, compared to net income of $35.0 million for the year ended December
31, 1998. Compared to pro forma net income for the year ended December 31,
1999 of $69.9 million, net income increased by $38.6 million or 123.2% from
pro forma net income of $31.3 million for the year ended December 31, 1998.

Revenues

Total revenues increased $183.4 million or 40.7% to $634.2 million for the
year ended December 31, 1999 from $450.8 million for the year ended
December 31, 1998. Results for the year ended December 31, 1999 reflect the
strong U.S. equity market performance experienced as evidenced by an
increase in average daily share volume on The Nasdaq Stock Market of
approximately 34% as compared to the previous year. Pursuant to the change
in accounting principle for Corporate Client Group services revenue adopted
as of 2000, total revenues for 1999 and 1998 would have been $607.2 million
and $444.8 million, respectively, and the increase would have been $162.4
million or 36.5%.

Transaction Services

Transaction services revenues of $283.7 million increased $123.2 million or
76.8% for the year ended December 31, 1999 from $160.5 million for the year
ended December 31, 1998, primarily due to an increase in average daily
trade volume of 116.7% to over 1.3 million average trades per day during
the year ended December 31, 1999 as compared to over 0.6 million average
trades per day during the year ended December 31, 1998.

SelectNet provided revenues of $83.1 million, an increase of $40.7 million
or 96.0% for the year ended December 31, 1999 from $42.4 million for the
year ended December 31, 1998, due to an increase in trade volume.

SOES provided revenues of $19.7 million for the year ended December 31,
1999, an increase of $7.3 million or 58.9% from $12.4 million for the year
ended December 31, 1998, due to an increase in volume of SOES executions.

ACT provided revenues of $68.1 million for the year ended December 31,
1999, an increase of $29.9 million or 78.3% from $38.2 million for the year
ended December 31, 1998, due to increases in trade volume.

The Nasdaq Workstation II, along with application programming interfaces,
provided over $87.6 million in revenues for the year ended December 31,
1999, an increase of $38.3 million or 77.7% from $49.3 million in revenues
for the year ended December 31, 1998. The increase was driven by growth in
the number of deployed workstations as well as higher fees associated with
increased network capacity.

Market Information Services

Market information services revenues of $186.5 million increased $33.8
million or 22.1% for the year ended December 31, 1999 from $152.7 million
for the year ended December 31, 1998.

Nasdaq Level 1 services revenues increased by approximately $27.7 million
or 25.8% to $135.0 million for the year ended December 31, 1999 from $107.3
million for the year ended December 31, 1998, primarily driven by increases
in both professional and non-professional users.

Nasdaq Quotation Dissemination Service revenues increased by approximately
$11.3 million or 53.3% to $32.5 million for the year ended December 31,
1999 from $21.2 million for the year ended December 31, 1998. This increase
is due to growth in the number of customers.

Nasdaq InterMarket tape revenues decreased by approximately $4.1 million or
19.2% to $17.2 million for the year ended December 31, 1999 from $21.3
million for the year ended December 31, 1998. This decrease is due to the
initiation of a tape revenue sharing program whereby Nasdaq shares 40% of
its tape revenue with qualifying market participants.

Corporate Client Group Services

Corporate Client Group services revenues increased from $137.3 million for
the year ended December 31, 1998 to $163.4 million for the year ended
December 31, 1999, an increase of $26.1 million or 19.0%. Initial listing
revenues increased from $29.8 million to $54.9 million, an increase of
$25.1 million or 84.2%, due to an increase in the number and size of IPOs,
spin-offs, and movement of issuers into The Nasdaq Stock Market from other
markets. Revenue related to LAS increased from $28.2 million to $29.6, an
increase of $1.4 million or 5.0%, driven by an increase in the number of
events. Annual listing and other listing revenues decreased from $79.3
million to $78.9 million, a decrease of $0.4 million or 0.5%.

Pro forma Corporate Client Group services revenues increased from $131.3
million for the year ended December 31, 1998, to $136.4 million for the
year ended December 31, 1999, an increase of $5.1 million or 3.9%. Revenue
related to initial listings increased from $23.8 million to $27.4 million,
an increase of $3.6 million or 15.1% and revenue related to LAS increased
from $28.1 million to $30.0 million, an increase of $1.9 million or 6.8%.
Pro forma amounts assume the change in accounting principle adopted as of
January 1, 2000 is applied retroactively.

Direct Expenses

Direct expenses increased $88.2 million or 29.8% to $384.5 million for the
year ended December 31, 1999 from $296.3 million for the year ended
December 31, 1998.

Compensation and benefits costs increased $19.5 million or 24.8% to $98.1
million for the year ended December 31, 1999 from $78.6 million for the
year ended December 31, 1998, primarily due to an increase in headcount of
approximately 229 employees to 1,043 employees as of December 31, 1999,
from 814 employees as of December 31, 1998, a 28.1% increase in headcount.
The new positions were created to support expanded market operations.

Marketing and advertising costs increased $20.3 million or 47.8% to $62.8
million for year ended December 31, 1999 from $42.5 million for the year
ended December 31, 1998, primarily due to an extensive media advertising
campaign run during the fall of 1999 to promote brand-awareness.

Depreciation and amortization expense increased $8.7 million or 24.9% to
$43.7 million for the year ended December 31, 1999 from $35.0 million for
the year ended December 31, 1998, primarily due to purchases of computer
hardware necessary to handle the growth in The Nasdaq Stock Market trading
volume.

Professional and contract services costs increased $0.2 million or 0.6% to
$35.3 million for the year ended December 31, 1999, from $35.1 million for
the year ended December 31, 1998. The main projects were development costs
related to the New Amex Equity Book and the Integrated Quote Management
System. The New Amex Equity Book displays to market professionals the
aggregate size and price of equity orders on the book away from the best
bid and offer. The costs incurred by Nasdaq in assisting Amex in the
development of the New Amex Equity Book are charged back to Amex as support
costs provided to related parties. For the year ended December 31, 1999,
Nasdaq expensed approximately $11.7 million of the New Amex Equity Book
development costs that would have otherwise been capitalized as an
internally developed software cost in the fourth quarter of 1999 after a
determination not to implement the system. The Integrated Quote Management
System was intended to replace The Nasdaq Stock Market's current quotation
environment, consolidate Nasdaq's various quotation applications and enable
Nasdaq to handle decimalization, an industry-wide initiative to convert
securities systems pricing figures from fractions to decimals. In May 2000,
it was determined that designing the current system to handle the
decimalization would present lower technological risk than would further
work on the Integrated Quote Management System.

Computer operations and data communications costs increased $28.4 million
or 39.4% to $100.5 million for the year ended December 31, 1999 from $72.1
million for the year ended December 31, 1998, primarily due to the initial
installation of circuits for the Enterprise Wide Network II in 1998. The
increase in Enterprise Wide Network II installations in 1998 resulted in
increased recurring costs in 1999 for the communications lines as customers
converted from Enterprise Wide Network I circuits to the Enterprise Wide
Network II T-1 lines at nearly double the cost.

The remaining direct expenses increased $11.1 million or 33.5% to $44.2
million for the year ended December 31, 1999 from $33.1 million for the
year ended December 31, 1998. This was primarily due to an increase in
other direct expenses that includes a $5.6 million increase in the
allowance related to performance under the Enterprise Wide Network II
contract with WorldCom Inc. Nasdaq partnered with WorldCom Inc. to deploy a
state of the art communications infrastructure to link Nasdaq's
computerized market facilities to the market participants. WorldCom Inc.
provides networking and management services to the Enterprise Wide Network
II in return for revenues generated by the Enterprise Wide Network II and a
deposit fee paid by Nasdaq. Although the deposit will be refunded if Nasdaq
attains certain revenue targets, the allowance is established for any
unrecoverable amounts. Other direct expenses also increased due to Nasdaq's
contribution to The Nasdaq Stock Market Educational Foundation, Inc. of
$10.0 million for the year ended December 31, 1999 compared to $5.0 million
for the year ended December 31, 1998. Contributions to The Nasdaq Stock
Market Educational Foundation, Inc. were made in the fourth quarters of the
years ended December 31, 1998 and December 31, 1999. The foundation is a
non-profit membership organization established and operated exclusively to
advance educational purposes, principally involving the study of business,
economics, and finance.

Support Costs

Support costs from related parties increased by $14.4 million or 14.3% to
$115.2 million for the year ended December 31, 1999 from $100.8 million for
the year ended December 31, 1998, primarily due to the increase in support
charges from the NASD which largely represent costs incurred by the NASD to
develop and maintain technology on behalf of Nasdaq. Specifically, support
costs from the NASD increased by $11.5 million or 21.9% to $64.1 million
for the year ended December 31, 1999 from $52.6 million for the year ended
December 31, 1998, primarily due to an increase in costs as a result of
Nasdaq Japan, various Year 2000 initiatives, and an increase in overall
network environment costs necessary to support the increase in trade
volume. In addition, Nasdaq incurred surveillance and other regulatory
charges from NASDR. Surveillance and other regulatory charges are comprised
primarily of the costs relating to technological investments for market
surveillance as well as direct costs for enforcement and other regulation
services. Surveillance and other regulatory charges from NASDR increased by
$7.8 million or 13.6% to $65.1 million for the year ended December 31,
1999, from $57.3 million for the year ended December 31, 1998. Offsetting
these higher expenses were the $14.0 million charged to Amex as support
costs provided to related parties in the year ended December 31, 1999. This
amount, which increased $4.9 million or 53.8% from $9.1 million for the
year ended December 31, 1998, consists of $9.2 million of non-technology
services provided such as marketing services performed by Nasdaq on behalf
of Amex as well as $4.8 million of technological support related to the
development of new systems such as the New Amex Equity Book and the
enhancement of existing Amex systems.

Income Taxes

Nasdaq's income tax provision was $58.4 million for 1999 compared to $26.0
million for 1998. The effective tax rate was 40.4% for 1999 compared to
42.7% for 1998.

Liquidity and Capital Resources

September 30, 2001 Compared to December 31, 2000

Cash and cash equivalents and available-for-sale securities totaled $558.6
million at September 30, 2001, an increase of $64.3 million from $494.3
million at December 31, 2000. Working capital increased $102.1 million to
$534.9 million as of September 30, 2001, from $432.8 million as of December
31, 2000.

Cash and cash equivalents increased $66.8 million from December 31, 2000 to
$329.1 million as of September 30, 2001, primarily due to cash provided by
operating activities of $95.8 million and cash provided by financing
activities of $43.5 million, partially offset by cash used in investing
activities of $72.5 million.

For the nine months ended September 30, 2001, operating activities provided
net cash inflows of $95.8 million, primarily due to cash received from
customers of $629.0 million less cash paid to suppliers, employees, and
related parties of $533.8 million and income taxes paid of $26.5 million.

Net cash used in investing activities was $72.5 million for the nine months
ended September 30, 2001, due in part to capital expenditures related to
SuperMontage, Primex, global initiatives and general capacity increases.
The remaining cash used in investing activities is attributable to
purchases of investments with the proceeds of the second phase of Nasdaq's
private placement of Common Stock that closed in January 2001 and receipts
from the sales and maturities of investments. 

Cash provided by financing activities was approximately $43.5 million for
the nine months ended September 30, 2001. On May 3, 2001, Nasdaq sold
Subordinated Debentures to Hellman & Friedman, yielding gross proceeds of
approximately $240.0 million. Nasdaq used the proceeds to repurchase
18,461,538 shares of Common Stock from the NASD for $13.00 per share for an
aggregate purchase price of approximately $240.0 million. During this
period, Nasdaq also received net proceeds from Phase II that equaled
approximately $63.7 million and repaid approximately $20.0 million to the
venture partners who participated in Nasdaq Europe Planning Company
Limited. Nasdaq will use the remaining proceeds from its financing
activities to invest in new technology, implement and form strategic
alliances, implement competitive pricing of its services and build its
brand through marketing programs.

Nasdaq believes that the liquidity provided by existing cash and cash
equivalents, investments, and cash generated from operations will provide
sufficient capital to meet operating requirements. Nasdaq has generated
positive cash flows annually in each of the five years since 1996 and
believes that it will continue to do so in the future to meet both short
and long term operating requirements.

December 31, 2000 Compared to December 31, 1999

Cash and cash equivalents and available for sale securities totaled $494.3
million as of December 31, 2000, an increase of $330.1 million from $164.2
million as of December 31, 1999. Working capital increased $278.4 million
to $432.8 million as of December 31, 2000, from $154.4 million as of
December 31, 1999.

Cash and cash equivalents increased $251.7 million to $262.3 million as of
December 31, 2000, primarily due to cash provided by financing activities
as a result of the net proceeds received from Phase I that equalled $253.3
million.

For the year ended December 31, 2000, operating activities provided net
cash inflows of $249.3 million, primarily due to cash received from
customers of $713.4 million less cash paid to suppliers, employees, and
related parties of $403.8 million and income taxes paid of $101.2 million.

Net cash used in investing activities was $286.0 million for the twelve
months ended December 31, 2000, due in part to capital expenditures to
complete construction of the MarketSite and broadcast facility in Times
Square and the acquisition of Financial Systemware, Inc. (now known as
Nasdaq Tools). In addition, Nasdaq continued to make capital investments in
technology to continue to support Nasdaq's system capacity needs. The
remaining cash used in investing activities is attributable to purchases of
investments with the proceeds of the Phase I offering that exceeded the
sales and maturities of investments.

Cash provided by financing activities was $288.3 million as of December 31,
2000, primarily due to the net proceeds received from Phase I that equalled
approximately $253.3 million. Nasdaq will use the proceeds to invest in new
technology, implement and form strategic alliances and build its brand
identity through marketing programs. Also contributing to cash provided
from financing activities was $30.0 million in capital contributions to
Nasdaq Europe Planning Company Limited from the minority shareholders.

Additionally, in connection with the closing of Phase II on January 18,
2001, Nasdaq yielded net proceeds of approximately $63.7 million. Nasdaq
has generated positive cash flows annually in each of the five years
included in this filing and believes it will continue to do so in the
future to meet both short and long term operating requirements.

December 31, 1999 Compared to December 31, 1998

Cash and cash equivalents and available for sale securities totaled $164.2
million as of December 31, 1999, an increase of $31.6 million from $132.6
million as of December 31, 1998. Working capital increased $33.6 million to
$154.4 million as of December 31, 1999, from $120.8 million as of December
31, 1998.

Cash and cash equivalents increased $7.8 million to $10.6 million as of
December 31, 1999, primarily due to cash provided by operating activities
of $134.6 million, substantially offset by cash used in investing
activities of $130.7 million.

In the year ended December 31, 1999, operating activities provided net cash
inflows of $134.6 million, primarily due to cash received from customers of
$527.9 million less cash paid to suppliers, employees, and related parties
of $352.9 million.

Net cash used in investing activities was $130.7 million in the year ended
December 31, 1999, due in part to an increase in capital expenditures
related to construction of the new MarketSite and broadcast facility in
Times Square in New York City totaling approximately $31.0 million. In
addition, Nasdaq made capital investments of approximately $60.0 million in
technology to continue to support Nasdaq's system capacity needs. The
remaining cash used in investing activities is attributable to purchases of
investments that exceeded the proceeds from sales and maturities of
investments.

Nasdaq had no significant financing activities during the year ended
December 31, 1999, as the cash generated by operations was sufficient to
fund planned growth and capital requirements.

Quantitative and Qualitative Disclosure About Market Risk

Market risk represents the risks of changes in the value of a financial
instrument, derivative or non-derivative, caused by fluctuations in
interest rates, foreign exchange rates, and equity prices. As of December
31, 2000, Nasdaq's investment portfolio consists primarily of floating rate
securities, obligations of U.S. Government sponsored enterprises, municipal
bonds, and commercial paper. Nasdaq's primary market risk is associated
with fluctuations in interest rates and the effects that such fluctuations
may have on its investment portfolio and outstanding debt. The weighted
average maturity of the fixed income portion of the portfolio is 1.05 years
as of December 31, 2000. Nasdaq's outstanding debt obligation specifies a
fixed interest rate until May 2007 and a floating interest rate based on
the lender's cost of funds until maturity in 2012. The investment portfolio
is held primarily in short-term investments with maturities averaging
approximately one year. Therefore, management does not believe that a 100
basis point fluctuation in market interest rates will have a material
effect on the carrying value of Nasdaq's investment portfolio or
outstanding debt, or on Nasdaq earnings or cash flows. Nasdaq's exposure to
these risks has not materially changed since December 31, 2000.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133 provides a
comprehensive and consistent standard for the recognition and measurement
of derivatives and hedging activities. In June 1999, the FASB issued SFAS
No. 137 "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133" that
defers the date of adoption of SFAS No. 133 such that it is effective for
fiscal years beginning after June 15, 2000. In June 2000, the FASB issued
SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain
Hedging Activities-an Amendment of FASB Statement No. 133" that addresses a
limited number of issues causing implementation difficulties for a large
number of entities preparing to apply SFAS No. 133. Nasdaq adopted SFAS 133
with no transition adjustments recorded and no impact on the financial
statements.

In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets," ("FASB 142")
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment tests in
accordance with the rules. Other intangible assets will continue to be
amortized over their useful lives. Nasdaq will apply the new rules on
accounting for goodwill and other intangible assets beginning in the first
quarter of 2002. Application of the nonamortization provisions of FASB 142
is not expected to have a material impact to Nasdaq's financial position or
results of operations. During 2002, Nasdaq will perform the first of the
required impairment tests of goodwill and indefinite lived intangible
assets as of January 1, 2002. Nasdaq does not expect the effect of these
tests to have a material impact on its earnings and financial position.

Item 3.  Properties.

The following is a description of Nasdaq's material properties as of June
30, 2001.



<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------
Location                      Use                                Size (approximate, in    Type of Possession
                                                                 square feet)
----------------------------------------------------------------------------------------------------------------------
<S>                          <C>                                <C>                      <C>
Gaithersburg, Maryland        General office space               66,000                   Leased by the NASD.
                                                                                          Nasdaq reimburses the NASD
                                                                                          for the amounts due under
                                                                                          the lease
----------------------------------------------------------------------------------------------------------------------
New York, New York            Location of MarketSite             26,000                   Leased by the NASD, which
                                                                                          will be making an
                                                                                          assignment to Nasdaq
----------------------------------------------------------------------------------------------------------------------
New York, New York            Nasdaq headquarters                78,000                   Sublease from the NASD
----------------------------------------------------------------------------------------------------------------------
New York, New York            General office space               24,000                   Leased by Nasdaq
----------------------------------------------------------------------------------------------------------------------
Rockville, Maryland           Location of Nasdaq data center     110,000                  Ownership will be
                                                                                          transferred to Nasdaq by
                                                                                          the NASD in exchange for
                                                                                          the transfer by Nasdaq of
                                                                                          a 58,000 s.f. office
                                                                                          building to the NASD
----------------------------------------------------------------------------------------------------------------------
Rockville, Maryland           General office space               78,000                   Leased by Nasdaq effective
                                                                                          October, 2001
----------------------------------------------------------------------------------------------------------------------
Trumbull, Connecticut         Location for Nasdaq's principal    162,000                  Owned by Nasdaq
                              technology services, systems
                              engineering and market operations
----------------------------------------------------------------------------------------------------------------------
Trumbull, Connecticut         General office space               101,000 (two locations)  Leased by Nasdaq
----------------------------------------------------------------------------------------------------------------------
Washington, D.C.              General office space               48,000 (three            Occupied pursuant to a
                                                                 locations)               shared facilities
                                                                                          agreement with the NASD
----------------------------------------------------------------------------------------------------------------------
</TABLE>



In addition to the above, Nasdaq leases administrative and sales facilities
in Menlo Park, California, London, England, Sao Paulo, Brazil, Montreal,
Canada and Shanghai, China. 

Item 4.  Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth the beneficial ownership of Nasdaq's Common
Stock by all persons who are beneficial owners of more than 5% of the
Common Stock and the beneficial ownership of Nasdaq's Common Stock and
Nasdaq Japan's common stock by (1) each director, (2) Nasdaq's Chief
Executive Officer ("CEO") and the four most highly compensated executive
officers other than the CEO, who were serving as executive officers at the
end of 2000, and (3) all directors and executive officers as a group.
Except as otherwise indicated, Nasdaq believes that the beneficial owners
listed below, based on information furnished by such owners, will have sole
investment and voting power with respect to such shares, subject to
community property laws where applicable. Unless otherwise indicated, the
business address of such persons is One Liberty Plaza, New York, New York,
10006. As of November 15, 2001, approximately 111,568,868 shares of Common
Stock were outstanding, and approximately 56,400 shares of Nasdaq Japan
common stock were outstanding after giving effect to a four-for-one stock
split of Nasdaq Japan's shares that occurred on April 18, 2001.





<TABLE>
<CAPTION>

                                                                             Common Stock of        Percent
     Name of beneficial owner             Common Stock       Percent of        Nasdaq Japan
                                       Beneficially Owned       Class       Beneficially Owned     of Class
-------------------------------------------------------------------------------------------------------------
<S>                                      <C>                    <C>            <C>                  <C>
National Association of Securities       76,995,171(1)          69.0                 -                  -
Dealers, Inc...................
     1735 K Street, N.W.
     Washington, D.C. 20006
Hellman & Friedman Capital
Partners IV, L.P. .............          12,000,000(2)           9.7                 -                  -
     One Maritime Plaza 12th
     Floor San Francisco, CA 94111
Dr. Josef Ackermann............                   -(3)             -                 -                  -
H. Furlong Baldwin.............                   -                -                 -                  -
Frank E. Baxter................              50,000(4)             *                 -                  -
Michael Casey..................                   -(5)             -                 -                  -
Michael W. Clark...............                   -(6)             -                 -                  -
William S. Cohen...............                   -                -                 -                  -
F. Warren Hellman..............          12,000,000(2)           9.7                 -                  -
John D. Markese................              15,000                *                 -                  -
E. Stanley O'Neal..............                   -(7)             -                 -                  -
Vikram S. Pandit...............                   -(8)             -                 -                  -
Kenneth D. Pasternak...........             250,000(9)             *                 -                  -
David S. Pottruck..............                   -(10)            -                 -                  -
Arthur Rock....................             200,000(11)            *                 -                  -
Richard C. Romano..............              40,000(12)            *                 -                  -
Hardwick Simmons...............                   -                -                 -                  -
Arvind Sodhani.................                   -(13)            -                 -                  -
Sir Martin Sorrell.............                   -                -                 -                  -
Frank G. Zarb..................           1,074,000(14)            *               140(15)              *
Alfred R. Berkeley, III........              17,900(16)            *                 -                  -
J. Patrick Campbell............              32,000(17)            *                 -                  -
John L. Hilley.................              30,000(18)            *             1,900(19)            3.4
Richard G. Ketchum.............              40,000(20)            *                76(21)              *
All directors and executive
officers as a group
(31 persons)...................          13,899,882(22)         11.2(23)         2,268(24)            3.9
------------------------------
</TABLE>


*        Less than one percent

(1) Includes approximately 43,227,176 shares of Common Stock underlying the
unexercised, unexpired outstanding warrants.

(2) Hellman & Friedman owns the Subordinated Debentures. H&F Investors IV,
LLC ("H&F IV"), is the general partner of each of the Hellman & Friedman
limited partnerships. The Subordinated Debentures are currently convertible
into 12,000,000 shares of Common Stock, subject to adjustment, in general,
for any stock split, dividend, combination, recapitalization or other
similar event. The investment decisions of each of the Hellman & Friedman
limited partnerships are made by the investment committee of H&F IV, which
indirectly exercises sole voting and investment power with respect to the
Subordinated Debentures. Mr. Hellman is one of nine members of the
investment committee. Mr. Hellman disclaims beneficial ownership of the
Subordinated Debentures except to the extent of his indirect pecuniary
interest.

(3) Dr. Ackermann is head of Corporate and Institutional Clients Group of
Deutsche Bank AG that, together with its affiliates, owns an aggregate of
1,522,300 shares of Common Stock. Dr. Ackermann disclaims beneficial
ownership of such shares.

(4) The shares of Common Stock are held by The Baxter 1988 Trust, which Mr.
Baxter controls. Mr. Baxter is the Chairman of the Jefferies Group, Inc.
that, together with its affiliates, owns an aggregate of 115,912 shares of
Common Stock. Mr. Baxter disclaims beneficial ownership of such shares.

(5) Mr. Casey is an officer of Starbucks Corporation that owns an aggregate
of 10,000 shares of Common Stock. Mr. Casey disclaims beneficial ownership
of such shares.

(6) Mr. Clark is an officer of Credit Suisse First Boston, Inc. that,
together with its affiliates, owns 1,604,650 shares of Common Stock. Mr.
Clark disclaims beneficial ownership of such shares.

(7) Mr. O'Neal is an officer of Merrill Lynch & Co. that, together with its
affiliates, owns 1,875,000 shares of Common Stock. Mr. O'Neal disclaims
beneficial ownership of such shares.

(8) Mr. Pandit is an officer of Morgan Stanley Dean Witter & Co. that,
together with its affiliates, owns 1,126,200 shares of Common Stock. Mr.
Pandit disclaims beneficial ownership of such shares.

(9) Mr. Pasternak is Chairman, CEO, and President of Knight Trading Group,
Inc. that, together with its affiliates, owns an aggregate of 1,125,000
shares of Common Stock. Mr. Pasternak disclaims beneficial ownership of
such shares.

(10) Mr. Pottruck is an officer of The Charles Schwab Corporation that,
together with its affiliates, owns 1,125,000 shares of Common Stock. Mr.
Pottruck disclaims beneficial ownership of such shares.

(11) The shares of Common Stock are held by The Rock 2000 Trust, of which
Mr. Rock is the sole trustee and beneficiary.

(12) Includes an aggregate of 20,000 shares of Common Stock owned by Romano
Brothers & Co. Mr. Romano is the President and majority stockholder of
Romano Brothers & Co.

(13) Mr. Sodhani is an officer of Intel Corporation that owns 430,000
shares of Common Stock. Mr. Sodhani disclaims beneficial ownership of such
shares.

(14) Represents 60,000 shares of restricted stock and options to purchase
an aggregate of 1,014,000 shares of Common Stock issued under Nasdaq's
Equity Incentive Plan, all of which became fully vested upon Mr. Zarb's
resignation as Chairman of the Nasdaq Board on September 26, 2001.

(15) Represents options to purchase an aggregate of 140 shares of Nasdaq
Japan common stock that were granted by Nasdaq Global (50%) and SOFTBANK
(50%).

(16) Includes 15,900 shares of restricted stock issued under Nasdaq's
Equity Incentive Plan that have not yet vested. Under the terms of this
plan, Mr. Berkeley has the right to direct the voting of such shares.

(17) Includes 30,000 shares of restricted stock issued under Nasdaq's
Equity Incentive Plan that have not yet vested. Under the terms of this
plan, Mr. Campbell has the right to direct the voting of such shares.

(18) Represents 30,000 shares of restricted stock issued under Nasdaq's
Equity Incentive Plan that have not yet vested. Under the terms of this
plan, Mr. Hilley has the right to direct the voting of such shares.

(19) Represents shares of restricted stock.

(20) Represents 40,000 shares of restricted stock issued under Nasdaq's
Equity Incentive Plan that have not yet vested. Under the terms of this
plan, Mr. Ketchum has the right to direct the voting of such shares.

(21) Represents options to purchase an aggregate of 76 shares of Nasdaq
Japan common stock that were granted by Nasdaq Global (50%) and SOFTBANK
(50%).

(22) Includes the Subordinated Debentures owned by Hellman & Friedman. See
Note 2 above.

(23) Assumes the full conversion of the Subordinated Debentures.

(24) Includes options to purchase an aggregate of 368 shares of Nasdaq
Japan common stock that were granted by Nasdaq Global (50%) and SOFTBANK
(50%).


Item 5.  Directors and Executive Officers.

The directors and executive officers of Nasdaq are as follows:


<TABLE>
<CAPTION>

                 Name                        Age                                  Position
--------------------------------------------------------------------------------------------------------------------
<S>                                          <C>      <C>
Hardwick Simmons                              61       Chairman of the Nasdaq Board, Class 1; CEO
Dr. Josef Ackermann                           53       Director Class 2
H. Furlong Baldwin                            69       Director Class 2
Frank E. Baxter                               64       Director Class 1
Michael Casey                                 56       Director Class 3
Michael W. Clark                              41       Director Class 1
William S. Cohen                              60       Director Class 1
F. Warren Hellman                             67       Director Class 2
Richard G. Ketchum                            50       Director Class 2; President
John D. Markese                               55       Director Class 3
E. Stanley O'Neal                             50       Director Class 3
Vikram S. Pandit                              45       Director Class 3
Kenneth D. Pasternak                          47       Director Class 1
David S. Pottruck                             53       Director Class 3
Arthur Rock                                   75       Director Class 3
Richard C. Romano                             69       Director Class 2
Arvind Sodhani                                47       Director Class 1
Sir Martin Sorrell                            56       Director Class 2
Alfred R. Berkeley, III                       57       Vice Chairman
J. Patrick Campbell                           52       Executive Vice President, Chief Operating Officer, and
                                                       President of Nasdaq U.S. Markets
Steven Dean Furbush                           42       Executive Vice President--Transaction Services
John M. Hickey                                64       Executive Vice President
John L. Hilley                                53       Executive Vice President--Strategic Development and Chairman
                                                       and Chief Executive Officer of Nasdaq International
Edward S. Knight                              50       Executive Vice President and General Counsel
Steven Randich                                38       Executive Vice President--Operations & Technology and Chief
                                                       Information Officer
Denise B. Stires                              39       Executive Vice President--Marketing and Investor Services
Bruce C. Turner                               36       Executive Vice President--Transaction Services
John T. Wall                                  60       President, Nasdaq International
David P. Warren                               47       Executive Vice President--Chief Financial Officer
David Weild IV                                44       Vice Chairman and Executive Vice President--Corporate Client
                                                       Group
</TABLE>



Hardwick Simmons, a Staff Director, became Chairman of the Nasdaq Board in
September 2001 and has been CEO of Nasdaq since February 2001. Prior to
joining Nasdaq, Mr. Simmons served from May 1991 to December 2000 as
President and CEO of Prudential Securities Incorporated, the investment and
brokerage firm, and Prudential Securities Group Inc., the firm's holding
company. Mr. Simmons is a former member of Prudential Securities' Operating
Committee, Operating Council, and the board of directors of Prudential
Securities Group Inc. Prior to joining Prudential Securities in 1991; Mr.
Simmons was President of the Private Client Group at Shearson Lehman
Brothers, Inc.

Dr. Josef Ackermann, an Industry Director, was elected to the Nasdaq Board
in April 2001 and began serving in May 2001. Dr. Ackermann is Chairman of
Corporate and Investment Banking of Deutsche Bank AG, a global bank and
financial services firm, and will become Speaker of the Board of Managing
Directors at Deutsche Bank AG in 2002. Dr. Ackermann has served on the
Board of Managing Directors of Deutsche Bank AG since 1996. Prior to this
position, Dr. Ackermann was President of the Executive Board of Credit
Suisse from 1993. Dr. Ackermann serves on the board of directors of
Vodafone Group Plc and Stora Enso Oyj.

H. Furlong Baldwin, a Non-Industry Director, was elected to the Nasdaq
Board in July 2000. Mr. Baldwin has been a member of the NASD Board since
1999. Mr. Baldwin is Chairman of the Mercantile Bankshares Corporation, a
multibank holding company. Mr. Baldwin joined Mercantile-Safe Deposit &
Trust Company in 1956 and was elected President in 1970 of Mercantile-Safe
Deposit & Trust Company and Mercantile Bankshares Corporation and Chairman
and CEO in 1976. Mr. Baldwin serves on the board of directors of Mercantile
Safe Deposit & Trust Company, Mercantile Bankshares Corporation,
Constellation Energy Group, CSX Industries, Offitbank, Wills Group, and The
St. Paul Companies.

Frank E. Baxter, an Industry Director, was elected to the Nasdaq Board in
1998. Mr. Baxter is Chairman of the Jefferies Group, Inc., a holding
company whose affiliated companies offer a variety of services for
institutional investors. Mr. Baxter joined Jefferies & Co. in 1974 and
during his time has served as President, Chief Operating Officer ("COO")
and CEO. Mr. Baxter is a Director of Investment Technology Group, Inc. and
Burdett Buckeridge Young, Australia.

Michael Casey, a Non-Industry Director, was elected to the Nasdaq Board in
January 2001. Mr. Casey has been Executive Vice President, Chief Financial
Officer ("CFO"), and Chief Administrative Officer of Starbucks Corporation,
the leading roaster and retailer of specialty coffee, since September 1997.
Prior to his current position, Mr. Casey was Senior Vice President and CFO
of Starbucks from August 1995 to September 1997.

Michael W. Clark, an Industry Director, was elected to the Nasdaq Board in
May 2001. Mr. Clark is a Managing Director and Head of Global Equity
Trading at Credit Suisse First Boston, Inc. ("CSFB"), a global investment
bank serving institutional, corporate, government, and individual clients,
and a member of its Global Equity Management Committee. Mr. Clark also
serves on the firm's Operating Committee and is a member of the Managing
Director Evaluation Committee and Co-Head of the Global Recruiting
Committee. Mr. Clark joined CSFB as a Vice President in 1991. Prior to
assuming his present role in 1995, Mr. Clark was in charge of CSFB's global
convertible trading and risk management.

William S. Cohen, a Public Director, was elected to the Nasdaq Board in
April 2001 and began serving in May 2001. Secretary Cohen is the Chairman
and CEO of The Cohen Group, a strategic business consulting firm. He was
previously the Secretary of Defense during the Clinton Administration from
1997 to 2001. Secretary Cohen represented Maine in the U.S. Senate for
three terms and in the U.S. House of Representatives for three terms before
retiring in 1996.

F. Warren Hellman, a Non-Industry Director, was elected to the Nasdaq Board
in March 2001 effective upon the consummation of the sale by Nasdaq of the
Subordinated Debentures to Hellman & Friedman that closed on May 3, 2001.
Mr. Hellman is a co-founder and is currently the Chairman of Hellman &
Friedman LLC, a private equity investment firm, as well as Chairman of the
San Francisco Foundation. Prior to his current positions, Mr. Hellman was a
general partner of Hellman, Ferri Investment Associates, Matrix Management
Company I and II, and President of Lehman Brothers. Mr. Hellman serves on
the board of directors of WPP Group plc, Levi Strauss & Co., D.N.&E. Walter
& Co., and Il Fornaio (America) Corp., and the University of California at
Berkeley Business School Advisory Board.

Richard G. Ketchum, a Staff Director, was elected to the Nasdaq Board in
September 2001 and has been President of Nasdaq since July 2000. Mr.
Ketchum is responsible for all aspects of Nasdaq's operations, including
the development and formulation of market, regulatory, and legal policies,
as well as international initiatives. Prior to his current position, Mr.
Ketchum served as President of the NASD since 1998, COO of the NASD since
1993 and Executive Vice President of the NASD since 1991.

John D. Markese, a Public Director, was elected to the Nasdaq Board as a
Class 3 director in April 2001 and began serving as a Class 3 director in
May 2001. Mr. Markese has been a member of the Nasdaq Board since 1996 and
a member of the NASD Board since 1996. Mr. Markese is President of the
American Association of Individual Investors, a not-for-profit organization
specializing in providing education in stock investment and mutual funds,
since 1992 and an Executive Vice President from 1986 to 1992. Mr. Markese
holds a Doctorate in Finance from the University of Illinois. Mr. Markese
also serves on the board of directors of the Alliance for Investor
Education.

E. Stanley O'Neal, an Industry Director, was elected to the Nasdaq Board in
January 2001. Mr. O'Neal has been the President and Chief Operating Officer
of Merrill Lynch & Co., Inc., a global financial services firm, since July
2000. Prior to his current positions, Mr. O'Neal was Executive Vice
President of Merrill Lynch and President of its U.S. Private Client Group
from February 2000 to July 2000, Executive Vice President and CFO of
Merrill Lynch from March 1998 to February 2000; Executive Vice President
and Co-Head of Corporate and Institutional Client Group from April 1997 to
March 1998 and Managing Director and Head of Global Capital Markets Group
from April 1995 to April 1997. Mr. O'Neal joined Merrill Lynch in 1987.

Vikram S. Pandit, an Industry Director, was elected to the Nasdaq Board in
January 2001. Since September 2000 Mr. Pandit has been Co-President and
Chief Operating Officer of the Institutional Securities Group of Morgan
Stanley Dean Witter & Co. ("MSDW"), a global financial services firm. Prior
to his current position, Mr. Pandit was Head of MSDW's Worldwide
Institutional Equity Division from May 1997 until September 2000; Head of
Morgan Stanley Group Inc.'s Equity Division from January 1997 until May
1997; and Head of Morgan Stanley Group Inc.'s Equity Derivatives business
from May 1994 until December 1996. Mr. Pandit has been a Managing Director
of Morgan Stanley & Co. Incorporated since January 1990.

Kenneth D. Pasternak, an Industry Director, was elected to the Nasdaq Board
in May 2001. Mr. Pasternak is Chairman of the Board and CEO of Knight
Trading Group, Inc. ("Knight"), and CEO of Knight Securities, L.P., a
market maker in U.S. equity securities. Mr. Pasternak was named Chairman of
the Board of Knight in October 2000 and has been a member of its board of
directors since July 1998. Since 1995, Mr. Pasternak has been the CEO and a
trading room supervisor for Knight Securities, L.P., Knight's wholly-owned
Nasdaq/over-the-counter securities market maker, and its President from
1995 to 1999. Prior to Knight, Mr. Pasternak served as Senior Vice
President, Limited Partner, and Trading Room Manager for Spear Leeds &
Kellogg/Troster Singer from 1979 until 1994. Mr. Pasternak serves on the
Advisory Committee of BRASS Utility, LLC (BRUT).

David S. Pottruck, an Industry Director, was elected to the Nasdaq Board in
July 2000. Mr. Pottruck has been a member of the NASD Board since 2000. Mr.
Pottruck is President and Co-Chief Executive Officer and a member of the
board of directors of The Charles Schwab Corporation, a holding company
whose subsidiaries engage in securities brokerage and financial services.
Mr. Pottruck joined The Charles Schwab Corporation in 1984 and became
President in 1992. Mr. Pottruck serves on the board of directors of Intel
Corporation, McKesson HBOC Inc., Dovebid, and the U.S. Ski and Snowboard
Team Foundation. Mr. Pottruck is also a trustee of the University of
Pennsylvania.

Arthur Rock, a Non-Industry Director, was elected to the Nasdaq Board in
July 2000. Mr. Rock is Principal of Arthur Rock & Co., a venture capital
firm in San Francisco, California he founded in 1969. Mr. Rock is currently
a Director Emeritus of Intel Corporation and serves on the board of
directors of Echelon Corporation.

Richard C. Romano, an Industry Director, was elected to the Nasdaq Board in
July 2000. Mr. Romano has been President of Romano Brothers & Company, a
securities broker dealer, since 1964. Mr. Romano has been a member of the
NASD Board since 1998. Mr. Romano also served on the NASD Board from 1985
to 1988. Mr. Romano is Vice Chairman of the NASD Small Firm Advisory Board.

Arvind Sodhani, a Non-Industry Director, was elected to the Nasdaq Board in
January 1997. From July 2000 to December 2000, Mr. Sodhani served as a
non-voting member of the Nasdaq Board. Mr. Sodhani has been a member of the
NASD Board since 1998. Mr. Sodhani is Vice President and Treasurer of Intel
Corporation, a semiconductor manufacturer of chips and computer networking
products. Mr. Sodhani joined Intel in 1981 and became a Vice President in
1990.

Sir Martin Sorrell, a Non-Industry Director, was elected to the Nasdaq
Board in January 2001. Sir Martin is a founder and, since 1986, has been
Group Chief Officer of WPP Group plc, a global communication services
organization. Prior to this position, Sir Martin was the Group Finance
Director of Saatchi & Saatchi Company, PLC.

Alfred R. Berkeley III has been Vice Chairman of Nasdaq since July 2000 and
was President of Nasdaq from June 1996 to July 2000. Mr. Berkeley was a
member of the Nasdaq Board from June 1996 to May 2001. Prior to joining
Nasdaq, Mr. Berkeley served for five years as Managing Director and Senior
Banker of the Corporate Finance Department of Alex. Brown & Sons
Incorporated, a financial services firm. Mr. Berkeley is a member of the
board of directors of Princeton Capital Management, Inc.

J. Patrick Campbell became Executive Vice President, President U.S. Markets
and COO of Nasdaq in October 2000. Prior to his current position, Mr.
Campbell served as an Executive Vice President, Market Services of the NASD
since 1997. Prior to joining the NASD, Mr. Campbell was Senior Executive
Vice President of The Ohio Company, a regional brokerage firm, where he was
also a member of that firm's Board of Directors and Executive Committee.
Mr. Campbell was at The Ohio Company since 1973. While a senior executive
for The Ohio Company, Mr. Campbell was a member of the Board of Directors
from 1990 to 1993.

Steven Dean Furbush became an Executive Vice President of Nasdaq
Transaction Services in January 2001. Prior to his current position, Mr.
Furbush was Senior Vice President of Nasdaq Transaction Services from
October 2000 to January 2000, Managing Director of Nasdaq InterMarket from
October 1999 to October 2000, and Chief Economist from June 1995 to October
1999.

John M. Hickey became an Executive Vice President and Senior Technology
Advisor in November 2000. Prior to his current position, Mr. Hickey was
Executive Vice President and Chief Technology Officer of the NASD from
January 1995 to November 2000. Prior to joining the NASD in January 1984,
Mr. Hickey was Vice President in charge of Corporate Systems Development at
Chemical Bank, a bank and financial services firm, from 1974 to 1984.

John L. Hilley became an Executive Vice President of Strategic Development
in January 2001 and has been Chairman and CEO of Nasdaq International since
July 1999. Mr. Hilley joined the NASD as Executive Vice President for
Strategic Development in February 1998. Prior to joining the NASD, Mr.
Hilley served in the White House as senior advisor to President Clinton
since February 1996. Mr. Hilley has also held a number of senior staff
positions in the U.S. Senate.

Edward S. Knight became an Executive Vice President and General Counsel in
October 2000. Prior to his current position, Mr. Knight served as Executive
Vice President and Chief Legal Officer of the NASD since July 1999. Prior
to joining the NASD, Mr. Knight served as General Counsel of the U.S.
Department of the Treasury from September 1994 to June 1999.

Steven Randich became Executive Vice President of Operations & Technology
and Chief Information Officer of Nasdaq in October 2001. Prior to his
current position, Mr. Randich served as Executive Vice President and Chief
Technology Officer of Nasdaq since October 2000. Prior to joining Nasdaq,
Mr. Randich was Executive Vice President and Chief Information Officer of
the Chicago Stock Exchange from November 1996 to October 2000. Prior to
that, Mr. Randich held management positions with International Business
Machines Corporation, the software and hardware manufacturer, from October
1990 to November 1996.

Denise B. Stires became Executive Vice President of Marketing and Investor
Services in March 2001. Ms. Stires was Chief Marketing Officer of
BuyandHold Inc., an on-line financial services company providing
dollar-based brokerage services to individuals and corporations, from 2000
to 2001. Prior to that, Ms. Stires was Senior Vice President, Marketing
Director of DLJdirect, the on-line discount brokerage service of CSFB from
1997 to 2000, and Vice President, Marketing of SWATCH, a division of SMH,
Incorporated based in Switzerland, a manufacturer of watches from 1995 to
1996.

Bruce C. Turner became an Executive Vice President of Nasdaq Transaction
Services in July 2001. Prior to his current position, Mr. Turner was Head
of Nasdaq Trading at Salomon Smith Barney, a global investment banking
firm, from January 1997 to July 2000, and a position trader, at Salomon
Smith Barney from July 1992 to January 1997.

John T. Wall became an Executive Vice President of Nasdaq in February 1994
and President of Nasdaq International in October 1997. Mr. Wall is
responsible for the strategic development and international marketing of
Nasdaq's products and services. Mr. Wall is also responsible for non-U.S.
company listings, as well as promoting and directing the overall
globalization of the marketplace. Mr. Wall established Nasdaq's operations
in London and negotiates the sale of Nasdaq's computerized systems to other
world markets. Mr. Wall joined the NASD in 1965 and during his tenure has
been head of Regulation, Membership, and Qualifications Testing. Mr. Wall
currently sits on Hong Kong's International Committee for Listing New
Enterprises.

David P. Warren became Executive Vice President and Chief Administrative
Officer of Nasdaq in April 2001 and CFO in September 2001. Mr. Warren
oversees finance, human resources, and all administrative services
including real estate, property management and purchasing. Prior to his
current position, Mr. Warren was CFO of the Long Island Power Authority
from 1998 to 2000, Deputy Treasurer of the State of Connecticut from 1995
to 1997, and a Vice President at CSFB from 1987 to 1995.

David Weild IV became Vice Chairman of Nasdaq in October 2001 and Executive
Vice President of the Corporate Client Group of Nasdaq in March 2001. Prior
to his current positions, Mr. Weild held various positions with Prudential
Securities Incorporated, the investment and brokerage firm, including
President of Prudential Securities.Com from 2000 to 2001, Managing Director
and Head of High Technology from 1997 to 2000, Managing Director of
Investment Banking and Head of Corporate Finance from 1995 to 1997, and
Managing Director and Head of Global Equity Transactions from 1990 to 1995.

Item 6.  Executive Compensation.

                         SUMMARY COMPENSATION TABLE

The following table sets forth compensation awarded to, earned by, or paid
to the individuals who were, as of December 31, 2000, the CEO and the four
most highly compensated employees other than the CEO, for all services
rendered to Nasdaq and its subsidiaries for the fiscal year ended December
31, 2000.


<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                           Annual Compensation          Long-Term Compensation
                                                                      Awards             Payouts
                                                                           Restricted   Securities
    Name and Principal                                      Other Annual      Stock     Underlying    LTIP        All Other
         Position            Year     Salary    Bonus(1)    Compensation    Award(s)     Options/    Payouts   Compensation (2)
           (a)               (b)      ($) (c)    ($) (d)    Awards ($) (e)   ($) (f)   SARs (#) (g)  ($) (h)        ($) (i)    
---------------------------------------------------------------------------------------------------------------------------------
<S>          <C>            <C>      <C>        <C>           <C>                         <C>                      <C>   
Frank G. Zarb(3)            2000     1,333,333  6,000,000     441,055(4)       -          140(5)         -         17,892
---------------------------------------------------------------------------------------------------------------------------------
Alfred R. Berkeley, III,    2000      522,500    650,000         -             -             -           -         13,405
Vice Chairman, Nasdaq
---------------------------------------------------------------------------------------------------------------------------------
Richard G. Ketchum,         2000      522,500   1,750,000        -             -           76(5)         -         13,405
President, Nasdaq(6)
---------------------------------------------------------------------------------------------------------------------------------
John L. Hilley, Executive   2000      450,000    950,000      408,720      237,500(8)        -           -         13,085
Vice President, Nasdaq
and Chairman and Chief
Executive Officer, Nasdaq
International(7)
---------------------------------------------------------------------------------------------------------------------------------
J. Patrick Campbell,        2000      409,000    750,000         -             -             -           -         12,764
Executive Vice President,
Chief Operation Officer,
and President, Nasdaq
U.S. Markets
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>



    (1) Includes $800,000, $130,000, $950,000, $390,000 and $270,000 with
respect to Messrs. Zarb, Berkeley, Ketchum, Hilley and Campbell,
respectively, which amounts will be paid only if the individuals remain
employed by Nasdaq on December 31, 2002 or in the event of their prior
retirement, permanent disability, death or involuntary termination without
cause.

    (2) Represents Nasdaq contributions to 401(k) plan and payment in
respect of a forgiveness of loan in the amount of $7,692 for Mr. Zarb;
$3,205 for each of Messrs. Berkeley and Ketchum; $2,885 for Mr. Hilley; and
$2,564 for Mr. Campbell.

    (3) In 2000, the NASD paid approximately 50% of Mr. Zarb's salary and
bonus for services rendered. Mr. Zarb served as Chairman of the Nasdaq
Board during the fiscal year ended December 31, 2000 and until September
26, 2001, and he served as the CEO of Nasdaq during the fiscal year ended
December 31, 2000 and until February 1, 2001.

    (4) Includes $221,735 in respect of the purchase of Mr. Zarb's
residence.

    (5) Represents a seven year option to purchase Nasdaq Japan common
stock (after giving effect to the four-for-one stock split that was
effective as of April 2001) that was granted by Nasdaq Global (50%) and
SOFTBANK (50%).

    (6) In 2000, the NASD paid approximately 25% of Mr. Ketchum's salary
and bonus for services rendered.

    (7) In 2000, the NASD paid approximately 52% of Mr. Hilley's salary and
bonus for services rendered.

    (8) Represents the grant of an award, effective as of May 12, 2000, of
1,900 shares of restricted common stock of Nasdaq Japan (after giving
effect to the four-for-one stock split that was effective as of April
2001), vesting one-third on each of June 1, 2000, June 1, 2001 and June 1,
2002, based on a value of $125.00 per share on the grant date (after giving
effect to the four-for-one stock split that was effective as of April
2001). As of December 31, 2000, the aggregate value (after giving effect to
the four-for-one stock split that was effective as of April 2001) of the
then-unvested shares was approximately $7.9 million and the aggregate value
of the then-vested shares was approximately $4 million, in each case based
upon the valuation of shares of Nasdaq Japan sold in a private placement
transaction that occurred in October 2000. Dividends (if any) on restricted
shares are paid to the award holder.

                   OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table provides information on stock option grants made in
2000 to the named executive officers with respect to shares of Nasdaq
Japan. No options to acquire shares of Nasdaq were granted in 2000.


<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------

                                      Individual Grants                                           Potential Realizable
                                                                                                Value at Assumed Annual
                                                                                                  Rates of Stock Price
                                                                                                Appreciation For Option
                                                                                                          Term
          Name

                              Number of       Percent of Total    Exercise or    Expiration
                             Securities        Options/ SARs       Base Price       Date
                             Underlying     Granted to Employees     ($/Sh)          (d)
                             Option/SARs         in Fiscal             (c)                      5% ($)        10%($) 
                             Granted (#)          Year (4)                                        (e)           (f)  
                                 (a)                (b) 
--------------------------------------------------------------------------------------------------------------------------
<S>                        <C>             <C>                   <C>           <C>                        <C> 
Frank G. Zarb              140 (1)(2)       3.6%                  $125          July 31, 2007  7,124       16,602
--------------------------------------------------------------------------------------------------------------------------

Alfred R. Berkeley, III    0
--------------------------------------------------------------------------------------------------------------------------

Richard G. Ketchum         76 (1)(3)        2.0%                  $125          July 31, 2007   3,867      9,012
--------------------------------------------------------------------------------------------------------------------------
John L. Hilley             0
--------------------------------------------------------------------------------------------------------------------------

J. Patrick Campbell        0
--------------------------------------------------------------------------------------------------------------------------
</TABLE>


(1)   Represents options to purchase Nasdaq Japan common stock that were
      granted by Nasdaq Global (50%) and SOFTBANK (50%) and reflects the
      four-for-one stock split that was effective as of April 2001.

(2)   Options become exercisable with respect to 48 shares on July 31,
      2001; 48 shares on July 31, 2002 and the remaining 44 shares on July
      31, 2003.

(3)   The option shall become exercisable at such times and in such
      portions as shall be determined by the committee established pursuant
      to the plan under which the option was granted.

(4)   Represents percentage of total options to purchase shares of Nasdaq
      Japan common stock that were granted by Nasdaq Global (50%) and
      SOFTBANK (50%) in 2000.




            AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                        AND FY-END OPTION/SAR VALUES

The following table provides information on the number of options to
purchase common stock of Nasdaq Japan held by the named executive officers
at fiscal year end 2000.




<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------

            Name                    Shares            Value            Number of              Value of
             (a)                 Acquired on      Realized ($)         Securities           Unexercised
                               Exercise (#) (b)        (c)             Underlying           in-the-Money
                                                                      Unexercised           Options/SARs
                                                                    Options/SARs at           at Fiscal
                                                                    Fiscal Year-End         Year-End(1)
                                                                          (#)             ($)Exercisable/
                                                                      Exercisable/         Unexercisable
                                                                     Unexercisable              (e)
                                                                          (d)
-------------------------------------------------------------------------------------------------------------

<S>                            <C>               <C>              <C>                 <C>     
Frank G. Zarb                  0                 0                0 / 140               0 / 857,500
-------------------------------------------------------------------------------------------------------------
Alfred R. Berkeley, III        0                 0
-------------------------------------------------------------------------------------------------------------
Richard G. Ketchum             0                 0                0 / 76                0 / 465,500
-------------------------------------------------------------------------------------------------------------
John L. Hilley                 0                 0
-------------------------------------------------------------------------------------------------------------
J. Patrick Campbell            0                 0
-------------------------------------------------------------------------------------------------------------
</TABLE>



(1) The fair market value per share of Nasdaq Japan common stock on
December 31, 2000 was $6,250 (after giving effect to the four-for-one stock
split that was effective as of April 2001) based upon the valuation of
shares of Nasdaq Japan sold in a private placement transaction that
occurred in October 2000.

Employment Agreements

The NASD and Nasdaq are parties to an employment agreement with Frank Zarb
(the "Zarb Agreement"). The Zarb Agreement had an initial term of three
years commencing on February 24, 1997 (the "Initial Term") and continues
for an additional period of two years immediately following the Initial
Term (the "Additional Term," the Initial Term and the Additional Term
collectively, referred to as the "Term"). The Zarb Agreement provides for
(i) an annual base salary of $1,200,000 from the commencement of the
Initial Term through October 31, 2000 and $2,000,000 during the period
commencing on November 1, 2000 through the remainder of the Term and (ii)
incentive compensation as the Management Compensation Committee of the NASD
may award in its discretion, provided that the amount of such compensation
for each full year of service during the Term may not be less than 50% of
Mr. Zarb's base salary for such year, and provided further that such
compensation for the second year of the Additional Term may not be less
than $4,000,000. Under the Zarb Agreement, during the first year of the
Additional Term, the aggregate annual base salary and incentive
compensation paid to Mr. Zarb by the NASD may not be less than the
aggregate annual amount paid to Mr. Zarb for the second or third year of
the Initial Term, whichever was greater and, during the second year of the
Additional Term, the aggregate annual base salary and incentive
compensation paid to Mr. Zarb by the NASD may not be less than the
aggregate annual amount paid to Mr. Zarb for the third year of the Initial
Term or the first year of the Additional Term, whichever was greater. Under
the terms of the Zarb Agreement, Nasdaq has (1) fully vested all stock
options granted to Mr. Zarb upon his relinquishment of his position and
duties under the circumstances set forth in the Zarb Agreement (which
relinquishment occurred in September 2001) and will permit the exercise of
the options during the three month period thereafter for incentive stock
options and during the five year period thereafter for all other stock
options and (2) caused all restrictions on any restricted stock awarded to
Mr. Zarb by Nasdaq to lapse upon the foregoing relinquishment. Mr. Zarb
continues to be employed pursuant to the Zarb Agreement.

Under the terms of the Zarb Agreement, Mr. Zarb became fully vested in his
benefits under the NASD Supplemental Executive Retirement Plan (which
benefits may be payable in a lump sum) upon the completion of the Initial
Term. Under the Zarb Agreement, on February 24, 2002 and for a period of
five years thereafter, unless Mr. Zarb terminates his employment earlier,
Mr. Zarb will be entitled to an annual consulting fee of $100,000 (plus
$2,000 per hour for any hours in excess of 50 hours in any calendar year)
and certain fringe benefits and perquisites, provided that Mr. Zarb makes
himself available to provide consulting services to the CEO of the NASD
during such period and does not commence employment with another employer
or recommence employment with the NASD during such period.

Mr. Zarb's employment may be terminated due to (i) death or disability (ii)
by the NASD for "cause" or (iii) by Mr. Zarb for "good reason" upon 30 days
written notice. If Mr. Zarb terminates his employment for "good reason" or
if the NASD terminates Mr. Zarb's employment other than for cause, Mr. Zarb
is entitled to (1) a cash payment equal to the base salary and minimum
incentive compensation that would have been paid to Mr. Zarb for the
remainder of the Term, (2) the retirement benefits Mr. Zarb would have been
entitled to had he completed the Term and (3) continuation of certain other
benefits.

A May 1996 letter sets forth certain terms and conditions of Mr. Berkeley's
employment that commenced on May 31, 1996. The letter provides that if the
Nasdaq Board or the NASD Board terminates Mr. Berkeley's employment without
"cause," Nasdaq is obligated to continue to pay Mr. Berkeley his then
effective monthly salary for a period of 24 months following the date of
such termination.

Nasdaq has entered into an employment agreement (the "Employment
Agreements") with each of Richard G. Ketchum, J. Patrick Campbell and John
L. Hilley (each an "Executive" collectively, the "Executives"). The term of
the Employment Agreements commenced as of December 30, 2000 and will
continue until December 31, 2003 with automatic one-year renewals, unless
either party, at least six months prior to the expiration of the term,
gives a notice of its intent not to renew the term.

The Employment Agreements with Messrs. Ketchum and Campbell provide for a
base salary at an annual rate not less than the rate of base salary in
effect as of the effective date. Mr. Hilley's Employment Agreement provides
for an annual salary at a rate not less than the rate of annual salary in
effect for 1999. The Employment Agreements with Messrs. Ketchum and
Campbell provide for guaranteed incentive compensation for each year during
the term in an amount equal to 100% of base salary as in effect on December
31 of the preceding year.

Under the terms of the Employment Agreements, the Executives will be fully
vested in their supplemental retirement benefits (the "SERP Benefit") under
the NASD's Supplemental Retirement Plan, upon the attainment of age 55 (53
in the case of Mr. Ketchum) while employed and completion of five years of
service or if the Executives' employment with Nasdaq terminates (i) due to
death or disability (ii) by Nasdaq without "cause" or (iii) by the
Executive for "good reason." With respect to Mr. Hilley, the final average
compensation for purposes of determining SERP benefits will be deemed to be
the sum of (a) one-half of his annual salary and (b) one-third of one-half
of his annual salary. The Executives are also entitled to receive equity
awards under Nasdaq's equity plans and other fringe benefits. Under the
terms of the Employment Agreements, each Executive is entitled to receive a
payment in an amount equal to two times the Executive's then effective base
salary (in the case of Mr. Hilley his then effective annual salary) (the
"Stay Bonus") if the Executive is (i) employed by Nasdaq as of August 9,
2002, (ii) if the Executive's employment is terminated due to death or
disability, (iii) if the Executive terminates employment for "good reason"
or (iv) Nasdaq terminates the Executive's employment without "cause."

If Mr. Ketchum's or Mr. Campbell's employment is terminated without "cause"
or if Mr. Ketchum or Mr. Campbell terminates employment for "good reason,"
Nasdaq is obligated to pay to Mr. Ketchum or Mr. Campbell, respectively (i)
the Stay Bonus if not previously paid; (ii) a pro rata portion of the
incentive compensation for the year of termination; and (iii) a lump sum
cash payment equivalent to continuation of base salary and incentive
compensation until the later of (x) the end of the term of the Employment
Agreement or (y) 24 months following the date of such termination of
employment.

If Mr. Hilley's employment is terminated without "cause" or if Mr. Hilley
terminates employment for "good reason," Nasdaq is obligated to pay Mr.
Hilley (i) the Stay Bonus if not previously paid and (ii) a lump sum cash
payment equivalent to continuation of annual salary until the later of (x)
the end of the term of the Employment Agreement or (y) 24 months following
the date of such termination of employment.

In addition, if the Executive becomes subject to any "golden parachute"
excise tax, Nasdaq is obligated to make additional payments to the
Executive to offset the effect of such tax. The Executives have also agreed
to be subject to certain restrictive covenants relating to non-competition,
non-solicitation, non-disparagement and confidentiality.

                             PENSION PLAN TABLE

Nasdaq's executive officers participate in the NASD's qualified and
supplemental defined benefit pensions plans. Under these plans executive
officers earn an aggregate benefit expressed as an annual annuity equal to
6% of their final average compensation for each year of service up to a
maximum of 10 years. Final average compensation is the average annual
salary plus one-third of the annual bonus for the highest five-year period
of service, except in the case of the Mr. Hilley (as described in
"Employment Agreements" above). As of December 31, 2000, the estimated
credited years of service for Mr. Zarb is 3.85 years, Mr. Berkeley is 4.58
years, Mr. Ketchum is 9.67 years, Mr. Hilley is 2.85 years, and Mr.
Campbell is 3.97 years. The following table sets forth the aggregate annual
benefit payable under the plans for various levels of remuneration and
years of service. Such benefits are not reduced by benefits received under
social security or other offsets.


<TABLE>

----------------------------------------------------------------------------------------------------------------------
    Remuneration                                              Years of Service
----------------------------------------------------------------------------------------------------------------------
                             5               10              15              20              25              30
                       --------------- --------------- --------------- --------------- --------------- ---------------
<S>                     <C>             <C>             <C>             <C>             <C>             <C>    
       500,000            150,000         300,000         300,000         300,000         300,000         300,000
                       --------------- --------------- --------------- --------------- --------------- ---------------
       600,000            180,000         360,000         360,000         360,000         360,000         360,000
                       --------------- --------------- --------------- --------------- --------------- ---------------
       700,000            210,000         420,000         420,000         420,000         420,000         420,000
                       --------------- --------------- --------------- --------------- --------------- ---------------
       800,000            240,000         480,000         480,000         480,000         480,000         480,000
                       --------------- --------------- --------------- --------------- --------------- ---------------
       900,000            270,000         540,000         540,000         540,000         540,000         540,000
                       --------------- --------------- --------------- --------------- --------------- ---------------
      1,000,000           300,000         600,000         600,000         600,000         600,000         600,000
                       --------------- --------------- --------------- --------------- --------------- ---------------
      1,500,000           450,000         900,000         900,000         900,000         900,000         900,000
                       --------------- --------------- --------------- --------------- --------------- ---------------
      2,000,000           600,000        1,200,000       1,200,000       1,200,000       1,200,000       1,200,000
                       --------------- --------------- --------------- --------------- --------------- ---------------
      3,000,000           900,000        1,800,000       1,800,000       1,800,000       1,800,000       1,800,000
----------------------------------------------------------------------------------------------------------------------
</TABLE>



Item 7. Certain Relationships and Related Transactions.

The NASD

Nasdaq's legal authority to operate as a stock market is delegated to it by
the NASD under the Delegation Plan. Although Nasdaq has initiated the
process with the SEC for Exchange Registration, Exchange Registration is
not expected to occur until later this year. As a result, prior to Exchange
Registration, Nasdaq will continue to operate under the Delegation Plan,
under which the NASD has delegated responsibility for market operation
functions to Nasdaq. Though Nasdaq exercises primary responsibility for
market-related functions, including market-related rulemaking and
interpretations, all actions taken pursuant to delegated authority by the
NASD are subject to review, ratification, or rejection by the NASD Board.
As long as the Delegation Plan remains in effect, the NASD Board will
continue to have authority over Nasdaq. The current structure will continue
until Nasdaq is reconstituted as a self-regulatory organization, which will
become effective upon Exchange Registration.

Currently, Messrs. Baldwin, Markese, Pottruck, Romano, and Sodhani are
members of the NASD Board as well as members of the Nasdaq Board.

In June 2000, in connection with the Restructuring, the NASD separated Amex
from The Nasdaq-Amex Market Group, Inc., a holding company of the NASD that
also held Nasdaq, and then merged The Nasdaq-Amex Market Group, Inc., with
and into Nasdaq. Following this merger, Nasdaq effected a 49,999-for-one
stock dividend creating 100 million shares of Common Stock, all of which
were initially owned by the NASD.

On June 28, 2000, the NASD and Nasdaq entered into a Separation and Common
Services Agreement pursuant to which the NASD continues to provide Nasdaq
certain administrative, corporate, and infrastructure services that were
provided by the NASD to Nasdaq prior to June 28, 2000, including cash
management and other financial services, real estate, legal, human
resources, surveillance and other regulatory services, information services
and corporate and administrative services. Nasdaq pays to the NASD the cost
of any services provided, including the incidental expenses associated with
such services. Nasdaq expects the cost of the services provided by the NASD
to be approximately $9 million per year under this agreement. Under the
Separation and Common Services Agreement, Nasdaq has also agreed to provide
the NASD the access to Nasdaq technology that the NASD requires to satisfy
its obligations to Amex under the transaction agreement the NASD entered
into in connection with the 1998 acquisition of the assets of Amex, for so
long as such obligations may continue. Additionally, Nasdaq has agreed to
continue to provide all services it provided to Amex as of June 28, 2000,
for so long as such obligations may continue. The NASD reimburses Nasdaq
for the cost of rendering such services and access to Amex. The Separation
and Common Services Agreement continues until December 31, 2001 and will
automatically renew until December 31, 2002 in the event it is not
superceded by another separation and services agreement between the NASD
and Nasdaq.

On June 28, 2000, Nasdaq and NASDR, a wholly-owned subsidiary of the NASD,
entered into a Regulatory Services Agreement pursuant to which NASDR or its
subsidiaries will provide regulatory services to Nasdaq and its
subsidiaries commencing upon the effectiveness of Exchange Registration.
The term of the Regulatory Services Agreement is 10 years. The services
will be of the same type and scope as are provided by NASDR to Nasdaq under
the Delegation Plan and will include (i) the provision of services to
Nasdaq's market participants, including registration and education
services, (ii) surveillance and investigation services, (iii) formal
disciplinary proceedings and (iv) dispute resolution services. Under the
Regulatory Services Agreement, each of the services is to be provided on a
function-by-function basis. Each service is to be provided for a minimum of
five years, after which time the parties may determine to terminate the
provision by NASDR of a particular service. The termination of a particular
service will generally be based upon a review of pricing and the need for
such services. Nasdaq will pay to NASDR the cost of any services provided
plus a fair market mark-up. Nasdaq expects the cost of these services
provided by the NASDR to be approximately $90 million per year. The
Regulatory Services Agreement also provides for Nasdaq's access to certain
NASDR software that has been or will be developed for Nasdaq.

Nasdaq pays the NASD and certain of its subsidiaries for the use of
approximately 298,000 square feet of office space. Nasdaq pays
approximately $14.3 million in the aggregate per year to the NASD for the
use of this space.

On May 3, 2001, Nasdaq repurchased 18,461,538 shares of Common Stock from
the NASD for $13.00 per share or an aggregate purchase price of
$239,999,994. This price was determined following discussions between
members of management of Nasdaq and members of management of the NASD and
is the same price at which shares of Common Stock were sold in January 2001
Phase II. In connection with the transaction, Nasdaq and the NASD have
agreed to enter into an Investor Rights Agreement pursuant to which Nasdaq
will grant the NASD (i) certain demand and piggyback registration rights
with respect to the shares of Common Stock owned by it and (ii) certain
rights such that, prior to Exchange Registration, Nasdaq would need the
consent of the NASD before any issuance of Common Stock (or securities
convertible into Common Stock) that would dilute the NASD's ownership by 5%
or more.

Hellman & Friedman

On May 3, 2001, Nasdaq issued and sold $240 million in aggregate principal
amount of its Subordinated Debentures to Hellman & Friedman. The
Subordinated Debentures are convertible at any time into an aggregate of
12,000,000 shares of Common Stock, subject to adjustment, in general, for
any stock split, dividend, combination, recapitalization or other similar
event. Hellman & Friedman owns approximately 9.7% of Nasdaq on an
as-converted basis. In connection with the transaction, Nasdaq has agreed
to use its best efforts to seek stockholder approval of a charter amendment
that would provide for voting debt in order to permit Hellman & Friedman to
vote on an as-converted basis on all matters on which common stockholders
have the right to vote, subject to the 5% voting limitation in the
Certificate of Incorporation. In addition, Nasdaq has also agreed that in
the event that the Nasdaq Board approves an exemption from the foregoing 5%
limitation for any person pursuant to the Certificate of Incorporation
(other than an exemption granted in connection with a strategic market
alliance) and seeks the concurrence of the SEC with respect thereto, Nasdaq
will grant Hellman & Friedman a comparable exemption from such limitation
and use its best efforts to obtain SEC concurrence of such exemption.
Nasdaq has granted Hellman & Friedman certain registration rights with
respect to the shares of Common Stock underlying the Subordinated
Debentures. Additionally, Hellman & Friedman is permitted to designate one
person reasonably acceptable to Nasdaq for nomination as a director of
Nasdaq for so long as Hellman & Friedman owns Subordinated Debentures
and/or shares of Common Stock issued upon conversion representing at least
50% of the shares of Common Stock issuable upon conversion of the
Subordinated Debentures initially purchased. Nasdaq has elected F. Warren
Hellman as a director of Nasdaq pursuant to the foregoing provision. Arthur
Rock, a member of the Nasdaq Board of Directors, is an indirect limited
partner of Hellman & Friedman.

Directors and Officers

Certain officers of Nasdaq were awarded restricted shares of Nasdaq Japan
common stock or options to purchase shares of Nasdaq Japan common stock.
See "Item 4. Security Ownership of Certain Beneficial Owners and
Management" and "Item 1. Business--Nasdaq's Strategic Initiatives--Pursuing
Global Market Expansion--Nasdaq Japan."

In connection with Nasdaq's Equity Incentive Plan, officers of Nasdaq
received awards of options to purchase shares of Common Stock and/or
restricted shares of Common Stock. See "Item 9. Market Price of and
Dividends on Registrants' Common Equity and Related Stockholder Matters."
Directors and officers may receive equity-based awards in the future. In
connection with Nasdaq's Employee Stock Purchase Plan, employees (including
employees who are directors) have the opportunity to purchase shares of
Common Stock. See "Item 10. Recent Sales of Unregistered Securities."

Item 8.  Legal Proceedings.

Nasdaq is not currently a party to any litigation that it believes could
have a material adverse effect on its business, financial condition, or
operating results. However, from time to time, Nasdaq has been threatened
with, or named as a defendant, in lawsuits.

Item 9.  Market Price of and Dividends on the Registrant's Common Equity
         and Related Stockholder Matters.

No established public trading market exists for the Common Stock.

As of October 31, 2001, there were outstanding options to purchase an
aggregate of 9,741,147 shares of Common Stock and 593,050 shares of
restricted Common Stock that were granted to officers and employees of
Nasdaq and its subsidiaries. In October 2001, Nasdaq filed a registration
statement on Form S-8 under the Securities Act covering shares of Common
Stock reserved for issuance under its Equity Incentive Plan and, in
November 2001, Nasdaq filed a registration statement on Form S-8 under the
Securities Act covering shares of Common Stock reserved for issuance under
its Employee Stock Purchase Plan. The registration statements became
effective immediately upon filing.

In addition, there are currently outstanding warrants to purchase
43,227,176 shares of Common Stock that were sold by the NASD in the
Restructuring. The shares underlying the warrants are all issued and
outstanding and held by the NASD. The Subordinated Debentures will be
convertible at any time prior to their maturity for an aggregate of
12,000,000 shares of Common Stock, subject to adjustment, in general, for
any stock split, dividend, combination, recapitalization or other similar
event.

All 76,995,171 shares of Common Stock beneficially owned by the NASD as of
October 31, 2001 are subject to sale pursuant to Rule 144 under the
Securities Act, subject to the limitations set forth therein and other
contractual limitations. Nasdaq and the NASD have agreed to enter into an
Investor Rights Agreement pursuant to which Nasdaq will grant the NASD,
subject to certain terms and conditions, registration rights with respect
to the shares of Common Stock owned by it.

In addition, Nasdaq has agreed to register, subject to certain terms and
conditions, the shares of Common Stock underlying the Subordinated
Debentures currently held by Hellman & Friedman. The Subordinated
Debentures are currently convertible into an aggregate of 12,000,000 shares
of Common Stock, subject to adjustment, in general, for any stock split,
dividend, combination, recapitalization or other similar event.

As of November 15, 2001, Nasdaq had approximately 2,744 holders of record
of its Common Stock.

Nasdaq does not pay, and does not anticipate paying in the foreseeable
future, any cash dividends on its common equity.

Item 10. Recent Sales of Unregistered Securities.

In Phase I, on June 28, 2000, Nasdaq sold an aggregate of 23,663,746 shares
of Common Stock at $11.00 per share for an aggregate consideration of
$260,301,206 to investors consisting of NASD members, Nasdaq market
participants, issuers with securities listed on The Nasdaq Stock Market,
and other strategic partners. In Phase II, on January 18, 2001, Nasdaq sold
an aggregate of 5,028,797 shares of Common Stock at $13.00 per share for an
aggregate consideration of $65,374,361 to investors consisting of NASD
members, issuers with securities listed on The Nasdaq Stock Market,
institutional investment firms and providers of technology services to
Nasdaq. The number of shares of Common Stock offered in both Phases I and
II to each category of investor was based upon a variety of factors,
including the offeree's contributions to Nasdaq's growth. The shares of
Common Stock sold by Nasdaq in Phase I and Phase II were issued to
"accredited investors" in private transactions exempt under Regulation D of
the Securities Act. See "Item 1. Business---The Restructuring."

On May 3, 2001, Nasdaq issued and sold $240 million in aggregate principal
amount of its 4% convertible subordinated debentures due 2006 (the
"Subordinated Debentures") to Hellman & Friedman. The Subordinated
Debentures are currently convertible into an aggregate of 12,000,000 shares
of Common Stock, reflecting a conversion price of $20.00 per share, subject
to adjustment, in general, for any stock split, dividend, combination,
recapitalization or other similar event. Hellman & Friedman owns
approximately 9.7% of Nasdaq on an as-converted basis. Nasdaq has granted
Hellman & Friedman certain registration rights with respect to the shares
of Common Stock underlying the Subordinated Debentures. See "Item 1
Business--Recent Transactions." The Subordinated Debentures were sold in a
private transaction pursuant to Section 4(2) of the Securities Act, which
exempts sales of securities that do not involve a public offering.

For the offering period ended June 29, 2001, Nasdaq sold approximately
209,813 shares of Common Stock pursuant to its Employee Stock Purchase Plan
for an aggregate offering price of approximately $2,230,312. The foregoing
sale of shares of Common Stock was made pursuant to Rule 701 under the
Securities Act, which exempts issuances of securities under certain written
compensatory employee benefit plans. In addition, Nasdaq has approved a
maximum of 500,000 shares of Common Stock for sale pursuant to its Employee
Stock Purchase Plan for the offering period ending December 31, 2001.

On November 12, 2001, Nasdaq sold an aggregate amount of 535,000 shares of
Common Stock to five members of the Nasdaq Board for an aggregate offering
price of $5,483,750. The shares were sold in a private transaction exempt
under Regulation D of the Securities Act. See "Item 4. Security Ownership
of Certain Beneficial Owners and Management."

Item 11. Description of Registrant's Securities to be Registered.

General

The authorized capital stock of Nasdaq consists of 300,000,000 shares of
Common Stock, par value $.01 per share, and 30,000,000 shares of preferred
stock, par value $.01 per share. As of November 15, 2001, there were
111,568,868 shares of Common Stock outstanding and no shares of preferred
stock outstanding.

Common Stock

The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders except that any person, other
than the NASD or any other person as may be approved for such exemption by
the Nasdaq Board prior to the time such person owns more than 5% of the
then outstanding shares of Common Stock, who otherwise would be entitled to
exercise voting rights in respect of more than 5% of the then outstanding
shares of Common Stock will be unable to exercise voting rights in respect
of any shares in excess of 5% of the then outstanding shares of Common
Stock. At any meeting of the stockholders of Nasdaq, a majority of the
shares of Common Stock in respect of which voting rights can be exercised
will constitute a quorum for such meeting. In response to the SEC's concern
about a concentration of ownership of Nasdaq, Nasdaq's Exchange
Registration application includes a rule that prohibits any member of
Nasdaq or a person associated with such member from beneficially owning
more than 5% of the outstanding shares of Common Stock.

Nasdaq has agreed to use its best efforts to seek stockholder approval of a
charter amendment that would provide for voting debt in order to permit
holders of the Subordinated Debentures to vote on an as-converted basis on
all matters on which common stockholders have the right to vote, subject to
the 5% voting limitation. Under the Certificate of Incorporation, Nasdaq's
Board may waive the application of the 5% voting limitation to persons
other than brokers, dealers, their affiliates, and persons subject to
statutory disqualification under Section 3(a)(39) of the Exchange Act. In
the event that the Nasdaq Board approves an exemption from the 5% voting
limitation (other than an exemption granted in connection with a strategic
market alliance) and seeks the concurrence of the SEC with respect thereto,
Nasdaq has agreed to grant Hellman & Friedman a comparable exemption from
such limitation and use its best efforts to obtain SEC concurrence of such
exemption.

Holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by the Nasdaq Board out of funds
legally available for them. In the event of liquidation, dissolution, or
winding up of Nasdaq, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to
prior distribution rights of preferred stock, if any, then outstanding. The
Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to
the Common Stock. All outstanding shares of Common Stock are fully paid and
non-assessable, and the shares of Common Stock to be issued upon completion
of this offering will be fully paid and non-assessable.

Preferred Stock

The Nasdaq Board may provide by resolution for the issuance of preferred
stock, in one or more series, and to fix the powers, preferences, and
rights, and the qualifications, limitations, and restrictions thereof, of
this preferred stock, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund
provisions, if any, and the number of shares constituting any series or the
designation of such series. The issuance of preferred stock could have the
effect of decreasing the market price of the Common Stock and could
adversely affect the voting and other rights of the holders of Common
Stock.

Certain Provisions of the Certificate of Incorporation and By-Laws

Some provisions of the Certificate of Incorporation and By-Laws, which
provisions are summarized above and in the following paragraphs, may be
deemed to have an anti-takeover effect and may delay, defer, or prevent a
tender offer or takeover attempt that a stockholder might consider in its
best interest, including those attempts that might result in a premium over
the market price for the shares held by stockholders.

Classified Board of Directors

The Nasdaq Board is divided into three classes, with one class to be
elected each year to serve a three-year term. As a result, approximately
one-third of the Nasdaq Board will be elected each year. These provisions,
when coupled with the provision limiting the voting rights of certain
persons, other than the NASD, and the provision authorizing the Nasdaq
Board to fill vacant directorships or increase the size of the Nasdaq
Board, may prevent a stockholder from removing incumbent directors and
simultaneously gaining control of the Nasdaq Board by filling the vacancies
created by such removal with its own nominees. In addition, stockholders of
Nasdaq can only remove directors for cause with an affirmative vote of the
holders of not less than 66 2/3% of the outstanding shares of capital stock
of Nasdaq eligible to vote for directors.

Frank E. Baxter, Michael W. Clark, William S. Cohen, Kenneth D. Pasternak,
Hardwick Simmons and Arvind Sodhani serve as Class 1 directors whose terms
expire at the 2004 annual meeting of stockholders; Dr. Josef Ackermann, H.
Furlong Baldwin, F. Warren Hellman, Richard C. Romano, Sir Martin Sorrell,
and Richard G. Ketchum serve as Class 2 directors whose terms expire at the
2002 annual meeting of stockholders; and Michael Casey, John D. Markese, E.
Stanley O'Neal, Vikram S. Pandit, David S. Pottruck, and Arthur Rock serve
as Class 3 directors whose terms expire at the 2003 annual meeting of
stockholders.

Pursuant to the Certificate of Incorporation and the By-Laws, the Nasdaq
Board, at its discretion, is authorized to fix the number of directors
constituting the Nasdaq Board. The number of voting directors on the Nasdaq
Board is currently fixed at 18.

Pursuant to the By-Laws, the number of Non-Industry Directors (as defined
below), including at least one Public Director (as defined below) and at
least two representatives of Nasdaq-listed companies (an "Issuer
Representative"), is required to equal or exceed the number of Industry
Directors (as defined below), unless the Nasdaq Board consists of 9 or
fewer directors. In such case only one director is required to be an Issuer
Representative.

If a director position becomes vacant, whether because of death,
disability, disqualification, removal, or resignation, Nasdaq's Nominating
Committee will nominate, and the Nasdaq Board will elect by majority vote,
a person satisfying the classification (Industry, Non-Industry, or Public
Director), if applicable, for the directorship to fill such vacancy, except
that if the remaining term is not more than six months, no replacement is
required.

The following is a general description of Nasdaq's director
classifications:

         o        Industry Director means a Director (excluding any two
                  officers of Nasdaq, selected at the sole discretion of
                  the Nasdaq Board, amongst those officers who may be
                  serving as directors (the "Staff Directors")) who (i) has
                  served in the prior three years as an officer, director,
                  or employee of a broker or dealer, excluding an outside
                  director or a director not engaged in the day-to-day
                  management of a broker or dealer; (ii) is an officer,
                  director (excluding an outside director), or employee of
                  an entity that owns more than 10% of the equity of a
                  broker or dealer, and the broker or dealer accounts for
                  more than 5% of the gross revenues received by the
                  consolidated entity; (iii) owns more than 5% of the
                  equity securities of any broker or dealer, whose
                  investments in brokers or dealers exceed 10% of his or
                  her net worth, or whose ownership interest otherwise
                  permits him or her to be engaged in the day-to-day
                  management of the broker or dealer; (iv) provides
                  professional services to brokers or dealers, and such
                  services constitute 20% or more of the professional
                  revenues received by the director or member or 20% or
                  more of the gross revenues received by the director's or
                  member's firm or partnership; (v) provides professional
                  services to a director, officer, or employee of a broker,
                  dealer, or corporation that owns 50% or more of the
                  voting stock of a broker or dealer, and such services
                  relate to the director's, officer's, or employee's
                  professional capacity and constitute 20% or more of the
                  professional revenues received by the director or 20% or
                  more of the gross revenues received by the director's or
                  member's firm or partnership; or (vi) has a consulting or
                  employment relationship with or provides professional
                  services to the NASD, NASDR, Nasdaq, or Amex or has had
                  any such relationship or provided such services at any
                  time within the prior three years.

         o        Non-Industry Director means a Director (excluding the
                  Staff Directors) who is (i) a Public Director; (ii) an
                  officer or employee of an issuer of securities listed on
                  The Nasdaq Stock Market, or traded in the
                  over-the-counter market; or (iii) any other individual
                  who would not be an Industry Director.

         o        Public Director means a Director who has no material
                  business relationship with a broker or dealer, the NASD,
                  NASDR, or Nasdaq.

Advance Notice Requirements for Stockholder Proposals and Directors Nominations

The By-Laws provide that stockholders seeking to bring business before an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual meeting of stockholders, must provide timely notice
in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at Nasdaq's principal executive offices not less than
90 nor more than 120 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, that in the event that
the annual meeting is called for a date that is not within 30 days before
or 70 days after such anniversary date, notice by the stockholder in order
to be timely must be received not earlier than 120 days prior to the
meeting and not later than the later of 90 days prior to the meeting and
the close of business on the 10th day following the date on which notice of
the date of the annual meeting was first made public. In the case of a
special meeting of stockholders called for the purpose of electing
directors, notice by the stockholder in order to be timely must be received
not earlier than 120 days prior to the meeting and later than the later of
90 days prior to the meeting and the close of business on the 10th day
following the day on which public disclosure of the date of the special
meeting and Nasdaq's nominees was first made. In addition, the By-Laws
specify certain requirements as to the form and content of a stockholder's
notice. These provisions may preclude stockholders from bringing matters
before an annual meeting of stockholders or from making nominations for
directors at an annual or special meeting of stockholders.

Stockholder Action; Special Meeting of Stockholders

The Certificate of Incorporation provides that stockholders are not
entitled to act by written consent in lieu of a meeting. Delaware law vests
the board of directors of a Delaware corporation with the authority to call
special meetings of stockholders and permits the corporation to authorize
in its certificate of incorporation or by-laws other persons to also have
such authority. The Certificate of Incorporation and By-Laws do not vest
any other persons with such authority.

Amendments; Supermajority Vote Requirements

The General Corporation Law of the State of Delaware provides generally
that the affirmative vote of a majority of the shares entitled to vote on
any matter is required to amend a corporation's certificate of
incorporation, unless a corporation's certificate of incorporation requires
a greater percentage. The Certificate of Incorporation imposes
supermajority stockholder vote (66 2/3%) requirements in connection with
stockholder amendments to the By-Laws and in connection with the amendment
of certain provisions of the Certificate of Incorporation, including those
provisions of the Certificate of Incorporation relating to the limitations
on voting rights of certain persons, the classified board of directors,
removal of directors, and prohibitions on stockholder action by written
consent.

Authorized But Unissued Shares

The authorized but unissued shares of Common Stock and preferred stock will
be available for future issuance without stockholder approval. These
additional shares may be utilized for a variety of corporate purposes,
including future public or private offerings to raise additional capital,
corporate acquisitions, and employee benefit plans. The existence of
authorized but unissued shares of Common Stock and preferred stock could
render more difficult, or discourage an attempt to obtain control of Nasdaq
by means of a proxy contest, tender offer, merger or otherwise.

Transfer Restrictions on Common Stock

The shares of Common Stock cannot be, directly or indirectly, offered,
sold, gifted, pledged, assigned, transferred, or otherwise disposed of
(each, for the purposes hereof, a "Transfer") except subject to all
applicable laws and:

(1)      with the prior written consent of Nasdaq; or

(2)      until the earlier of (i) the date on which a registration
         statement filed with the SEC in connection with an initial public
         offering of shares of Common Stock is declared effective (the
         "Effective Date"), or (ii) the expiration of two years following
         June 28, 2000 if a registration statement has not been filed with
         the SEC in connection with an initial public offering of shares of
         Common Stock during such two-year period; provided, however, that
         Nasdaq may elect, in its sole discretion, to further restrict the
         Transferability of any shares of Common Stock including, without
         limitation, the shares of Common Stock purchased upon exercise of
         any warrants, for a period of 180 days following the Effective
         Date by giving written notice of such election to holders of
         Common Stock at least 10 days prior to the Effective Date; or

(3)      to a Majority Affiliate. Any Transfer to a Majority Affiliate for
         consideration will require that the transferor deliver to Nasdaq,
         an opinion of the transferor's counsel to the effect that the
         Transfer of securities by the transferor to a Majority Affiliate
         (A) complies with the transfer restriction provisions set forth
         herein and (B) does not require registration under the Securities
         Act or registration or qualification under any applicable state
         securities laws. Any Transfer to a Majority Affiliate without
         consideration will require the transferor to make a written
         representation to Nasdaq that the Transfer complies with the
         provisions set forth in this section and was made without
         consideration.

The following terms are defined as set forth below:

         "Affiliate" means, with respect to any specified Person, any other
Person who, directly or indirectly, owns or controls, is under common
ownership or control with, or is owned or controlled by, such specified
Person.

         "Majority Affiliate" of any Person means an Affiliate of such
Person: (a) a majority of the voting stock or beneficial ownership of which
is owned by such Person, or by any Person who, directly or indirectly, owns
a majority of the voting stock or beneficial ownership of such Person; (b)
who, directly or indirectly, owns a majority of the voting stock or
beneficial ownership of such Person; and (c) any Majority Affiliate of any
Affiliate described in clause (a) or clause (b) above.

         "Person" means any individual, company, limited liability company,
corporation, trust, estate, association, nominee, or other entity.

Delaware Business Combination Statute

Nasdaq is organized under Delaware law.

Delaware law generally prohibits a publicly-held or widely-held corporation
from engaging in a "business combination" with an "interested stockholder"
for three years after the stockholder becomes an interested stockholder. An
"interested stockholder" is a person who directly or indirectly owns 15% or
more of the corporation's outstanding voting stock. A "business
combination" includes a merger, asset sale or other transaction that
results in a financial benefit to the interested stockholder. However,
Delaware law does not prohibit these business combinations if:

(1)      before the stockholder becomes an interested stockholder the
         corporation's board approved either the business combination or
         the transaction that resulted in the stockholder becoming an
         interested stockholder;

(2)      after the transaction that results in the stockholder becoming an
         interested stockholder, the interested stockholder owns at least
         85% of the corporation's outstanding voting stock (excluding
         certain shares); or

(3)      the corporation's board approves the business combination and the
         holders of at least two-thirds of the corporation's outstanding
         voting stock that the interested stockholder does not own
         authorize the business combination at a meeting of stockholders.

Item 12. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors, and any corporate agents in terms
sufficiently broad to indemnify such person under certain circumstances for
liabilities, including reimbursement for expenses, incurred arising under
the Securities Act. The Certificate of Incorporation and By-Laws provide
that Nasdaq shall indemnify its directors, officers, employees, and members
of the Nasdaq Listing and Hearing Review Council to the fullest extent
permitted by Delaware law. Nasdaq, in its discretion, may indemnify its
agents to the fullest extent and under the circumstances permitted by the
Delaware General Corporation Law. The directors and officers of Nasdaq are
covered by insurance policies indemnifying them against certain
liabilities, including certain liabilities arising under the Securities
Act, which might be incurred by them in such capacities and against which
they may not be indemnified by Nasdaq.

Item 13. Financial Statements and Supplementary Data.

The following table presents selected quarterly financial data for Nasdaq.
The data presented in this table are derived from "Selected Consolidated
Financial Data of Nasdaq" and the consolidated financial statements and
notes thereto which are included elsewhere in this Registration Statement.
You should read those sections for a further explanation of the financial
data summarized here. You should also read the "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Nasdaq"
section, which describes a number of factors which have affected Nasdaq's
financial results. The consolidated financial statements are as set forth
in the "Index to Consolidated Financial Statements" on page F-1.





<TABLE>
<CAPTION>

                                  Selected Quarterly Financial Data
                        (in thousands, except earnings per share information)

                                      1st Qtr         2nd Qtr           3rd Qtr           4th Qtr
                                        1999            1999              1999             1999          Total 1999

<S>                                   <C>             <C>               <C>              <C>              <C>     
Total revenues                        $133,860        $152,833          $169,136         $178,419         $634,248
Total expenses                          93,080         108,115           122,244          176,297          499,736
                                   ------------     -----------       -----------      -----------       ----------
Net operating income                    40,780          44,718            46,892            2,122          134,512
Interest income                          2,498           3,314             3,425            2,964           12,201
Interest expense                          (472)           (495)             (507)            (669)          (2,143)
Provision for income taxes             (16,456)        (20,483)          (19,332)          (2,150)         (58,421)
                                   ------------     -----------       -----------      -----------       ----------
Net income                             $26,350         $27,054           $30,478           $2,267          $86,149
                                   ============     ===========       ===========      ===========       ==========
Basic and diluted earnings per
share                                    $0.26           $0.27             $0.30            $0.02            $0.86
                                   ============     ===========       ===========      ===========       ==========
Pro forma amounts assuming
     the accounting change is
     applied retroactively:
         Total revenues               $133,423        $145,468          $159,875         $168,497         $607,203
         Net income (loss)             $26,089         $22,650           $24,871         $ (3,666)         $69,944
         Basic and diluted
           earnings (loss)
           per share                     $0.26           $0.23             $0.25          $ (0.04)           $0.70


                                      1st Qtr         2nd Qtr           3rd Qtr           4th Qtr
                                        2000            2000              2000             2000          Total 2000
                                   (Restated)       (Restated)        (Restated)       (Restated)       (Restated)
Total revenues                        $207,015        $211,504          $202,720         $211,472         $832,711
Total expenses                         131,224         139,753           161,843          203,871          636,691
                                   ------------     -----------       -----------      -----------       ----------
Net operating income                    75,791          71,751            40,877            7,601          196,020
Interest income                          2,200           3,205             5,519            9,187           20,111
Interest expense                          (483)           (476)             (718)            (453)          (2,130)
Minority interests                           -               -                 -              872              872
Provision for income taxes             (31,158)        (29,181)          (23,649)          (6,489)         (90,477)
Income before cumulative effect
     of change in accounting
     principle                          46,350          45,299            22,029           10,718          124,396
Cumulative effect of change in
     accounting principle             (101,090)              -                 -                -         (101,090)
                                   ------------     -----------       -----------      -----------       ----------
Net income (loss)                     $(54,740)        $45,299           $22,029          $10,718          $23,306
                                   ============     ===========       ===========      ===========       ==========
Basic and diluted earnings per
share:
     Before cumulative effect
       of change in accounting
       principle                         $0.46           $0.45             $0.18            $0.09            $1.11
     Cumulative effect of
       change in accounting
       principle                         (1.01)              -                 -                -            (0.90)
                                   ------------     -----------       -----------      -----------       ----------
     Net income (loss)                  $(0.55)          $0.45             $0.18            $0.09            $0.21
                                   ============     ===========       ===========      ===========       ==========


Pro forma amounts assuming
    the accounting change is
    applied retroactively:

         Total revenues               $207,015             N/A               N/A              N/A         $832,711
         Net income                    $46,350             N/A               N/A              N/A         $124,396
         Basic and diluted
           earnings per share            $0.46             N/A               N/A              N/A            $1.11
</TABLE>






                                     1st Qtr          2nd Qtr        3rd Qtr
                                      2001              2001           2001

Total revenues                      $222,767          $221,306        $197,708
Total expenses                       180,673           188,573         190,954
                                  -----------       -----------      ----------
Net operating income                  42,094            32,733           6,754
Interest income                        6,170             3,807           6,672
Interest expense                        (480)           (1,970)         (2,997)
Minority interests                       217             1,765           3,252
Provision for income taxes           (21,808)          (16,753)         (5,736)
                                  -----------       -----------      ----------
Net income                           $26,193           $19,582          $7,945
                                  ===========       ===========      ==========
Basic earnings per share               $0.21             $0.17           $0.07
                                  ===========       ===========      ==========
Diluted earnings per share             $0.21             $0.16           $0.07
                                  ===========       ===========      ==========


Item 14.  Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure.

Not applicable.

Item 15. Financial Statements and Exhibits.

(a) List separately all financial statements filed.

See "Index to Consolidated Financial Statements."

(b) Exhibits.

Exhibit
Number

3.1      Restated Certificate of Incorporation of The Nasdaq Stock Market,
         Inc.(+)

3.2      By-Laws of The Nasdaq Stock Market, Inc.

4.1      Form of Common Stock certificate.(+)

7A       Qualitative Disclosure about market risk (incorporated herein by
         reference to "Item 2 - Financial Information" of this Form 10).

9.1      Voting Trust Agreement dated June 28, 2000, among The Nasdaq Stock
         Market, Inc., the National Association of Securities Dealers, Inc.
         and The Bank of New York.(+)

9.2      First Amendment to the Voting Trust Agreement, dated as of January
         18, 2001, among The Nasdaq Stock Market, Inc., the National
         Association of Securities Dealers, Inc. and The Bank of New
         York.(+)

10.1     Network Service Agreement, dated November 19, 1997, between MCI
         Telecommunications Corporation and The Nasdaq Stock Market,
         Inc.*(+)

10.2     Consolidated Agreement, between Unisys Corporation and The Nasdaq
         Stock Market, Inc.*(+)

10.3     Network User License Agreement, dated November 30, 1993, between
         Oracle Corporation and The Nasdaq Stock Market, Inc.*(+)

10.4     Software License and Services Agreement, dated November 30, 1993,
         between Oracle Corporation and The Nasdaq Stock Market, Inc.*(+)

10.5     Regulatory Services Agreement, dated June 28, 2000, between NASD
         Regulation, Inc. and The Nasdaq Stock Market, Inc.*(+)

10.6     Separation and Common Services Agreement, dated as of June 28,
         2000, between the National Association of Securities Dealers, Inc.
         and The Nasdaq Stock Market, Inc.(+)

10.7     The Nasdaq Stock Market, Inc. 2000 Employee Stock Purchase
         Plan.(+)

10.8     The Nasdaq Stock Market, Inc. Equity Incentive Plan.(+)

10.9     Securities Purchase Agreement, dated as of March 23, 2001, among
         The Nasdaq Stock Market, Inc., Hellman & Friedman Capital Partners
         IV, L.P. and the other purchasers listed in the signature pages
         thereto.(+)

10.9.1   Securityholders Agreement, dated as of May 3, 2001, among The
         Nasdaq Stock Market, Inc., Hellman & Friedman Capital Partners IV,
         L.P., and the other securityholders listed on the signature pages
         thereto.(^)

10.10    Purchase and Sale Agreement, dated March 23, 2001, by and between
         the National Association of Securities Dealers, Inc. and The
         Nasdaq Stock Market, Inc.(+)

10.11    Employment Agreement between the National Association of
         Securities Dealers, Inc. and Frank G. Zarb effective on February
         24, 1997.(+)

10.12    Instrument of Amendment, dated March 18, 1998, to Employment
         Agreement between National Association of Securities Dealers, Inc.
         and Frank G. Zarb, effective on February 24, 1997.(+)

10.13    Instrument of Amendment, dated as of August 20, 1999, to
         Employment Agreement between National Association of Securities
         Dealers, Inc. and Frank G. Zarb, effective on February 24, 1997,
         as amended effective March 18, 1998.(+)

10.14    Instrument of Amendment, dated March 30, 2000, to Employment
         Agreement between National Association of Securities Dealers, Inc.
         and Frank G. Zarb, effective on February 24, 1997, as amended
         effective March 18, 1998, and subsequently amended in August,
         1999.(+)

10.15    Instrument of Amendment, effective as of July 27, 2000, to
         Employment Agreement between National Association of Securities
         Dealers, Inc. and Frank G. Zarb, effective on February 24, 1997,
         as amended effective March 18, 1998, and subsequently amended in
         May, 1999, and subsequently amended as of August 30, 2000.(+)

10.16    Instrument of Amendment, effective as of November 1, 2000, to
         Employment Agreement between National Association of Securities
         Dealers, Inc. and Frank G. Zarb, effective on February 24, 1997,
         as amended effective March 18, 1998, and subsequently amended as
         of August, 1999, and subsequently amended on March 30, 2000, and 
         as of July 27, 2000.(+)

10.17    Instrument of Amendment, effective as of April 25, 2001, to
         Employment Agreement between National Association of Securities
         Dealers, Inc. and Frank G. Zarb, effective on February 24, 1997,
         as subsequently amended effective March 18, 1998, August 20, 1999,
         March 30, 2000, July 27, 2000 and November 1, 2000.(+)

10.18    Employment Agreement by and between The Nasdaq Stock Market, Inc.
         and J. Patrick Campbell, effective as of December 29, 2000.(+)

10.18.1  Letter Agreement, dated July 22, 2001, among Frank G. Zarb, the
         National Association of Securities Dealers, Inc. and The Nasdaq
         Stock Market, Inc.(<-)

10.19    Employment Agreement by The Nasdaq Stock Market, Inc. and John L.
         Hilley, effective as of December 29, 2000.(+)

10.20    Employment Agreement by and between The Nasdaq Stock Market, Inc.
         and Richard G. Ketchum, effective as of December 29, 2000.(+)

10.21    Employment Agreement by and between The Nasdaq Stock Market, Inc.
         and Hardwick Simmons, dated as of January 31, 2001.(+)

10.22    Employment Letter, dated May 31, 1996, from the National
         Association of Securities Dealers, Inc. to Alfred R. Berkeley,
         III.

11       Statement regarding computation of per share earnings
         (incorporated herein by reference to "Item 2. Financial
         Information" of this Form 10).

12       Computations of Ratios (not applicable).

21.1     List of all subsidiaries.

---------------------

*        Confidential treatment has been requested from the U.S. Securities
         and Exchange Commission for certain portions of this exhibit.

(+)      Previously filed with The Nasdaq Stock Market, Inc.'s Registration
         Statement on Form 10 (file number 000-32651) filed on April 30,
         2001.

(^)      Previously filed with The Nasdaq Stock Market, Inc.'s Amendment
         No. 1 to Registration Statement on Form 10 (file number 000-32651)
         filed on May 14, 2001.

(<-)     Previously filed with The Nasdaq Stock Market, Inc.'s Amendment
         No. 4 to Registration Statement on Form 10 (file number 000-32651)
         filed on August 31, 2001.




                                 SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, as amended, the registrant has duly caused this Amendment No. 5 to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                              THE NASDAQ STOCK MARKET, INC.



                                              By: /s/  Edward S. Knight
                                                 ------------------------------
                                              Name:    Edward S. Knight
                                              Title:   Executive Vice President
                                                       and General Counsel

Date: November 16, 2001




                INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following consolidated financial statements of The Nasdaq Stock Market,
Inc. and its subsidiaries are presented herein on the page indicated:

Report of Independent Auditors.............................................F-2

Consolidated Balance Sheets................................................F-3

Consolidated Statements of Income..........................................F-5

Consolidated Statements of Changes in Stockholders' Equity.................F-7

Consolidated Statements of Cash Flows......................................F-8

Notes to Consolidated Financial Statements.................................F-9

Unaudited Condensed Consolidated Financial Statements.....................F-28

Unaudited Condensed Consolidated Balance Sheets...........................F-28

Unaudited Condensed Consolidated Statements of Income.....................F-30

Unaudited Condensed Consolidated Statements of Cash Flows.................F-31

Notes to Unaudited Condensed Consolidated Financial Statements............F-33





                       REPORT OF INDEPENDENT AUDITORS

Board of Directors
The Nasdaq Stock Market, Inc.

We have audited the accompanying consolidated balance sheets of The Nasdaq
Stock Market, Inc. ("Nasdaq") (a majority owned subsidiary of the National
Association of Securities Dealers, Inc.) as of December 31, 2000 and 1999,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 2000. These consolidated financial statements are the
responsibility of Nasdaq's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of The Nasdaq Stock Market, Inc. at December 31, 2000 and 1999,
and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States.

As discussed in Note 4 to the consolidated financial statements, effective
January 1, 2000, Nasdaq changed its method of accounting for certain
Corporate Client Group services revenues. Also as discussed in Note 3,
effective January 1, 1999, Nasdaq adopted Statement of Position 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use."

                                                    Ernst & Young LLP

New York, NY
January 26, 2001, except for Note 4, as

       to which the date is August 17, 2001





<TABLE>
<CAPTION>

                       The Nasdaq Stock Market, Inc.

                        Consolidated Balance Sheets
                    (In thousands, except share amounts)

                                                                         December 31,
                                                                -------------------------------
                                                                     2000            1999
                                                                -------------------------------
                                                                   (Restated)
Assets
Current assets:
<S>                                                             <C>             <C>          
    Cash and cash equivalents                                   $     262,257   $      10,598
    Investments:
       Available-for-sale, at fair value                              232,090         153,566
       Held-to-maturity, at amortized cost                             21,967          10,697
    Receivables, net                                                  172,660         112,403
    Receivables from related parties                                    8,250           7,168
    Deferred tax asset                                                 32,367           5,213
    Other current assets                                               14,869          12,701
                                                                -------------------------------
Total current assets                                                  744,460         312,346

Investments:
    Held-to-maturity, at amortized cost                                 6,612          17,720
Property and equipment:
    Land, buildings and improvements                                   80,727          56,173
    Data processing equipment and software                            370,066         246,999
    Furniture, equipment and leasehold improvements                   134,638         101,658
                                                                -------------------------------
                                                                      585,431         404,830
    Less accumulated depreciation and amortization                   (252,380)       (192,719)
                                                                -------------------------------
Total property and equipment, net                                     333,051         212,111

Investment in warrants, at cost                                             -          33,480
Non-current deferred tax asset                                         61,257
Other assets                                                           25,753           2,597
                                                                -------------------------------
Total assets                                                    $   1,171,133   $     578,254
                                                                ===============================
</TABLE>


See accompanying notes to consolidated financial statements.





<TABLE>
<CAPTION>

                       The Nasdaq Stock Market, Inc.

                  Consolidated Balance Sheets (continued)
                    (In thousands, except share amounts)

                                                         December 31,
                                                    2000              1999
                                              ------------------------------------
                                                 (Restated)
Liabilities
Current liabilities:
<S>                                           <C>               <C>           
   Accounts payable and accrued expenses      $      117,867    $       68,585
   Accrued personnel costs                            37,273            30,505
   Deferred revenue                                   66,178                 -
   Other accrued liabilities                          35,374            27,626
   Due to banks                                       13,876             8,819
   Payables to related parties                        19,158            11,742
                                              ------------------------------------
Total current liabilities                            289,726           147,277


Long-term debt                                        25,000            25,000
Accrued pension costs                                 10,390             7,073
Non-current deferred tax liability,  net              32,116            10,928
Deferred revenue non-current                         138,166                 -
Deferred revenue, investment in warrants, at               -            33,480
   cost
Other liabilities                                     15,033             2,484
                                              ------------------------------------
Total long-term liabilities                          220,705            78,965


Total liabilities                                    510,431           226,242

Minority interests                                    15,543                 -

Stockholders' equity
Common stock, $.01 par value, 300,000,000
   authorized, shares issued and
   outstanding: 123,663,746 in 2000 and
   100,000,000 in 1999                                 1,237             1,000
Additional paid-in capital                           273,387               149
Unrealized gains on available-for-sale
   investments, net of tax                               321             1,742
Foreign currency translation                          (2,213)                -
Retained earnings                                    372,427           349,121
                                              ------------------------------------
Total stockholders' equity                           645,159           352,012
                                              ------------------------------------
Total liabilities, minority interest and
   stockholders' equity                       $    1,171,133    $      578,254
                                              ====================================
</TABLE>



See accompanying notes to consolidated financial statements.





<TABLE>
<CAPTION>

                       The Nasdaq Stock Market, Inc.

                     Consolidated Statements of Income
                    (In thousands, except share amounts)

                                                       Years ended December 31,
                                                2000              1999              1998
                                         -------------------------------------------------------
                                            (Restated)
Revenues
<S>                                      <C>                <C>               <C>           
Transaction services                     $     395,123      $     283,652     $      160,506
Market information services                    258,251            186,543            152,665
Corporate Client Group services                149,297            163,425            137,344
Other                                           30,040                628                308
                                         -------------------------------------------------------
   Total revenues                              832,711            634,248            450,823
                                         -------------------------------------------------------

Expenses
Compensation and benefits                      137,284             98,129             78,565
Marketing and advertising                       45,908             62,790             42,483
Depreciation and amortization                   65,645             43,696             34,984
Professional and contract services              61,483             35,282             35,127
Computer operations and data
   communications                              138,228            100,493             72,111
Travel, meetings and training                   12,113             10,230              7,750
Occupancy                                       14,766              6,591              5,354
Publications, supplies and postage               7,181              4,670              5,208
Other                                           25,561             22,666             14,742
                                         -------------------------------------------------------
   Total direct expenses                       508,169            384,547            296,324
                                         -------------------------------------------------------

Support cost from related parties, net         128,522            115,189            100,841
                                         -------------------------------------------------------
   Total expenses                              636,691            499,736            397,165
                                         -------------------------------------------------------

Net operating income                           196,020            134,512             53,658
Interest income                                 20,111             12,201              9,269
Interest expense                                (2,130)            (2,143)            (1,962)
Provision for income taxes                     (90,477)           (58,421)           (26,010)
Minority interests                                 872                  -                  -
                                         -------------------------------------------------------
Income before cumulative effect of
   change in accounting principle              124,396             86,149             34,955
                                         -------------------------------------------------------
Cumulative effect of change in
   accounting principle, net of taxes
   of $67,956 (Note 4)                        (101,090)                 -                  -
                                         -------------------------------------------------------
Net income                               $      23,306      $      86,149     $       34,955
                                         =======================================================

Basic and diluted earnings per share:
    Before cumulative effect of change
      in accounting principle                    $1.11              $0.86              $0.35
                                         -------------------------------------------------------
    Cumulative effect of change in
      accounting principle                       (0.90)                 -                 -
                                         -------------------------------------------------------
    Net income                                   $0.21              $0.86             $0.35
                                         =======================================================
</TABLE>





<TABLE>
<CAPTION>

                       The Nasdaq Stock Market, Inc.

               Consolidated Statements of Income (continued)
                    (In thousands, except share amounts)


<S>                                           <C>                <C>               <C>    
Pro forma amounts assuming the
   accounting change is applied
   retroactively:
         Net income                           $124,396           $69,944           $31,332
                                         =======================================================
         Basic and diluted earnings
            per share                            $1.11             $0.70             $0.31
                                         =======================================================
</TABLE>



See accompanying notes to consolidated financial statements.





<TABLE>
<CAPTION>

                       The Nasdaq Stock Market, Inc.
         Consolidated Statements of Changes in Stockholders' Equity
                    (In thousands, except share amounts)

                                             Number of                                                 Accumulated
                                              Common                           Additional                 Other
                                             Shares            Common           Paid in     Retained  Comprehensive
                                           Outstanding 1       Stock 1          Capital1    Earnings   Income (Loss)   Total
                                           ----------------------------------------------------------------------------------------

<S>                                          <C>           <C>              <C>           <C>          <C>           <C>        
Balance, January 1, 1998                       100,000,000  $         1,000  $       149   $ 228,017   $       -      $   229,166
    Net income                                           -                -            -      34,955           -           34,955
    Unrealized gains on
      available-for-sale investments, net
      of tax of $1,088                                   -                -            -           -       2,020            2,020
                                                                                                                   ----------------
    Comprehensive income                                 -                -            -           -           -           36,975
                                           ----------------------------------------------------------------------------------------
Balance, December 31, 1998                     100,000,000            1,000          149     262,972       2,020          266,141
    Net income                                           -                -            -      86,149           -           86,149
    Unrealized losses on
      available-for-sale investments, net
      of tax of $(149)                                   -                -            -           -        (278)            (278)
                                                                                                                   ----------------
    Comprehensive income                                 -                -            -           -           -           85,871
                                           ----------------------------------------------------------------------------------------
Balance, December 31, 1999                     100,000,000            1,000          149     349,121       1,742          352,012
    Net income                                           -                -            -      23,306           -           23,306
    Unrealized losses on
      available-for-sale investments, net
      of tax of $(765)                                   -                -            -           -      (1,421)          (1,421)
    Foreign currency translation, net
      of minority interests of
      $(1,185)                                           -                -            -           -      (2,213)          (2,213)
                                                                                                                   ----------------
    Comprehensive income                                 -                -            -           -           -           19,672
    Capital contribution                                 -                -       30,000           -           -           30,000
    Minority interest resulting from
      original share of equity in Nasdaq
      Europe Planning Company Limited                    -                -      (17,600)          -           -          (17,600)
    Adjustment to carrying amount of
      investment in Nasdaq Japan due to
      its private placement                              -                -        7,784           -           -            7,784
     Net proceeds from Phase I offering         23,663,746              237      253,054           -           -          253,291
                                           ----------------------------------------------------------------------------------------
Balance, December 31, 2000 (Restated)          123,663,746    $       1,237   $  273,387   $ 372,427   $  (1,892)    $    645,159
                                           ========================================================================================
</TABLE>


-------------------
1        Gives effect the June 28, 49,999-for-one stock dividend of the
         shares of Common Stock for years December 31, 1998 and 1999.

See accompanying notes to consolidated financial statements.





<TABLE>
<CAPTION>

                       The Nasdaq Stock Market, Inc.
                   Consolidated Statements of Cash Flows
                               (In thousands)

                                                             Years ended December 31,
                                                      2000              1999             1998
                                                -----------------------------------------------------
                                                     (Restated)
Cash flow from operating activities
<S>                                             <C>               <C>              <C>        
Cash received from customers                    $     713,408     $     527,946    $   400,918
Cash paid to suppliers and employees                 (281,601)         (248,173)      (212,006)
Cash paid to related parties, net                    (122,188)         (104,761)      (109,563)
Income taxes paid                                    (101,171)          (49,992)       (24,131)
Interest received, net                                 19,624            10,320          7,699
Other                                                  21,248              (715)        (6,194)
                                                -----------------------------------------------------
Cash provided by operating activities                 249,320           134,625         56,723
Cash flow from investing activities
Proceeds from redemptions of
   available-for-sale investments                     154,931           107,328              -
Purchases of available-for-sale investments          (237,241)         (131,291)             -
Proceeds from maturities of held-to-maturity
   investments                                         10,811            30,743        100,845
Purchases of held-to-maturity investments             (10,973)          (30,990)      (129,624)
Acquisition, net of cash acquired                     (16,979)                -              -
Purchases of property and equipment                  (189,666)         (110,489)       (39,729)
Proceeds from sales of property and equipment           3,108             4,042         10,358
                                                -----------------------------------------------------
Cash used in investing activities                    (286,009)         (130,657)       (58,150)
Cash flow from financing activities
Increase in due to banks                                5,057             3,876            156
Proceeds from Phase I private placement
   offering                                           253,291                 -              -
Contributions from minority shareholders               30,000                 -              -
                                                -----------------------------------------------------
Cash provided by financing activities                 288,348             3,876            156
Increase (decrease) in cash and cash
   equivalents                                        251,659             7,844         (1,271)
Cash and cash equivalents at beginning of
   period                                              10,598             2,754          4,025
                                                -----------------------------------------------------
Cash and cash equivalents at end of period      $     262,257     $      10,598    $     2,754
                                                =====================================================
Reconciliation of net income to cash provided
   by operating activities
Net income                                      $      23,306     $      86,149    $    34,955
Non-cash items included in net income:
    Cumulative effect of change in accounting
      principle, net of taxes                         101,090                 -              -
    Depreciation and amortization                      65,645            43,696         34,984
    Stock-based compensation                            3,788                 -              -
    Other non-cash items included in net income         3,132                 -              -
    Minority interests                                   (872)                -              -
   Net change in:
      Receivables, net                                (59,885)          (39,897)       (18,762)
      Receivables from related parties                 (1,082)            2,497         (6,670)
      Other current assets                             (2,168)           (6,521)          (380)
      Deferred tax asset                              (83,344)           (1,316)             -
      Other assets                                     (6,690)            4,866         (4,688)
      Accounts payable and accrued expenses            49,256            18,815          7,607
      Accrued personnel costs                           6,685             9,660          3,966
      Deferred revenue                                103,254             1,413          2,758
      Accrued liabilities                               7,643             2,569          9,545
      Payables to related parties                       7,416             7,931         (2,052)
      Accrued pension costs                             3,317             2,507         (3,414)
      Non-current deferred tax liability, net          16,280             2,770              -
      Other liabilities                                12,549              (514)        (1,126)
                                                -----------------------------------------------------
Cash provided by operating activities           $     249,320     $     134,625    $    56,723
                                                =====================================================
</TABLE>



 See accompanying notes to consolidated financial statements.




                       The Nasdaq Stock Market, Inc.
               Notes to the Consolidated Financial Statements


1.   Organization and Nature of Operations

The Nasdaq Stock Market, Inc. ("Nasdaq") is the parent company of Nasdaq
Global Holdings ("Nasdaq Global"); Quadsan Enterprises, Inc.; Nasdaq Tools,
Inc.; Nasdaq Financial Products Services, Inc. (formerly Nasdaq Investment
Product Services, Inc.); Nasdaq International Market Initiatives, Inc.; and
Nasdaq Canada, Inc.; collectively referred to as Nasdaq. These entities are
wholly-owned by Nasdaq. Nasdaq is a majority owned subsidiary of the
National Association of Securities Dealers, Inc. (the "NASD").

At a special meeting of the NASD members held on April 14, 2000, more than
a majority of NASD members approved a plan to broaden the ownership in
Nasdaq through a two-phase private placement of (1) newly-issued shares of
Common Stock, and (2) Common Stock and warrants to purchase shares of
Common Stock owned by the NASD (the "Restructuring"), to all NASD members,
Nasdaq issuers and institutional investor firms. The Restructuring is
intended, among other things, to strategically realign the ownership of
Nasdaq, minimize potential conflicts of interest between Nasdaq and NASDR
and allow Nasdaq to respond to current and future competitive challenges
caused by technological advances and the increasing globalization of
financial markets.

In connection with the first phase ("Phase I") of the Restructuring, (1)
the NASD separated the American Stock Exchange LLC ("Amex") from The
Nasdaq-Amex Market Group, Inc. ("Market Group"), a holding company which
was a subsidiary of the NASD; (2) Market Group was then merged with and
into Nasdaq; (3) Nasdaq then effected a 49,999-for-one stock dividend
creating 100 million shares of Common Stock outstanding (all of which were
initially owned by the NASD); and (4) Nasdaq authorized the issuance of an
additional 30.9 million in new shares to be offered for sale by Nasdaq. All
share and per share amounts have been retroactively adjusted to reflect the
June 28, 2000 49,999-for-one stock dividend.

Phase I of the Restructuring closed on June 28, 2000 with Nasdaq selling
23.7 million of its newly issued shares, yielding net proceeds of
approximately $253.3 million. As of December 31, 2000, the NASD owned
approximately 81% of Nasdaq. During Phase I of the Restructuring, the NASD
sold warrants to purchase shares of Nasdaq Common Stock, which if fully
exercised, would decrease the NASD's ownership to approximately 60%. The
second phase ("Phase II") of the Restructuring closed on January 18, 2001
(see Note 15).

Nasdaq operates in one segment as defined in the Statement of Financial
Accounting Standards No. 131 "Disclosures About Segments of an Enterprise
and Related Information" ("SFAS 131"). Nasdaq uses a multiple market maker
system to operate an electronic, screen-based equity market. Nasdaq's
principal business products are price discovery and trading services,
listing of issues, and the sale of related data and information. The
majority of this business is transacted with listed companies, market data
vendors and firms in the broker-dealer industry within the United States.

Nasdaq Global, which is incorporated in Switzerland, is the holding company
for Nasdaq's investments in Nasdaq Europe Planning Company Limited,
IndigoMarkets (sm) Ltd. ("IndigoMarkets") and Nasdaq Japan, Inc. ("Nasdaq
Japan") in which it has 56.0%, 55.0% and 39.2% interests, respectively, as
of December 31, 2000. Quadsan Enterprises, Inc. is a Delaware Investment
Holding Company that provides investment management services for Nasdaq.
Nasdaq Financial Products Services, Inc. is the sponsor of the Nasdaq-100
Trust. Nasdaq International Market Initiatives, Inc. offers a variety of
consulting services to assist emerging and established securities markets
around the world with both technology applications and regulation. Nasdaq
Tools, Inc. provides software products and services related to the
broker-dealer industry to be used in conjunction with the Nasdaq
Workstation II software.

2.   Significant Transactions

The NASD formed a joint venture, Nasdaq Europe Planning Company Limited, in
February 2000 with SOFTBANK Corp. of Japan, Vivendi, and Epartners, whereby
each partner contributed $10 million in cash. The NASD contributed $10
million cash, licensing of its brand and provided technology expertise and
management leadership in exchange for a 56% interest in this venture. As
part of the Restructuring, the NASD's ownership interest in Nasdaq Europe
Planning Company Limited was transferred to Nasdaq Global.

Nasdaq Europe Planning Company Limited was treated as a consolidated entity
in Nasdaq and the NASD financial statements. See "Note 15--Subsequent
Events."

On March 7, 2000, Nasdaq acquired Financial Systemware, Inc. (now known as
Nasdaq Tools), a company that develops and markets a set of software
utilities that can be loaded on a Nasdaq Workstation II terminal to enhance
the features and functionalities of the Nasdaq Workstation II software.
This acquisition has been accounted for using the purchase method of
accounting, and accordingly, assets acquired and liabilities assumed have
been recorded at their estimated fair values at the date of acquisition.
The results of operations of Nasdaq Tools are included in the consolidated
statements of income and stockholders' equity from the acquisition date.
Periods prior to the acquisition date are not included in the consolidated
statements of income and stockholders' equity.

Upon closing of the transaction, Nasdaq acquired 100% of Financial
Systemware's issued and outstanding stock for $7.3 million. Goodwill of
$6.5 million recorded as a result of the acquisition is being amortized on
a straight-line basis over five years. Additionally, the Nasdaq Tools
principals, the sellers, will collectively be paid $25.0 million. Of this
amount, $10.0 million was paid upon closing and is being recognized as
expense on a straight-line basis over five years. Five cash payments of
$3.0 million each will be paid over the five years following closing,
contingent upon the continued employment and development efforts of the
Nasdaq Tools principals. The unamortized goodwill and other intangible
assets related to the acquisition of Nasdaq Tools are $5.4 million and $8.3
million, respectively, as of December 31, 2000 and are included in other
assets in the consolidated balance sheets.

In May 2000, IndigoMarkets was established for the purpose of creating
market systems for Nasdaq global markets, including Nasdaq Japan.

In 1999, the NASD contributed approximately $2.6 million for its initial
50% interest in Nasdaq Japan. After granting a restricted stock award of 4%
of its shares, the NASD transferred its remaining 46% interest to Nasdaq
Global. In October 2000, Nasdaq Japan sold an approximate 15% stake for
approximately $48 million to a group of 13 major Japanese, U.S. and
European brokerages, thereby reducing Nasdaq Global's interest from 46% to
approximately 39%. As a result of the private placement, Nasdaq increased
the carrying value of its investment by $8 million, through stockholders'
equity, to reflect its adjusted share of the book value of Nasdaq Japan.
Nasdaq accounts for its investment in Nasdaq Japan under the equity method
of accounting.

3.   Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Nasdaq and
its majority owned subsidiaries. All non-majority owned investments are
accounted for under the equity method of accounting. All significant
intercompany accounts and transactions have been eliminated in
consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include demand cash and all non-restricted
investments purchased with a remaining maturity of three months or less at
the time of purchase. Such investments included in cash and cash
equivalents in the consolidated balance sheets were $218.5 million and $7.1
million at December 31, 2000 and 1999, respectively.

Investments

Under Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities,"
management determines the appropriate classification of investments at the
time of purchase. Investments for which Nasdaq does not have the intent or
ability to hold to maturity are classified as "available-for-sale" and are
carried at fair market value, with the unrealized gains and losses, net of
tax, reported as a separate component of stockholders' equity. Investments
for which Nasdaq has the intent and ability to hold to maturity are
classified as "held-to-maturity" and are carried at amortized cost. The
amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion
of discounts, which are included in interest income. Realized gains and
losses on sales of securities are included in earnings using the specific
identification method.

A decline in the market value of any available-for-sale or held-to-maturity
security below cost, that is deemed to be other than temporary, results in
a reduction in carrying amount to fair value. The impairment is charged to
earnings and a new cost basis for the security is established.

Receivables, Net

Nasdaq's receivables are concentrated with NASD member firms, market data
vendors and Nasdaq issuers. Receivables are shown net of reserves for
uncollectable accounts. Reserves are calculated based on the age and source
of the underlying receivable and are tied to past collections experience.
Total reserves netted against receivables in the consolidated balance
sheets were $5.4 million and $3.0 million at December 31, 2000 and 1999,
respectively.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation.
Equipment acquired under capital leases is recorded at the lower of fair
market value or the present value of future lease payments. Depreciation
and amortization are provided on the straight-line method. Estimated useful
lives generally range from 10 years to 40 years for buildings and
improvements, 2 years to 5 years for data processing equipment and
software, and 5 years to 10 years for furniture and equipment. Leasehold
improvements are amortized using the straight-line method over the lesser
of the useful life of the improvement or the term of the applicable lease.

Impairment of Long-Lived Assets

In the event that facts and circumstances indicate that long-lived assets
or other assets may be impaired, such as obsolescence, an evaluation of
recoverability would be performed. If an evaluation were required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down is
required. If a write-down were required, Nasdaq would prepare a discounted
cash flow analysis to determine the amount of the write-down.

Revenue Recognition

Market information services revenues are based on the number of
presentation devices in service and quotes delivered through those devices.
These revenues are recorded net of amounts due under revenue sharing
arrangements with market participants. Market information services revenues
are recognized in the month that information is provided. Transaction
services revenues are variable based on service volumes and are recognized
as transactions occur. Issuer annual listing services revenues are
recognized ratably over the following 12-month period. For 1999 and 1998,
issuer initial listing fees were recognized in the month listing occurred
and issuer additional share fees were recognized in the period the
incremental shares were issued. Effective January 1, 2000, the accounting
for these fees changed as described in Note 4.

Deferred Revenue

Deferred revenues represent cash received and billed receivables, which are
unearned, until services are provided.

Advertising Costs

Nasdaq expenses advertising costs, which included media advertising and
production cost, in the periods in which the costs are incurred. Media
advertising and production costs included as marketing and advertising in
the consolidated statements of income totaled $35.3 million, $45.3 million
and $36.2 million for 2000, 1999, and 1998, respectively.

Software Costs

Significant purchased application software, and operational software that
is an integral part of computer hardware, are capitalized and amortized on
the straight-line method over their estimated useful lives, generally two
to five years. All other purchased software is charged to expense as
incurred.

Nasdaq adopted Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use"
effective January 1, 1999. The provisions of this SOP require certain costs
incurred in connection with developing or obtaining internal use software
to be capitalized. Unamortized capitalized software development costs of
$37.8 million and $14.7 million as of December 31, 2000 and 1999,
respectively, are carried in data processing equipment and software in the
consolidated balance sheets. Amortization of costs capitalized under SOP
98-1 totaled $2.3 million and $0.5 million for 2000 and 1999 and is
included in depreciation and amortization in the consolidated statements of
income.

Income Taxes

Nasdaq and its subsidiaries are taxable entities. Deferred tax assets and
liabilities are determined based on differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities (i.e., temporary differences) and are measured at the enacted
rates that will be in effect when these differences reverse.

Foreign Currency Translation

Assets and liabilities of non-U.S. subsidiaries that operate in a local
currency environment are translated to U.S. dollars at exchange rates in
effect at the balance sheet date. Translation adjustments resulting from
this process are charged or credited to other comprehensive income. Revenue
and expenses are translated at average exchange rates during the year.
Gains and losses on foreign currency translations are included in other
expenses.

Minority Interests

Minority interests in the consolidated balance sheets represents the
minority owners' share of equity as of the balance sheet date. Minority
interests in the consolidated statements of income represent the minority
owners' share of the income or loss of certain consolidated subsidiaries.

Classifications

Certain amounts for the prior years have been reclassified to conform with
the 2000 presentation. In addition, the financial statements for the year
ended December 31, 2000 have been restated for the change in accounting
principle described in Note 4.

4.   Change in Accounting Principle

On August 17, 2001, Nasdaq concluded discussions with the SEC with respect
to the implementation in its financial statements of Staff Accounting
Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"),
which became effective for SEC public reporting companies in the fourth
quarter of 2000. Nasdaq became a SEC public reporting company on June 29,
2001, the effective date of this Registration Statement. As a result of the
discussions with the SEC, Nasdaq changed its method of accounting for
revenue recognition for certain components of its Corporate Client Group
services revenues. In accordance and consistent with generally accepted
accounting principles, as SAB 101 was adopted effective the fourth quarter
of 2000, the change in accounting principle has been applied as of January
1, 2000. In accordance with applicable accounting guidance prior to SAB
101, Nasdaq recognized revenues for issuer initial listing fees and listing
of additional shares ("LAS") fees in the month the listing occurred or in
the period additional shares were issued, respectively. Nasdaq now
recognizes revenue related to initial listing fees and LAS fees on a
straight line basis over estimated service periods, which are six and four
years, respectively.

Nasdaq recognized a one-time cumulative effect of a change in accounting
principle in the first quarter of 2000. This cumulative effect of a change
in accounting principle decreased net income in the year ended December 31,
2000 by $101.1 million ($0.90 per share) resulting in net income of $23.3
million ($0.21 per share). The adjustment to December 31, 2000 net income
for the cumulative change to prior years' results consists of the
following:



(amounts in thousands)
Deferred Initial fees                                          $  108,476
Deferred LAS fees                                                  60,570
                                                                 --------
Total deferred fees                                               169,046
Deferred income tax benefit                                       (67,956)
                                                                  --------
Cumulative effect of change in accounting principle            $  101,090
                                                               ==========

As a result of the change in accounting principle, for the year ended
December 31, 2000, revenues decreased $35.5 million and pro forma net
income, excluding the cumulative change in accounting principle, decreased
$20.8 million ($0.19 per share).

For the year ended December 31, 2000, Nasdaq recognized $55.7 million in
revenue that was included in the cumulative effect adjustment as of January
1, 2000. This revenue contributed $33.3 million (after income taxes of
$22.4 million) to net income for the year ended December 31, 2000.

The change in accounting principle affects the primary financial statements
and income tax and earnings per share disclosures in Notes 8 and 14,
respectively.

Deferred Revenue

Nasdaq's deferred revenue as of December 31, 2000 relating to Corporate
Client Group services fees will be recognized in the following years:



<TABLE>
<CAPTION>

(amounts in thousands)                  
(in thousands)                          Initial             LAS               Annual              Total
                                     --------------    --------------    -----------------     -------------
Fiscal year ended
<S>                                        <C>               <C>         <C>                        <C>    
2001                                       $34,532           $31,646     $             -            $66,178
2002                                        29,739            23,118                   -             52,857
2003                                        25,099            16,219                   -             41,318
2004                                        20,373             5,668                   -             26,041
2005 and thereafter                         17,950                 -                   -             17,950
                                     --------------    --------------    -----------------     -------------
                                          $127,693           $76,651     $             -           $204,344
                                     ==============    ==============    =================     =============
</TABLE>



Nasdaq's deferred revenue for the year ended December 31, 2000 is reflected
in the following table. The additions reflect Corporate Client Group
services fees charged during the year while the amortization reflects
Corporate Client Group services fee revenues recognized during the year
based on the accounting methodology described above.



<TABLE>
<CAPTION>

(amounts in thousands)                   Initial             LAS              Annual             Total
                                      --------------    ---------------    --------------     -------------
<S>                                      <C>             <C>             <C>                  <C>     
Balance at January 1, 2000                 $108,476        $60,570         $         -          $169,046
Additions                                    53,129         49,713              81,753           184,595
Amortization                                (33,912)       (33,632)            (81,753)         (149,297)
                                      --------------    ---------------    --------------     -------------
Balance at December 31, 2000               $127,693        $76,651         $         -          $204,344
                                      ==============    ===============    ==============     =============
</TABLE>



5.  Investments

Investments consist of U.S. Treasury securities obligations of U.S.
Government sponsored enterprises, municipal bonds, equity securities and
other financial instruments. Following is a summary of investments
classified as available for sale which are carried at fair value as of
December 31, 2000:



<TABLE>
<CAPTION>

                                                Available-for-Sale Securities
                                -----------------------------------------------------------
                                                   Gross           Gross         Estimated
                                                 Unrealized      Unrealized         Fair
(amounts in thousands)              Cost           Gains           Losses          Value
                                -----------------------------------------------------------
<S>                                <C>             <C>              <C>            <C>     
December 31, 2000
U.S. Treasury securities and
    obligations of U.S.
    government agencies            $109,350        $542             $59            $109,834
Obligations of states and
    political subdivisions           43,664          55             954              42,765
Asset-backed securities              52,846         202             513              52,535
U.S. corporate securities             6,018          61              90               5,988
Other debt securities                   649           9               -                 658
                                   --------------------------------------------------------
    Total debt securities           212,527         869           1,616             211,780
Equity securities                    19,069       3,584           2,343              20,310
                                   --------------------------------------------------------
   Total                           $231,596      $4,453          $3,959            $232,090
                                   ========================================================
</TABLE>




Following is a summary of investments classified as held to maturity which
are carried at amortized cost as of December 31, 2000:


<TABLE>
<CAPTION>

                                                       Held-to-Maturity Securities
                                 ----------------------------------------------------------------
                                                         Gross           Gross         Estimated
                                                       Unrealized      Unrealized         Fair
(amounts in thousands)                  Cost             Gains           Losses          Value
                                 ----------------------------------------------------------------
December 31, 2000
<S>                                   <C>                <C>             <C>             <C>    
U.S. Treasury securities and
    obligations of U.S. 
    government agencies              $28,579            $45             $32             $28,592
Obligations of states and
    political subdivisions                 -              -               -                   -
Asset-backed securities                    -              -               -                   -
U.S. corporate securities                  -              -               -                   -
Other debt securities                      -              -               -                   -
                                  ---------------------------------------------------------------
    Total                            $28,579            $45             $32             $28,592
                                  ===============================================================
</TABLE>




Following is a summary of investments classified as available for sale
which are carried at fair value as of December 31, 1999:



<TABLE>
<CAPTION>

                                                      Available-for-Sale Securities
                                  ----------------------------------------------------------------
                                                       Gross           Gross           Estimated
                                                    Unrealized      Unrealized           Fair
(amounts in thousands)                  Cost           Gains           Losses            Value
                                  ----------------------------------------------------------------
December 31, 1999
<S>                                 <C>                <C>             <C>             <C>    
U.S. Treasury securities and
    obligations of U.S. 
    government agencies              $68,751           $135            $487             $68,399
Obligations of states and
    political subdivisions            37,140              -             792              36,348
Asset-backed securities               16,814              1             657              16,158
U.S. corporate securities              9,055              1             164               8,892
Other debt securities                      -              -               -                   -
                                     ----------------------------------------------------------------
    Total debt securities            131,760            137           2,100             129,797
Equity securities                     19,125          5,642             998              23,769
                                    -----------------------------------------------------------------
    Total                           $150,885         $5,779          $3,098            $153,566
                                    =================================================================

</TABLE>


Following is a summary of investments classified as held to maturity which
are carried at amortized cost as of December 31, 1999:


<TABLE>
<CAPTION>

                                                       Held-to-Maturity Securities
                                  ----------------------------------------------------------------
                                                       Gross           Gross           Estimated
                                                    Unrealized       Unrealized          Fair
(amounts in thousands)                  Cost           Gains           Losses            Value
                                  ----------------------------------------------------------------
December 31, 1999
<S>                                 <C>                <C>             <C>             <C>    
U.S. Treasury securities and
    obligations of U.S. 
    government agencies             $ 28,417         $    7          $  617            $ 27,807
Obligations of states and
    political subdivisions                 -              -               -                   -
Asset-backed securities                    -              -               -                   -
U.S. corporate securities                  -              -               -                   -
Other debt securities                      -              -               -                   -
                                  ----------------------------------------------------------------
    Total                           $ 28,417         $    7          $  617            $ 27,807
                                  ================================================================
</TABLE>




The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 2000, by contractual maturity, are shown below.

Following is a summary of investments classified as available-for-sale
which are carried at fair value as of December 31, 2000:


<TABLE>
<CAPTION>

                                                                                   Gross Unrealized
                                                                  Amortized
                                                                     Cost         Gain         Loss      Fair Value
                                                                 -----------------------------------------------------
<S>                                                              <C>          <C>          <C>          <C>       
Due in one year or less                                          $   89,094   $      204   $       (1)  $   89,297
Due after one year through five years                               123,433          665       (1,615)     122,483
Equity securities                                                    19,069        3,584       (2,343)      20,310
                                                                 -----------------------------------------------------
                                                                 $  231,596   $    4,453   $   (3,959)  $  232,090
                                                                 =====================================================
</TABLE>


Following is a summary of investments classified as held-to-maturity which
are carried at amortized cost as of December 31, 2000:


<TABLE>
<CAPTION>

                                                                                   Gross Unrealized
                                                                  Amortized
                                                                     Cost         Gain         Loss      Fair Value
                                                                 -----------------------------------------------------
<S>                                                              <C>          <C>          <C>          <C>       
Due in one year or less                                          $   21,967   $       19   $      (32)  $   21,954
Due after one year through five years                                 6,612           26            -        6,638
                                                                 -----------------------------------------------------
                                                                 $   28,579   $       45   $      (32)  $   28,592
                                                                 =====================================================
</TABLE>



During the years ended December 31, 2000, and 1999, debt and marketable
equity available-for-sale securities with a fair value at the date of sale
of $72.7 million and $145.6 million, respectively, were sold. The gross
realized gains on such sales totaled $2.8 million and $830,000,
respectively, and the gross realized losses totaled $955,000 and $998,000,
respectively. The net adjustment to unrealized holding gains (losses) on
available-for-sale securities included as a separate component of
shareholders' equity totaled $(224,000) and $3.0 million, respectively.

6.       Fair Value of Financial Instruments

Nasdaq considers cash and cash equivalents, accounts receivable,
investments, accounts payable and accrued expenses, due to banks, and
long-term debt to be its financial instruments. The carrying amount
reported in the balance sheet for cash and cash equivalents, accounts
receivable, investments, accounts payable and accrued expenses, and due to
banks closely approximate their fair values. The approximate fair value of
Nasdaq's long-term debt was estimated using a discounted cash flow
analysis, based on Nasdaq's assumed incremental borrowing rates for similar
types of borrowing arrangements. This analysis indicates that the fair
value of Nasdaq's long-term debt at December 31, 2000 and 1999 approximates
its carrying amount.

7.       Long-Term Debt

In May 1997, Nasdaq entered into a $25.0 million note payable with a
financial institution (the "Lender"). Principal payments are scheduled to
begin in 2007 and continue in equal monthly instalments until maturity in
2012. The note requires monthly interest payments through May 2007 at an
annual rate of 7.41%. After May 2007, Nasdaq will incur interest equal to
the Lender's cost of funds rate, as defined in the agreement, plus 0.5%.
Interest expensed and paid under the agreement totaled approximately $1.9
million for each of the years ended December 31, 2000, 1999 and 1998.

8.       Income Taxes

The income tax provision includes the following amounts:

<TABLE>
<CAPTION>

                                                             Years Ended December 31,
                                                     2000              1999             1998
                                               -----------------------------------------------------
<S>                                           <C>              <C>              <C> 
Current income taxes:
    Federal                                    $     75,446      $      46,482    $     22,930
    State                                            14,138             11,599           5,196
                                               -----------------------------------------------------
Total current income taxes                           89,584             58,081          28,126

Deferred income taxes:
    Federal                                         (53,717)               273          (1,695)
    State                                           (13,346)                67            (421)
                                               -----------------------------------------------------
Total deferred income taxes                         (67,063)               340          (2,116)
                                               -----------------------------------------------------

                                                     22,521             58,421          26,010
Less deferred tax benefit attributable to
cumulative effect of change in accounting
principle                                            67,956                  -               -
                                               -----------------------------------------------------
Total provision for income taxes               $     90,477      $      58,421    $     26,010
                                               =====================================================

Income taxes paid during the periods           $    101,171      $      49,992    $     24,131
</TABLE>



8.       Income Taxes (continued)

Reconciliations of the statutory U.S. federal income tax rates to the effective
tax rates are as follows:


<TABLE>
<CAPTION>

                                                             Years Ended December 31,
                                                     2000              1999             1998
                                               -----------------------------------------------------
<S>                                                 <C>               <C>              <C>  
Federal                                             35.0%             35.0%            35.0%
State                                                3.6               5.2              5.1
Foreign losses without US benefit                    2.9                 -                -
Other, net                                           0.6               0.2              2.6
                                               -----------------------------------------------------
Effective rate                                      42.1%             40.4%            42.7%
                                               =====================================================
</TABLE>



Components of Nasdaq's deferred tax assets and liabilities consisted of the
following:


<TABLE>
<CAPTION>

                                                                     December 31,
                                                                2000               1999
                                                        ------------------- -----------------

<S>                                                  <C>                   <C>
Deferred tax assets:
   Deferred fees                                        $        82,600     $         2,233
   Compensation and benefits                                      1,592                 179
   Bad debts                                                      5,139               2,801
   Other                                                          4,293                   -
Total deferred tax assets                               $        93,624     $         5,213
                                                        =================== =================

Deferred tax liabilities:
   Depreciation                                         $       (12,492)             (9,966)
   Software development costs                                   (19,624)             (5,184)
   Other                                                              -               4,222
                                                        ------------------- -----------------
Total deferred tax liabilities, net                     $       (32,116)    $       (10,928)
                                                        =================== =================
</TABLE>



Due to the Nasdaq's foreign operations, it has approximately $5.0 million
of foreign deferred tax assets, primarily Net Operating Losses, the
majority of which expire in seven years. These in-country deferred tax
assets have been fully reserved by an offsetting Valuation Allowance as it
is not "more likely than not" that these deferred tax assets will be
realized.

9.    Employee Benefits

Nasdaq is a participating employer in a noncontributory, defined-benefit
pension plan, along with other arrangements, that the NASD maintains for
the benefit of eligible employees of its subsidiaries. The benefits are
primarily based on years of service and the employees' average salary
during the highest 60 consecutive months of employment. The plan assets
consist primarily of fixed income and equity securities.

The following table sets forth the plans' funded status and amounts
recognized in the Nasdaq balance sheets of December 31:


<TABLE>
<CAPTION>

                                                                               Pension Benefits
                                                                            2000              1999
                                                                      ------------------------------------
<S>                                                                <C>                <C>
Change in benefit obligation
Benefit obligation at beginning of year                               $      39,773     $    33,184
Service cost                                                                  4,543           3,304
Interest cost                                                                 3,246           2,448
Actuarial losses                                                              5,488           7,363
Benefits paid                                                                (1,988)         (2,246)
(Gain) loss due to change in discount rate                                    2,605          (4,280)
                                                                      ------------------------------------
Benefit obligation at end of year                                     $      53,667     $    39,773
                                                                      ------------------------------------

Change in plan assets
Fair value of plan assets at beginning of year                        $      28,312     $    22,801
Actual return on plan assets                                                  2,058           5,276
Company contributions                                                         3,082           2,480
Benefits paid                                                                (1,988)         (2,245)
                                                                      ------------------------------------
Fair value of plan assets at end of year                                $    31,464     $    28,312
                                                                      ------------------------------------

Funded status of the plan (underfunded)                               $     (22,203)        (11,461)
Unrecognized net actuarial gain                                               8,393           1,444
Unrecognized prior service cost                                                 906             976
Unrecognized transition obligation/(asset)                                     (390)           (447)
                                                                      ------------------------------------
Accrued benefit cost                                                  $     (13,294)    $    (9,488)
                                                                      ====================================
</TABLE>



As of December 31, 2000 and 1999, $2.9 million and $2.4 million,
respectively, of the accrued pension liability is carried as current in the
accounts payable and accrued expenses line of the consolidated balance
sheets.


<TABLE>
<CAPTION>

                                                                               Pension Benefits
                                                                            2000              1999
                                                                      ------------------------------------

<S>                                                                     <C>                <C>
Weighted-average assumptions as of December 31
Discount rate                                                               7.5%              8.0%
Expected return on plan assets                                              9.0               9.0
Rate of compensation increase                                               5.2               5.3
</TABLE>





<TABLE>
<CAPTION>

                                                                         Pension Benefits
                                                             2000              1999             1998
                                                       -----------------------------------------------------

<S>                                                  <C>                <C>              <C>
Components of net periodic benefit cost
Service cost                                           $       4,543     $       3,304    $       2,817
Interest cost                                                  3,246             2,448            2,039
Expected return on plan assets                                (2,533)           (2,261)          (1,693)
Amortization of unrecognized transition asset                    (57)              (57)             (57)
Recognized net actuarial loss                                    145               101               65
Prior service cost recognized                                    131               133              131
Curtailment/settlement loss recognized                         1,296                 -                -
                                                       -----------------------------------------------------
Benefit cost                                           $       6,771     $       3,668    $       3,302
                                                       =====================================================
</TABLE>


Nasdaq also participates in a voluntary savings plan for eligible employees
of the NASD and its subsidiaries. Employees are immediately eligible to
make contributions to the plan and are also eligible for an employer
contribution match at an amount equal to 100% of the first 4% of eligible
employee contributions. Eligible plan participants may also receive an
additional discretionary match from Nasdaq. Savings plan expense for the
years ended December 31, 2000, 1999, 1998 was $3.7 million, $2.9 million,
and $2.0 million, respectively. The expense included a discretionary match
authorized by the NASD Board of Governors totaling $1.3 million for the
year ended December 31, 2000, $1.3 million for the year ended December 31,
1999, and $1.0 million for the year ended December 31, 1998.

In December 2000, the Nasdaq Board of Directors approved the implementation
of an equity incentive plan and an employee stock purchase plan. The plans
will be submitted to Nasdaq stockholders for their approval. As of December
31, 2000, no grants had been made under the plans.

In May and July 2000, restricted common stock and options on common stock
of Nasdaq Japan were awarded to certain Nasdaq officers and key employees
who devote substantial time to the business of Nasdaq Japan. These awards
contain restrictions and are subject to vesting provisions. The stock
options were granted at an exercise price of $125 per share, the estimated
fair value of the stock at the time of the award. They are exercisable for
a period of 7.0 years, and are subject to vesting provisions, generally
three years. As of December 31, 2000 there were 820 stock options
outstanding to purchase shares of Nasdaq Japan held by Nasdaq Global, none
of them exercisable, with an approximate value of $6,175 per share. The
restricted stock award was for 1,900 shares at the estimated fair value of
$125 per share. Approximately one-third of the shares vested immediately
while the remaining two-thirds vest over a two year period. As of December
31, 2000, the restricted stock had an approximate value of $6,250 per
share. All share and dollar amounts reflect a four-for-one stock split of
Nasdaq Japan shares in April 2001.

The stock options and restricted stock awards are marked to market, and the
fair value is being expensed over the vesting periods. Nasdaq recorded
approximately $3.8 million in compensation expense during 2000 related to
these awards.

10.    Leases

Nasdaq leases certain office space and equipment in connection with its
operations. The majority of these leases contain escalation clauses based
on increases in property taxes and building operating costs. Certain of
these leases also contain renewal options. Rent expense for operating
leases was $9.9 million for the year ended December 31, 2000, $4.0 million
for the year ended December 31, 1999 and $1.4 million for the year ended
December 31, 1998.

Future minimum lease payments under noncancellable operating leases with
initial or remaining terms of one year or more consisted of the following
at December 31, 2000:



<TABLE>
<CAPTION>

Year ending December 31:
<S>                                                                          <C>           
2001                                                                         $       13,455
2002                                                                                 16,034
2003                                                                                 16,047
2004                                                                                 16,376
2005                                                                                 16,234
Remaining years                                                                     126,259
                                                                             --------------------
Total minimum lease payments                                                 $      204,405
                                                                             ====================
</TABLE>



Future minimum lease payments under noncancellable capital leases with
initial or remaining terms of one year or more consisted of the following
at December 31, 2000:


<TABLE>
<CAPTION>

Year ending December 31:
<S>                                                                          <C>           
2001                                                                         $        6,462
2002                                                                                  6,462
2003                                                                                  3,231
2004                                                                                      -
2005                                                                                      -
Remaining years                                                                           -
                                                                             --------------------
Total minimum lease payments                                                 $       16,155
                                                                             ====================
</TABLE>



11.   Warrants

In connection with the OptiMark, Inc. ("OptiMark") partnership, OptiMark
agreed to issue to Nasdaq warrants to purchase up to an aggregate of 11.25
million shares of its common stock, $0.01 par value per share. The warrants
are exercisable in several tranches upon the achievement of certain
milestones, which are based primarily upon the average daily share volume
of Nasdaq-listed securities traded through the OptiMark Trading System. The
first milestone was the warrant commencement date, which occurred on
October 11, 1999. On that date, Nasdaq received two fully exercisable
warrants from OptiMark to purchase 4.5 million shares. The first 2.25
million shares may be purchased at an exercise price of $5.00 per share.
All remaining warrants provide that shares may be purchased at an exercise
price of $7.00 per share. The warrants are exercisable through the earlier
of (i) the last day that the OptiMark System continues to be available on
all Nasdaq Workstation II workstations and (ii) the fifth anniversary of
the warrant commencement date, or October 11, 2004. As of October 11, 1999,
these warrants had a combined value of $33.5 million that is considered to
be the cost of these warrants. The deferred revenue associated with these
warrants was to be amortized into income based on share volume traded
through the OptiMark System.

In September 2000, OptiMark announced a strategic change in its business
that will allow it to focus on providing technology solutions to electronic
marketplaces. As part of the change, OptiMark decided to suspend trading
operations on the OptiMark System. As a result, Nasdaq management has
concluded that its investment in warrants in OptiMark as well as the
realization of the deferred revenue related to these warrants is impaired.
Therefore, in September 2000, Nasdaq reduced its investment in warrants and
related deferred revenue to zero. Nasdaq will monitor OptiMark's
implementation of its new business model and assess the value of the
warrants at each balance sheet date.

12.   Commitments and Contingencies

In November 1997, Nasdaq entered into a $600 million six-year agreement
with WorldCom to replace the existing data network that connects the Nasdaq
market facilities to market participants. The contract contains a series of
market participant usage related guarantees. Nasdaq paid a deposit of $8
million related to the agreement. Nasdaq has guaranteed WorldCom that the
market participants will generate a minimum of $300 million in usage under
the contract from inception through November 2003. If $350 million of the
service is used, $4 million of the deposit will be returned to Nasdaq. If
$400 million of usage is achieved, the full $8 million will be returned.
Cumulative billings under the contract were $143.3 million as of December
31, 2000. As of December 31, 2000 the deposit has been fully reserved,
based on projected usage under the contract. Nasdaq believes the
implementation of SuperMontage will preclude Nasdaq from reaching the $350
million usage level and receiving a refund of the deposit.

In October 2000, Nasdaq entered into a contract with OptiMark under which
OptiMark was engaged to provide software development services in connection
with the development of the SuperMontage system. Nasdaq will pay OptiMark
for the SuperMontage development for a period not to exceed twelve months.
Additionally, OptiMark will be entitled to receive incentive payments if it
meets certain delivery milestones agreed to in the contract. If Nasdaq uses
OptiMark's services for the full twelve months of expected development
effort and OptiMark meets all of its deliverables, then Nasdaq will be
required to pay up to $14.9 million.

Nasdaq may be subject to claims arising out of the conduct of its business.
Currently, there are certain legal proceedings pending against Nasdaq.
Management believes, based upon the opinion of counsel, that any
liabilities or settlements arising from these proceedings will not have a
material effect on the financial position or results of operations of
Nasdaq. Management is not aware of any unasserted claims or assessments
that would have a material adverse effect on the financial position and the
results of operations of Nasdaq.

13.   Related Party Transactions

Related party receivables and payables are the result of various
transactions between Nasdaq and its affiliates. Payables to related parties
are comprised primarily of the regulation charge from NASDR, a wholly-owned
subsidiary of the NASD. NASDR charges Nasdaq for costs incurred related to
Nasdaq market regulation and enforcement. Support charges from the NASD to
Nasdaq represent another significant component of payables to related
parties. The support charge includes an allocation of a portion of the
NASD's administrative expenses as well as its costs incurred to develop and
maintain technology on behalf of Nasdaq. The remaining component of
payables to related parties is cash disbursements funded by the NASD on
behalf of Nasdaq.

Receivables from related parties are primarily attributable to costs
incurred by Amex and funded by Nasdaq related to various Amex technology
projects. The remaining portion of the receivable from related parties
balance is related to cash disbursements funded by Nasdaq on behalf of its
affiliates. Disbursements made by Nasdaq on behalf of affiliates relate
mainly to office supply and utility charges where Nasdaq represents the
largest portion.

Surveillance Charge from NASDR

NASDR incurs costs associated with surveillance monitoring, legal and
enforcement activities related to the regulation of The Nasdaq Stock
Market. These costs are charged to Nasdaq based upon the NASD management's
estimated percentage of costs incurred by each NASDR department that are
attributable directly to The Nasdaq Stock Market surveillance. The
following table represents Nasdaq management's estimate of the costs
charged by NASDR to Nasdaq:


<TABLE>
<CAPTION>

                                                                  December 31,
                                               ----------------------------------------------------
                                                     2000             1999             1998
                                               ====================================================
<S>                                            <C>               <C>             <C>          
Compensation                                   $     32,018      $     32,529    $      29,894
Professional and contract services                   27,110            20,000           16,193
Occupancy                                               399             1,687            1,945
Publications, supplies and postage                    2,924             1,661            1,744
Computer ops. and data comm.                          5,010             3,430            2,503
Depreciation                                          8,435             3,831            3,205
Travel, meetings and training                         2,848             1,841            1,670
Other                                                 1,106               150              192
                                               ----------------------------------------------------
Total                                          $     79,850      $     65,129    $      57,346
                                               ====================================================
</TABLE>



On June 28, 2000 Nasdaq entered into a Regulatory Services Agreement with
NASDR (the "Regulatory Services Agreement"). Under the terms of this
agreement, NASDR will provide Nasdaq regulatory services and related
administrative functions necessary for NASDR's performance of such services
commencing upon the effectiveness of Nasdaq's registration as a national
securities exchange. Through December 31, 2000, NASDR's fees charged to
Nasdaq will reflect NASDR's cost of furnishing the services. After December
31, 2000, pricing will be determined on a "cost-plus basis" for each
service. The initial term of the Regulatory Services Agreement expires on
June 28, 2010. Nasdaq is subject to termination fees, payable to NASDR, if
it terminates its receipt of services under the agreement for convenience.

Support Charge from the NASD

The NASD provides various administrative services to Nasdaq including legal
assistance, accounting and managerial services. It is the NASD's policy to
charge these expenses and other operating costs to Nasdaq based upon usage
percentages determined by management of the NASD and Nasdaq. Additionally,
the NASD incurs certain costs related to the development and maintenance of
technology for Nasdaq. Technology development costs are allocated directly
to Nasdaq based upon specific projects requested by Nasdaq. Technology
maintenance costs are allocated based upon Nasdaq's share of computer
usage. The following table represents Nasdaq management's estimate of the
composition of costs charged by the NASD to Nasdaq:


<TABLE>
<CAPTION>

                                                                                      December 31,
                                                                   ----------------------------------------------------
                                                                         2000             1999             1998
                                                                   ----------------------------------------------------
<S>                                                                <C>               <C>             <C>          
Compensation                                                       $      25,899     $      25,956   $      25,942
Professional and contract services                                         9,986            16,671           7,784
Occupancy                                                                  9,576             4,637           5,212
Publications, supplies and postage                                         1,544             2,295           2,368
Computer ops. and data comm.                                               1,500             5,243           4,145
Depreciation                                                               2,894             6,514           5,335
Travel, meetings and training                                              1,504             2,020           1,551
Other                                                                        701               759             267
                                                                   ----------------------------------------------------
Total                                                              $      53,604     $      64,095   $      52,604
                                                                   ====================================================
</TABLE>



On June 28, 2000 Nasdaq entered into a Separation and Common Services
Agreement with the NASD (the "NASD Separation Agreement"). Under the terms
of this agreement, the NASD will provide Nasdaq the same administrative,
corporate and infrastructure services it currently provides. The rates and
methodology to be used in determining the cost of such services will be
consistent with past practices. Nasdaq intends to develop its internal
capabilities in the future in order to reduce its reliance on the NASD for
such services. In addition, Nasdaq will provide the NASD continued access
to such Nasdaq technology as the NASD requires to satisfy its obligation to
Amex under the transaction agreement between the NASD and Amex in
connection with the NASD's 1998 acquisition of Amex. Nasdaq will also
continue to provide all services it currently provides to Amex. Nasdaq's
costs for rendering such access and services will be recoverable from the
NASD. Nasdaq and the NASD are negotiating a more detailed "Master
Agreement" to supersede the NASD Separation Agreement that expires December
31, 2001. If such a Master Agreement is not executed prior to January 1,
2002, the NASD Separation Agreement automatically renews for an additional
12 months.

Nasdaq Charge to the American Stock Exchange LLC ("Amex")

Nasdaq incurs technology costs on behalf of Amex related to development of
new Amex systems and enhancement of existing Amex systems. Additionally,
Nasdaq incurs certain operating costs such as marketing on behalf of Amex.
Amounts are charged based upon specific projects requested by Amex. Amounts
charged from Nasdaq to Amex are included in support costs from related
parties and are summarized as follows:



<TABLE>
<CAPTION>

                                                                          December 31,
                                                     -------------------------------------------------------
                                                            2000               1999             1998
                                                     -------------------------------------------------------
<S>                                                  <C>                 <C>              <C>         
Compensation                                         $        345        $        600     $      1,128
Professional and contract services                          4,389              13,090            7,334
Publications, supplies and postage                             11                  19               35
Other                                                         187                 326              612
                                                     -------------------------------------------------------
Total                                                $      4,932        $     14,035     $      9,109
                                                     =======================================================
</TABLE>



In the opinion of management, all methods of cost allocation described
above are reasonable for the services rendered.

14.   Capital Stock and Earnings Per Share

Each share of Common Stock has one vote, except that any person, other than
the NASD or any other person as may be approved for such exemption by the
Nasdaq Board prior to the time such person owns more than 5% of the
then-outstanding shares of Common Stock, who would otherwise be entitled to
exercise voting rights in respect of more than 5% of the then-outstanding
shares of Common Stock will be unable to exercise voting rights for any
shares in excess of 5% of the then-outstanding shares of Common Stock. In
connection with Phase I of the Restructuring, the NASD sold approximately
6,415,649 warrants to purchase up to an aggregate of 25,662,596 outstanding
shares of Common Stock owned by the NASD. The voting rights associated with
the shares of Common Stock underlying the warrants, as well as the shares
of Common Stock purchased through the valid exercise of warrants, will be
governed by the voting trust agreement (the "Voting Trust Agreement")
entered into by the NASD, Nasdaq and The Bank of New York, as voting
trustee (the "Voting Trustee"). Initially, the holders of the warrants
(each, a "Warrant Holder" and, collectively, the "Warrant Holders") will
not have any voting rights with respect to the shares of Common Stock
underlying such warrants. Until Nasdaq becomes registered with the
Securities and Exchange Commission as a national securities exchange
("Exchange Registration"), the shares of Common Stock underlying
unexercised and unexpired warrant tranches, as well as the shares of Common
Stock purchased through the exercise of warrants, will be voted by the
Voting Trustee at the direction of the NASD. The voting rights associated
with the shares of Common Stock underlying unexercised and expired warrant
tranches will revert to the NASD. However, the NASD has determined,
commencing upon Exchange Registration, to vote its shares of Common Stock
(other than shares underlying then outstanding warrants) in the same
proportion as the other stockholders of Nasdaq. Upon Exchange Registration,
the Warrant Holders will have the right to direct the Voting Trustee as to
the voting of the shares of Common Stock underlying unexercised and
unexpired warrant tranches until the earlier of the exercise or the
expiration of such warrant tranches. The shares of Common Stock purchased
upon a valid exercise of a warrant tranche prior to Exchange Registration
will be released from the Voting Trust Agreement upon Exchange
Registration. The shares of Common Stock purchased upon a valid exercise of
a warrant tranche after Exchange Registration will not be subject to the
Voting Trust Agreement.

There are 30,000,000 shares of preferred stock authorized, and none issued
and outstanding.

The following table sets forth the computation of basic earnings per share.


<TABLE>
<CAPTION>

                                                                              December 31,
                                                         -------------------------------------------------------
                                                                2000               1999              1998
                                                         -------------------------------------------------------

<S>                                                     <C>                 <C>               <C>          
Numerator for basic earnings per share                   $        23,306     $        86,149   $      34,955
Denominator for basic weighted average shares                112,090,493         100,000,000     100,000,000
Basic and diluted earnings per share:
     Before cumulative effect of change in accounting
         principle                                       $          1.11     $          0.86   $        0.35
     Cumulative effect of change in accounting principle           (0.90)                  -               -
                                                         -------------------------------------------------------
     Net income                                          $          0.21     $          0.86   $        0.35
                                                         =======================================================
</TABLE>




Diluted earnings per share are the same as basic earnings per share for all
periods presented, as there were no dilutive potential common shares
outstanding during the periods presented.

15.   Subsequent Events (Unaudited)

Phase II Private Placement

Phase II closed on January 18, 2001 with Nasdaq selling approximately 5.0
million shares, yielding net proceeds of approximately $63.7 million. As of
October 31, 2001, the NASD owns approximately 69% of Nasdaq. On a
fully-diluted basis, the NASD's ownership would be decreased to
approximately 25%.

Nasdaq Europe S.A./N.V.

On March 27, 2001, Nasdaq acquired a 68.1% ownership interest in the
European Association of Securities Dealers Automated Quotation S.A./N.V., a
pan-European market headquartered in Brussels for approximately $12.5
million. Nasdaq has renamed the company Nasdaq Europe S.A./N.V. ("Nasdaq
Europe") and plans to restructure it into a globally linked, pan-European
market.

Nasdaq's acquisition has been accounted for under the purchase method of
accounting, resulting in the recording of goodwill of approximately $4.9
million.

Hellman & Friedman

On May 3, 2001, Nasdaq issued and sold $240.0 million in aggregate
principal amount of its 4% convertible subordinated debentures due 2006
(the "Subordinated Debentures") to Hellman & Friedman Capital Partners IV,
L.P. and certain of its affiliated limited partnerships (collectively,
"Hellman & Friedman"). The annual 4% coupon will be payable in arrears in
cash and the Subordinated Debentures will be convertible at any time into
an aggregate of 12.0 million shares of Common Stock at $20.00 per share,
subject to adjustment, in general, for any stock split, dividend,
combination, recapitalization or other similar event.

On an as converted basis, Hellman & Friedman owns an approximate 9.7%
equity interest in Nasdaq. Nasdaq has agreed to use its best efforts to
seek stockholder approval of a charter amendment that would provide for
voting debt in order to permit Hellman & Friedman to vote on an
as-converted basis on all matters on which common stockholders have the
right to vote, subject to the current 5% voting limitation in Nasdaq's
Restated Certificate of Incorporation (the "Certificate of Incorporation").
Nasdaq has granted Hellman & Friedman certain registration rights with
respect to the shares of Common Stock underlying the Subordinated
Debentures. Additionally, Hellman & Friedman is permitted to designate one
person reasonably acceptable to Nasdaq for nomination as a director of
Nasdaq for so long as Hellman & Friedman owns Subordinated Debentures
and/or shares of Common Stock issued upon conversion representing at least
50% of the shares of Common Stock issuable upon conversion of the
Subordinated Debentures initially purchased.

On May 3, 2001, Nasdaq used the net proceeds from the sale of the
Subordinated Debentures to purchase 18,461,538 shares of Common Stock from
the NASD for $13.00 per share or an aggregate purchase price of
$239,999,994.

LIFFE

On June 1, 2001, Nasdaq and the London International Financial Futures and
Options Exchange ("LIFFE") formed Nasdaq LIFFE, LLC, a new U.S. joint
venture company to list and trade single stock futures. The products of
this joint venture are expected to be traded through a modified version of
the LIFFE CONNECT(TM) electronic system. Nasdaq has committed up to $15
million plus the rights to use certain trademarks in this venture. On
August 21, 2001, the Commodity Futures Trading Commission approved Nasdaq
LIFFE as a futures market and self-regulatory organization.

Nasdaq Europe Planning Company Limited

Nasdaq Europe Planning Company Limited's proposed joint venture did not
occur due to a strategic decision to employ a strategy for European
expansion that did not include this venture, i.e., the acquisition of a
controlling interest of the European Association of Securities Dealers
Automated Quotation S.A./N.V. in March 2001. As a result, Nasdaq agreed to
repurchase the ownership interests of the three other shareholders in
Nasdaq Europe Planning Company Limited for $10 million each, thereby
unwinding the joint venture. Repurchases from two of the shareholders, for
a total of $20 million, were completed in the first quarter of 2001. The
repurchase from the third shareholder is expected to occur by the end of
2001. As of September 30, 2001, Nasdaq owned approximately 75% of the
interests in Nasdaq Europe Planning Company Limited.

Stock-Based Awards to Officers and Employees

As of February 14, 2001 Nasdaq granted approximately 9.6 million stock
options and 534,850 shares of restricted stock to certain employees and
officers pursuant to its Equity Incentive Plan. Under the plan, Nasdaq
grants stock options with an exercise price equal to the fair market value
of the stock at the date of the grant. Nasdaq accounts for stock option
grants in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and accordingly,
recognizes no compensation expense related to such grants.

Restricted stock awards are awarded in the name of the employee or officer
at fair value at the date of the grant. The awards contain restrictions on
sales and transfers, and are subject to a five-year vesting period. The
534,850 shares of restricted stock were awarded at a fair value of $13.00
per share, and are being expensed over the vesting period.




                      [Page intentionally left blank]





<TABLE>
<CAPTION>

                       THE NASDAQ STOCK MARKET, INC.
                   Condensed Consolidated Balance Sheets
                    (In thousands, except share amounts)


                                                                 -----------------------------------------
                                                                 September 30, 2001     December 31, 2000
                                                                 -------------------    ------------------
                                                                     (Unaudited)
Assets:
Current assets:
<S>                                                              <C>                    <C> 
     Cash and cash equivalents                                   $       329,099        $       262,257
     Investments:
         Available-for-sale, at fair value                               229,498                232,090
         Held-to-maturity, at amortized cost                               4,596                 21,967
     Receivables, net                                                    190,043                172,660
     Receivables from related parties                                     17,335                  8,250
     Deferred tax asset                                                   46,236                 32,367
     Other current assets                                                 12,921                 14,869
                                                                 -------------------    ------------------
Total current assets                                                     829,728                744,460
                                                                 -------------------    ------------------

Investments:
     Held-to-maturity, at amortized cost                                  23,938                  6,612
Property and equipment:
     Land, buildings and improvements                                     91,182                 80,727
     Data processing equipment and software                              425,486                370,066
     Furniture, equipment and leasehold improvements                     178,888                134,638
                                                                 -------------------    ------------------
                                                                         695,556                585,431
     Less accumulated depreciation and amortization                     (315,147)              (252,380)
                                                                 -------------------    ------------------
Total property and equipment, net                                        380,409                333,051
Non-current deferred tax asset                                            54,610                 61,257
Other assets                                                              29,770                 25,753
                                                                 -------------------    ------------------
Total assets                                                      $    1,318,455          $   1,171,133
                                                                 ===================    ==================
</TABLE>



See accompanying notes to unaudited condensed consolidated financial
statements.





<TABLE>
<CAPTION>

                                    THE NASDAQ STOCK MARKET, INC.
                         Condensed Consolidated Balance Sheets - (continued)
                                (In thousands, except share amounts)

                                                                 ----------------------------------------
                                                                 September 30,            December 31,
                                                                     2001                     2000
                                                                 -----------------   --------------------
                                                                    (Unaudited)
<S>                                                            <C>                 <C>
Liabilities:
Current liabilities:
     Accounts payable and accrued expenses                       $       103,742     $           117,867
     Accrued personnel costs                                              37,562                  37,273
     Deferred revenue                                                     85,427                  66,178
     Other accrued liabilities                                            32,031                  35,374
     Due to banks                                                          4,105                  13,876
     Payables to related parties                                          27,394                  19,158
                                                                 -----------------   --------------------
Total current liabilities                                                290,261                 289,726

Long-term debt:
     Senior notes                                                         46,500                  25,000
     Subordinated indebtedness                                           240,000                       -
Accrued pension costs                                                     16,558                  10,390
Non-current deferred tax liability                                        36,246                  32,116
Non-current deferred revenue                                             122,808                 138,166
Other liabilities                                                         35,161                  15,033
                                                                 -----------------   --------------------
Total long-term liabilities                                              497,273                 220,705
Total liabilities                                                        787,534                 510,431

Minority interests                                                         4,447                  15,543

Stockholders' equity
Common stock, $.01 par value, 300,000,000 authorized, shares
   issued:  128,969,119 in 2001 and 123,663,746 in 2000;
   shares outstanding: 110,507,581 in 2001 and 123,663,746 in
   2000                                                                    1,290                   1,237
Additional paid-in capital                                               338,023                 273,387
Common stock in treasury, at cost: 18,461,538 shares in 2001
   and 0 shares in 2000                                                 (240,000)                      -
Unrealized gains on available-for-sale investments, net of tax             1,936                     321
Foreign currency translation                                              (2,742)                 (2,213)
Deferred stock compensation                                               (4,048)                      -
Common stock issuable                                                      5,868                       -
Retained earnings                                                        426,147                 372,427
                                                                 -----------------   --------------------
Total stockholders' equity                                               526,474                 645,159
                                                                 -----------------   --------------------
Total liabilities, minority interests and stockholders' equity    $    1,318,455       $       1,171,133
                                                                 =================   ====================
</TABLE>




See accompanying notes to unaudited condensed consolidated financial
statements.





<TABLE>
<CAPTION>

                       THE NASDAQ STOCK MARKET, INC.
                Condensed Consolidated Statements of Income
                                (Unaudited)
                  (In thousands, except per share amounts)


                                                                            Nine months ended
                                                                 -----------------------------------------
                                                                   September 30,          September 30, 
                                                                       2001                   2000
                                                                 ------------------    -------------------
<S>                                                                  <C>                 <C>
Revenues:
  Transaction services                                                 $   305,772           $    291,231
  Market information services                                              176,925                200,796
  Corporate Client Group services                                          116,463                109,566
  Other                                                                     42,621                 19,646
                                                                 -----------------     ------------------
     Total revenues                                                        641,781                621,239
                                                                 ------------------    ------------------
Expenses:
  Compensation and benefits                                                131,131                 91,929
  Marketing and advertising                                                 17,597                 32,034
  Depreciation and amortization                                             65,558                 45,614
  Professional and contract services                                        54,424                 36,877
  Computer operations and data communications                              131,875                 98,545
  Bad debt expense                                                          14,460                  3,369
  Occupancy                                                                 19,866                 11,462
  Disaster related                                                             843                      -
  Other                                                                     48,325                 22,793
                                                                 ------------------    -------------------
     Total direct expenses                                                 484,079                342,623
                                                                 ------------------    -------------------
Support costs from related parties, net                                     76,121                 90,197
                                                                 ------------------    -------------------
     Total expenses                                                        560,200                432,820
                                                                 ------------------    -------------------
Net operating income                                                        81,581                188,419
Interest income                                                             16,649                 10,924
Interest expense                                                            (5,447)                (1,677)
Minority interests                                                           5,234                      -
Provision for income taxes                                                 (44,297)               (83,988)
                                                                 ------------------    -------------------
Net income before cumulative effect of change in accounting
  principle                                                                 53,720                113,678
                                                                 ==================    ===================
Cumulative effect of change in accounting principle, net of 
  taxes of  $67,956                                                    $         -           $   (101,090)
                                                                 ==================    ===================
Net income                                                             $    53,720           $     12,588
                                                                 ==================    ===================
Basic earnings per share before cumulative effect of change in
  accounting principle                                                  $     0.45            $      1.05
                                                                 ==================    ===================
Basic loss per share for change in accounting principle                  $       -            $     (0.93)
                                                                 ==================    ===================
Diluted earnings per share before cumulative effect of change
  in accounting principle                                               $     0.44            $      1.05
                                                                 ==================    ===================
Diluted loss per share for change in accounting principle                $       -           $      (0.93)
                                                                 ==================    ===================
Basic earnings per common share                                         $     0.45            $      0.12
                                                                 ==================    ===================
Diluted earnings per common share                                       $     0.44            $      0.12
                                                                 ==================    ===================
</TABLE>



          See accompanying notes to unaudited condensed consolidated
financial statements.





<TABLE>
<CAPTION>

                       THE NASDAQ STOCK MARKET, INC.
              Condensed Consolidated Statements of Cash Flows
                                (Unaudited)
                               (In thousands)

                                                                                        Nine months ended
                                                                             -----------------------------------------
                                                                               September 30,       September 30, 
                                                                                    2001               2000
                                                                             -------------------   -------------------
<S>                                                                        <C>                    <C>
Cash flow from operating activities
     Cash received from customers                                            $         628,955    $        676,757
     Cash paid to suppliers and employees                                             (456,796)           (276,918)
     Cash paid to related parties, net                                                 (76,970)            (82,236)
     Income taxes paid                                                                 (26,520)            (65,889)
     Interest received, net                                                             11,202               9,247
     Other                                                                              15,967             (63,122)
                                                                             -------------------   -------------------
Cash provided by operating activities                                                   95,838             197,839
                                                                             -------------------   -------------------

Cash flow from investing activities
     Proceeds from redemptions of available-for-sale investments                       280,007              64,096
     Purchases of available-for-sale investments                                      (276,515)           (150,606)
     Proceeds from maturities of held-to-maturity investments                           20,865               6,200
     Purchases of held-to-maturity investments                                         (20,820)             (6,333)
     Acquisition, net of cash acquired                                                     558             (16,979)
     Proceeds from sale of stock in Nasdaq Europe                                        9,564                   -
     Proceeds from sales of property and equipment                                      13,426              11,831
     Purchases of property and equipment                                               (99,541)           (100,715)
                                                                             -------------------   -------------------
Cash used in investing activities                                                      (72,456)           (192,506)
                                                                             -------------------   -------------------

Cash flow from financing activities
     Decrease in due to banks                                                           (9,771)             (2,071)
     Proceeds from Phase I private placement offering                                        -             254,142
     Contributions from minority stockholders                                                -              30,000
     Net proceeds from Phase II private placement                                       63,688                   -
     Repayment of minority interests in Nasdaq Europe Planning
       Company Limited                                                                 (20,000)                  -
     Payments for treasury stock purchases                                            (240,000)                  -
     Increase in long-term debt                                                        249,543                   -
                                                                             -------------------   -------------------
Cash provided by financing activities                                                   43,460             282,071
                                                                             -------------------   -------------------

Increase in cash and cash equivalents                                                   66,842             287,404
Cash and cash equivalents at beginning of period                                       262,257              10,598
                                                                             -------------------   -------------------
Cash and cash equivalents at end of period                                   $         329,099     $       298,002
                                                                             ===================   ===================
</TABLE>



See accompanying notes to unaudited condensed consolidated financial
statements.




<TABLE>
<CAPTION>

                       THE NASDAQ STOCK MARKET, INC.
       Condensed Consolidated Statements of Cash Flows - (continued)
                                (Unaudited)
                               (In thousands)

                                                                                    Nine months ended
                                                                         ------------------------------------
                                                                           September 30,       September 30,
                                                                               2001               2000
                                                                         -----------------    ---------------

<S>                                                                         <C>               <C>
Reconciliation of net income to cash provided by operating
     activities
Net income                                                                     $   53,720      $    12,588
Non-cash items included in net income
     Cumulative effect of change in accounting principle, net                           -          101,090
     Depreciation and amortization                                                 65,558           45,614
     Stock-based compensation                                                       5,252                -
     Minority interests                                                            (5,234)               -
     Other non-cash adjustments included in net income                              5,178                -

Net change in:
     Receivables, net                                                             (16,523)         (63,703)
     Receivables from related parties                                              (9,085)           6,241
     Deferred tax asset                                                            (7,841)         (88,602)
     Other current assets                                                           3,315            5,106
     Other assets                                                                  (3,808)          (1,130)
     Accounts payable and accrued expenses                                        (28,296)          (4,878)
     Accrued personnel costs                                                         (138)          (5,157)
     Deferred revenue                                                               3,697          119,221
     Other accrued liabilities                                                     (3,484)          44,889
     Payables to related parties                                                    8,236            1,723
     Accrued pension costs                                                          6,168            3,335
     Deferred tax liability                                                         4,158           10,040
     Other liabilities                                                             14,965           11,462
                                                                         -----------------    ---------------
Cash provided by operating activities                                          $   95,838      $   197,839
                                                                         =================    ===============
</TABLE>



See accompanying notes to unaudited condensed consolidated financial
statements.




                       THE NASDAQ STOCK MARKET, INC.
       Notes to Unaudited Condensed Consolidated Financial Statements

1.       Basis of Presentation

The Nasdaq Stock Market, Inc. ("Nasdaq") is the parent company of Nasdaq
Global Holdings ("Nasdaq Global"); Quadsan Enterprises, Inc.; Nasdaq Tools,
Inc. ("Nasdaq Tools"); Nasdaq Financial Products Services, Inc.; Nasdaq
International Market Initiatives, Inc.; and Nasdaq Canada, Inc.;
collectively referred to as Nasdaq. These entities are wholly-owned by
Nasdaq. Nasdaq is a subsidiary of the National Association of Securities
Dealers, Inc. (the "NASD").

Nasdaq operates in one segment as defined in the Statement of Financial
Accounting Standards ("SFAS") No. 131 "Disclosures About Segments of an
Enterprise and Related Information." Nasdaq uses a multiple market maker
system to operate an electronic, screen-based equity market. Nasdaq's
principal business products are transaction services, market information
services, and Corporate Client Group services (formerly issuer services).
The majority of this business is transacted with companies listed on The
Nasdaq Stock Market(R), market data vendors, and firms in the broker-dealer
industry within the United States.

All material intercompany accounts and transactions have been eliminated in
consolidation. Nasdaq's financial statements have been prepared in
accordance with the rules and regulations of the U.S. Securities and
Exchange Commission (the "SEC") with respect to the Form 10-Q and reflect
all normal recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of the results for the interim periods
presented. Pursuant to such rules and regulations, certain footnote
disclosures, which are normally required under generally accepted
accounting principles, have been omitted. It is recommended that these
financial statements be read in conjunction with the Consolidated Financial
Statements included in Nasdaq's Registration Statement filed on Form 10, as
amended, for the year ended December 31, 2000.

The nature of Nasdaq's business is such that the results of any interim
period may vary significantly from quarter to quarter and may not be
indicative of the results to be expected for the fiscal year. Certain prior
period amounts reflect reclassifications to conform to the current period's
presentation.

2.       Significant Transactions

The NASD's plan to broaden the ownership in Nasdaq was executed through a
two-phase private placement (1) by Nasdaq of newly-issued shares of
Nasdaq's common stock, par value $0.01 per share (the "Common Stock"), and
(2) by the NASD of shares of outstanding Common Stock and warrants to
purchase outstanding shares of Common Stock owned by the NASD. The second
phase of the private placement closed on January 18, 2001 with Nasdaq
selling approximately 5.0 million shares, yielding net proceeds of
approximately $63.7 million.

In June 2001, Nasdaq Europe S.A./N.V. ("Nasdaq Europe"), a pan-European
stock market headquartered in Brussels, sold approximately an 11.0% stake
to a group of eight major U.S. and European securities firms. The sale
yielded net proceeds of approximately $9.6 million and reduced Nasdaq's
ownership in Nasdaq Europe to 60.5% (52.7% after potential dilution of
outstanding warrants). As a result of this transaction, Nasdaq adjusted the
carrying value of its investment in Nasdaq Europe by $7.4 million, through
stockholders' equity, to reflect its adjusted share of the book value of
Nasdaq Europe.

Nasdaq Europe Planning Company Limited's proposed joint venture did not
occur due to a strategic decision to employ a strategy for European
expansion that did not include this venture, i.e., the acquisition of a
controlling interest of the European Association of Securities Dealers
Automated Quotation S.A./N.V. in March 2001. As a result, Nasdaq agreed to
repurchase the ownership interests of the three other shareholders in
Nasdaq Europe Planning Company Limited for $10 million each, thereby
unwinding the joint venture. Repurchases from two of the shareholders, for
a total of $20 million, were completed in the first quarter of 2001. The
repurchase from the third shareholder is expected to occur by the end of
2001. As of June 30, 2001, Nasdaq owned approximately 75% of the interests
in Nasdaq Europe Planning Company Limited.

3.       Change in Accounting Principle

On August 17, 2001, Nasdaq concluded discussions with the SEC with respect
to the implementation in its financial statements of Staff Accounting
Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"),
which became effective for SEC reporting companies in the fourth quarter of
2000. Nasdaq became a SEC public reporting company on June 29, 2001, the
effective date of its Registration Statement on Form 10. As a result of the
discussions with the SEC, Nasdaq changed its method of accounting for
revenue recognition for certain components of its Corporate Client Group
services revenues.

In accordance with generally accepted accounting principles, as SAB 101 was
adopted effective the fourth quarter of 2000, the change in accounting
principle has been applied as of January 1, 2000. In accordance with
applicable accounting guidance prior to SAB 101, Nasdaq recognized revenue
for issuer initial listing fees and listing of additional shares ("LAS")
fees in the month the listing occurred or in the period additional shares
were issued, respectively. Nasdaq now recognizes revenue related to initial
listing fees and LAS fees on a straight line basis over estimated service
periods, which are six and four years, respectively.

As a result of this change in accounting principle, pro forma net income
for the nine months ended September 30, 2000, excluding the cumulative
effect of the change in accounting principle on prior years' results,
decreased $21.2 million ($0.20 per share) to $113.7 million ($1.05 per
share). In addition, Nasdaq recognized a one-time cumulative effect of a
change in accounting principle in the first quarter of 2000. This
cumulative effect of a change in accounting principle decreased net income
in the first nine months of 2000 by $101.1 million ($0.93 per share),
resulting in net income of $12.6 million ($0.12 per share). The adjustment
to first quarter 2000 net income for the cumulative change to prior years'
results consists of the following:


(amounts in millions)
Deferred initial listing fees                                      $108.5
Deferred LAS fees                                                    60.6
                                                              ---------------
Total deferred fees                                                 169.1
Deferred income tax benefit                                         (68.0)
                                                              ---------------
Cumulative effect of change in accounting principle                $101.1
                                                              ===============

For the nine months ended September 30, 2001 and 2000, Nasdaq recognized
$34.9 million and $42.8 million in revenue, respectively, that was included
in the cumulative effect adjustment as of January 1, 2000. This revenue
contributed $20.9 million (after income taxes of $14.0 million) and $25.6
million (after income taxes of $17.2 million) to net income for the nine
months ended September 30, 2001 and 2000, respectively.

4.       Deferred Revenue

Nasdaq's deferred revenue as of September 30, 2001 related to Corporate
Client Group services fees will be recognized in the following years:


<TABLE>
<CAPTION>

(amounts in thousands)
Fiscal year ended:                        Initial             LAS             Annual             Total
                                       --------------    --------------    -------------    ----------------
<S>                                    <C>                <C>              <C>               <C>           
2001                                   $       8,671      $      8,720     $     20,989      $       38,380
2002                                          31,438            29,731                -              61,169
2003                                          26,798            22,833                -              49,631
2004                                          22,072            12,281                -              34,353
2005 and thereafter                           21,944             2,758                -              24,702
                                       --------------    --------------    -------------    ----------------
                                       $     110,923      $     76,323     $     20,989      $      208,235
                                       ==============    ==============    =============    ================
</TABLE>


Nasdaq's deferred revenue for the nine months ended September 30, 2001 is
reflected in the following tables. The additions reflect Corporate Client
Group services fees charged during the quarter while the amortization
reflects the Corporate Client Group services fee revenues recognized during
the period based on the accounting methodology described in Note 3 above.


<TABLE>
<CAPTION>

(amounts in thousands)                    Initial            LAS              Annual            Total
                                       ---------------  ---------------   ---------------   ---------------
<S>                                   <C>               <C>              <C>               <C>           
Balance at January 1, 2001             $      127,693    $      76,651    $            -    $      204,344
Additions                                      10,195           26,453            83,706           120,354
Amortization                                  (26,965)         (26,781)          (62,717)         (116,463) 
                                       ---------------  ---------------   ---------------   ---------------
Balance at September 30, 2001          $      110,923    $      76,323    $       20,989    $      208,235
                                       ===============  ===============   ===============   ===============
</TABLE>


5.       Disaster Related Expenses

As a result of the terrorist attacks on September 11, 2001, Nasdaq incurred
additional costs of $0.84 million ($0.50 million after tax) in the third
quarter. These costs consist primarily of, but will not be limited to,
costs related to the efforts to restore services to market participants;
the testing of trading systems; and the required reconfiguring of
technology, telecommunications and alternative office facilities due to the
temporary relocation of employees. Nasdaq is in the process of determining
the total loss of revenues and additional expenses incurred as well as any
applicable insurance recoveries. Additional expenses and recoveries will be
recorded in future periods.

6.       Long-term Debt

During the nine months ended September 30, 2001, Nasdaq's consolidated
long-term debt increased by $261.5 million to $286.5 million. The increase
reflects the issuance of $240.0 million of 4% convertible subordinated
debentures due 2006 (the "Subordinated Debentures") to Hellman & Friedman
Capital Partners IV, L.P. and certain of its affiliated limited
partnerships (collectively, "Hellman & Friedman") on May 3, 2001. The
annual 4% coupon will be payable in arrears in cash and the Subordinated
Debentures will be convertible at any time into an aggregate of 12,000,000
shares of Common Stock at $20.00 per share, subject to adjustment, in
general, for any stock split, dividend, combination, recapitalization or
other similar event.

As of September 30, 2001, on an as converted basis, Hellman & Friedman owns
an approximate 9.8% equity interest in Nasdaq. Nasdaq has agreed to use its
best efforts to seek stockholder approval of a charter amendment that would
provide for voting debt in order to permit the holders of Subordinated
Debentures to vote on an as-converted basis on all matters on which common
stockholders have the right to vote, subject to the current 5% voting
limitation in Nasdaq's Restated Certificate of Incorporation. Nasdaq has
granted Hellman & Friedman certain registration rights with respect to the
shares of Common Stock underlying the Subordinated Debentures. In addition,
Hellman & Friedman is permitted to designate one person reasonably
acceptable to Nasdaq for nomination as a director of Nasdaq for so long as
Hellman & Friedman owns Subordinated Debentures and/or shares of Common
Stock issued upon conversion representing at least 50% of the shares of
Common Stock issuable upon conversion of the Subordinated Debentures
initially purchased. Effective May 3, 2001, F. Warren Hellman was elected
to Nasdaq's Board of Directors pursuant to the foregoing provision.

The increase also reflects $21.5 million (Euro 23.4 million) of senior debt
of Nasdaq Europe S.A./N.V. Of this total, $9.7 million (Euro 10.6 million)
matures in 2003 with the remaining $11.8 million (Euro 12.8 million)
maturing in 2004. The debt is Euro-denominated with $3.7 million (Euro 4.0
million) containing contractual fixed interest rates and $17.8 million
(Euro 19.4 million) containing interest rates based on a fixed premium
above London Interbank Offered Rates.

7.       Commitments and Contingencies

In October 2000, Nasdaq entered into a contract with OptiMark, Inc. under
which OptiMark was engaged to provide software development services in
connection with the development of the SuperMontage system. In May 2001,
Nasdaq entered into a revised contract with OptiMark, under which Nasdaq
will make guaranteed payments of $0.7 million per month through December
31, 2001 related to the design of the system.

Nasdaq may be subject to claims arising out of the conduct of its business.
Currently, there are certain legal proceedings pending against Nasdaq.
Nasdaq believes, based upon the opinion of counsel, that any liabilities or
settlements arising from these proceedings will not have a material effect
on the financial position or results of operations of Nasdaq. Management is
not aware of any unasserted claims or assessments that would have a
material adverse effect on the financial position and the results of
operations of Nasdaq.

8.       Comprehensive Income

Comprehensive income is calculated in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." Comprehensive income combines net income and certain items that
directly affect stockholders' equity, such as foreign currency translation
adjustments. The components of comprehensive income for the nine months
ended September 30, 2001 and 2000 were as follows:



<TABLE>
<CAPTION>

(amounts in thousands)                                   Nine months ended
                                                           September 30,
                                                  ---------------------------------
                                                       2001             2000
                                                  ---------------  ----------------
<S>                                               <C>               <C>          
Net income                                        $      53,720     $      12,588
Unrealized gains on available-for-sale
      investments                                         1,615             1,379
Foreign currency translation adjustment                    (529)                -
                                                  ---------------  ----------------
Total comprehensive income                        $      54,806     $      13,967
                                                  ===============  ================
</TABLE>


9.       Capital Stock and Earnings Per Share

The following table sets forth the computation of basic and diluted
earnings per share.


<TABLE>
<CAPTION>

                                                         Nine months ended
                                                  ---------------------------------
(amounts in thousands, except share and per        September 30,      September 30,
share data)                                             2001              2000
                                                  -----------------   -------------
<S>                                              <C>                <C>
Numerator:
Net income before cumulative effect of
  change in accounting principle                    $        53,720     $     113,678
Numerator for basic earnings per share
  before cumulative effect of change in
  accounting principle                                       53,720           113,678
                                                  -----------------   ---------------
Cumulative effect of change in accounting
  principle                                                       -          (101,090)
Numerator for basic earnings per share for
  change in accounting principle                                  -          (101,090)
                                                  -----------------   ---------------
Net income                                                   53,720            12,588
Numerator for basic earnings per share              $        53,720     $      12,588
                                                  -----------------   ---------------
Interest impact of convertible debt, net of
  tax                                                         2,162                 -
Numerator for diluted earnings per share            $        55,882     $      12,588
                                                  -----------------   ---------------

Denominator:
Weighted average shares                                 119,314,785       108,204,583
Denominator for basic earnings per share                119,314,785       108,204,583
                                                  -----------------   ---------------
Effect of dilutive securities:
      Employee stock options                                      -                 -
      Employee restricted stock                              90,336                 -
      Convertible debt assumed converted into
        Common Stock                                      6,593,407                 -
Denominator for diluted earnings per share              125,998,528       108,204,583
                                                  -----------------   ---------------

Basic earnings per share before cumulative
  effect of change in accounting principle          $          0.45     $        1.05
                                                  =================   ===============
Diluted earnings per share before cumulative
  effect of change in accounting principle          $          0.44     $        1.05
                                                  =================   ===============
Basic earnings (loss) per share for
  change in accounting principle                    $             -     $       (0.93)
                                                  =================   ===============
Diluted earnings (loss) per share for change
  in accounting principle                           $             -     $       (0.93)
                                                  =================   ===============
Basic earnings per share                            $          0.45     $        0.12
                                                  =================   ===============
Diluted earnings per share                          $          0.44     $        0.12
                                                  =================   ===============
</TABLE>



For the nine month period ended September 30, 2001, the Subordinated
Debentures were convertible into 12.0 million shares of Common Stock at a
conversion price of $20.00 per share, subject to adjustment, in general,
for any stock split, dividend, combination, recapitalization or other
similar event. For purposes of calculating diluted earnings per share for
the nine month period ended September 30, 2001, the Subordinated Debentures
were assumed to be converted into shares of Common Stock, on a weighted
average basis, since basic earnings per share exceeded interest (net of
tax) per share obtainable upon conversion.

The option awards made under The Nasdaq Stock Market, Inc. Equity Incentive
Plan during the first nine months of 2001 were not included in computing
diluted earnings per share as their effect was not dilutive.




                               EXHIBIT INDEX

Exhibit
Number                                      Description
-------                                     -----------

3.1      Restated Certificate of Incorporation of The Nasdaq Stock Market,
         Inc.(+)

3.2      By-Laws of The Nasdaq Stock Market, Inc.

4.1      Form of Common Stock certificate.(+)

7A       Qualitative Disclosure about market risk (incorporated herein by
         reference to "Item 2. Financial Information" of this Form 10).

9.1      Voting Trust Agreement dated June 28, 2000, among The Nasdaq Stock
         Market, Inc., the National Association of Securities Dealers, Inc.
         and The Bank of New York.(+)

9.2      First Amendment to the Voting Trust Agreement, dated as of January
         18, 2001, among The Nasdaq Stock Market, Inc., the National
         Association of Securities Dealers, Inc. and The Bank of New
         York.(+)

10.1     Network Service Agreement, dated November 19, 1997, between MCI
         Telecommunications Corporation and The Nasdaq Stock Market,
         Inc.*(+)

10.2     Consolidated Agreement, between Unisys Corporation and The Nasdaq
         Stock Market, Inc.*(+)

10.3     Network User License Agreement, dated November 30, 1993, between
         Oracle Corporation and The Nasdaq Stock Market, Inc.*(+)

10.4     Software License and Services Agreement, dated November 31, 1993,
         between Oracle Corporation and The Nasdaq Stock Market, Inc.*(+)

10.5     Regulatory Services Agreement, dated June 28, 2000, between NASD
         Regulation, Inc. and The Nasdaq Stock Market, Inc.*(+)

10.6     Separation and Common Services Agreement, dated as of June 28,
         2000, between the National Association of Securities Dealers, Inc.
         and The Nasdaq Stock Market, Inc.(+)

10.7     The Nasdaq Stock Market, Inc. 2000 Employee Stock Purchase Plan.(+)

10.8     The Nasdaq Stock Market, Inc. Equity Incentive Plan.(+)

10.9     Securities Purchase Agreement, dated as of March 23, 2001, among
         The Nasdaq Stock Market, Inc., Hellman & Friedman Capital Partners
         IV, L.P. and the other purchasers listed in the signature pages
         thereto.(+)

10.9.1   Securityholders Agreement, dated as of May 3, 2001, among The
         Nasdaq Stock Market, Inc., Hellman & Friedman Capital Partners IV,
         L.P., and the other securityholders listed on the signature pages
         thereto.(^)

10.10    Purchase and Sale Agreement, dated March 23, 2001, by and between
         the National Association of Securities Dealers, Inc. and The
         Nasdaq Stock Market, Inc.(+)

10.11    Employment Agreement between the National Association of
         Securities Dealers, Inc. and Frank G. Zarb effective on February
         24, 1997.(+)

10.12    Instrument of Amendment, dated March 18, 1998, to Employment
         Agreement between National Association of Securities Dealers, Inc.
         and Frank G. Zarb, effective on February 24, 1997.(+)

10.13    Instrument of Amendment, dated as of August 20, 1999, to
         Employment Agreement between National Association of Securities
         Dealers, Inc. and Frank G. Zarb, effective on February 24, 1997,
         as amended effective March 18, 1998.(+)

10.14    Instrument of Amendment, dated March 30, 2000, to Employment
         Agreement between National Association of Securities Dealers, Inc.
         and Frank G. Zarb, effective on February 24, 1997, as amended
         effective March 18, 1998, and subsequently amended in August,
         1999.(+)

10.15    Instrument of Amendment, effective as of July 27, 2000, to
         Employment Agreement between National Association of Securities
         Dealers, Inc. and Frank G. Zarb, effective on February 24, 1997,
         as amended effective March 18, 1998, and subsequently amended in
         May, 1999, and subsequently amended as of August 30, 2000.(+)

10.16    Instrument of Amendment, effective as of November 1, 2000, to
         Employment Agreement between National Association of Securities
         Dealers, Inc. and Frank G. Zarb, effective on February 24, 1997,
         as amended effective March 18, 1998, and subsequently amended as
         of August, 1999, and subsequently amended on March 30, 2000, and 
         as of July 27, 2000.(+)

10.17    Instrument of Amendment, effective as of April 25, 2001, to
         Employment Agreement between National Association of Securities
         Dealers, Inc. and Frank G. Zarb, effective on February 24, 1997,
         as subsequently amended effective March 18, 1998, August 20, 1999,
         March 30, 2000, July 27, 2000 and November 1, 2000.(+)

10.18    Employment Agreement by and between The Nasdaq Stock Market, Inc.
         and J. Patrick Campbell, affective as of December 29, 2000.(+)

10.18.1  Letter Agreement, dated July 22, 2001, among Frank G. Zarb, the
         National Association of Securities Dealers, Inc. and The Nasdaq
         Stock Market, Inc.(<-)

10.19    Employment Agreement by The Nasdaq Stock Market, Inc. and John L.
         Hilley, effective as of December 29, 2000.(+)

10.20    Employment Agreement by and between The Nasdaq Stock Market, Inc.
         and Richard G. Ketchum, effective as of December 29, 2000.(+)

10.21    Employment Agreement by and between The Nasdaq Stock Market, Inc.
         and Hardwick Simmons, dated as of January 31, 2001.(+)

10.22    Employment Letter, dated May 31, 1996, from the National
         Association of Securities Dealers, Inc. to Alfred R. Berkeley,
         III.

11       Statement regarding computation of per share earnings
         (incorporated herein by reference to "Item 2. Financial
         Information" of this Form 10).

12       Computations of ratios (not applicable).

21.1     List of all subsidiaries.

 *       Confidential treatment has been requested from the U.S. Securities
         and Exchange Commission for certain portions of this exhibit.

(+)      Previously filed with The Nasdaq Stock Market, Inc.'s Registration
         Statement on Form 10 (file number 000-32651) filed on April 30,
         2001.

(^)      Previously filed with The Nasdaq Stock Market, Inc.'s Amendment
         No. 1 to Registration Statement on Form 10 (file number 000-32651)
         filed on May 14, 2001.

(<-)     Previously filed with The Nasdaq Stock Market, Inc.'s Amendment
         No. 4 to Registration Statement on Form 10 (file number 000-32651)
         filed on August 31, 2001.





                                                                Exhibit 3.2

                  BY-LAWS OF THE NASDAQ STOCK MARKET, INC.

                                 ARTICLE I

                                DEFINITIONS

         When used in these By-Laws, unless the context otherwise requires,
the term:

         (a) "Act" means the Securities Exchange Act of 1934, as amended;

         (b) "Board" means the Board of Directors of Nasdaq;

         (c) "broker" shall have the same meaning as in Section 3(a)(4) of
the Act;

         (d) "Commission" means the Securities and Exchange Commission;

         (e) "day" means calendar day;

         (f) "dealer" shall have the same meaning as in Section 3(a)(5)
of the Act;

         (g) "Delaware law" means the General Corporation Law of the State
of Delaware;

         (h) "Delegation Plan" means the "Plan of Allocation and Delegation
of Functions by NASD to Subsidiaries" as approved by the Commission, and as
amended from time to time;

         (i) "Director" means a member of the Board;

         (j) "Industry Director" or "Industry member" means a Director
(excluding any two officers of Nasdaq, selected at the sole discretion of
the Board, amongst those officers who may be serving as Directors (the
"Staff Directors") or Nasdaq Listing and Hearing Review Council or
committee member who (1) is or has served in the prior three years as an
officer, director, or employee of a broker or dealer, excluding an outside
director or a director not engaged in the day-to-day management of a broker

or dealer; (2) is an officer, director (excluding an outside director), or
employee of an entity that owns more than ten percent of the equity of a
broker or dealer, and the broker or dealer accounts for more than five
percent of the gross revenues received by the consolidated entity; (3) owns
more than five percent of the equity securities of any broker or dealer,
whose investments in brokers or dealers exceed ten percent of his or her
net worth, or whose ownership interest otherwise permits him or her to be
engaged in the day-to-day management of a broker or dealer; (4) provides
professional services to brokers or dealers, and such services constitute
20 percent or more of the professional revenues received by the Director or
member or 20 percent or more of the gross revenues received by the
Director's or member's firm or partnership; (5) provides professional
services to a director, officer, or employee of a broker, dealer, or
corporation that owns 50 percent or more of the voting stock of a broker or
dealer, and such services relate to the director's, officer's, or
employee's professional capacity and constitute 20 percent or more of the
professional revenues received by the Director or member or 20 percent or
more of the gross revenues received by the Director's or member's firm or
partnership; or (6) has a consulting or employment relationship with or
provides professional services to the NASD, NASD Regulation, Nasdaq, or
Amex (and any predecessor) or has had any such relationship or provided any
such services at any time within the prior three years;

         (k) "NASD" means the National Association of Securities Dealers,
Inc.;

         (l) "Nasdaq" means The Nasdaq Stock Market, Inc.;

         (m) "Nasdaq Listing and Hearing Review Council" means a body
appointed by the Board pursuant to Article V of these By-Laws;

         (n) "NASD Board" means the NASD Board of Governors;

         (o) "NASD Regulation" means NASD Regulation, Inc.;

         (p) "Nominating Committee" means the Nominating Committee
appointed pursuant to these By-Laws;

         (q) "Non-Industry Director" or "Non-Industry member" means a
Director (excluding the Staff Directors) or Nasdaq Listing and Hearing
Review Council or committee member who is (1) a Public Director or Public
member; (2) an officer or employee of an issuer of securities listed on
Nasdaq, or traded in the over-the-counter market; or (3) any other
individual who would not be an Industry Director or Industry member;

         (r) "person associated with a member" or "associated person of a
member" means: (1) a natural person who is registered or has applied for
registration under the Rules of the Association; or (2) a sole proprietor,
partner, officer, director, or branch manager of a member, or other natural
person occupying a similar status or performing similar functions, or a
natural person engaged in the investment banking or securities business who
is directly or indirectly controlling or controlled by a member, whether or
not any such person is registered or exempt from registration with the NASD
under these By-Laws or the Rules of the Association; and (3) for purposes
of Rule 8210, any other person listed in Schedule A of Form BD of a member.

         (s) "Public Director" or "Public member" means a Director or
Nasdaq Listing and Hearing Review Council or committee member who has no
material business relationship with a broker or dealer or the NASD, NASD
Regulation, or Nasdaq;

         (t) "Rules of the Association" or "Rules" means the numbered rules
set forth in the NASD Manual beginning with the Rule 0100 Series, as
adopted by the NASD Board pursuant to the NASD By-Laws, as hereafter
amended or supplemented;

         (u) "Amex" means American Stock Exchange LLC.


                            ARTICLE II OFFICES

                                  Location

         Sec. 2.1 The address of the registered office of Nasdaq in the
State of Delaware and the name of the registered agent at such address
shall be: The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801. Nasdaq also may have offices at such other places both
within and without the State of Delaware as the Board may from time to time
designate or the business of Nasdaq may require.

                             Change of Location

         Sec. 2.2 In the manner permitted by law, the Board or the
registered agent may change the address of Nasdaq's registered office in
the State of Delaware and the Board may make, revoke, or change the
designation of the registered agent.

                                ARTICLE III

                          MEETINGS OF STOCKHOLDERS

                      Annual Meetings of Stockholders

         Sec. 3.1 (a) Nominations of persons for election to the Board and
the proposal of business to be considered by the stockholders may be made
at an annual meeting of stockholders only (i) pursuant to Nasdaq's notice
of meeting (or any supplement thereto), (ii) by or at the direction of the
Board or the Nominating Committee or (iii) by any stockholder of Nasdaq who
was a stockholder of record of Nasdaq at the time the notice provided for
in this Section 3.1 is delivered to the Secretary of Nasdaq, who is
entitled to vote at the meeting and who complies with the notice procedures
set forth in this Section 3.1.

         (b) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to Section 3.1(a)(iii),
the stockholder must have given timely notice thereof in writing to the
Secretary of Nasdaq and any such proposed business other than the
nominations of persons for election to the Board must constitute a proper
matter for stockholder action. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of Nasdaq
not later than the close of business on the ninetieth day nor earlier than
the close of business on the one hundred twentieth day prior to the first
anniversary of the preceding year's annual meeting (provided, however, that
in the event that the date of the annual meeting is more than thirty days
before or more than seventy days after such anniversary date, notice by the
stockholder must be so delivered not earlier than the close of business on
the one hundred twentieth day prior to such annual meeting and not later
than the close of business on the later of the ninetieth day prior to such
annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made by Nasdaq). For
purposes of the first annual meeting of stockholders of Nasdaq held after
2000, the first anniversary of the 2000 annual meeting of stockholders
shall be deemed to be May 15, 2001. In no event shall the public
announcement of an adjournment or postponement of an annual meeting
commence a new time period (or extend any time period) for the giving of a
stockholder's notice as described above. Such stockholder's notice shall
set forth: (i) as to each person whom the stockholder proposes to nominate
for election as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Act and Rule 14a-11 thereunder (and
such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (ii) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
text of the proposal or business (including the text of any resolutions
proposed for consideration and in the event that such business includes a
proposal to amend the By-Laws of Nasdaq, the language of the proposed
amendment), the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (iii) as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (A) the name and address of such
stockholder, as they appear on Nasdaq's books, and of such beneficial
owner, (B) the class and number of shares of capital stock of Nasdaq which
are owned beneficially and of record by such stockholder and such
beneficial owner, (C) a representation that the stockholder is a holder of
record of stock of Nasdaq entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to propose such business or
nomination, and (D) a representation whether the stockholder or the
beneficial owner, if any, intends or is part of a group which intends (1)
to deliver a proxy statement and/or form of proxy to holders of at least
the percentage of Nasdaq's outstanding capital stock required to approve or
adopt the proposal or elect the nominee and/or (2) otherwise to solicit
proxies from stockholders in support of such proposal or nomination. Nasdaq
may require any proposed nominee to furnish such other information as it
may reasonably require to determine the eligibility of such proposed
nominee to serve as a director of Nasdaq.

         (c) Notwithstanding anything in the second sentence of Section
3.1(b) to the contrary, in the event that the number of directors to be
elected to the Board at an annual meeting is increased and there is no
public announcement by Nasdaq naming the nominees for the additional
directorships at least one hundred days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice required by
this Section 3.1 shall also be considered timely, but only with respect to
nominees for the additional directorships, if it shall be delivered to the
Secretary at the principal executive offices of Nasdaq not later than the
close of business on the tenth day following the day on which such public
announcement is first made by Nasdaq.

                      Special Meetings of Stockholders

         Sec. 3.2 Only such business shall be conducted at a special
meeting of stockholders as shall have been brought before the meeting
pursuant to Nasdaq's notice of meeting. Nominations of persons for election
to the Board may be made at a special meeting of stockholders at which
directors are to be elected pursuant to Nasdaq's notice of meeting (a) by
or at the direction of the Board or the Nominating Committee or (b)
provided that the Board has determined that directors shall be elected at
such meeting, by any stockholder of Nasdaq who is a stockholder of record
at the time the notice provided for in this Section 3.2 is delivered to the
Secretary of Nasdaq, who is entitled to vote at the meeting and upon such
election and who complies with the notice procedures set forth in this
Section 3.2. In the event Nasdaq calls a special meeting of stockholders
for the purpose of electing one or more directors to the Board, any such
stockholder entitled to vote in such election may nominate a person or
persons (as the case may be) for election to such position(s) as specified
in Nasdaq's notice of meeting, if the stockholder's notice required by
Section 3.1(b) shall be delivered to the Secretary at the principal
executive offices of Nasdaq not earlier than the close of business on the
one hundred twentieth day prior to such special meeting and not later than
the close of business on the later of the ninetieth day prior to such
special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board to be elected at such meeting. In no event
shall the public announcement of an adjournment or postponement of a
special meeting commence a new time period (or extend any time period) for
the giving of a stockholder's notice as described above.

                                  General

         Sec. 3.3 (a) Only such persons who are nominated in accordance
with the procedures set forth in this Article III shall be eligible to be
elected at an annual or special meeting of stockholders of Nasdaq to serve
as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance
with the procedures set forth in this Article III. Except as otherwise
provided by law, the chairman of the meeting shall have the power and duty
(i) to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Article III (including
whether the stockholder or beneficial owner, if any, on whose behalf the
nomination or proposal is made solicited (or is part of a group which
solicited) or did not so solicit, as the case may be, proxies in support of
such stockholder's nominee or proposal in compliance with such
stockholder's representation as required by Section 3.1(b)(iii)(D)) and
(ii) if any proposed nomination or business was not made or proposed in
compliance with this Article III, to declare that such nomination shall be
disregarded or that such proposed business shall not be transacted.
Notwithstanding the foregoing provisions of this Article III, if the
stockholder (or a qualified representative of the stockholder) does not
appear at the annual or special meeting of stockholders of Nasdaq to
present a nomination or business, such nomination shall be disregarded and
such proposed business shall not be transacted, notwithstanding that
proxies in respect of such vote may have been received by Nasdaq.

         (b) For purposes of this Article III, "public announcement" shall
include disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a
document publicly filed by Nasdaq with the Commission pursuant to Section
13, 14, or 15(d) of the Act.

         (c) Notwithstanding the foregoing provisions of this Article III,
a stockholder shall also comply with all applicable requirements of the Act
and the rules and regulations thereunder with respect to the matters set
forth in this Article III. Nothing in Article III shall be deemed to affect
any rights (i) of stockholders to request inclusion of proposals in
Nasdaq's proxy statement pursuant to Rule 14a-8 under the Act or (ii) of
the holders of any series of Preferred Stock to elect directors pursuant to
any applicable provisions of the Restated Certificate of Incorporation.

                            Conduct of Meetings

         Sec. 3.4 The date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote at a meeting
shall be announced at the meeting by the person presiding over the meeting.
The Board may adopt by resolution such rules and regulations for the
conduct of the meeting of stockholders as it shall deem appropriate. Except
to the extent inconsistent with such rules and regulations as adopted by
the Board, the person presiding over any meeting of stockholders shall have
the right and authority to convene and to adjourn the meeting, to prescribe
such rules, regulations and procedures and to do all such acts as, in the
judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the
Board or prescribed by the presiding officer of the meeting, may include,
without limitation, the following: (a) the establishment of an agenda or
order of business for the meeting; (b) rules and procedures for maintaining
order at the meeting and the safety of those present; (c) limitations on
attendance at or participation in the meeting to stockholders of record of
Nasdaq, their duly authorized and constituted proxies or such other persons
as the chairman of the meeting shall determine; (d) restrictions on entry
to the meeting after the time fixed for the commencement thereof; and (e)
limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board or the person presiding
over the meeting, meetings of stockholders shall not be required to be held
in accordance with the rules of parliamentary procedure.

                                 ARTICLE IV

                             BOARD OF DIRECTORS

                               General Powers

         Sec. 4.1 The property, business, and affairs of Nasdaq shall be
managed by or under the direction of the Board. The Board may exercise all
such powers of Nasdaq and have the authority to perform all such lawful
acts as are permitted by law, the Restated Certificate of Incorporation,
these By-Laws, or the Delegation Plan for the organization, development,
and operation of electronic data processing and communications facilities,
including computer hardware and software, for the purposes of: (a)
supporting the operation, regulation, and surveillance of The Nasdaq Stock
Market and other organized securities markets established for trading
equity securities, debt securities, derivative instruments, or other
financial products that may be developed; (b) supporting the efficient
clearance and settlement of securities transactions; (c) supporting various
elements of the national market system pursuant to Section 11A of the Act
and the rules thereunder; (d) assisting the NASD in fulfilling its
self-regulatory responsibilities as set forth in Section 15A of the Act;
and (e) supporting such other initiatives as the Board may deem
appropriate. To the fullest extent permitted by applicable law, the
Restated Certificate of Incorporation, and these By-Laws, the Board may
delegate any of its powers to a committee appointed pursuant to Section
4.13 or to Nasdaq staff in a manner not inconsistent with the Delegation
Plan.

                            Number of Directors

         Sec. 4.2 The exact number of members of the Board shall be
determined by resolution adopted by the Board from time to time. Any new
Director position created as a result of an increase in the size of the
Board shall be filled in accordance with the Restated Certificate of
Incorporation.

                               Qualifications

         Sec. 4.3 Directors need not be stockholders of Nasdaq. The number
of Non-Industry Directors, including at least one Public Director and at
least one issuer representative, shall equal or exceed the number of
Industry Directors, unless the Board consists of ten or more Directors. In
such case at least two Directors shall be issuer representatives.

                                  Election

         Sec. 4.4 Except as otherwise provided by law, these By-Laws, or
the Delegation Plan, after the first meeting of Nasdaq at which Directors
are elected, a class of Directors of Nasdaq shall be elected each year at
the annual meeting of the stockholders, or at a special meeting called for
such purpose in lieu of the annual meeting. If the annual election of
Directors is not held on the date designated therefor, the Directors shall
cause such election to be held as soon thereafter as convenient.

                                Resignation

         Sec. 4.5 Any Director may resign at any time either upon notice of
resignation to the Chair of the Board, the Chief Executive Officer, the
President, or the Secretary. Any such resignation shall take effect at the
time specified therein or, if the time is not specified, upon receipt
thereof, and the acceptance of such resignation, unless required by the
terms thereof, shall not be necessary to make such resignation effective.

                                  Removal

         Sec. 4.6 Any or all of the Directors may be removed from office at
any time, but only for cause, by the affirmative vote at least 66 2/3
percent of the total voting power of the outstanding shares of capital
stock of Nasdaq entitled to vote generally in the election of directors,
voting together as a single class.

                              Disqualification

         Sec. 4.7 The term of office of a Director shall terminate
immediately upon a determination by the Board, by a majority vote of the
remaining Directors, that: (a) the Director no longer satisfies the
classification for which the Director was elected; and (b) the Director's
continued service as such would violate the compositional requirements of
the Board set forth in Section 4.3. If the term of office of a Director
terminates under this Section, and the remaining term of office of such
Director at the time of termination is not more than six months, during the
period of vacancy the Board shall not be deemed to be in violation of
Section 4.3 by virtue of such vacancy.

                            Filling of Vacancies

         Sec. 4.8 If a Director position becomes vacant, whether because of
death, disability, disqualification, removal, or resignation, the
Nominating Committee shall nominate, and the Board shall elect by majority
vote, a person satisfying the classification (Industry, Non-Industry, or
Public Director), if applicable, for the directorship as provided in
Section 4.3 to fill such vacancy, except that if the remaining term of
office for the vacant Director position is not more than six months, no
replacement shall be required.

                             Quorum and Voting

         Sec. 4.9 (a) At all meetings of the Board, unless otherwise set
forth in these By-Laws or required by law, a quorum for the transaction of
business shall consist of a majority of the Board. In the absence of a
quorum, a majority of the Directors present may adjourn the meeting until a
quorum be present.

         (b) Except as provided herein or by applicable law, the vote of a
majority of the Directors present a t a meeting at which a quorum is
present shall be the act of the Board.

                                 Regulation

         Sec. 4.10 The Board may adopt such rules, regulations, and
requirements for the conduct of the business and management of Nasdaq, not
inconsistent with law, the Restated Certificate of Incorporation, these
By-Laws, the Rules of the Association, or the By-Laws of the NASD, as the
Board may deem proper. A Director shall, in the performance of such
Director's duties, be fully protected in relying in good faith upon the
books of account or reports made to Nasdaq by any of its officers, by an
independent certified public accountant, by an appraiser selected with
reasonable care by the Board or any committee of the Board or by any agent
of Nasdaq, or in relying in good faith upon other records of Nasdaq.

                                  Meetings

         Sec. 4.11 (a) An annual meeting of the Board shall be held for the
purpose of organization, election of officers, and transaction of any other
business. If such meeting is held promptly after and at the place specified
for the annual meeting of the stockholders, no notice of the annual meeting
of the Board need be given. Otherwise, such annual meeting shall be held at
such time and place as may be specified in a notice given in accordance
with Section 4.12.

         (b) Regular meetings of the Board may be held at such time and
place, within or without the State of Delaware, as determined from time to
time by the Board. After such determination has been made, notice shall be
given in accordance with Section 4.12.

         (c) Special meetings of the Board may be called by the Chair of
the Board, by the Chief Executive Officer, by the President, or by at least
one-third of the Directors then in office. Notice of any special meeting of
the Board shall be given to each Director in accordance with Section 4.12.

         (d) Directors or members of any committee appointed by the Board
may participate in a meeting of the Board or of such committee through the
use of a conference telephone or other communications equipment by means of
which all persons participating in the meeting may hear one another, and
such participation in a meeting shall constitute presence in person at such
meeting for all purposes.

                    Notice of Meetings; Waiver of Notice

         Sec. 4.12 (a) Notice of any meeting of the Board shall be deemed
to be duly given to a Director if: (i) mailed to the address last made
known in writing to Nasdaq by such Director as the address to which such
notices are to be sent, at least seven days before the day on which such
meeting is to be held; (ii) sent to the Director at such address by
telegraph, telefax, cable, radio, or wireless, not later than the day
before the day on which such meeting is to be held; or (iii) delivered to
the Director personally or orally, by telephone or otherwise, not later
than the day before the day on which such meeting is to be held. Each
notice shall state the time and place of the meeting and the purpose(s)
thereof.

         (b) Notice of any meeting of the Board need not be given to any
Director if waived by that Director in writing or by electronic
transmission (or by telegram, telefax, cable, radio, or wireless and
subsequently confirmed in writing or by electronic transmission) whether
before or after the holding of such meeting, or if such Director is present
at such meeting, subject to Article X, Section 10.3(b).

         (c) Any meeting of the Board shall be a legal meeting without any
prior notice if all Directors then in office shall be present thereat,
except when a Director attends the meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened.

                                 Committees

         Sec. 4.13 (a) The Board may, by resolution or resolutions adopted
by the Board, appoint one or more committees. Except as herein provided,
vacancies in membership of any committee shall be filled by the Board. The
Board may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of any member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute
a quorum, may unanimously appoint another Director to act at the meeting in
the place of any such absent or disqualified member. Members of a committee
shall hold office for such period as may be fixed by a resolution adopted
by the Board. Any member of a committee may be removed from such committee
only by the Board, after appropriate notice.

         (b) The Board may, by resolution or resolutions adopted by a
majority of the whole Board, delegate to one or more committees the power
and authority to act on behalf of the Board in carrying out the functions
and authority delegated to Nasdaq by the NASD under the Delegation Plan.
Such delegations shall be in conformance with applicable law, the Restated
Certificate of Incorporation, these By-Laws, and the Delegation Plan.
Action taken by a committee pursuant to such delegated authority shall be
subject to review, ratification, or rejection by the Board. In all other
matters, the Board may, by resolution or resolutions adopted by the Board,
delegate to one or more committees that consist solely of one or more
Directors the power and authority to act on behalf of the Board in the
management of the business and affairs of Nasdaq to the extent permitted by
law and not inconsistent with the Delegation Plan. A committee, to the
extent permitted by law and provided in the resolution or resolutions
creating such committee, may authorize the seal of Nasdaq to be affixed to
all papers that may require it.

         (c) Except as otherwise provided by applicable law, no committee
shall have the power or authority of the Board with regard to: amending the
Restated Certificate of Incorporation or the By-Laws of Nasdaq; adopting an
agreement of merger or consolidation; recommending to the stockholders the
sale, lease, or exchange of all or substantially all Nasdaq's property and
assets; or recommending to the stockholders a dissolution of Nasdaq or a
revocation of a dissolution. Unless the resolution of the Board expressly
so provides, no committee shall have the power or authority to authorize
the issuance of stock.

         (d) The Board may appoint an Executive Committee, which shall, to
the fullest extent permitted by Delaware Law and other applicable law, have
and be permitted to exercise all the powers and authority of the Board in
the management of the business and affairs of Nasdaq between meetings of
the Board, and which may authorize the seal of Nasdaq to be affixed to all
papers that may require it. The number of Non-Industry Directors on the
Executive Committee shall equal or exceed the number of Industry Directors
on the Executive Committee. The percentage of Public Directors on the
Executive Committee shall be at least as great as the percentage of Public
Directors on the whole Board. An Executive Committee member shall hold
office for a term of one year.

         (e) The Board may appoint a Finance Committee. The Finance
Committee shall advise the Board with respect to the oversight of the
financial operations and conditions of Nasdaq, including recommendations
for Nasdaq's annual operating and capital budgets and proposed changes to
the rates and fees charged by Nasdaq. A Finance Committee member shall hold
office for a term of one year.

         (f) The Board shall appoint a Management Compensation Committee.
The Management Compensation Committee shall consider and recommend
compensation policies, programs, and practices for employees of Nasdaq. A
majority of Management Compensation Committee members shall be Non-Industry
Directors. The Chief Executive Officer shall be an ex-officio, non-voting
member of the Management Compensation Committee. A Management Compensation
Committee member shall hold office for a term of one year.

         (g) The Board shall appoint an Audit Committee.

             (i) The Audit Committee shall consist of four or five Directors,
none of whom shall be officers or employees of Nasdaq. A majority of the
Audit Committee members shall be Non-Industry Directors. The Audit
Committee shall include two Public Directors. A Public Director shall serve
as Chair of the Committee. An Audit Committee member shall hold office for
a term of one year.

             (ii) No member of the Audit Committee shall participate in the
consideration or decision of any matter relating to a particular Nasdaq
member, company, or individual if such Audit Committee member has a
material interest in, or a professional, business, or personal relationship
with, that member, company, or individual, or if such participation shall
create an appearance of impropriety. An Audit Committee member shall
consult with the General Counsel of Nasdaq to determine if recusal is
necessary. If a member of the Audit Committee is recused from consideration
of a matter, any decision on the matter shall be by a vote of a majority of
the remaining members of the Audit Committee.

         (h) The Board may appoint a Nominating Committee. The Nominating
Committee shall nominate Directors for each vacant or new Director position
on the Board and members for each vacant or new position on the Nasdaq
Listing and Hearing Review Council for appointment by the Board.

             (i) The Nominating Committee shall consist of no fewer than six
and no more than nine members. The number of Non-Industry members on the
Nominating Committee shall equal or exceed the number of Industry members
on the Nominating Committee. If the Nominating Committee consists of six
members, at least two shall be Public committee members. If the Nominating
Committee consists of seven or more members, at least three shall be Public
committee members. No officer or employee of Nasdaq shall serve as a member
of the Nominating Committee in any voting or non-voting capacity. No more
than three of the Nominating Committee members and no more than two of the
Industry committee members shall be current members of the Nasdaq Board.

             (ii) A Nominating Committee member may not simultaneously serve on
the Nominating Committee and the Board, unless such member is in his or her
final year of service on the Board, and following that year, that member
may not stand for election to the Board until such time as he or she is no
longer a member of the Nominating Committee. 

             (iii) Members of the Nominating Committee shall be appointed
annually by the Board and may be removed by majority vote of the Board.

             (iv) The Secretary shall collect from each nominee for Director
such information as is reasonably necessary to serve as the basis for a
determination of the nominee's classification as an Industry, Non-Industry,
or Public Director, if applicable, and the Secretary shall certify to the
Nominating Committee each nominee's classification, if applicable.
Directors shall update the information submitted under this subsection at
least annually and upon request of the Secretary, and shall report
immediately to the Secretary any change in such information.

         (i) Each committee may adopt its own rules of procedure and may
meet at stated times or on notice as such committee may determine. Each
committee shall deep regular minutes of its proceedings and report the same
to the Board when required.

         (j) Unless otherwise provided by these By-Laws, a majority of a
committee shall constitute a quorum for the transaction of business, and
the vote of a majority of the members of such committee present at a
meeting at which a quorum is present shall be an act of such committee.

         (k) Upon request of the Secretary of Nasdaq, each prospective
committee member who is not a Director shall provide to the Secretary such
information as is reasonably necessary to serve as the basis for a
determination of the prospective committee member's classification as an
Industry, Non-Industry, or Public committee member. The Secretary of Nasdaq
shall certify to the Board each prospective committee member's
classification. Such committee members shall update the information
submitted under this subsection at least annually and upon request of the
Secretary of Nasdaq, and shall report immediately to the Secretary any
change in such information.

   Conflicts of Interest; Contracts and Transactions Involving Directors

         Sec. 4.14 (a) A Director or a member of the Nasdaq Listing and
Hearing Review Council or a committee shall not directly or indirectly
participate in any adjudication of the interests of any party if that
Director or Nasdaq Listing and Hearing Review Council or committee member
has a conflict of interest or bias, or if circumstances otherwise exist
where his or her fairness might reasonably be questioned. In any such case,
the Director or Nasdaq Listing and Hearing Review Council or committee
member shall recuse himself or herself or shall be disqualified.

         (b) No contract or transaction between Nasdaq and one or more of
its Directors or officers, or between Nasdaq and any other corporation,
partnership, association, or other organization in which one or more of its
Directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason if: (i) the
material facts pertaining to such Director's or officer's relationship or
interest and the contract or transaction are disclosed or are known to the
Board or the committee, and the Board or committee in good faith authorizes
the contract or transaction by the affirmative vote of a majority of the
disinterested Directors, even though the disinterested Directors be less
than a quorum; (ii) the material facts are disclosed or become known to the
Board or committee after the contract or transaction is entered into, and
the Board or committee in good faith ratifies the contract or transaction
by the affirmative vote of a majority of the disinterested Directors, even
though the disinterested Directors be less than a quorum; or (iii) the
material facts pertaining to the Director's or officer's relationship or
interest and the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders.

               Communication of Views Regarding NASD or NASD
                     Regulation Election or Nomination

         Sec. 4.15 Nasdaq, the Board, any committee, the Nasdaq Listing and
Hearing Review Council, and Nasdaq staff shall not take any position
publicly or with an NASD member or person associated with or employed by a
member with respect to any candidate in a contested election or nomination
held pursuant to the NASD By-Laws or the NASD Regulation By-Laws. A
Director, committee member, or Nasdaq Listing and Hearing Review Council
member may communicate his or her views with respect to a candidate if such
individual acts solely in his or her individual capacity and disclaims any
intention to communicate in any official capacity on behalf of Nasdaq, the
Board, the Nasdaq Listing and Hearing Review Council, or any committee.
Nasdaq, the Board, the Nasdaq Listing and Hearing Review Council, any
committee, and the Nasdaq staff shall not provide any administrative
support to any candidate in a contested election or nomination conducted
pursuant to the NASD By-Laws or the NASD Regulation By-Laws.

                           Action Without Meeting

         Sec. 4.16 Any action required or permitted to be taken at a
meeting of the Board or of a committee may be taken without a meeting if
all Directors or all members of such committee, as the case may be, consent
thereto in accordance with applicable law.


                                 ARTICLE V

                 NASDAQ LISTING AND HEARING REVIEW COUNCIL

                         Appointment And Authority

         Sec. 5.1 The Board shall appoint a Nasdaq Listing and Hearing
Review Council. The Nasdaq Listing and Hearing Review Council may be
authorized to act for the Board in a manner consistent with these By-Laws,
the Rules of the Association, and the Delegation Plan with respect to
listing decisions. The Nasdaq Listing and Hearing Review Council also shall
consider and make recommendations to the Board on policy and rule changes
relating to issuer listings. The Board may delegate such other powers and
duties to the Nasdaq Listing and Hearing Review Council as the Board deems
appropriate in a manner not inconsistent with the Delegation Plan.

                    Number of Members and Qualifications

         Sec. 5.2 (a) The Nasdaq Listing and Hearing Review Council shall
consist of no fewer than eight and no more than 18 members, of which not
more than 50 percent may be engaged in market-making activity or employed
by a member whose revenues from market-making activity exceed ten percent
of its total revenues. The Nasdaq Listing and Hearing Review Council shall
include at least five Non-Industry members.

         (b) As soon as practicable following the appointment of members,
the Nasdaq Listing and Hearing Review Council shall elect a Chair from
among its members. The Chair shall have such powers and duties as may be
determined from time to time by the Nasdaq Listing and Hearing Review
Council. The Board, by resolution adopted by a majority of Directors then
in office and after notice to the NASD Board, may remove the Chair from
such position at any time for refusal, failure, neglect, or inability to
discharge the duties of Chair.

                             Nomination Process

         Sec. 5.3 The Secretary of Nasdaq shall collect from each nominee
for the office of member of the Nasdaq Listing and Hearing Review Council
such information as is reasonably necessary to serve as the basis for a
determination of the nominee's qualifications and classification as an
Industry or Non-Industry member, and the Secretary shall certify to the
Nominating Committee each nominee's qualifications and classification.
After appointment to the Nasdaq Listing and Hearing Review Council, each
member shall update such information at least annually and upon request of
the Secretary, and shall report immediately to the Secretary any change in
such information.

                               Term of Office

         Sec. 5.4 (a) Except as otherwise provided in this Article, each
Nasdaq Listing and Hearing Review Council member shall hold office for a
term of two years or until a successor is duly appointed and qualified,
except in the event of earlier termination from office by reason of death,
resignation, removal, disqualification, or other reason.

         (b) The Nasdaq Listing and Hearing Review Council shall be divided
into two classes. The term of office of those of the first class shall
expire in January 1999, and the term of office of those of the second class
shall expire one year thereafter. Beginning in January 1999, members shall
be appointed for a term of two years to replace those whose terms expire.

         (c) Beginning in 1999, no member may serve more than two
consecutive terms, except that if a member is appointed to fill a term of
less than one year, such member may serve up to two consecutive terms
following the expiration of such member's initial term.

                                Resignation

         Sec. 5.5 A member of the Nasdaq Listing and Hearing Review Council
may resign at any time upon written notice to the Board. Any such
resignation shall take effect at the time specified therein, or if the time
is not specified, upon receipt thereof, and the acceptance of such
resignation, unless required by the terms thereof, shall not be necessary
to make such resignation effective.

                                  Removal

         Sec. 5.6 Any or all of the members of the Nasdaq Listing and
Hearing Review Council may be removed from office at any time for refusal,
failure, neglect, or inability to discharge the duties of such office by
majority vote of the Board.

                              Disqualification

         Sec. 5.7 Notwithstanding Section 5.4, the term of office of a
Nasdaq Listing and Hearing Review Council member shall terminate
immediately upon a determination by the Board, by a majority vote, that:
(a) The member no longer satisfies the classification (Industry or
Non-Industry) for which the member was elected; and (b) the member's
continued service as such would violate the compositional requirements of
the Nasdaq Listing and Hearing Review Council set forth in Section 5.2. If
the term of office of a Nasdaq Listing and Hearing Review Council member
terminates under this Section, and the remaining term of office of such
member at the time of termination is not more than six months, during the
period of vacancy the Nasdaq Listing and Hearing Review Council shall not
be deemed to be in violation of Section 5.2 by virtue of such vacancy.

                            Filling of Vacancies

         Sec. 5.8 If a position on the Nasdaq Listing and Hearing Review
Council becomes vacant, whether because of death, disability,
disqualification, removal, or resignation, the Nominating Committee shall
nominate, and the Board shall appoint a person satisfying the
qualifications for the position as provided in Section 5.2(a) to fill such
vacancy, except that if the remaining term of office for the vacant
position is not more than six months, no replacement shall be required.

                             Quorum and Voting

         Sec. 5.9 At all meetings of the Nasdaq Listing and Hearing Review
Council, unless otherwise set forth in these By-Laws, a quorum for the
transaction of business shall consist of a majority of the Nasdaq Listing
and Hearing Review Council, including one Non-Industry member. In the
absence of a quorum, a majority of the members present may adjourn the
meeting until a quorum is present.

                                  Meetings

         Sec. 5.10 The members of the Nasdaq Listing and Hearing Review
Council may participate in a meeting through the use of a conference
telephone or other communications equipment by means of which all persons
participating in the meeting may hear one another, and such participation
in a meeting shall constitute presence in person at such meeting for all
purposes.

                                 ARTICLE VI

                                COMPENSATION

           Compensation of Board, Council, and Committee Members

         Sec. 6.1 The Board may provide for reasonable compensation of the
Chair of the Board, the Directors, Nasdaq Listing and Hearing Review
Council members, and the members of any committee. The Board may also
provide for reimbursement of reasonable expenses incurred by such persons
in connection with the business of Nasdaq.

                                ARTICLE VII

                      OFFICERS, AGENTS, AND EMPLOYEES

                             Principal Officers

         Sec. 7.1 The principal officers of Nasdaq shall be elected by the
Board and shall include a Chair, a Chief Executive Officer, a President, a
Secretary, a Treasurer, and such other officers as may be designated by the
Board. One person may hold the offices and perform the duties of any two or
more of said principal offices, except the offices and duties of President
and Vice President or of President and Secretary. None of the principal
officers, except the Chair of the Board, need be Directors of Nasdaq.

               Election of Principal Officers; Term of Office

         Sec. 7.2 (a) The principal officers of Nasdaq shall be elected
annually by the Board at the annual meeting of the Board convened pursuant
to Section 4.11(a). Failure to elect any principal officer annually shall
not dissolve Nasdaq.

         (b) If the Board shall fail to fill any principal office at an
annual meeting, or if any vacancy in any principal office shall occur, or
if any principal office shall be newly created, such principal office may
be filled at any regular or special meeting of the Board.

         (c) Each principal officer shall hold office until a successor is
duly elected and qualified, or until death, resignation, or removal.

                 Subordinate Officers, Agents, or Employees

         Sec. 7.3 In addition to the principal officers, Nasdaq may have
one or more subordinate officers, agents, and employees as the Board may
deem necessary, each of whom shall hold office for such period and exercise
such authority and perform such duties as the Board, the Chief Executive
Officer, the President, or any officer designated by the Board, may from
time to time determine. Agents and employees of Nasdaq shall be under the
supervision and control of the officers of Nasdaq, unless the Board, by
resolution, provides that an agent or employee shall be under the
supervision and control of the Board.

                      Delegation of Duties of Officers

         Sec. 7.4 The Board may delegate the duties and powers of any
officer of Nasdaq to any other officer or to any Director for a specified
period of time and for any reason that the Board may deem sufficient.

                    Resignation and Removal of Officers

         Sec. 7.5 (a) Any officer may resign at any time upon notice of
resignation to the Board, the Chief Executive Officer, the President, or
the Secretary. Any such resignation shall take effect upon receipt of such
notice or at any later time specified therein. The acceptance of a
resignation shall not be necessary to make the resignation effective.

         (b) Any officer of Nasdaq may be removed, with or without cause,
by resolution adopted by a majority of the Directors then in office at any
regular or special meeting of the Board or by a written consent signed by
all of the Directors then in office. Such removal shall be without
prejudice to the contractual rights of the affected officer, if any, with
Nasdaq.

                                    Bond

         Sec. 7.6 Nasdaq may secure the fidelity of any or all of its
officers, agents, or employees by bond or otherwise.

                             Chair of the Board

         Sec. 7.7 The Chair of the Board shall preside at all meetings of
the Board and stockholders at which the Chair is present. The Chair shall
exercise such other powers and perform such other duties as may be assigned
to the Chair from time to time by the Board.

                          Chief Executive Officer

         Sec. 7.8 The Chief Executive Officer shall, in the absence of the
Chair of the Board, preside at all meetings of the Board and stockholders
at which the Chief Executive Officer is present. The Chief Executive
Officer shall be the chief executive officer of Nasdaq and shall have
general supervision over the business and affairs of Nasdaq. The Chief
Executive Officer shall have all powers and duties usually incident to the
office of the Chief Executive Officer, except as specifically limited by a
resolution of the Board. The Chief Executive Officer shall exercise such
other powers and perform such other duties as may be assigned to the Chief
Executive Officer from time to time by the Board.

                                 President

         Sec. 7.9 The President shall, in the absence of the Chair of the
Board and the Chief Executive Officer, preside at all meetings of the Board
and stockholders at which the President is present. The President shall
have general supervision over the business and affairs of Nasdaq. The
President shall have all powers and duties usually incident to the office
of the President, except as specifically limited by a resolution of the
Board. The President shall exercise such other powers and perform such
other duties as may be assigned to the President from time to time by the
Board.

                               Vice President

         Sec. 7.10 The Board shall elect one or more Vice Presidents. In
the absence or disability of the President or if the office of President
becomes vacant, the Vice Presidents in the order determined by the Board,
or if no such determination has been made, in the order of their seniority,
shall perform the duties and exercise the powers of the President, subject
to the right of the Board at any time to extend or restrict such powers and
duties or to assign them to others. Any Vice President may have such
additional designations in such Vice President's title as the Board may
determine. The Vice Presidents shall generally assist the President in such
manner as the President shall direct. Each Vice President shall exercise
such other powers and perform such other duties as may be assigned to such
Vice President from time to time by the Board, the Chief Executive Officer
or the President. The term "Vice President" used in this Section shall
include the positions of Executive Vice President, Senior Vice President,
and Vice President.

                                 Secretary

         Sec. 7.11 The Secretary shall act as Secretary of all meetings of
the stockholders and of the Board at which the Secretary is present, shall
record all the proceedings of all such meetings in a book to be kept for
that purpose, shall have supervision over the giving and service of notices
of Nasdaq, and shall have supervision over the care and custody of the
corporate records and the corporate seal of Nasdaq. The Secretary shall be
empowered to affix the corporate seal to documents, the execution of which
on behalf of Nasdaq under its seal, is duly authorized, and when so
affixed, may attest the same. The Secretary shall have all powers and
duties usually incident to the office of Secretary, except as specifically
limited by a resolution of the Board. The Secretary shall exercise such
other powers and perform such other duties as may be assigned to the
Secretary from time to time by the Board, the Chief Executive Officer or
the President.

                            Assistant Secretary

         Sec. 7.12 In the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, any Assistant Secretary, approved
by the Board, shall exercise all powers and perform all duties of the
Secretary. An Assistant Secretary shall also exercise such other powers and
perform such other duties as may be assigned to such Assistant Secretary
from time to time by the Board or the Secretary.

                                 Treasurer

         Sec. 7.13 The Treasurer shall have general supervision over the
care and custody of the funds and over the receipts and disbursements of
Nasdaq and shall cause the funds of Nasdaq to be deposited in the name of
Nasdaq in such banks or other depositories as the Board may designate. The
Treasurer shall have supervision over the care and safekeeping of the
securities of Nasdaq. The Treasurer shall have all powers and duties
usually incident to the office of Treasurer except as specifically limited
by a resolution of the Board. The Treasurer shall exercise such other
powers and perform such other duties as may be assigned to the Treasurer
from time to time by the Board, the Chief Executive Officer or the
President.

                            Assistant Treasurer

         Sec. 7.14 In the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, any Assistant Treasurer, approved
by the Board, shall exercise all powers and perform all duties of the
Treasurer. An Assistant Treasurer shall also exercise such other powers and
perform such other duties as may be assigned to such Assistant Treasurer
from time to time by the Board or the Treasurer.

                                ARTICLE VIII

                              INDEMNIFICATION

         Indemnification of Directors, Officers, Employees, Agents,
      Nasdaq Listing and Hearing Review Council and Committee Members

         Sec. 8.1 (a) Nasdaq shall indemnify, and hold harmless, to the
fullest extent permitted by Delaware law as it presently exists or may
thereafter be amended, any person (and the heirs, executors, and
administrators of such person) who, by reason of the fact that he or she is
or was a Director, officer, or employee of Nasdaq or a Nasdaq Listing and
Hearing Review Council or committee member, or is or was a Director,
officer, or employee of Nasdaq who is or was serving at the request of
Nasdaq as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, enterprise, or non-profit entity,
including service with respect to employee benefit plans, is or was a
party, or is threatened to be made a party to:

                   (i) any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of Nasdaq) against expenses
(including attorneys' fees and disbursements), judgments, fines, and
amounts paid in settlement actually and reasonably incurred by such person
in connection with any such action, suit, or proceeding; or

                  (ii) any threatened, pending, or completed action or suit
by or in the right of Nasdaq to procure a judgment in its favor against
expenses (including attorneys' fees and disbursements) actually and
reasonably incurred by such person in connection with the defense or
settlement of such action or suit.


         (b) Nasdaq shall advance expenses (including attorneys' fees and
disbursements) reasonably and actually incurred in defending any action,
suit, or proceeding in advance of its final disposition to persons
described in subsection (a); provided, however, that the payment of
expenses incurred by such person in advance of the final disposition of the
matter shall be conditioned upon receipt of a written undertaking by that
person to repay all amounts advanced if it should be ultimately determined
that the person is not entitled to be indemnified under this Section or
otherwise.

         (c) Nasdaq may, in its discretion, indemnify and hold harmless, to
the fullest extent permitted by Delaware law as it presently exists or may
thereafter be amended, any person (and the heirs, executors, and
administrators of such persons) who, by reason of the fact that he or she
is or was an agent of Nasdaq or is or was an agent of Nasdaq who is or was
serving at the request of Nasdaq as a director, officer, employee, or agent
of another corporation, partnership, trust, enterprise, or non-profit
entity, including service with respect to employee benefit plans, was or is
a party, or is threatened to be made a party to any action or proceeding
described in subsection (a).

         (d) Nasdaq may, in its discretion, pay the expenses (including
attorneys' fees and disbursements) reasonably and actually incurred by an
agent in defending any action, suit, or proceeding in advance of its final
disposition; provided, however, that the payment of expenses incurred by
such person in advance of the final disposition of the matter shall be
conditioned upon receipt of a written undertaking by that person to repay
all amounts advanced if it should be ultimately determined that the person
is not entitled to be indemnified under this Section or otherwise.

         (e) Notwithstanding the foregoing or any other provision of these
By-Laws, no advance shall be made by Nasdaq to an agent or non-officer
employee if a determination is reasonably and promptly made by the Board by
a majority vote of those Directors who have not been named parties to the
action, even though less than a quorum, or, if there are no such Directors
or if such Directors so direct, by independent legal counsel, that, based
upon the facts known to the Board or such counsel at the time such
determination is made: (1) The person seeking advancement of expenses (i)
acted in bad faith, or (ii) did not act in a manner that he or she
reasonably believed to be in or not opposed to the best interests of
Nasdaq; (2) with respect to any criminal proceeding, such person believed
or had reasonable cause to believe that his or her conduct was unlawful; or
(3) such person deliberately breached his or her duty to Nasdaq.

         (f) The indemnification provided by this Section in a specific
case shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled, both as to action in his or her
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a Director,
officer, Nasdaq Listing and Hearing Review Council or committee member,
employee, or agent and shall inure to the benefit of such person's heirs,
executors, and administrators.

         (g) Notwithstanding the foregoing, but subject to subsection (j),
Nasdaq shall be required to indemnify any person identified in subsection
(a) in connection with a proceeding (or part thereof) initiated by such
person only if the initiation of such proceeding (or part thereof) by such
person was authorized by the Board.

         (h) Nasdaq's obligation, if any, to indemnify or advance expenses
to any person who is or was serving at its request as a director, officer,
employee, or agent of another corporation, partnership, joint venture,
trust, enterprise, or non-profit entity shall be reduced by any amount such
person may collect as indemnification or advancement from such other
corporation, partnership, joint venture, trust, enterprise, or non-profit
entity.

         (i) Any repeal or modification of the foregoing provisions of this
Section shall not adversely affect any right or protection hereunder of any
person respecting any act or omission occurring prior to the time of such
repeal or modification.

         (j) If a claim for indemnification or advancement of expenses
under this Article is not paid in full within 60 days after a written claim
therefor by an indemnified person has been received by Nasdaq, the
indemnified person may file suit to recover the unpaid amount of such claim
and, if successful in whole or in part, shall be entitled to be paid the
expense of prosecuting such claim. In any such action, Nasdaq shall have
the burden of proving that the indemnified person is not entitled to the
requested indemnification or advancement of expenses under Delaware law.

                         Indemnification Insurance

         Sec. 8.2 Nasdaq shall have power to purchase and maintain
insurance on behalf of any person who is or was a Director, officer, Nasdaq
Listing and Hearing Review Council or committee member, employee, or agent
of Nasdaq, or is or was serving at the request of Nasdaq as a director,
officer, employee, or agent of another corporation, partnership, joint
venture, trust, enterprise, or non-profit entity against any liability
asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not
Nasdaq would have the power to indemnify such person against such liability
hereunder.

                                 ARTICLE IX

                               CAPITAL STOCK

                                Certificates

         Sec. 9.1 Each stockholder shall be entitled to a certificate or
certificates in such form as shall be approved by the Board, certifying the
number of shares of capital stock in Nasdaq owned by such stockholder.

                                 Signatures

         Sec. 9.2 (a) Certificates for shares of capital stock of Nasdaq
shall be signed in the name of Nasdaq by two officers with one being the
Chair of the Board, the Chief Executive Officer, the President, or a Vice
President, and the other being the Secretary, the Treasurer, or such other
officer that may be authorized by the Board. Such certificates may be
sealed with the corporate seal of Nasdaq or a facsimile thereof.

         (b) If any such certificates are countersigned by a transfer agent
other than Nasdaq or its employee, or by a registrar other than Nasdaq or
its employee, any other signature on the certificate may be a facsimile. In
the event that any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall cease to
be such officer, transfer agent, or registrar before such certificate is
issued, such certificate may be issued by Nasdaq with the same effect as if
such person were such officer, transfer agent, or registrar at the date of
issue.

                                Stock Ledger

         Sec. 9.3 (a) A record of all certificates for capital stock issued
by Nasdaq shall be kept by the Secretary or any other officer, employee, or
agent designated by the Board. Such record shall show the name and address
of the person, firm, or corporation in which certificates for capital stock
are registered, the number of shares represented by each such certificate,
the date of each such certificate, and in the case of certificates which
have been canceled, the date of cancellation thereof.

         (b) Nasdaq shall be entitled to treat the holder of record of
shares of capital stock as shown on the stock ledger as the owner thereof
and as the person entitled to vote such shares and to receive notice of
meetings, and for all other purposes. Nasdaq shall not be bound to
recognize any equitable or other claim to or interest in any share of
capital stock on the part of any other person, whether or not Nasdaq shall
have express or other notice thereof.

                             Transfers of Stock

         Sec. 9.4 (a) The Board may make such rules and regulations as it
may deem expedient, not inconsistent with law, the Restated Certificate of
Incorporation, or these By-Laws, concerning the issuance, transfer, and
registration of certificates for shares of capital stock of Nasdaq. The
Board may appoint, or authorize any principal officer to appoint, one or
more transfer agents or one or more transfer clerks and one or more
registrars and may require all certificates for capital stock to bear the
signature or signatures of any of them.

         (b) Transfers of capital stock shall be made on the books of
Nasdaq only upon delivery to Nasdaq or its transfer agent of: (i) a written
direction of the registered holder named in the certificate or such
holder's attorney lawfully constituted in writing; (ii) the certificate for
the shares of capital stock being transferred; and (iii) a written
assignment of the shares of capital stock evidenced thereby.

                                Cancellation

         Sec. 9.5 Each certificate for capital stock surrendered to Nasdaq
for exchange or transfer shall be canceled and no new certificate or
certificates shall be issued in exchange for any existing certificate other
than pursuant to Section 9.6 until such existing certificate shall have
been canceled.

            Lost, Stolen, Destroyed, and Mutilated Certificates

         Sec. 9.6 In the event that any certificate for shares of capital
stock of Nasdaq shall be mutilated, Nasdaq shall issue a new certificate in
place of such mutilated certificate. In the event that any such certificate
shall be lost, stolen, or destroyed, Nasdaq may, in the discretion of the
Board or a committee appointed thereby with power so to act, issue a new
certificate for capital stock in the place of any such lost, stolen, or
destroyed certificate. The applicant for any substituted certificate or
certificates shall surrender any mutilated certificate or, in the case of
any lost, stolen, or destroyed certificate, furnish satisfactory proof of
such loss, theft, or destruction of such certificate and of the ownership
thereof. The Board or such committee may, in its discretion, require the
owner of a lost or destroyed certificate, or the owner's representatives,
to furnish to Nasdaq a bond with an acceptable surety or sureties and in
such sum as will be sufficient to indemnify Nasdaq against any claim that
may be made against it on account of the lost, stolen, or destroyed
certificate or the issuance of such new certificate. A new certificate may
be issued without requiring a bond when, in the judgment of the Board, it
is proper to do so.

                           Fixing of Record Date

         Sec. 9.7 The Board may fix a record date in accordance with
Delaware law.

                                 ARTICLE X

                          MISCELLANEOUS PROVISIONS

                               Corporate Seal

         Sec. 10.1 The seal of Nasdaq shall be circular in form and shall
bear, in addition to any other emblem or device approved by the Board, the
name of Nasdaq, the year of its incorporation, and the words "Corporate
Seal" and "Delaware." The seal may be used by causing it to be affixed or
impressed, or a facsimile thereof may be reproduced or otherwise used in
such manner as the Board may determine.

                                Fiscal Year

         Sec. 10.2 The fiscal year of Nasdaq shall begin the 1st day of
January in each year, or such other month as the Board may determine by
resolution.

                              Waiver of Notice

         Sec. 10.3 (a) Whenever notice is required to be given by law, the
Restated Certificate of Incorporation, or these By-Laws, a waiver thereof
by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders, Directors, or members of a committee of
Directors need be specified in any waiver of notice.

         (b) Attendance of a person at a meeting shall constitute a waiver
of notice of such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.

                 Execution of Instruments, Contracts, Etc.

         Sec. 10.4 (a) All checks, drafts, bills of exchange, notes, or
other obligations or orders for the payment of money shall be signed in the
name of Nasdaq by such officer or officers or person or persons as the
Board, or a duly authorized committee thereof, may from time to time
designate. Except as otherwise provided by law, the Board, any committee
given specific authority in the premises by the Board, or any committee
given authority to exercise generally the powers of the Board during
intervals between meetings of the Board, may authorize any officer,
employee, or agent, in the name of and on behalf of Nasdaq, to enter into
or execute and deliver deeds, bonds, mortgages, contracts, and other
obligations or instruments, and such authority may be general or confined
to specific instances.

         (b) All applications, written instruments, and papers required by
any department of the United States Government or by any state, county,
municipal, or other governmental authority, may be executed in the name of
Nasdaq by any principal officer or subordinate officer of Nasdaq, or, to
the extent designated for such purpose from time to time by the Board, by
an employee or agent of Nasdaq. Such designation may contain the power to
substitute, in the discretion of the person named, one or more other
persons.


                              Form of Records

         Sec. 10.5 Any records maintained by Nasdaq in the regular course
of business, including its stock ledger, books of account, and minute
books, may be kept on, or be in the form of, magnetic tape, computer disk,
or any other information storage device, provided that the records so kept
can be converted into clearly legible form within a reasonable time.

                                 ARTICLE XI

                       AMENDMENTS; EMERGENCY BY-LAWS

                              By Stockholders

         Sec. 11.1 These By-Laws may be altered, amended, or repealed, or
new By-Laws may be adopted, at any meeting of the stockholders by the
affirmative vote of the holders of at least 66 2/3 percent of the voting
power of the then outstanding stock entitled to vote, voting together as a
single class, provided that, in the case of a special meeting, notice that
an amendment is to be considered and acted upon shall be inserted in the
notice or waiver of notice of said meeting.

                                By Directors

         Sec. 11.2 To the extent permitted by the Restated Certificate of
Incorporation, these By-Laws may be altered, amended, or repealed, or new
By-Laws may be adopted, at any regular or special meeting of the Board by a
resolution adopted by a vote of a majority of the whole Board.

                             Emergency By-Laws

         Sec. 11.3 The Board may adopt emergency By-Laws subject to repeal
or change by action of the stockholders which shall, notwithstanding any
different provision of law, the Restated Certificate of Incorporation, or
these By-Laws, be operative during any emergency resulting from any nuclear
or atomic disaster, an attack on the United States or on a locality in
which Nasdaq conducts its business or customarily holds meetings of the
Board or the stockholders, any catastrophe, or other emergency condition,
as a result of which a quorum of the Board or a committee thereof cannot
readily be convened for action. Such emergency By-Laws may make any
provision that may be practicable and necessary under the circumstances of
the emergency.



                                                              Exhibit 10.22



              NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
                          1735 K STREET, NORTHWEST
JOSEPH R. HARDIMAN      WASHINGTON, D.C.  20006-1506
     PRESIDENT                 (202) 728-8100



PERSONAL AND CONFIDENTIAL


                                                         May 31, 1996


Mr. Alfred R. Berkeley, III
301 Northfield Place
Baltimore, MD  21210

Dear Al:

         At a special meeting on May 9, 1996, the Board of Directors of The
Nasdaq Stock Market, Inc. (Nasdaq) authorized me to extend to you an offer
to become the President of Nasdaq. The responsibilities of the President
are set forth in the enclosed Position Description (Enclosure 1). In this
position, you will report directly to the Nasdaq Board, of which you will
be a voting member, and to me as the Chief Executive Officer of the parent,
NASD, Inc. Your election to this position must be ratified by the NASD
Board which I expect to formally take place on June 27, 1996. You can only
be removed from this position by action of the Nasdaq or NASD Boards, the
latter only in exceptional circumstances.

         Your compensation and benefits will be as set forth on the
enclosed schedule entitled "Alfred R. Berkeley Compensation and Benefit
Package" (Enclosure 2). You will be eligible for participation in our
Incentive Compensation Plan on the date you are formally employed and you

are guaranteed payment of the target incentive levels of 50% of your salary
for the first two calendar years of employment. Your salary will be
reviewed at the beginning of each calendar year by the Management
Compensation Committee of the NASD Board along with the salaries of the
other executives of the NASD, NASDR and Nasdaq. The annual review may or
may not result in a salary adjustment.

         Your employment will begin on May 31, 1996. If your employment is
terminated by the Nasdaq or the NASD Boards without cause, the NASD will
take the necessary action to require payment by Nasdaq to you of your
salary then in effect for a period of 24 months following the date of
termination. The term "cause" shall mean your conviction of a felony or
your willful commission of acts of dishonesty, fraud or deceit in
connection with your position.

         You shall be entitled to four weeks of annual vacation and in all
other respects you shall be subject to our normal employee vacation and
sick leave policy. Obviously, we will reimburse you for reasonable expenses
incurred in furtherance of the business of Nasdaq or the NASD when
appropriately documented just as we do for other executives. In addition,
Nasdaq will reimburse you for fees and dues necessary to maintain any
licenses or privileges held by you or any memberships in professional
associations such as bar associations. We will also reimburse you for your
initiation fee and annual dues in a lunch or dinner club of your choice
that may be necessary or useful in the performance of your responsibilities
as President of Nasdaq.

         Lastly, you will find attached as Enclosure 3 a copy of an NASD
Board Resolution, adopted on March 18, 1983 and still in effect, setting
forth the indemnification policy for the NASD and its subsidiaries. We also
include in the Nasdaq Certificate of Incorporation language permitting the
broadest possible indemnification under Delaware law. For your information,
we have in effect a Directors and Officers liability policy in the amount
of $10 million, with deductibles (all of which are covered under our
Resolution).

         For purposes of this letter agreement, the enclosures are
incorporated by reference.

         We are truly excited about your joining our senior management team
as we prepare to lead The Nasdaq Stock Market and the NASD Regulation onto
a new plateau that will serve as the springboard for success of the
enterprise into the next decade.

                                             Sincerely,

                                             /s/ Joseph R. Hardiman




<TABLE>
<CAPTION>

                                              ALFRED R. BERKELEY, III
                                         COMPENSATION AND BENEFIT PACKAGE


Compensation                                        Target                  Maximum

<S>                                             <C>                       <C>       
Base Salary                                     $   500,000               $  500,000

Incentive Compensation
o    Corporate (50%)1
         Paid Currently                             200,000    (40%)          300,000    (60%)
         Deferred for 2 yrs.2                        50,000    (10%)           75,000    (15%)
o    Deferred Match3

                                                -----------               -----------
Total Compensation                              $   750,000               $   875,000
                                                ===========               ===========

Incentive Compensation as % of Base                     50%                     75.0%
                                                    =======                    ======
</TABLE>


Benefits
--------
o  Qualified Retirement Plan (defined benefit - employer paid) - Exhibit A 
o  Supplemental Executive Retirement Plan (defined benefit - employer paid) -
   Exhibit B
o  401(k) Savings Plan - 50% company match up to first 6% contributed by 
   employee (discretionary additional match of 50% upon Board approval) - 
   Exhibit C
o  Health and Medical Plans
o  Flexible Spending Account

----------------
     1   Earned if annual corporate goals are met or exceeded.

     2   20% of earned incentive compensation in deferred for two
         (2) years -- ultimate payout is conditioned on continued
         service, except in the event of death, disability,
         retirement or termination without cause.

     3   A match, up to 50% of the deferred amount, may be awarded depending 
         on the attainment of 3-year Corporate Strategic Plan objectives.



                                                                EXHIBIT A


                       NASD EMPLOYEES RETIREMENT PLAN

                                 OBJECTIVE

         The NASD retirement plan is designed to provide retirement income
based on the average base salary for the highest five consecutive years of
employment (final average salary) and years of service. All contributions
to the Plan, which include funding for administration expenses, are paid by
the Association.

         These are some important features of the Plan:

         o  accrued benefits vest, that is, are non-forfeitable after five 
            years of service;

         o  early retirement can be elected as early as age 55 with a reduced 
            retirement income;

         o  non-contributory defined benefit plan.

                              BENEFIT FORMULA

         Normal retirement at age 65 with benefit computed as follows:

             1.25% per year of service (maximum 30 years) times final
             average salary, plus .6267% per year times final average
             salary exceeding social security covered compensation.

             Election options - Joint and Survivor annuity or Lump Sum
             benefit, certain, or certain and life.

         Deferred retirement - Employment with the NASD past the Normal
         Retirement Age of 65 will delay benefits until actual retirement.
         Benefits are determined as of the actual retirement date.

         Early retirement - After age 55 and ten or more years of service
         the accrued benefit would be reduced 3% per year up to age 61 and
         is unreduced for ages 62 through 64.

         Disability retirement - Employees who are totally and permanently
         disabled before the Normal Retirement Age of 65, regardless of the
         length of service, will receive a monthly retirement benefit at
         age 65 that is based on the assumption that employment continued
         from the beginning of the disability until age 65 at the salary
         rate in effect at the beginning of the disability.




                                                                   EXHIBIT B


                   SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN


Comp Base                           Base salary + 1/3 of incentive compensation

Final Average Comp (FAC)            Highest 60 consecutive months immediately
                                    preceding retirement

Normal Retirement Calculation
-        Maximum                    60% of FAC
-        Offset                     Qualified plan benefit

Early Retirement Calculation        After age 55 and vested
-        Reductions                 No reduction after age 62.  3% per year 
                                    between 55 and 62

Vesting                             Age 55 plus 10 years

Death Benefit                       Death benefit
                                    in lieu of above
                                    benefits equal to 3
                                    times base pay payable
                                    in 120 monthly
                                    installments

Funding                            Paid from general assets of Nasdaq





                                                                   Exhibit C


                            SAVINGS PLAN (401-K)

                                 OBJECTIVE
                                 ---------

o    Offered to employees as a means of accumulating savings for
     retirement, reducing federal income taxes, and deferring taxes on
     investment earnings.

                                ELIGIBILITY
                                -----------

o    Employees are eligible to contribute to the plan, through payroll
     deductions, immediately upon employment. However, matching employer
     contributions are not made until 12 consecutive months of employment,
     with at least 1,000 hours of service during that time.

                         CONTRIBUTIONS AND MATCHING
                         --------------------------

o    NASD contributes $.50 for every dollar saved up to 6 percent of the 
     employee's salary.

o    NASD may, at its discretion, contribute up to an additional $.50 for
     every dollar saved up to 6 percent of the employee's salary at the end
     of the year based on the performance of the organization as determined
     by management and approved by the Management Compensation/Development
     Committee.

o    Two types of employee contributions to the plan:

     -   Regular - can be pre-tax, after-tax or both. Contributions can
         range from 1 to 6 percent of base salary. These contributions are
         matched by the NASD at 50%, with up to an additional 50%
         discretionary match.
     -   Voluntary - pre-tax or after-tax or both.  Contributions above 6 
         percent are not matched by the NASD.

o    The plan limits contributions (regular and voluntary combined) to 17
     percent of base salary. Highly compensated participants as defined by
     the IRS are further limited by anti-discrimination tasks which
     currently allow a maximum of 9%.

                                  VESTING
                                  -------

o Employee contributions vest immediately. Employer contributions are
vested after three years of service.

                             INVESTMENT OPTIONS
                             ------------------

o    Investments are managed by the Vanguard Group of Investment Companies.
     Employees may select from 12 investment options to allocate their
     monies (6 equity, 3 fixed income, 2 balanced, 1 money market):

     -   Money Market Reserves - Federal Portfolio
     -   Investment Contract Trust
     -   Bond Index Fund
     -   Index Trust - 500 Portfolio
     -   Windsor II
     -   Trustees' Equity Fund - International Portfolio
     -   Morgan Growth Fund
     -   Explorer Fund
     -   Short Term Corporate Portfolio
     -   STAR Fund
     -   Wellington Fund
     -   U.S. Growth Portfolio

o    Market value of assets at December 31, 1994 - $51,974,000

                               DISTRIBUTIONS
                               -------------

o    In-service withdrawals of employee after-tax contributions are
     permitted for any reason, with certain restrictions, and withdrawals
     of pre-tax contributions are permitted in the case of hardship.

o    The Plan contains a loan feature which allows employees to borrow a
     portion of their pre-tax balances.

o    Plan benefits are paid to employees at retirement or termination of NASD
     employment.





                                                               Exhibit 21.1


                          S U B S I D I A R I E S



1.       Nasdaq Tools, Inc. (incorporated in Delaware)

2.       Quadsan Enterprises Inc. (incorporated in Delaware)

3.       Nasdaq Global Holdings (incorporated in Switzerland)

        o         Nasdaq Global Technology, Ltd. (incorporated in Bermuda)
        o         Nasdaq International Ltd. (incorporated in United Kingdom)
            o         Nasdaq Ltda (incorporated in Brazil)
        o         Nasdaq Europe Planning Company Ltd. (incorporated in United
                  Kingdom)
        o         Nasdaq Japan, Inc. (incorporated in Japan)
        o         Nasdaq Europe S.A./N.V. (incorporated in Belgium)
        o         IndigoMarkets Ltd. (incorporated in Bermuda)
            o         IndigoMarkets India Private Ltd. (organized in India)

4.       Nasdaq Financial Products Services, Inc. (incorporated in
         Delaware)

5.       Nasdaq International Market Initiatives, Inc. (incorporated in
         Delaware)

6.       Nasdaq Canada, Inc. (incorporated in Canada)

7.       Nasdaq Educational Foundation Inc. (formed in Delaware)

8.       Nasdaq-BIOS R&D Joint Venture (formed in Delaware)