Nasdaq, Inc.
Mar 10, 2003

NASDAQ Full-Year and Fourth Quarter 2002 Results

New York, N.Y.—-The NASDAQ Stock Market, Inc. ("NASDAQ"; OTCBB: NDAQ), the world's largest electronic stock market, today reported full-year and fourth quarter results for the period ending December 31, 2002.

Significant Accomplishments in 2002:

"NASDAQ found 2002 to be a difficult year. Economic conditions, regulatory delays and fundamental changes in the complexion of our market all posed challenges for us," noted Wick Simmons, Chairman and Chief Executive Officer of The NASDAQ Stock Market. "However, within this environment NASDAQ improved the transaction quality and transparency of its market for investors, supplied new, value added services for our listed companies, furthered our drive toward self-sufficiency, and reduced the effective cost of running the business. In sum, NASDAQ continued to improve the competitiveness of its platform as it sought to increase investor trust."

Net Income
NASDAQ continued to streamline its cost structure in 2002, focusing on fundamental business operations, and its separation from the National Association of Securities Dealers, Inc. ("NASD"):

Revenue
NASDAQ's full-year and fourth quarter 2002 revenue reflected the continuation of difficult market conditions and increased competition:

EBITDA 1
NASDAQ's operating performance remained strong in 2002:

Mr. Simmons continued: "NASDAQ successfully completed the launch of SuperMontage and initiated the rollout of related data products, the ViewSuiteSM, designed to improve the speed and transparency of our market. We introduced the Market Intelligence Desk, providing valuable market insight to all NASDAQ-listed companies. We announced the formation of a joint venture through NASDAQ Europe, NASDAQ Deutschland AG, supported by a customized version of the SuperMontage platform, SuperMontage Europe. Finally, NASDAQ continued to work toward operating as a self-sufficient, for profit, shareholder-owned company."

"To address issues of investor confidence, NASDAQ further strengthened its focus on corporate governance in 2002, we proposed tightened standards for our listed companies, seeking greater independence among corporate boards of directors and shareholder approval for stock option plans. The standards were proposed in an effort to strike a balance between companies' ability to access the capital markets to fund their growth and the protection of investors providing liquidity to those markets. While NASDAQ has always supported high standards for its market and listed companies, the scandals that plagued corporate America in late 2001 and throughout 2002 emphasized the fact that regulation of the financial markets needs to keep pace with the evolution of the markets themselves."

2003 Objectives
NASDAQ intends to develop and deliver highly competitive products and services for its listed companies, traders and investors by leveraging the NASDAQ brand and the Company's core strengths, innovative technology and market quality. Specific goals include:

Combined, these initiatives are expected to enable NASDAQ to grow what is today a more efficient pool of liquidity, featuring faster executions, superior quoted spreads and lower transaction costs than traditionally achieved in NASDAQ's systems.

Business Line Results

Transaction Services
Transaction Services revenue was $380.7 million in 2002, down 7.6% compared with revenue of $412.1 million in 2001. Fourth quarter revenue declined 23.9% to $78.8 million compared with revenue of $103.6 million in the fourth quarter of 2001.

Underlying the performance during the year were depressed trading volumes across the equity markets as concerns over corporate governance, softness in the U.S. economy and geopolitical instability weighed on investor confidence. Increased competition and shifts in market composition placed additional pressure on revenue throughout the year as firms executed transactions and reported trades in NASDAQ-listed securities outside of NASDAQ's systems:

Impacting the decline in NASDAQ's Access Services business was a reduction in the number of subscriber log-ons to NASDAQ's systems as consolidation across the industry and cost savings initiatives resulted in broad reductions in force.

Despite the difficult operating environment, NASDAQ executed on its stated goal to launch SuperMontage, it's new trading system, during 2002:

In 2002, NASDAQ Transaction Services derived revenue primarily from transactions associated with SuperMontage, SelectNetSM, SuperSoesSM, SOESSM, trade reporting fees associated with ACT and system access fees. SOES, SuperSoes and SelectNet were retired on December 31, 2002 after being replaced by SuperMontage.

Market Information Services
Market Information Services revenue declined 17.0% in 2002 to $202.4 million from $243.9 million in 2001. Fourth quarter revenue declined 23.1% to $49.5 million from $64.4 million in the fourth quarter 2001.

In the fourth quarter of 2002, NASDAQ rolled out Liquidity TrackerSM and its ViewSuite of data products, both of which, in conjunction with SuperMontage, were designed to increase market transparency and maximize trading efficiency for NASDAQ's customers.

Market Information Services derives revenue primarily from Level 1 and NQDS data, and receipt of Consolidated Quotation Plan and the Consolidated Tape Association Plan (CQ/CTA) tape revenue for trades processed through the NASDAQ InterMarket.

Corporate Client Group
Corporate Client Group revenue increased 13.2% in 2002 to $176.7 million from $156.1 million in 2001 and increased 12.3% in the fourth quarter to $44.6 million from $39.7 million in the fourth quarter of 2001.

In June 2002, the Corporate Client Group launched the Market Intelligence Desk, a value-added service designed to provide NASDAQ's listed companies with a centralized point-of-contact for detailed information regarding their stocks' trading activity, news coverage and analyst opinion revisions.

Corporate Client Group revenue is primarily earned through initial listing fees, fees associated with the listing of additional shares and annual renewal fees for companies listed on NASDAQ. Initial listing fees and fees associated with the listing of additional shares are amortized over six-year and four-year periods, respectively, in accordance with the adoption of SEC Staff Accounting Bulletin 101, applied retroactively as of January 1, 2000.

Other
Other revenue fell 12.6% in 2002 to $39.4 million from $45.1 million in 2001, despite rising 37.2% in the fourth quarter to $10.7 million from $7.8 million in the fourth quarter of 2001. The decrease during the year was partially the result of a decrease in licensing revenue related to NASDAQ-100 Index Tracking Stock (QQQ) trades occurring outside the NASDAQ InterMarket. This decline in trademark revenue was effectively offset by the higher tape revenue received by NASDAQ InterMarket, which is reflected in Market Information Services, as a result of its increased market share.

In the fourth quarter of 2002, NASDAQ Financial Products Services, Inc. expanded its footprint in the exchange-traded fund (ETF) market. NASDAQ established itself as a listing market for ETFs with the launch of a family of four BLDRSSM ETFs based on The Bank of New York ADR IndexesSM, listed on NASDAQ, and traded on NASDAQ's new SuperMontage trading platform. Additionally, the NASDAQ-100 European TrackerSM ETF, the first European ETF based upon the NASDAQ-100 Index®, was launched, listed on NASDAQ Europe, traded on the SuperMontage Europe platform and registered for sale in the U.K., Belgium, Germany and Ireland.

NASDAQ generates revenue related to the licensing of NASDAQ Indexes for financial instruments, including the NASDAQ-100 Index®, which is the benchmark for financial products such as the QQQ. The Index, launched in 1985, includes the 100 largest non-financial stocks traded on The NASDAQ Stock Market. The NASDAQ-100 Index® is one of the world's most widely watched financial barometers and has become the basis for a broad range of financial instruments, including futures contracts, mutual funds, index options, structured products and exchange-traded funds. NASDAQ also generates revenue from NASDAQ.com and advertising revenue from the MarketSite tower.

Other Initiatives

On November 8, 2002, NASDAQ LIFFE Markets, LLC ("NQLX"), a fifty-percent joint venture with The London International Financial Futures and Options Exchange (LIFFE), began listing futures contracts on individual equity securities. The joint venture is a wholly electronic exchange offering a broad range of futures contracts. NQLX is an independent exchange and uses LIFFE CONNECTTM, the world's most advanced derivatives trading system, as its trading platform.


Expenses

Total expenses decreased 9.5% in 2002 to $720.1 million from $796.1 million in 2001. Total expenses in the fourth quarter were $184.3 million versus $236.6 million in the year-earlier period, an improvement of 22.1%. Included in the improvement during 2002 was a higher expense-base in 2001 due to several adjustments related to NASDAQ's on-going separation from the NASD. Offsetting this in 2002, NASDAQ exited certain foreign investments and technology initiatives resulting in after-tax charges of $10.3 million in the second quarter of the year, and the recording of costs associated with NASDAQ's proposed separation from the NASD and associated transitional support costs to be funded to the American Stock Exchange ("Amex").

Direct Expenses
Direct expenses were down 7.1% in 2002 to $645.1 million from $694.3 million in 2001. In the fourth quarter, NASDAQ reduced direct expenses by 21.4% to $165.8 million from $210.9 million in the fourth quarter of 2001.

In 2002, NASDAQ continued to benefit from initiatives taken to reduce the fundamental costs required to run the business, namely:

Offsetting these efficiencies during the year:

Support Costs from Related Parties
Support Costs from Related Parties decreased 26.3% in 2002 to $75.0 million, and fell 28.0% in the fourth quarter to $18.5 million. Two factors contribute to NASDAQ's support costs:


Net Income and Earnings Per Share

Net income for 2002 was $43.1 million, up 6.4% from $40.5 million in 2001. Net income in the fourth quarter was $0.3 million compared to a net loss of $13.3 million in the fourth quarter of 2001, an increase of $13.6 million.

NASDAQ reported 2002 net income applicable to common stockholders of $33.4 million or $0.40 per share, up 14.3% from $0.35 per share in 2001. In the fourth quarter, NASDAQ reported a net loss applicable to common stockholders of $2.1 million or ($0.03) per share compared to a net loss of $13.3 million or ($0.12) per share a year ago. Impacting earnings per share during the year was the repurchase of 33.8 million shares of common stock from the NASD in the first quarter of 2002.

Share Repurchase

On March 8, 2002 NASDAQ completed the second and final stage of its repurchase of NASDAQ Common Stock from the NASD in which an additional 33.8 million shares of Common Stock were repurchased from the NASD; representing all of the outstanding shares of Common Stock owned by the NASD, except for the 43.2 million shares of Common Stock underlying the warrants issued by the NASD in two private placements in 2000 and 2001.

Private Placement of Notes

On May 9, 2002, NASDAQ completed a $150.0 million private placement of five-year senior notes due in 2007. The proceeds of the transaction were used to replace a portion of the cash used to repurchase the above-mentioned 33.8 million shares of NASDAQ common stock from the NASD.

Conclusion

Mr. Simmons reiterated NASDAQ's commitment to market quality and customer service stating: "NASDAQ continues to support an open, competitive market environment with exceptional integrity and transparency. To that end, NASDAQ will continue to hold its listed companies, market participants and the investment community to higher standards as the equity markets evolve. SuperMontage and the associated data products that NASDAQ rolled out in 2002 will provide traders and investors with greater visibility into the market, while NASDAQ's listing standards will ensure that companies have the access to the capital markets needed to grow their businesses and strengthen the health of the economy throughout 2003."

NASDAQ is the world's largest electronic stock market. With approximately 3,600 companies, NASDAQ lists more companies and, on average, trades more shares per day than any other U.S. market. It is home to category-defining companies that are leaders across all areas of business including technology, retail, communications, financial services, media and biotechnology industries. NASDAQ is a key driver of capital formation.

For more information about NASDAQ, visit the NASDAQ Web site at www.NASDAQ.com or the NASDAQ NewsroomSM at www.nasdaq.com/newsroom.

Cautionary Note Regarding Forward-Looking Statements

The matters described herein may contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks, uncertainties or other factors beyond the control of The NASDAQ Stock Market, Inc. (the "Company"), which could cause actual results to differ materially from historical results, performance or other expectations and from any opinions or statements expressed or implied with respect to future periods. These factors include, but are not limited to, the Company's 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 detailed in the Company's annual report on Form 10-K, as amended, and periodic reports filed with the U.S. Securities and Exchange Commission. We undertake no obligation to release any revisions to any forward-looking statements.


1 EBITDA throughout this release is defined as earnings before interest, taxes, depreciation, amortization and minority interests.

2 In order to use data more consistent with the separation of the Securities Information Processor (SIP) function from The Nasdaq Stock Market that began in July 2002, the methodology for calculating systems market share of volume and trades was adjusted. As a result, information on volume market share and trade market share provided here may not be comparable to such data previously provided by NASDAQ for prior periods based on the old methodology. A discussion of the SIP separation is contained in NASDAQ's Form 10-K, as amended.