Nasdaq, Inc.
NASDAQ, INC. (Form: 10-Q, Received: 05/10/2017 13:25:59)
 
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE   ACT OF 1934
 
For the transition period from  ________ to ________

Commission file number: 000-32651
___________________________________
Nasdaq, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
52-1165937
(I.R.S. Employer
Identification No.)
 
 
One Liberty Plaza, New York, New York
(Address of Principal Executive Offices)
10006
(Zip Code)
Registrant’s telephone number, including area code:
+1 212 401 8700
No changes
(Former name, former address and former fiscal year, if changed since last report)
_______________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
☐  (Do not check if a smaller reporting company)
Smaller reporting company
 
 
 
 
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No   ☒ 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 
Class
 
Outstanding at May 2, 2017
Common Stock, $.01 par value per share
 
165,178,479 shares
 
 


 
Table of Contents

Nasdaq, Inc.
Form 10-Q
For the Quarterly Period Ended March 31, 2017

INDEX
 
 
 
Page   
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 

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About This Form 10-Q
Throughout this Form 10-Q, unless otherwise specified:
“Nasdaq,” “we,” “us” and “our” refer to Nasdaq, Inc.  
“Nasdaq Baltic” refers to collectively, Nasdaq Tallinn AS, Nasdaq Riga, AS, and AB Nasdaq Vilnius.
“Nasdaq BX” refers to the cash equity exchange operated by NASDAQ BX, Inc.
“Nasdaq BX Options” refers to the options exchange operated by NASDAQ BX, Inc.
“Nasdaq Clearing” refers to the clearing operations conducted by Nasdaq Clearing AB.
“Nasdaq ISE” refers to the options exchange operated by International Securities Exchange, LLC.  
“Nasdaq Nordic” refers to collectively, Nasdaq Clearing AB, Nasdaq Stockholm AB, Nasdaq Copenhagen A/S, Nasdaq Helsinki Ltd, and Nasdaq Iceland hf.  
“Nasdaq PHLX” refers to the options exchange operated by NASDAQ PHLX LLC.
“Nasdaq PSX” refers to the cash equity exchange operated by NASDAQ PHLX LLC.
“The Nasdaq Options Market” refers to the options exchange operated by The NASDAQ Stock Market LLC.
“The Nasdaq Stock Market” refers to the cash equity exchange operated by The NASDAQ Stock Market LLC.
* * * * * *
Nasdaq also provides the following list of abbreviations and acronyms as a tool for the reader that are used throughout this Quarterly Report on Form 10-Q.

401(k) Plan: Voluntary Defined Contribution Savings Plan
2014 Credit Facility: $750 million senior unsecured revolving credit commitment which matures on November 25, 2019
2016 Credit Facility: $400 million senior unsecured term loan facility which matures on November 25, 2019
2018 Notes: $370 million aggregate principal amount of 5.25% senior unsecured notes due January 16, 2018
2020 Notes: $600 million aggregate principal amount of 5.55% senior unsecured notes due January 15, 2020
2021 Notes: €600 million aggregate principal amount of 3.875% senior unsecured notes due June 7, 2021
2023 Notes: €600 million aggregate principal amount of 1.75% senior unsecured notes due May 19, 2023
2024 Notes: $500 million aggregate principal amount of 4.25% senior unsecured notes due June 1, 2024
2026 Notes: $500 million aggregate principal amount of 3.85% senior unsecured notes due June 30, 2026
ASU: Accounting Standards Update
BWise: BWise Beheer B.V. and its subsidiaries
CCP: Central Counterparty
EMIR: European Market Infrastructure Regulation
Equity Plan: Nasdaq Equity Incentive Plan
 
ESPP: Nasdaq Employee Stock Purchase Plan
ETP: Exchange Traded Product
Exchange Act: Securities Exchange Act of 1934, as amended
FASB: Financial Accounting Standards Board
FICC: Fixed Income and Commodities Trading and Clearing
FINRA: Financial Industry Regulatory Authority
IPO: Initial Public Offering
ISE: U.S. Exchange Holdings, Inc. and its subsidiaries
LIBOR: London Interbank Offered Rate
MTF: Multilateral Trading Facility
NFX: Nasdaq Futures, Inc.
NPM: The Nasdaq Private Market, LLC
NSCC: National Securities Clearing Corporation
OCC: The Options Clearing Corporation
OTC: Over-the-Counter
PSU: Performance Share Unit
SEC: U.S. Securities and Exchange Commission
SERP: Supplemental Executive Retirement Plan

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SFSA: Swedish Financial Supervisory Authority
S&P: Standard & Poor’s
S&P 500: S&P 500 Stock Index
 
TSR: Total Shareholder Return
U.S. GAAP: U.S. Generally Accepted Accounting Principles
VAT: Value Added Tax
* * * * * *
The following is a non-exclusive list of registered trademarks, registered service marks, or trademarks or service marks of Nasdaq or its subsidiaries, in the United States and/or other countries or jurisdictions:

@TRADE®, ACES, AT-TRADE®, AGGREGATION, TRANSPARENCY, CONTROL®, AUTO WORKUP®, AXE®, BOARDVANTAGE, BWISE®, BWISE BUSINESS IN CONTROL®, BWISE RAPID DEPLOYMENT SOLUTION®, BX VENTURE MARKET®, CANADIAN DIVIDEND ACHIEVERS®, CCBN®, CCN®, CCN NEWSNET DESIGN, CCNMATTHEWS®, CLICK XT®, CONDICO®, CYBER SECURITY®, D.A.L.I®, DATAXPRESS®, DEFENSE OF INTERNATIONAL MARKETS AND EXCHANGES SYMPOSIUM®, DIMES®, DIRECTORS DESK®, DIRECTORSDESK®, DIVIDEND ACHIEVERS®, DORSEY WRIGHT®, DREAM IT. DO IT.®, DWA®, DWA MATRIX®, DX®, EQQQ, E (design), E-SPEED®, ESPEED®, ESPEEDOMETER®, EXACTEQUITY®, EXIGO, FINQLOUD®, FINQLOUD REGULATORY RECORDS RETENTION® FIRST NORTH®, FONDSBØRSEN®, FTEN®, GENIUM®, GIDS®, GLOBE NEWSWIRE®, GO! POWERED BY MARKETWIRE®, HACK®, IGNITE YOUR AMBITION®, INET®, INVESTOR WORLD®, IPOWORLD®, ISE BIG DATA®, ISE MOBILE PAYMENTS® ISSUERWORLD®, ITCH®, KFXAKTIEINDEX®, LIQUIDITYXPRESS®, LONGITUDE®, MARKET INTELLIGENCE DESK®, MARKET LINQUIDITY,MARKET MECHANICS®, MARKETSITE®, MARKETWIRE BEYOND WORDS®, MARKETWIRE RESONATE®, MARKETWIRE®, MARKETWIRE GO! ®, MARKETWIRED RESONATE®, MARKETWIRED®, MW®, MW MARKET WIRED®, MW MARKETWIRED THE POWER OF INFLUENCE®, MY CCBN®, MYMEDIAINFO®, NASDAQ®, NASDAQ 100 INDEX®, NASDAQ - FINANCIAL®, NASDAQ BIOTECHNOLOGY INDEX®, NASDAQ CANADA®, NASDAQ CANADA COMPOSITE INDEX®, NASDAQ CANADA INDEX®, NASDAQ CAPITAL MARKET®, NASDAQ COMPOSITE®, NASDAQ COMPOSITE INDEX®, NASDAQ COMPUTER INDEX®, NASDAQ DIVIDEND ACHIEVERS®, NASDAQ DUBAI®, NASDAQ EUROPE®, NASDAQ EUROPE COMPOSITE INDEX®, NASDAQ FINANCIAL-100 INDEX®, NASDAQ FX®, NASDAQ GLOBAL MARKET®, NASDAQ GLOBAL SELECT MARKET®, NASDAQ INDUSTRIAL INDEX®, NASDAQ INTERACT®, NASDAQ INTERNET INDEX®, NASDAQ IQ FUND®, NASDAQ IR INSIGHT®, NASDAQ JAPAN®, NASDAQ MARKET ANALYTIX®, NASDAQ MARKET CENTER®, NASDAQ MARKET FORCES®, NASDAQ MARKET VELOCITY®, NASDAQ MARKETSITE®, NASDAQ MAX®, NASDAQ MAX MARKET ANALYTIX®, NASDAQ NATIONAL MARKET®, NASDAQ OMX®, NASDAQ OMX ALPHA INDEXES®, NASDAQ OMX GREEN ECONOMY INDEX®, NASDAQ OMX NORDIC®, NASDAQ PRIVATE MARKET®, NASDAQ Q-50 INDEX®, NASDAQ TELECOMMUNICATIONS INDEX®, NASDAQ TOTALVIEW®, NASDAQ TRADER®, NASDAQ TRANSPORTATION INDEX®, NASDAQ US ALL MARKET®, NASDAQ WORKSTATION®, NASDAQ WORKSTATION II®, NASDAQ WORLD®, NASDAQ-100®, NASDAQ-100 EUROPEANFUND®, NASDAQ-100 EUROPEAN TRACKER®, NASDAQ-100 EUROPEAN TRACKER FUND®, NASDAQ-100 INDEX®, NASDAQ-100 INDEX EUROPEAN TRACKER FUND®, NASDAQ-100 INDEX TRACKING STOCK®, NDX®, NEWS RELEASE EXPRESS®, NFX WORLD CURRENCY FUTURES®, NLX®, NOIS®, NORDIX®, OMX COPENHAGEN 20®, OMX HELSINKI 25®, OMX STIBOR FUTURE®, OMX STOCKHOLM 30®, OMXH25®, OMXS30®, OMXS3FUT®, OMX TECHNOLOGY®, ON THE WIRE®, OTW®, OVERUNDER®, PHILADELPHIA STOCK EXCHANGE®, PHLX®, PHLX XL®, PIXL®, PRECISE TRADE®, PRF®, Q THE NEXT GREAT THING®, QQQ®, QTARGET®, QVIEW®, R3®, RISKWAY®, RISKWRAPPER®, RISKXPOSURE®, RX®, S.A.X.E.S®, SECONDMARKET®, SECONDMARKET ECOSYSTEM®, SIDECAR®, SIGNALXPRESS®, SMARTS®, SMARTSONLINE®, STINA®, STRUCTURED LIQUIDITY PROGRAM®, THE NASDAQ STOCK MARKET®, THE STOCK MARKET FOR THE NEXT 100 YEARS®, TOTAL EQUITY SOLUTION®, TRADEGUARD®, TX®, ULL®, ULTRA LOW LATENCY®, ULTRAFEED®, VX PROXY®, WIZER®, XDE®, XO DORSEY WRIGHT & ASSOCIATES®, YFIRUNDIR®, YLIALLE®, ÖVERUNDER®

To the extent a name, logo or design does not appear on the above list, such lack of appearance does not constitute a waiver of any intellectual property rights that Nasdaq has established in its product or service names or logos, or in product configurations or designs, all of which rights are expressly reserved.
FINRA® and TRADE REPORTING FACILITY® are registered trademarks of FINRA.
All other trademarks and service marks used herein are the property of their respective owners.
This Quarterly Report on Form 10-Q includes market share and industry data that we obtained from industry publications and surveys, reports of governmental agencies and internal company surveys. Industry publications and surveys generally state that

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the information they contain has been obtained from sources believed to be reliable, but we cannot assure you that this information is accurate or complete. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our market position are based on the most currently available market data. For market comparison purposes, The Nasdaq Stock Market data in this Quarterly Report on Form 10-Q for IPOs is based on data generated internally by us, which includes best efforts underwritings; therefore, the data may not be comparable to other publicly-available IPO data. Data in this Quarterly Report on Form 10-Q for new listings of equity securities on The Nasdaq Stock Market is based on data generated internally by us, which includes best efforts underwritings, issuers that switched from other listing venues, closed-end funds and ETPs. Data in this Quarterly Report on Form 10-Q for IPOs and new listings of equity securities on the Nasdaq Nordic and Nasdaq Baltic exchanges also is based on data generated internally by us. IPOs and new listings data is presented as of period end. While we are not aware of any misstatements regarding industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors. We refer you to the “Risk Factors” section in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, and the “Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 that was filed with the SEC on March 1, 2017.
 
 * * * * * *
Nasdaq intends to use its website, ir.nasdaq.com, as a means for disclosing material non-public information and for complying with SEC Regulation FD and other disclosure obligations. These disclosures will be included on Nasdaq’s website under “Investor Relations.”
 

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Forward-Looking Statements
The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains these types of statements. Words such as “may,” “will,” “could,” “should,” “anticipates,” “envisions,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words or terms of similar substance used in connection with any discussion of future expectations as to industry and regulatory developments or business initiatives and strategies, future operating results or financial performance, and other future developments identify forward-looking statements. These include, among others, statements relating to:
our 2017 outlook;
the integration of acquired businesses, including accounting decisions relating thereto;
the scope, nature or impact of acquisitions, divestitures, investments, joint ventures or other transactional activities;
the effective dates for, and expected benefits of, ongoing initiatives, including transactional activities and other strategic, restructuring, technology, de-leveraging and capital return initiatives;
our products, order backlog and services;
the impact of pricing changes;
tax matters;
the cost and availability of liquidity and capital; and
any litigation, or any regulatory or government investigation or action, to which we are or could become a party.
Forward-looking statements involve risks and uncertainties. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include, among others, the following:
our operating results may be lower than expected;
our ability to successfully integrate acquired businesses, including the fact that such integration may be more difficult, time consuming or costly than expected, and our ability to realize synergies from business combinations and acquisitions;
loss of significant trading and clearing volumes or values, fees, market share, listed companies, data products customers or other customers;
our ability to keep up with rapid technological advances and adequately address cybersecurity risks;
economic, political and market conditions and fluctuations, including interest rate and foreign currency risk, inherent in U.S. and international operations;
the performance and reliability of our technology and technology of third parties;
our ability to continue to generate cash and manage our indebtedness; and
adverse changes that may occur in the litigation or regulatory areas, or in the securities markets generally.
 
Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the uncertainty and any risk related to forward-looking statements that we make. These risk factors are discussed under the caption “Part II. Item 1A. Risk Factors,” in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and more fully described in the "Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 that was filed with the SEC on March 1, 2017. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. You should carefully read this entire Quarterly Report on Form 10-Q, including “Part 1. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the condensed consolidated financial statements and the related notes. Except as required by the federal securities laws, we undertake no obligation to update any forward-looking statement, release publicly any revisions to any forward-looking statements or report the occurrence of unanticipated events. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
Nasdaq, Inc.
Condensed Consolidated Balance Sheets
(in millions, except share and par value amounts)
 
March 31, 2017
 
December 31, 2016
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
386

 
$
403

Restricted cash
78

 
15

Financial investments, at fair value
220

 
245

Receivables, net
467

 
429

Default funds and margin deposits
3,633

 
3,301

Other current assets
163

 
167

Total current assets
4,947

 
4,560

Property and equipment, net
376

 
362

Deferred tax assets
617

 
717

Goodwill
6,070

 
6,027

Intangible assets, net
2,082

 
2,094

Other non-current assets
398

 
390

Total assets
$
14,490

 
$
14,150

 
 
 
 
Liabilities
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
187

 
$
175

Section 31 fees payable to SEC
81

 
108

Accrued personnel costs
110

 
207

Deferred revenue
322

 
162

Other current liabilities
174

 
129

Default funds and margin deposits
3,633

 
3,301

Current portion of debt obligations
379

 

Total current liabilities
4,886

 
4,082

Debt obligations
3,242

 
3,603

Deferred tax liabilities
702

 
720

Non-current deferred revenue
164

 
171

Other non-current liabilities
144

 
144

Total liabilities
9,138

 
8,720

 
 
 
 
Commitments and contingencies

 

Equity
 
 
 
Nasdaq stockholders’ equity:
 
 
 
Common stock, $0.01 par value, 300,000,000 shares authorized, shares issued: 169,760,142 at March 31, 2017 and 170,501,186 at December 31, 2016; shares outstanding: 165,168,584, at March 31, 2017 and 166,579,468 at December 31, 2016
2

 
2

Additional paid-in capital
2,963

 
3,104

Common stock in treasury, at cost: 4,591,558, shares at March 31, 2017 and 3,921,718 shares at December 31, 2016
(221
)
 
(176
)
Accumulated other comprehensive loss
(987
)
 
(979
)
Retained earnings
3,595

 
3,479

Total Nasdaq stockholders’ equity
5,352

 
5,430

Total liabilities and equity
$
14,490

 
$
14,150

                                            
See accompanying notes to condensed consolidated financial statements.

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Nasdaq, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(in millions, except per share amounts)
 
Three Months Ended March 31,
 
2017
 
2016
Revenues:
 
 
 
Market Services
$
606

 
$
572

Corporate Services
160

 
143

Information Services
138

 
133

Market Technology
67

 
57

Total revenues
971

 
905

Transaction-based expenses:
 
 
 
Transaction rebates
(301
)
 
(283
)
Brokerage, clearance and exchange fees
(87
)
 
(88
)
Revenues less transaction-based expenses
583

 
534

Operating expenses:
 
 
 
Compensation and benefits
161

 
152

Professional and contract services
36

 
35

Computer operations and data communications
30

 
25

Occupancy
23

 
20

General, administrative and other
19

 
14

Marketing and advertising
7

 
6

Depreciation and amortization
45

 
38

Regulatory
8

 
7

Merger and strategic initiatives
6

 
9

Restructuring charges

 
9

Total operating expenses
335

 
315

Operating income
248

 
219

Interest income
2

 
1

Interest expense
(37
)
 
(28
)
Other investment income

 
1

Net income from unconsolidated investees
4

 
2

Income before income taxes
217

 
195

Income tax provision
48

 
63

Net income attributable to Nasdaq
$
169

 
$
132

Per share information:
 
 
 
Basic earnings per share
$
1.02

 
$
0.80

Diluted earnings per share
$
0.99

 
$
0.78

Cash dividends declared per common share
$
0.32

 
$
0.57

See accompanying notes to condensed consolidated financial statements.

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Nasdaq, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(in millions)
 
Three Months Ended March 31,
 
2017
 
2016
Net income
$
169

 
$
132

Other comprehensive income (loss):
 
 
 
Foreign currency translation gain (loss):
 
 
 
Net foreign currency translation gain
42

 
138

Income tax expense
(50
)
 
(44
)
Total other comprehensive income (loss), net of tax
(8
)
 
94

Comprehensive income attributable to Nasdaq
$
161

 
$
226

 
See accompanying notes to condensed consolidated financial statements.


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Nasdaq, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in millions)
 
Three Months Ended March 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
169

 
$
132

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
45

 
38

Share-based compensation
15

 
16

Deferred income taxes
29

 
2

Net income from unconsolidated investees
(4
)
 
(2
)
Other reconciling items included in net income
7

 
4

Net change in operating assets and liabilities, net of effects of acquisitions:
 
 
 
Receivables, net
(38
)
 
(5
)
Other assets
4

 
(2
)
Accounts payable and accrued expenses
12

 
14

Section 31 fees payable to SEC
(27
)
 
(18
)
Accrued personnel costs
(98
)
 
(89
)
Deferred revenue
149

 
147

Other liabilities
(19
)
 
18

Net cash provided by operating activities
244

 
255

Cash flows from investing activities:
 
 
 
Purchases of trading securities
(93
)
 
(144
)
Proceeds from sales and redemptions of trading securities
120

 
94

Purchases of available-for-sale investment securities
(5
)
 
(5
)
Proceeds from maturities of available-for-sale investment securities
6

 
7

Acquisition of businesses, net of cash and cash equivalents acquired

 
(213
)
Purchases of property and equipment
(36
)
 
(23
)
Other investment activities

 
(10
)
Net cash used in investing activities
(8
)
 
(294
)
Cash flows from financing activities:
 
 
 
Payments of debt obligations

 
(555
)
Proceeds from utilization of credit commitment

 
325

Proceeds from issuances of senior unsecured notes and term loan facility

 
399

Cash paid for repurchase of common stock
(156
)
 
(29
)
Cash dividends
(53
)
 
(41
)
Proceeds received from employee stock activity
1

 
1

Payments related to employee shares withheld for taxes
(47
)
 
(34
)
Proceeds (disbursements) of customer funds
63

 
(38
)
Net cash (used in) provided by financing activities
(192
)
 
28

Effect of exchange rate changes on cash and cash equivalents and restricted cash
2

 
6

Net increase (decrease) in cash and cash equivalents and restricted cash
46

 
(5
)
Cash and cash equivalents and restricted cash at beginning of period
418

 
357

Cash and cash equivalents and restricted cash at end of period
$
464

 
$
352

Supplemental Disclosure Cash Flow Information
 
 
 
Cash paid for:
 
 
 
Interest
$
29

 
$
28

Income taxes, net of refund
$
26

 
$
35


See accompanying notes to condensed consolidated financial statements.

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Nasdaq, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
1. Organization and Nature of Operations
Nasdaq, Inc. is a leading provider of trading, clearing, exchange technology, regulatory, securities listing, information and public company services. Our global offerings are diverse and include trading and clearing across multiple asset classes, trade management services, data products, financial indexes, capital formation solutions, corporate solutions, and market technology products and services. Our technology powers markets across the globe, supporting equity derivative trading, clearing and settlement, cash equity trading, fixed income trading and many other functions.
We manage, operate and provide our products and services in four business segments: Market Services, Corporate Services, Information Services and Market Technology.
Market Services
Our Market Services segment includes our Equity Derivative Trading and Clearing, Cash Equity Trading, FICC, and Trade Management Services businesses. We operate multiple exchanges and other marketplace facilities across several asset classes, including derivatives, commodities, cash equity, debt, structured products and ETPs. In addition, in some countries where we operate exchanges, we also provide broker services, clearing, settlement and central depository services. Our transaction-based platforms provide market participants with the ability to access, process, display and integrate orders and quotes. The platforms allow the routing and execution of buy and sell orders as well as the reporting of transactions, providing fee-based revenues.
In the U.S., we operate six electronic options exchanges and three cash equity exchanges. The Nasdaq Stock Market, the largest of our cash equities exchanges, is the largest single venue of liquidity for trading U.S.-listed cash equities. We also operate an electronic platform for trading of U.S. Treasuries and NFX, a U.S. based energy derivatives market which offers cash settled energy derivatives based on key energy benchmarks including oil, natural gas and U.S. power. In addition, we also operate three Canadian markets for the trading of Canadian-listed securities.
In Europe, we operate exchanges in Stockholm (Sweden), Copenhagen (Denmark), Helsinki (Finland), and Reykjavik (Iceland), as well as the clearing operations of Nasdaq Clearing. We also operate exchanges in Tallinn (Estonia), Riga (Latvia) and Vilnius (Lithuania) as Nasdaq Baltic. Collectively, Nasdaq Nordic and Nasdaq Baltic offer trading in cash equities and depository receipts, warrants, convertibles, rights, fund units and exchange traded funds as well as trading and clearing of derivatives and clearing of resale and repurchase agreements.
Nasdaq Commodities is the brand name for Nasdaq’s worldwide suite of commodity-related products and services. Nasdaq Commodities’ offerings include oil, power, natural gas
 
and carbon emission markets, tanker and dry cargo freight, seafood derivatives, iron ore, electricity certificates and clearing services. The products are listed on two of Nasdaq’s derivatives exchanges, Nasdaq Oslo ASA and NFX.
Through our Trade Management Services business, we provide market participants with a wide variety of alternatives for connecting to and accessing our markets via a number of different protocols used for quoting, order entry, trade reporting, DROP functionality and connectivity to various data feeds. We also provide co-location services to market participants, whereby firms may lease cabinet space and power to house their own equipment and servers within our data centers. Our broker services operations offer technology and customized securities administration solutions to financial participants in the Nordic market.
Corporate Services
Our Corporate Services segment includes our Corporate Solutions and Listing Services businesses.
Our Corporate Solutions business serves corporate clients, including companies listed on our exchanges and private companies. We help organizations manage the two-way flow of information with their key constituents, including their board members and investors, and with clients and the public through our suite of advanced technology, analytics, and consultative services. Our Corporate Solutions business primarily offers products to serve the following key areas: IR intelligence, public relations, board and leadership, and digital media services.
Our Listing Services business includes our U.S. and European Listing Services businesses. We operate a variety of listing platforms around the world to provide multiple global capital raising solutions for private and public companies. Our main listing markets are The Nasdaq Stock Market and the Nasdaq Nordic and Nasdaq Baltic exchanges. Through Nasdaq First North, our Nordic and Baltic operations also offer alternative marketplaces for smaller companies and growth companies. Our Listing Services business also includes NPM, which provides services for private companies.
As of March 31, 2017 , there were 2,890 total listings on The Nasdaq Stock Market, including 332 separately listed ETPs. The combined market capitalization was approximately $9.7 trillion . In Europe, the Nasdaq Nordic and Nasdaq Baltic exchanges, together with Nasdaq First North, were home to 910 listed companies with a combined market capitalization of approximately $1.3 trillion .
Information Services
Our Information Services segment includes our Data Products and our Index Licensing and Services businesses. Our Data Products business sells and distributes historical and real-time quote and trade information to market participants and data distributors. Our data products enhance transparency of the market activity within the exchanges that we operate and

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provide critical information to professional and non-professional investors globally.
Our Index Licensing and Services business develops and licenses Nasdaq branded indexes, associated derivatives, and financial products and also provides custom calculation services for third-party clients. As of March 31, 2017 , we had 306 ETPs licensed to Nasdaq’s indexes which had over $138 billion of assets under management.
Market Technology
Our Market Technology segment is a leading global technology solutions provider and partner to exchanges, clearing organizations, central securities depositories, regulators, banks, brokers and corporate businesses. Our Market Technology business is the sales channel for our complete global offering to other marketplaces.
Market Technology provides technology solutions for trading, clearing, settlement, surveillance and information dissemination to markets with wide-ranging requirements, from the leading markets in the U.S., Europe and Asia to emerging markets in the Middle East, Latin America, and Africa. Our marketplace solutions can handle a wide array of assets, including cash equities, equity derivatives, currencies, various interest-bearing securities, commodities and energy products, and are currently powering more than 89 marketplaces in 50 countries. Market Technology also provides market surveillance services to broker-dealer firms worldwide, as well as enterprise governance, risk management and compliance software solutions.
2. Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements are prepared in accordance with U.S. GAAP and include the accounts of Nasdaq, its wholly-owned subsidiaries and other entities in which Nasdaq has a controlling financial interest. When we do not have a controlling interest in an entity but exercise significant influence over the entity’s operating and financial policies, such investment is accounted for under the equity method of accounting. We recognize our share of earnings or losses of an equity method investee based on our ownership percentage. See “Equity Method Investments,” of Note 6, “Investments,” for further discussion of our equity method investments.
The accompanying condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation.
As permitted under U.S. GAAP, certain footnotes or other financial information can be condensed or omitted in the interim condensed consolidated financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in Nasdaq’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
 
Certain prior year amounts have been reclassified to conform to the current year presentation.
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Subsequent Events
We have evaluated subsequent events through the issuance date of this Quarterly Report on Form 10-Q. See Note 17, “Subsequent Events,” for further discussion.
Tax Matters
We use the asset and liability method to determine income taxes on all transactions recorded in the condensed consolidated financial statements. 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 are realized. If necessary, a valuation allowance is established to reduce deferred tax assets to the amount that is more likely than not to be realized.
In order to recognize and measure our unrecognized tax benefits, management determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the recognition thresholds, the position is measured to determine the amount of benefit to be recognized in the condensed consolidated financial statements. Interest and/or penalties related to income tax matters are recognized in income tax expense.
The following table shows our income tax provision and effective tax rates:
 
 
Three Months Ended March 31,
 
Percentage Change
 
 
2017
 
2016
 
2017 vs. 2016
 
 
($ in millions)
 
 
Income tax provision
 
$
48

 
$
63

 
(23.8
)%
Effective tax rate
 
22.1
%
 
32.3
%
 
(10.2
)%
The lower income tax provision and effective tax rate in the first quarter of 2017 when compared with the first quarter of 2016 is primarily due to the recognition of excess tax benefits associated with the vesting of employee shared-based compensation arrangements. See “Recently Adopted Accounting Pronouncements” below for further discussion. The lower income tax provision in the first quarter of 2017 is partially offset by an increase in income tax expense associated with the increase in income before taxes in the first quarter of 2017.

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The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.
Nasdaq and its eligible subsidiaries file a consolidated U.S. federal income tax return and applicable state and local income tax returns and non-U.S. income tax returns. Federal income tax returns for the years 2011 through 2015 are subject to examination by the Internal Revenue Service. Several state tax returns are currently under examination by the respective tax authorities for the years 2005 through 2014 and we are subject to examination for the year 2015. Non-U.S. tax returns are subject to examination by the respective tax authorities for the years 2008 through 2015. Although the results of such examinations may have an impact on our unrecognized tax benefits, we do not anticipate that such impact will be material to our consolidated financial position or results of operations. In addition, we anticipate that the amount of unrecognized tax benefits at March 31, 2017 will significantly decrease in the next twelve months as we expect to settle certain tax audits.
From 2009 through 2012, we recorded tax benefits associated with certain interest expense incurred in Sweden. Our position is supported by a 2011 ruling we received from the Swedish Supreme Administrative Court. However, under new legislation effective January 1, 2013, limitations are imposed on certain forms of interest expense. Because this legislation is unclear with regard to our ability to continue to claim such interest deductions, Nasdaq filed an application for an advance tax ruling with the Swedish Tax Council for Advance Tax Rulings. In June 2014, we received an unfavorable ruling from the Swedish Tax Council for Advance Tax Rulings. We appealed this ruling to the Swedish Supreme Administrative Court; however the Swedish Supreme Administrative Court denied our request for a ruling based on procedural requirements. In the third quarter of 2015, we received a notice from the Swedish Tax Agency that interest deductions for the
 
year 2013 have been disallowed. In October 2016, we received a notice from the Swedish Tax Agency that interest deductions for the year 2014 have been disallowed. We have appealed to the Swedish Lower Administrative Court and continue to expect a favorable decision. Since January 1, 2013, we have recorded tax benefits of $51 million associated with this matter. We continue to pay all assessments from the Swedish Tax Agency while this matter is pending. If the Swedish Courts agree with our position we will receive a refund of all paid assessments; if the Swedish Courts disagree with our position, we will record tax expense of $40 million , or $0.24 per diluted share, which is gross of any related U.S. tax benefits and reflects the impact of foreign currency translation. We expect to record recurring quarterly tax benefits of $1 million to $2 million with respect to this matter for the foreseeable future.
Although no new U.S. tax legislation has been enacted, we are currently assessing the impact various tax reform proposals will have on our condensed consolidated financial statements.
Other Tax Matter
In December 2012, the Swedish Tax Agency approved our 2010 amended VAT tax return and we received a cash refund for the amount claimed. In 2013, we filed amended VAT tax returns for 2011 and 2012 and utilized the same approach which was approved for the 2010 filing. We also utilized this approach in our 2013 and 2014 filings. However, even though the VAT return position was previously reviewed and approved by the Swedish Tax Agency, the Swedish Tax Agency challenged our approach. The revised position of the Swedish Tax Agency was upheld by the Lower Administrative Court in 2015. As a result, in 2015, we reversed the previously recorded benefit of $12 million , based on the court decision. We had appealed the ruling of the Lower Administrative Court; however, our appeal was denied. There was no further impact to our consolidated statements of income.


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Recently Adopted Accounting Pronouncements
Accounting Standard
Description
Effective Date
Effect on the Financial Statements or Other Significant Matters
Compensation - Stock Compensation   
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.”
This ASU involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance requires all income tax effects of awards to be recognized as income tax expense or benefit in the income statement when the awards vest or are settled, as opposed to additional paid-in-capital where it was previously recorded. This guidance impacts the calculation of our total diluted share count for the earnings per share calculation, as calculated under the treasury stock method. It also allows an employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. All tax-related cash flows resulting from share-based payments are reported as operating activities on the statement of cash flows. In regards to forfeitures, a policy election is required to either estimate the number of awards that are expected to vest or account for forfeitures as they occur.
We adopted this new standard on January 1, 2017 on a prospective basis for the impacts on the accounting for income taxes and the effect on earnings per share. We have adopted the changes in cash flow statement classification retrospectively.
See discussion below.
Compensation - Stock Compensation

Accounting for Income Taxes
Under the previous guidance, excess tax benefits and certain tax deficiencies from share-based compensation arrangements were recorded to additional paid-in-capital within stockholders' equity when the awards were vested or settled. The new guidance requires that all excess tax benefits and all tax deficiencies be recognized as income tax expense or benefit in the consolidated statements of income with a prospective adoption. The adoption resulted in the recognition of excess tax benefit in our provision for income taxes rather than additional paid-in capital of $23 million during the first quarter of 2017.

Effect on the Calculation of Earnings Per Share
The new guidance also requires excess tax benefits to be prospectively excluded from assumed future proceeds when applying the treasury stock method to share-based payment awards to determine the dilutive effect on earnings per share. The change resulted in an increase in our diluted weighted-average number of common shares of 834,311 and added $0.13 to our first quarter 2017 diluted EPS.

Classification of Excess Tax Benefits in the Statements of Cash Flows
Under the new guidance, excess tax benefits from share-based compensation arrangements are classified as cash flows from operations, rather than as an inflow within financing activities and an outflow within operating activities. We have elected to apply this cash flow classification guidance retrospectively. The retrospective impact on the Consolidated Statements of Cash Flows for the three months ended March 31, 2016 was an increase to cash provided by operating activities of $2 million , and a decrease to cash provided by financing activities of $2 million .

Accounting for Forfeitures
Under the new guidance, we can elect to account for forfeitures of share-based payments by recognizing forfeitures of awards as they occur or by estimating the number of awards expected to be forfeited and adjusting the estimate when it is no longer probable that the employee will fulfill the service condition. We have elected to estimate the number of awards expected to be forfeited, which is consistent with our current accounting policy. For awards with performance conditions we will continue to assess the probability that a performance condition will be achieved at each reporting period to determine whether and when to recognize compensation cost as this is unchanged by the new guidance.


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Recently Issued Accounting Pronouncements
Accounting Standard
Description
Effective Date
Effect on the Financial Statements or Other Significant Matters
Business Combination
In January 2017, the FASB issued ASU 2017-01, “Clarifying the Definition of a Business.”
This ASU clarifies the definition of a business with the objective of adding guidance to assist companies with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is expected to reduce the number of transactions that need to be further evaluated as businesses. Early adoption is permitted for certain types of transactions .
January 1, 2018, with early adoption permitted.
This new standard is required to be applied prospectively and therefore, may impact how we account for future acquisitions.
Goodwill
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.”
This ASU simplifies how an entity is required to test goodwill for impairment and removes the second step of the goodwill impairment test, which required a hypothetical purchase price allocation if the fair value of a reporting unit is less than its carrying amount. Goodwill impairment will now be measured using the difference between the carrying amount and the fair value of the reporting unit and the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments in this ASU should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
January 1, 2020, with early adoption as of January 1, 2017 permitted .
We do not anticipate a material impact on our consolidated financial statements at the time of adoption of this new standard as the carrying amounts of our reporting units have been less than their corresponding fair values in recent years. Therefore, the second step of the goodwill impairment test was not required.  However, changes in future projections, market conditions and other factors may cause a change in the excess of fair value of our reporting units over their corresponding carrying amounts.
Financial Instruments - Credit Losses        
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.”
This ASU changes the impairment model for certain financial instruments. The new model is a forward looking expected loss model and will apply to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures. This includes loans, held-to-maturity debt securities, loan commitments, financial guarantees and net investments in leases, as well as trade receivables. For available-for-sale debt securities with unrealized losses, credit losses will be measured in a manner similar to today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities.
January 1, 2020, with early adoption as of January 1, 2019 permitted.
We are currently assessing the impact that this standard will have on our consolidated financial statements.
Leases                
In February 2016, the FASB issued ASU 2016-02, “Leases.”
Under this ASU, at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. This guidance is not applicable for leases with a term of 12 months or less. Lessor accounting is largely unchanged.
January 1, 2019, with early adoption permitted.
We are currently assessing the impact that this standard will have on our consolidated financial statements.

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Accounting Standard
Description
Effective Date
Effect on the Financial Statements or Other Significant Matters
Financial Instruments - Overall               
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”
This ASU requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. Under this new guidance, Nasdaq will no longer be able to recognize unrealized holding gains and losses on equity securities classified today as available-for-sale in accumulated other comprehensive income within stockholders’ equity. This new standard does not change the guidance for classifying and measuring investments in debt securities and loans. This new guidance also impacts financial liabilities accounted for under the fair value option and affects the presentation and disclosure requirements for financial assets and liabilities.
January 1, 2018. Early adoption is not permitted.
As we do not have a significant investment in financial instruments impacted by this standard, we do not anticipate a material impact on our consolidated financial statements at the time of adoption of this new standard.
Revenue From Contracts With Customers         
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition guidance in Accounting Standards Codification, “Revenue Recognition.”
The new revenue recognition standard sets forth a five-step revenue recognition model to determine when and how revenue is recognized. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration it expects to receive in exchange for those goods or services. The standard also requires more detailed disclosures. The standard provides alternative methods of initial adoption.
January 1, 2018, with early adoption permitted.
See discussion below.
 
 
 
 
Revenue From Contracts With Customers
We are currently assessing the materiality of the expected impact that the adoption of Topic 606 will have on our consolidated financial statements. We reviewed customer contracts for all of our businesses and have determined that revenue and expense recognition for our Market Technology business and revenue recognition for our Listing Services business will be impacted. We do not anticipate material changes to revenue and expense recognition for our other businesses.
The following are key items to note regarding the accounting for our Market Technology and Listing Services businesses under the Topic 606:
revenue recognition for existing and new contracts will be recognized in earlier stages under the new standard;
expense recognition for Market Technology contracts will be recognized in earlier stages under the new standard;
a portion of revenues and expenses that were previously deferred will be recognized either in prior period revenues, through restatement, or as an adjustment to retained earnings upon adoption of the new standard; and
the overall value of our contracts and the timing of cash flows from customers will not change.

We have reviewed substantially all of the existing customer contracts in our Market Technology and Listings businesses and we are currently quantifying the impact of adopting the new standard under both the retrospective and modified approaches. As part of this analysis, we are calculating the cumulative adjustment to retained earnings under both approaches and expect to select a transition approach once we have completed this analysis. In addition, we are gathering the required information to be disclosed for all businesses.

Market Technology. In our Market Technology business, we enter into contracts with customers to develop technology solutions, license the right to use software, and provide post-contract support and other services to our customers. Under current accounting
policies, we do not recognize revenue or expense until we begin the final stage of the contract as we are not able to establish vendor specific objective evidence of fair value for individual elements of the contract. Under Topic 606, we will no longer defer recognition of revenue and expense until the final stage of the contract. For each of our contracts, we expect to identify multiple performance obligations, allocate the transaction price to these obligations and recognize revenue for each of these obligations as they are satisfied. Expenses will no longer be deferred, but will be recognized as incurred. Since revenue and expense will be recognized

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in earlier stages of the contract, the balance sheet accounts for deferred revenue and costs will decline upon adoption of Topic 606. Due to the complexity of certain contracts, the revenue recognition treatment under the new standard will be dependent on contract-specific terms and may vary in some instances.

Listing Services. Amounts received for initial listing fees and additional listing fees are generally deferred and revenue is recognized over estimated service periods of six and four years, respectively. Under Topic 606, we will identify the performance obligation associated with these services and record revenue upon satisfaction of each performance obligation. We expect to recognize both initial listing fees and additional listing fees over shorter periods than the current estimated service periods. Since we expect to recognize revenues earlier under Topic 606, the balance sheet account for deferred revenue will decline upon adoption.

During the remainder of 2017, we will quantify the impact of adoption and implement any required changes to our systems and processes to meet the new accounting, reporting and disclosure requirements and will update our internal controls accordingly. We will also review any new contracts entered into throughout the year. We do not believe there are any significant barriers to implementation of the new standard.

3. Restructuring Charges
2015 Restructuring Plan
During the first quarter of 2015, we performed a comprehensive review of our processes, businesses and systems in a company-wide effort to improve performance, cut costs, and reduce spending. This restructuring plan was completed in the second quarter of 2016.
The following table presents a summary of restructuring plan charges in the Condensed Consolidated Statements of Income:
 
Three Months Ended
 
March 31, 2016
Severance
$
4

Asset impairments
3

Other
2

Total restructuring charges
$
9

 

During the first quarter of 2016, we recognized restructuring charges totaling $9 million , including severance costs of $4 million related to workforce reductions of 13 positions across our organization, $3 million for asset impairments, primarily related to fixed assets and capitalized software that have been retired and $2 million of other charges.
Restructuring Reserve
Severance
The accrued severance balance was $14 million at March 31, 2017 and $17 million at December 31, 2016. As of March 31, 2017, the accrued severance is included in other current liabilities in the Condensed Consolidated Balance Sheets and will be paid in 2017.

* * * * * *
4. Acquisitions
We completed the following acquisitions in 2016 . Financial results of each transaction are included in our Condensed Consolidated Statements of Income from the date of each acquisition.
2016 Acquisitions
 
Purchase Consideration
 
Total Net Assets (Liabilities) Acquired
 
Total Net Deferred Tax Liability
 
Acquired
Intangible Assets
 
Goodwill
 
(in millions)
ISE
$
1,070

 
$
83

 
$
(185
)
 
$
623

 
$
549

Boardvantage
242

 
28

 
(45
)
 
111

 
148

Marketwired
111

 
(1
)
 
(5
)
 
31

 
86

Nasdaq CXC
116

 
6

 
(20
)
 
76

 
54

 
 
 
 
 
 
 
 
 
 


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The amounts in the table above represent the allocation of purchase price as of March 31, 2017. The preliminary allocations of the purchase price are subject to revision during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date. Adjustments to the provisional values, which may include tax and other estimates, during the measurement period will be recorded in the reporting period in which the adjustment amounts are determined. Changes to amounts recorded as assets and liabilities may result in a corresponding adjustment to goodwill. We finalized the allocation of the purchase price for Marketwired and Nasdaq CXC in February 2017. There were no adjustments to the provisional values during the 12 month measurement period for Nasdaq CXC. For Marketwired, we recorded a measurement period adjustment of $5 million which is discussed below under "Acquisition of Marketwired."
See “Intangible Assets” below for further discussion of intangible assets acquired through our 2016 acquisitions.
Acquisition of ISE
On June 30, 2016, we acquired ISE for $1,070 million . We acquired net assets, at fair value, totaling $83 million and recorded a net deferred tax liability of $185 million , comprised of a deferred tax liability of $266 million and a deferred tax asset of $81 million , related to differences in the U.S. GAAP and tax basis of our investment in ISE. ISE is part of our Market Services, Information Services and Market Technology segments.
In May 2016, we issued the 2023 Notes and in June 2016, we issued the 2026 Notes to fund this acquisition. See “1.75% Senior Unsecured Notes,” and “3.85% Senior Unsecured Notes,” of Note 8, “Debt Obligations,” for further discussion.
Acquisition of Boardvantage
In May 2016, we acquired Boardvantage for $242 million ( $197 million in cash paid plus $45 million in working capital adjustments, which primarily includes cash acquired). We acquired net assets, at fair value, totaling $28 million and recorded a net deferred tax liability of $45 million , comprised
 
of a deferred tax liability of $46 million and a deferred tax asset of $1 million , related to differences in the U.S. GAAP and tax basis of our investment in Boardvantage. This acquisition expanded our Corporate Solutions board and leadership business within our Corporate Services segment.
Nasdaq borrowed $197 million under the revolving credit commitment of the 2014 Credit Facility to fund this acquisition.
Acquisition of Marketwired
In February 2016, we acquired Marketwired for $111 million ( $109 million in cash paid plus $2 million in working capital adjustments). We acquired net liabilities, at fair value, totaling $1 million and recorded a deferred tax liability of $10 million related to differences in the U.S. GAAP and tax basis of our investment in Marketwired. In the second quarter of 2016, we recorded a measurement period adjustment of $5 million to the estimated fair value of deferred tax liabilities to reflect a revised assessment following the receipt of new information. The adjustment resulted in a decrease to both deferred tax liabilities recorded and goodwill. The adjustment did not result in an impact to our Condensed Consolidated Statements of Income. Marketwired is part of our Corporate Solutions business within our Corporate Services segment.
Nasdaq borrowed $109 million under the revolving credit commitment of the 2014 Credit Facility to fund this acquisition.
Acquisition of Nasdaq CXC
In February 2016, we acquired Nasdaq CXC for $116 million ( $115 million in cash paid plus $1 million in working capital adjustments). We acquired net assets, at fair value, totaling $6 million and recorded a deferred tax liability of $20 million related to differences in the U.S. GAAP and tax basis of our investment in Nasdaq CXC. Nasdaq CXC is part of our Market Services segment and our Data Products business within our Information Services segment.
Nasdaq used cash on hand and borrowed $55 million under the revolving credit commitment of the 2014 Credit Facility to fund this acquisition.

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Intangible Assets
The following table presents the details of acquired intangible assets in our 2016 acquisitions. All acquired intangible assets with finite lives are amortized using the straight-line method.
 
2016
 
ISE
 
Boardvantage
 
Marketwired
 
Nasdaq CXC
 
($ in millions)
Intangible Assets
 
 
 
 
 
 
 
Exchange registrations
$
467

 
$

 
$

 
$

Discount rate used
8.6
%
 

 

 

Estimated average remaining useful life
Indefinite

 

 

 

Customer relationships
$
148

 
$
103

 
$
29

 
$
76

Discount rate used
9.1
%
 
15.5
%
 
16.4
%
 
10.3
%
Estimated average remaining useful life
13 years

 
14 years

 
6 years

 
17 years

Trade name
$
8

 
$
2

 
$
2

 
$

Discount rate used
8.6
%
 
15.0
%
 
15.8
%
 

Estimated average remaining useful life
Indefinite

 
1 year

 
2 years

 

Technology
$

 
$
6

 
$

 
$

Discount rate used

 
15.5
%
 

 

Estimated average remaining useful life

 
5 years

 

 

Total intangible assets
$
623

 
$
111

 
$
31

 
$
76

 
 
 
 
 
 
 
 
Exchange Registrations
As part of our acquisition of ISE we acquired exchange registrations. The exchange registrations represent licenses that provide ISE with the ability to operate its option exchanges. Nasdaq views these intangible assets as a perpetual license to operate the exchanges so long as ISE meets its regulatory requirements. Nasdaq selected a variation of the income approach called the Greenfield Approach to value the exchange registrations. The Greenfield Approach refers to a discounted cash flow analysis that assumes the buyer is building the exchange from a start-up business to a normalized level of operations as of the acquisition date. This discounted cash flow model considers the required resources and eventual returns from the build-out of operational exchanges and the acquisition of customers, once the exchange registrations are obtained. The advantage of this approach is that it reflects the actual expectations that will arise from an investment in the registrations and it directly values the registrations. The Greenfield Approach relies on assumptions regarding projected revenues, margins, capital expenditures, depreciation, and working capital during the two year pre-trade phase, the 10 year ramp-up period, as well as the terminal period.
In developing a discount rate for the exchange registrations, we estimated a weighted average cost of capital for the overall business and we employed this rate when discounting the cash flows. The resulting discounted cash flows were then tax-effected at the applicable statutory rate.
Customer Relationships
As part of our acquisitions of ISE, Boardvantage, Marketwired, and Nasdaq CXC we acquired customer relationships.
 
Customer relationships represent the non-contractual and contractual relationships with customers.
Methodology
For our acquisitions of ISE, Boardvantage, Marketwired and Nasdaq CXC, customer relationships were valued using the income approach, specifically an excess earnings method. The excess earnings method examines the economic returns contributed by the identified tangible and intangible assets of a company, and then isolates the excess return that is attributable to the intangible asset being valued.
Discount rate
The discount rates used reflect the amount of risk associated with the hypothetical cash flows for the customer relationships relative to the overall business. In developing a discount rate for the customer relationships, we estimated a weighted average cost of capital for the overall business and we employed this rate when discounting the cash flows. The resulting discounted cash flows were then tax-effected at the applicable statutory rate.
For our acquisitions of Marketwired and Nasdaq CXC, a discounted tax amortization benefit was added to the fair value of the assets under the assumption that the customer relationships would be amortized for tax purposes over a period of 15 years .
Estimated Useful Life
We estimate the remaining useful life based on the historical behavior of the customers and a parallel analysis of the customers using the excess earnings method.

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Pro Forma Results and Acquisition-related Costs
The condensed consolidated financial statements for the three months ended March 31, 2017 and 2016 include the financial results of the above 2016 acquisitions from the date of each acquisition. Pro forma financial results for the acquisitions completed in 2016 have not been presented since these acquisitions both individually and in the aggregate were not material to our financial results.
Acquisition-related costs for the transactions described above were expensed as incurred and are included in merger and strategic initiatives expense in the Condensed Consolidated Statements of Income.
 

* * * * * *
5. Goodwill and Acquired Intangible Assets
Goodwill
The following table presents the changes in goodwill by business segment during the three months ended March 31, 2017 :
 
Market Services
 
Corporate Services
 
Information Services
 
Market Technology
 
Total
 
(in millions)
Balance at December 31, 2016
$
3,390

 
$
674

 
$
1,806

 
$
157

 
$
6,027

Foreign currency translation adjustment
22

 
3

 
13

 
5

 
43

Balance at March 31, 2017
$
3,412

 
$
677

 
$
1,819

 
$
162

 
$
6,070

 
 
 
 
 
 
 
 
 
 

As of March 31, 2017 , the amount of goodwill that is expected to be deductible for tax purposes in future periods is $858 million .
Goodwill represents the excess of purchase price over the value assigned to the net assets, including identifiable intangible assets, of a business acquired. Goodwill is allocated to our reporting units based on the assignment of the fair values of each reporting unit of the acquired company. We test goodwill for impairment at the reporting unit level annually, or in interim
 
periods if certain events occur indicating that the carrying amount may be impaired, such as changes in the business climate, poor indicators of operating performance or the sale or disposition of a significant portion of a reporting unit. There was no impairment of goodwill for the three months ended March 31, 2017 and 2016 ; however, events such as extended economic weakness or unexpected significant declines in operating results of a reporting unit may result in goodwill impairment charges in the future.

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Acquired Intangible Assets
The following table presents details of our total acquired intangible assets, both finite- and indefinite-lived:
 
March 31, 2017
 
December 31, 2016
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
 
Weighted-Average Useful Life (in Years)
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
 
Weighted-Average Useful Life (in Years)
 
(in millions)
 
 
 
(in millions)
 
 
Finite-Lived Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Technology
$
38

 
$
(25
)
 
$
13

 
5
 
$
38

 
$
(24
)
 
$
14

 
5
Customer relationships
1,394

 
(485
)
 
909

 
18
 
1,394

 
(464
)
 
930

 
18
Other
7

 
(6
)
 
1

 
6
 
7

 
(6
)
 
1

 
6
Foreign currency translation adjustment
(153
)
 
56

 
(97
)
 
 
 
(160
)
 
58

 
(102
)
 
 
Total finite-lived intangible assets
$
1,286

 
$
(460
)
 
$
826

 
 
 
$
1,279

 
$
(436
)
 
$
843

 
 
Indefinite-Lived Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exchange and clearing registrations
$
1,257

 
$

 
$
1,257

 
 
 
$
1,257

 
$

 
$
1,257

 
 
Trade names
129

 

 
129

 
 
 
130

 

 
130

 
 
Licenses
52

 

 
52

 
 
 
52

 

 
52

 
 
Foreign currency translation adjustment
(182
)
 

 
(182
)
 
 
 
(188
)
 

 
(188
)
 
 
Total indefinite-lived intangible assets
$
1,256

 
$

 
$
1,256

 
 
 
$
1,251

 
$

 
$
1,251

 
 
Total intangible assets
$
2,542

 
$
(460
)
 
$
2,082

 
 
 
$
2,530

 
$
(436
)
 
$
2,094

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization expense for acquired finite-lived intangible assets was $23 million for the three months ended March 31, 2017 and $17 million for the three months ended March 31, 2016 . The increase in amortization expense in 2017 compared with 2016 was primarily due to additional acquired intangible assets in the second quarter of 2016.
The estimated future amortization expense (excluding the impact of foreign currency translation adjustments of $97 million as of March 31, 2017 ) of acquired finite-lived intangible assets as of March 31, 2017 is as follows:
 
(in millions)
2017 (1)
$
72

2018
90

2019
76

2020
75

2021
74

2022 and thereafter
536

Total
$
923

____________
(1)  
Represents the estimated amortization to be recognized for the remaining nine months of 2017.
 
6. Investments
The following table presents the details of our investments:
 
March 31,
2017
 
December 31,
2016
 
(in millions)
Trading securities
$
203

 
$
228

Available-for-sale investment securities
17

 
17

Equity method investments
128

 
124

Cost method investments
145

 
144

Trading Securities
Trading securities, which are included in financial investments, at fair value in the Condensed Consolidated Balance Sheets, are primarily comprised of highly rated European government debt securities, of which $154 million as of March 31, 2017 and $172 million as of December 31, 2016 , are assets utilized to meet regulatory capital requirements primarily for our clearing operations at Nasdaq Clearing.
Available-for-Sale Investment Securities 
Available-for-sale investment securities, which are included in financial investments, at fair value in the Condensed Consolidated Balance Sheets, are primarily comprised of short-

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term certificates of deposit. As of March 31, 2017 and December 31, 2016 , the cumulative unrealized gains and losses on these securities were immaterial.
Equity Method Investments
As of March 31, 2017 and December 31, 2016, our equity method investments primarily included equity interests in OCC and EuroCCP N.V.
The carrying amounts of our equity method investments are included in other non-current assets in the Condensed Consolidated Balance Sheets.
Net income recognized from our equity interest in the earnings and losses of these equity method investments was $4 million for the three months ended March 31, 2017 and $2 million for the three months ended March 31, 2016 . The increase in the three months ended March 31, 2017 compared with the same period in 2016 was primarily due to our additional 20.0% ownership interest in OCC, which we acquired in connection with our acquisition of ISE on June 30, 2016, bringing our total ownership interest in OCC to 40.0% .
Capital Contribution to OCC  
In March 2015, in connection with being designated systemically important by the Financial Stability Oversight Council, OCC implemented a capital plan under which the options exchanges that are OCC’s stockholders made new capital contributions to OCC, committed to make further capital contributions in the future under certain specified circumstances, and received certain commitments from OCC with respect to future dividend payments and related matters. Under the OCC capital plan, OCC’s existing exchange stockholders, including Nasdaq and ISE, each contributed a pro-rata share of $150 million in new equity capital. Nasdaq’s and ISE’s capital contributions were each $30 million . OCC’s exchange stockholders also committed to provide, as may become necessary from time to time, additional replenishment capital on a pro-rata basis if certain capital thresholds are triggered. For its part, OCC adopted specific policies with
 
respect to fees, customer refunds and stockholder dividends, which envision an annual dividend payment to its stockholders equal to the portion of OCC’s after-tax income that exceeds OCC’s capital requirements after payment of refunds to OCC’s clearing members (with such customer refunds generally to constitute 50% of the portion of OCC’s pre-tax income that exceeds OCC’s capital requirements). After the SEC staff approved the OCC capital plan and the stockholders made their capital contributions, the plan’s further effectiveness was suspended under the applicable SEC rules because certain parties petitioned the full Commission to reconsider the capital plan’s approval. This stay was lifted by the SEC in September 2015, allowing OCC to implement the plan and in February 2016, the SEC issued an order approving the OCC capital plan as previously implemented and dismissed the petitions challenging that plan. The petitioners filed for a stay of the SEC’s order, which would have blocked OCC from paying a dividend under the OCC capital plan. The Court of Appeals denied the requested stay, permitting OCC to pay a dividend which Nasdaq received in February 2016. The petitioners also appealed the SEC’s order to the Federal Court of Appeals for the District of Columbia Circuit. The court heard arguments on the case in March 2017. The case remains pending until the court announces its decision.
Cost Method Investments 
The carrying amount of our cost method investments is included in other non-current assets in the Condensed Consolidated Balance Sheets. As of March 31, 2017 and December 31, 2016 , our cost method investments primarily represented our 5% ownership interest in Borsa Istanbul, and our 5% ownership interest in LCH.Clearnet Group Limited. 
The Borsa Istanbul shares, which were issued to us in the first quarter of 2014, are part of the consideration received under a market technology agreement. This investment has a cost basis of $75 million which is guaranteed to us via a put option negotiated as part of the market technology agreement.

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7. Deferred Revenue          
Deferred revenue represents consideration received that is yet to be recognized as revenue. The changes in our deferred revenue during the three months ended March 31, 2017 and 2016 are reflected in the following table: 
 
Initial Listing Revenues
 
Listing of Additional Shares Revenues
 
Annual Renewal and Other Revenues
 
Market Technology Revenues
 
Total
 
(in millions)
Balance at January 1, 2017
$
54

 
$
37

 
$
57

 
$
185

 
$
333

Additions
4

 
5

 
306

 
46

 
361

Amortization
(5
)
 
(9
)
 
(142
)
 
(55
)
 
(211
)
Translation adjustment

 

 

 
3

 
3

Balance at March 31, 2017
$
53

 
$
33

 
$
221

 
$
179

 
$
486

 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2016
$
59

 
$
53

 
$
28

 
$
187

 
$
327

Additions
1

 
2

 
314

 
67

 
384

Amortization
(4
)
 
(7
)
 
(143
)
 
(64
)
 
(218
)
Translation adjustment

 

 
1

 
(2
)
 
(1
)
Balance at March 31, 2016
$
56

 
$
48

 
$
200

 
$
188

 
$
492

 
 
 
 
 
 
 
 
 
 

The additions and amortization for initial listing revenues, listing of additional shares revenues and annual renewal and other revenues primarily reflect revenues from our Listing Services business within our Corporate Services segment.
For our market technology contracts, total revenues, as well as costs incurred, are deferred until significant customizations are completed and delivered. Once delivered, deferred revenue and the related deferred costs are recognized over the post-contract support period. For these market technology contracts, we have included the deferral of costs in other current assets and other non-current assets in the Condensed Consolidated Balance Sheets.  
At March 31, 2017 , we estimate that our deferred revenue, which is primarily corporate services and market technology revenues, will be recognized in the following years:
 
Initial Listing Revenues
 
Listing of Additional Shares Revenues
 
Annual Renewal and Other Revenues
 
Market Technology Revenues
 
Total
 
(in millions)
Fiscal year ended:
 
 
 
 
 
 
 
 
2017 (1)
$
12

 
$
15

 
$
216

 
$
58

 
$
301

2018
14

 
11

 
4

 
38

 
67

2019
12

 
5

 
1

 
32

 
50

2020
8

 
2

 

 
30

 
40

2021
5

 

 

 
13

 
18

2022 and thereafter
2

 

 

 
8

 
10

 
$
53

 
$
33

 
$
221

 
$
179

 
$
486

 
 
 
 
 
 
 
 
 
 
  ____________
(1)  
Represents deferred revenue that is anticipated to be recognized over the remaining nine months of 2017.

 
The timing of recognition of our deferred market technology revenues is primarily dependent upon the completion of customization and any significant modifications made pursuant to existing market technology contracts. As such, as it relates to market technology revenues, the timing represents our best estimate.

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8. Debt Obligations
The following table presents the changes in the carrying amount of our debt obligations during the three months ended March 31, 2017 :
 
December 31, 2016
 
Additions
 
Payments, Accretion
and Other
 
March 31, 2017
 
(in millions)
5.55% senior unsecured notes due January 15, 2020
$
598

 
$

 
$

 
$
598

5.25% senior unsecured notes due January 16, 2018
369

 

 

 
369

3.875% senior unsecured notes due June 7, 2021
625

 

 
8

 
633

4.25% senior unsecured notes due June 1, 2024
495

 

 
1

 
496

1.75% senior unsecured notes due May 19, 2023
622

 

 
9

 
631

3.85% senior unsecured notes due June 30, 2026
495

 

 

 
495

$400 million senior unsecured term loan facility due November 25, 2019 (average interest rate of   2.28 % for the period January 1, 2017 through March 31, 2017)
399

 

 

 
399

$750 million revolving credit commitment due November 25, 2019 (average interest rate of 0.00% for the period January 1, 2017 through March 31, 2017)

 

 

 

Total debt obligations
3,603

 

 
18

 
3,621

Less current portion

 

 

 
(379
)
Total long-term debt obligations
$
3,603

 
$

 
$
18

 
$
3,242

 
 
 
 
 
 
 
 
Senior Unsecured Notes
Our senior unsecured notes were all issued at a discount. As a result of the discount, the proceeds received from each issuance were less than the aggregate principal amount. As of March 31, 2017, the amounts in the table above reflect the aggregate principal amount, less the unamortized debt discount and the unamortized debt issuance costs which are being accreted through interest expense over the life of the applicable notes. Our senior unsecured notes are general unsecured obligations of ours and rank equally with all of our existing and future unsubordinated obligations and they are not guaranteed by any of our subsidiaries. The senior unsecured notes were issued under indentures that, among other things, limit our ability to consolidate, merge or sell all or substantially all of our assets, create liens, and enter into sale and leaseback transactions.
With the exception of the 2020 Notes, upon a change of control triggering event (as defined in the various note indentures), the terms require us to repurchase all or part of each holder’s notes for cash equal to 101% of the aggregate principal amount purchased plus accrued and unpaid interest, if any.
5.55% Senior Unsecured Notes
In January 2010, Nasdaq issued the 2020 Notes. The 2020 Notes pay interest semiannually at a rate of 5.55%  per annum until January 15, 2020 .
5.25% Senior Unsecured Notes
In December 2010, Nasdaq issued the 2018 Notes. The 2018 Notes pay interest semiannually at a rate of 5.25%  per annum until January 16, 2018 and such rate may vary with Nasdaq’s debt rating up to a rate not to exceed 7.25% . The 2018 Notes mature in January 2018 and are reflected in the current portion
 
of debt obligations in the Condensed Consolidated Balance Sheets as of March 31, 2017.
In April 2017, Nasdaq announced it will redeem all of its 2018 Notes on May 26, 2017, using a combination of cash on hand and proceeds from the sale of commercial paper issued through Nasdaq's newly created commercial paper program. See “Debt Restructuring,” of Note 17, “Subsequent Events,” to the condensed consolidated financial statements for further discussion.
3.875% Senior Unsecured Notes
In June 2013, Nasdaq issued the 2021 Notes. The 2021 Notes pay interest annually at a rate of 3.875%  per annum until June 7, 2021 and such rate may vary with Nasdaq’s debt rating up to a rate not to exceed 5.875% .
The 2021 Notes have been designated as a hedge of our net investment in certain foreign subsidiaries to mitigate the foreign exchange risk associated with certain investments in these subsidiaries. The increase in the carrying amount of $8 million noted in the “Payments, Accretion and Other” column in the table above primarily reflects the translation of the 2021 Notes into U.S. dollars and is recorded in accumulated other comprehensive loss within stockholders’ equity in the Condensed Consolidated Balance Sheets as of March 31, 2017 .
4.25% Senior Unsecured Notes
In May 2014, Nasdaq issued the 2024 Notes. The 2024 Notes pay interest semiannually at a rate of 4.25%  per annum until June 1, 2024 and such rate may vary with Nasdaq’s debt rating up to a rate not to exceed 6.25% .

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1.75% Senior Unsecured Notes
In May 2016, Nasdaq issued the 2023 Notes. We used the net proceeds from the 2023 Notes and the 2026 Notes to fund our acquisition of ISE. See “Acquisition of ISE,” of Note 4, “Acquisitions,” for further discussion of the ISE acquisition.
The 2023 Notes pay interest annually at a rate of 1.75%  per annum until May 19, 2023 and such rate may vary with Nasdaq’s debt rating up to a rate not to exceed 3.75% .
The 2023 Notes have been designated as a hedge of our net investment in certain foreign subsidiaries to mitigate the foreign exchange rate risk associated with certain investments in these subsidiaries. The increase in the carrying amount of $9 million noted in the “Payments, Accretion and Other” column in the table above reflects the translation of the 2023 Notes into U.S. dollars and is recorded in accumulated other comprehensive loss within stockholders’ equity in the Condensed Consolidated Balance Sheets as of March 31, 2017 .
3.85% Senior Unsecured Notes
In June 2016, Nasdaq issued the 2026 Notes. We used the net proceeds from the 2023 Notes and the 2026 Notes to fund our acquisition of ISE. See “Acquisition of ISE,” of Note 4, “Acquisitions,” for further discussion of the ISE acquisition.
The 2026 Notes pay interest semiannually at a rate of 3.85%  per annum until June 30, 2026 and such rate may vary with Nasdaq’s debt rating up to a rate not to exceed 5.85% .
Credit Facilities
As of March 31, 2017 , the amounts in the table above reflect the aggregate principal amount, less the unamortized debt issuance costs which are being accreted through interest expense over the life of the applicable credit facility. Nasdaq is permitted to repay borrowings under our credit facilities at any time in whole or in part, without penalty. We are also required to repay loans outstanding under our credit facilities with net cash proceeds from sales of property and assets of Nasdaq and its subsidiaries (excluding inventory sales and other sales in the ordinary course of business) and casualty and condemnation proceeds, in each case subject to specified exceptions and thresholds.
Our credit facilities contain financial and operating covenants. Financial covenants include a minimum interest expense coverage ratio and a maximum leverage ratio. Operating covenants include, among other things, limitations on Nasdaq’s ability to incur additional indebtedness, grant liens on assets, dispose of assets and pay dividends. Our credit facilities allow us to pay cash dividends on our common stock. The facilities also contain customary affirmative covenants, including access to financial statements, notice of defaults and certain other material events, maintenance of business and insurance, and events of default, including cross-defaults to our material indebtedness.
 
2016 Credit Facility
In March 2016, Nasdaq entered into the 2016 Credit Facility. In March 2016, loans in an aggregate principal amount of $400 million were drawn under the 2016 Credit Facility and the net proceeds were used to partially repay amounts outstanding under the revolving credit commitment of the 2014 Credit Facility as discussed below.
Loans under the 2016 Credit Facility pay interest monthly at a variable interest rate based on either the LIBOR or the base rate (or other applicable rate with respect to non-dollar borrowings), plus an applicable margin that varies with Nasdaq’s debt rating. Under the 2016 Credit Facility, we are required to make quarterly principal payments beginning in March 2018 equal to 2.50% of the aggregate original principal amounts borrowed with the remaining amounts due at maturity. Therefore, $10 million is reflected in current portion of debt obligations in the Condensed Consolidated Balance Sheets as of March 31, 2017.
2014 Credit Facility
In November 2014, Nasdaq entered into the 2014 Credit Facility. The 2014 Credit Facility consists of a $750 million revolving credit commitment (with sublimits for non-dollar borrowings, swingline borrowings and letters of credit). There were no outstanding borrowings under the revolving credit commitment of the 2014 Credit Facility as of March 31, 2017.
Loans under the 2014 Credit Facility have a variable interest rate based on either the LIBOR or the base rate (as defined in the credit agreement) (or other applicable rate with respect to non-dollar borrowings), plus an applicable margin that varies with Nasdaq’s debt rating.
In April 2017, Nasdaq entered into an agreement for a $1 billion five -year revolving credit facility, which replaces our existing 2014 Credit Facility. Nasdaq intends to use funds available under the new revolving credit facility for general corporate purposes and to provide liquidity support for the repayment of commercial paper issued through a newly created commercial paper program. As a result, our 2014 Credit Facility has been terminated. See “Debt Restructuring,” of Note 17, “Subsequent Events,” for further discussion.
Other Credit Facilities
We also have credit facilities related to our Nasdaq Clearing operations in order to provide further liquidity. Credit facilities, which are available in multiple currencies, totaled $172 million at March 31, 2017 and $170 million at December 31, 2016 in available liquidity, none of which was utilized.
Debt Covenants
At March 31, 2017 , we were in compliance with the covenants of all of our debt obligations.

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9. Retirement Plans
Defined Contribution Savings Plan
We sponsor a 401(k) Plan for U.S. employees. Employees are immediately eligible to make contributions to the plan and are also eligible for an employer contribution match at an amount equal to 100.0% of the first 6.0% of eligible employee contributions. Savings plan expense included in compensation and benefits expense in the Condensed Consolidated Statements of Income was $4 million for the three months ended March 31, 2017 and $3 million for the three months ended March 31, 2016
Pension and Supplemental Executive Retirement Plans
We maintain non-contributory, defined-benefit pension plans, non-qualified SERPs for certain senior executives and other post-retirement benefit plans for eligible employees in the U.S., collectively referred to as the Nasdaq Benefit Plans. Our pension plans and SERPs are frozen. Future service and salary for all participants do not count toward an accrual of benefits under the pension plans and SERPs. Most employees outside the U.S. are covered by local retirement plans or by applicable social laws. Benefits under social laws are generally expensed in the periods in which the costs are incurred. The total expense for these plans is included in compensation and benefits expense in the Condensed Consolidated Statements of Income and was $4 million for both the three months ended March 31, 2017 and 2016 .
10. Share-Based Compensation
We have a share-based compensation program that provides our board of directors broad discretion in creating employee equity incentives. Share-based awards granted under this program include stock options, restricted stock (consisting of restricted stock units), and PSUs. For accounting purposes, we consider PSUs to be a form of restricted stock.
Summary of Share-Based Compensation Expense
The following table shows the total share-based compensation expense resulting from equity awards and the 15.0% discount for the ESPP for the three months ended March 31, 2017 and 2016 in the Condensed Consolidated Statements of Income:
 
Three Months Ended March 31,
 
2017
 
2016
 
(in millions)
Share-based compensation expense before income taxes
$
15

 
$
16

Income tax benefit
(6
)
 
(7
)
Share-based compensation expense after income taxes
$
9

 
$
9

 
Common Shares Available Under Our Equity Plan
As of March 31, 2017 , we had approximately 5.6 million shares of common stock authorized for future issuance under our Equity Plan.
Restricted Stock
We grant restricted stock to most active employees. The grant date fair value of restricted stock awards is based on the closing price at the date of grant less the present value of future cash dividends. Restricted stock awards granted generally vest 25.0% on the second anniversary of the grant date, 25.0% on the third anniversary of the grant date, and 50.0% on the fourth anniversary of the grant date. We generally recognize compensation expense for restricted stock awards on a straight-line basis over the requisite service period of the award, taking into account an estimated forfeiture rate.
Summary of Restricted Stock Activity
The following table summarizes our restricted stock activity for the three months ended March 31, 2017 :
 
Restricted Stock
 
Number of Awards
 
Weighted-Average Grant Date Fair Value
Unvested balances at January 1, 2017
2,560,578

 
$
45.92

Granted
559,698

 
65.92

Vested
(343,633
)
 
42.83

Forfeited
(79,164
)
 
46.48

Unvested balances at March 31, 2017
2,697,479

 
$
50.45

At March 31, 2017 , $69 million of total unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted-average period of 1.9 years .
PSUs
The grant date fair value of PSUs is based on the closing price at the date of grant less the present value of future cash dividends. PSUs are based on performance measures that impact the amount of shares that each recipient will receive upon vesting. We report the target number of PSUs granted, unless we have determined that it is more likely than not, based on the actual achievement of performance measures, that an employee will receive a different amount of shares underlying the PSUs, in which case we report the amount of shares the employee is likely to receive. We have two performance-based long-term PSU programs for certain officers, a one -year performance-based program and a three -year cumulative performance-based program that focuses on TSR.
One -Year PSU Program
Under the one -year performance-based program, an employee may receive from 0.0% to 150.0% of the target amount granted, depending on the achievement of performance measures. These awards vest ratably on an annual basis over a three -year period

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commencing with the end of the performance period. Compensation cost is recognized over the performance period and the three -year vesting period, taking into account an estimated forfeiture rate.
During 2016, certain grants of PSUs with a one -year performance period exceeded the applicable performance parameters. As a result, an additional 56,533 units above target were considered granted in the first quarter of 2017.
Three -Year PSU Program
Under the three -year performance-based program, each individual receives PSUs with a three -year cumulative performance period that vest at the end of the performance period. Compensation cost is recognized over the three -year vesting period. Performance will be determined by comparing Nasdaq’s TSR to two peer groups, each weighted 50.0% . The first peer group consists of exchange companies, and the second peer group consists of all companies in the S&P 500. Nasdaq’s relative performance ranking against each of these groups will determine the final number of shares delivered to each individual under the program. The payout under this program will be between 0.0% and 200.0% of the number of PSUs granted and will be determined by Nasdaq’s overall performance against both peer groups. However, if Nasdaq’s TSR is negative for the three -year performance period, regardless of TSR ranking, the payout will not exceed 100.0% of the number of PSUs granted. We estimate the fair value of PSU’s granted under the three -year PSU program using the Monte Carlo simulation model, as these awards contain a market condition.
Certain grants of PSUs that were issued in 2014 with a three -year performance period exceeded the applicable performance parameters. As a result, an additional 538,892 units above target were considered granted in the first quarter of 2017.
The following weighted-average assumptions were used to determine the weighted-average fair values of the PSU awards granted under the three -year PSU program for the three months ended March 31, 2017 and 2016:
 
Three Months Ended March 31,
 
2017
 
2016
Weighted-average risk free interest rate (1)
1.44
%
 
0.84
%
Expected volatility (2)
19.2
%
 
21.0
%
Weighted-average grant date share price
$69.45
 
$66.38
Weighted-average fair value at grant date
$81.57
 
$93.30
____________
(1)  
The risk-free interest rate for periods within the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.
(2)  
We use historic volatility for PSU awards issued under the three -year PSU program, as implied volatility data could not be obtained for all the companies in the peer groups used for relative performance measurement within the program.    
 
In addition, the annual dividend assumption utilized in the Monte Carlo simulation model is based on Nasdaq’s dividend yield at the date of grant.
Summary of PSU Activity
The following table summarizes our PSU activity for the three months ended March 31, 2017 :
 
PSUs
 
One-Year Program
 
Three-Year Program
 
Number of Awards
 
Weighted-Average Grant Date Fair Value
 
Number of Awards
 
Weighted-Average Grant Date Fair Value
Unvested balances at January 1, 2017
378,766

 
$
52.55

 
1,314,668

 
$
63.18

Granted
193,710

 
65.50

 
801,448

 
55.49

Vested
(10,729
)
 
53.72

 
(1,079,925
)
 
42.83

Forfeited
(25,782
)
 
53.89

 
(24,178
)
 
88.98

Unvested balances at March 31, 2017
535,965

 
$
57.14

 
1,012,013

 
$
78.19

At March 31, 2017 , $16 million of total unrecognized compensation cost related to the one -year PSU program is expected to be recognized over a weighted-average period of 1.6 years . For the three -year PSU program, $38 million of total unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.6 years .
Stock Options
The fair value of stock options are estimated using the Black-Scholes option-pricing model. Each grant has a 10 -year life. In 2017, our CEO received 268,817 performance-based non-qualified stock options which will vest annually over a three -year period, starting at the date of the grant with each vesting contingent upon the achievement of performance parameters. There were no stock option awards granted for the three months ended March 31, 2016 .

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Summary of Stock Option Activity
A summary of stock option activity for the three months ended March 31, 2017 is as follows:
 
Number of Stock Options
 
Weighted-Average Exercise Price
 
Weighted-Average Remaining
Contractual Term (in years)
 
Aggregate Intrinsic
Value (in millions)
 
 
 
 
 
 
 
 
Outstanding at January 1, 2017
1,406,371

 
$
22.32

 
2.65
 
$
63

Granted
268,817

 
66.68

 
 
 
 
Exercised
(40,416
)
 
20.98

 
 
 
 
Outstanding at March 31, 2017
1,634,772

 
$
29.64

 
3.62
 
$
65

Exercisable at March 31, 2017
1,365,955

 
$
22.35

 
2.44
 
$
64

We received net cash proceeds of $1 million from the exercise of 40,416 stock options for the three months ended March 31, 2017 and received net cash proceeds of $2 million from the exercise of 86,811 stock options for the three months ended March 31, 2016 .
The aggregate intrinsic value in the above table represents the total pre-tax intrinsic value (i.e., the difference between our closing stock price on March 31, 2017 of $69.45 and the exercise price, times the number of shares) based on stock options with an exercise price less than Nasdaq’s closing price of $69.45 as of March 31, 2017, which would have been received by the option holders had the option holders exercised their stock options on that date. This amount can change based on the fair market value of our common stock. The total number of in-the-money stock options exercisable as of March 31, 2017  was 1.4 million . As of March 31, 2016 , 2.5 million outstanding stock options were exercisable and the weighted-average exercise price was $27.87
The total pre-tax intrinsic value of stock options exercised was $2 million for the three months ended March 31, 2017 and $3 million for the three months ended March 31 2016 .  
ESPP
We have an ESPP under which approximately 2.3 million shares of our common stock have been reserved for future issuance as of March 31, 2017. Under our ESPP, employees may purchase shares having a value not exceeding 10.0% of their annual compensation, subject to applicable annual Internal Revenue Service limitations. We record compensation expense related to the 15.0% discount that is given to our employees which totaled $1 million for both the three months ended March 31, 2017 and 2016.
 
11. Nasdaq Stockholders’ Equity
Common Stock
At March 31, 2017 , 300,000,000 shares of our common stock were authorized, 169,760,142 shares were issued and 165,168,584 shares were outstanding. The holders of common stock are entitled to one vote per share, except that our certificate of incorporation limits the ability of any person to vote in excess of 5.0% of the then-outstanding shares of Nasdaq common stock.
Common Stock in Treasury, at Cost
We account for the purchase of treasury stock under the cost method with the shares of stock repurchased reflected as a reduction to Nasdaq stockholders’ equity and included in common stock in treasury, at cost in the Condensed Consolidated Balance Sheets. Shares repurchased under our share repurchase program are currently retired and cancelled. When treasury shares are reissued, they are recorded at the average cost of the treasury shares acquired. We held 4,591,558  shares of common stock in treasury as of March 31, 2017 and 3,921,718 shares as of December 31, 2016, most of which are related to shares of our common stock repurchased for the settlement of employee tax withholding obligations arising from the vesting of restricted stock.
Share Repurchase Program
In the fourth quarter of 2014, our board of directors authorized the repurchase of up to $500 million of our outstanding common stock and in the first quarter of 2016, our board of directors authorized the repurchase of an additional $370 million of our outstanding common stock under our share repurchase program.
These purchases may be made from time to time at prevailing market prices in open market purchases, privately-negotiated transactions, block purchase techniques or otherwise, as determined by our management. The purchases are primarily funded from existing cash balances. The share repurchase program may be suspended, modified or discontinued at any time.
The following table summarizes our share repurchase activity:
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Number of shares of common stock repurchased
 
2,215,755

 
490,032

Average price paid per share
 
$
70.64

 
$
59.37

Total purchase price (in millions)
 
$
156

 
$
29

As discussed above in “Common Stock in Treasury, at Cost,” shares repurchased under our share repurchase program are currently retired and cancelled. As of March 31, 2017 , the remaining amount authorized for share repurchases under the program was $273 million .

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Other Repurchases of Common Stock
For the quarter ended March 31, 2017 , we repurchased 668,038 shares of our common stock in settlement of employee tax withholding obligations arising from the vesting of restricted stock.
 

Preferred Stock
Our certificate of incorporation authorizes the issuance of 30,000,000 shares of preferred stock, par value $0.01 per share, issuable from time to time in one or more series. At March 31, 2017 and December 31, 2016, no shares of preferred stock were issued or outstanding.  
* * * * * *
Cash Dividends on Common Stock
During the three months ended March 31, 2017 , our board of directors declared the following cash dividends:
Declaration Date
 
Dividend Per
Common Share
 
Record Date
 
Total Amount Paid
 
Payment Date
 
 
 
 
 
 
(in millions)
 
 
January 30, 2017
 
$
0.32

 
March 17, 2017
 
$
53

 
March 31, 2017
The total amount paid of $53 million was recorded in retained earnings in the Condensed Consolidated Balance Sheets at March 31, 2017 .
In April 2017, the board of directors declared a regular quarterly cash dividend of $0.38  per share on our outstanding common stock which reflects a 19.0% increase from our prior quarterly cash dividend of $0.32 . The dividend is payable on June 30, 2017 to shareholders of record at the close of business on June 16, 2017. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to approval by the board of directors.
In April 2017, our board of directors adopted a dividend policy with the intention to provide shareholders with regular and growing dividends over the long term as earnings and cash flow grow.


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12. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
 
Three Months Ended March 31,
 
2017
 
2016
 
(in millions, except share and per share amounts)
Numerator:
 
 
 
Net income attributable to common shareholders
$
169

 
$
132

Denominator:
 
 
 
Weighted-average common shares outstanding for basic earnings per share
166,473,073

 
164,281,692

Weighted-average effect of dilutive securities:
 
 
 
Employee equity awards
3,773,874

 
4,086,752

Weighted-average common shares outstanding for diluted earnings per share
170,246,947

 
168,368,444

Basic and diluted earnings per share:
 
 
 
Basic earnings per share
$
1.02

 
$
0.80

Diluted earnings per share
$
0.99

 
$
0.78

Stock options to purchase 1,634,772  shares of common stock and 4,245,457  shares of restricted stock and PSUs were outstanding at March 31, 2017 . For the three months ended March 31, 2017 , we included 1,365,955 of the outstanding stock options and 3,293,769 shares of restricted stock and PSUs in the computation of diluted earnings per share, on a weighted-average basis, as their inclusion was dilutive. The remaining stock options, shares of restricted stock and PSUs are antidilutive, and as such, they were properly excluded.

Stock options to purchase 2,539,676 shares of common stock and 5,594,549 shares of restricted stock and PSUs were outstanding at March 31, 2016 . For the three months ended March 31, 2016 , we included all of the outstanding stock options and 4,533,893 shares of restricted stock and PSUs in the computation of diluted earnings per share, on a weighted-average basis, as their inclusion was dilutive. The remaining shares of restricted stock and PSUs are antidilutive, and as such, they were properly excluded.
See “Recently Adopted Accounting Pronouncements,” of Note 2, “Basis of Presentation and Principles of Consolidation,” for the impact of the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting" on diluted earnings per share.
13. Fair Value of Financial Instruments
The following table presents our financial assets that are measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 . We did not have any financial liabilities
 
measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 .
 
March 31, 2017
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(in millions)
Financial investments, at fair value
$
220

 
$
203

 
$
17

 
$

Default fund and margin deposit investments
2,186

 
1,610

 
576

 

Total
$
2,406

 
$
1,813

 
$
593

 
$


 
December 31, 2016
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(in millions)
Financial investments, at fair value
$
245

 
$
228

 
$
17

 
$

Default fund and margin deposit investments
1,900

 
1,763

 
137

 

Total
$
2,145

 
$
1,991

 
$
154

 
$


Our Level 1 financial investments, at fair value were primarily comprised of trading securities, mainly highly rated European government debt securities. Of these securities, $154 million as of March 31, 2017 and $172 million as of December 31, 2016 are assets utilized to meet regulatory capital requirements, primarily for our clearing operations at Nasdaq Clearing. Level 2 financial investments, at fair value were primarily comprised of available-for-sale investment securities in short-term certificates of deposit as of March 31, 2017 and were primarily comprised of available-for-sale investment securities in short-term commercial paper as of December 31, 2016.
Our default fund and margin deposit investments include cash contributions invested by Nasdaq Clearing, in accordance with its investment policy. Of the total balance of $3,633 million recorded in the Condensed Consolidated Balance Sheets as of March 31, 2017 , $576 million of cash contributions have been invested in reverse repurchase agreements and $1,610 million of cash contributions have been invested in highly rated European, and to a lesser extent, U.S. government debt securities or central bank certificates. The remainder of this balance is held in cash. Of the total balance of $3,301 million recorded in the Condensed Consolidated Balance Sheets as of December 31, 2016 , $137 million of cash contributions have been invested in reverse repurchase agreements and $1,763 million of cash contributions have been invested in highly rated European, and to a lesser extent, U.S. government debt securities and central bank certificates. The remainder of this balance is held in cash. See Note 14, “Clearing Operations,” for further discussion of default fund contributions and margin deposits.

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There were no transfers between Level 1 and Level 2 of the fair value hierarchy as of March 31, 2017 and December 31, 2016
Financial Instruments Not Measured at Fair Value on a Recurring Basis
Some of our financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include: cash and cash equivalents, restricted cash, receivables, net, certain other current assets, accounts payable and accrued expenses, Section 31 fees payable to SEC, accrued personnel costs, and certain other current liabilities.
In addition, our investments in OCC and EuroCCP N.V. are accounted for under the equity method of accounting and our investments in Borsa Istanbul and LCH.Clearnet Group Limited are carried at cost. See “Equity Method Investments,” and “Cost Method Investments,” of Note 6, “Investments,” for further discussion.
We also consider our debt obligations to be financial instruments. The fair value of our debt, utilizing discounted cash flow analyses for our floating rate debt and prevailing market rates for our fixed rate debt, was $3.8 billion at March 31, 2017 and December 31, 2016 . The discounted cash flow analyses are based on borrowing rates currently available to us for debt with similar terms and maturities. Our fixed rate and our floating rate debt is categorized as Level 2 in the fair value hierarchy. For further discussion of our debt obligations, see Note 8, “Debt Obligations.”
14. Clearing Operations
Nasdaq Clearing
Nasdaq Clearing is authorized and supervised under EMIR as a multi-asset clearinghouse by the SFSA and is authorized to conduct clearing operations in Norway by the Norwegian Ministry of Finance. The clearinghouse acts as the CCP for exchange and OTC trades in equity derivatives, fixed income derivatives, resale and repurchase contracts, power derivatives, emission allowance derivatives, freight and fuel oil derivatives, iron ore derivatives and seafood derivatives. 
Through our clearing operations in the financial markets, which include the resale and repurchase market, the commodities markets, and the seafood market, Nasdaq Clearing is the legal counterparty for, and guarantees the fulfillment of, each contract cleared. These contracts are not used by Nasdaq Clearing for the purpose of trading on its own behalf. As the legal counterparty of each transaction, Nasdaq Clearing bears the counterparty risk between the purchaser and seller in the contract. In its guarantor role, Nasdaq Clearing has precisely equal and offsetting claims to and from clearing members on opposite sides of each contract, standing as the CCP on every contract cleared. In accordance with the rules and regulations of Nasdaq Clearing, clearing members’ open positions are aggregated to create a single portfolio for which default fund and margin collateral requirements are calculated. See “Default Fund Contributions and Margin Deposits” below for further
 
discussion of Nasdaq Clearing’s default fund and margin requirements.
Nasdaq Clearing maintains four member sponsored default funds: one related to financial markets, one related to commodities markets, one related to the seafood market, and a mutualized fund. Under this structure, Nasdaq Clearing and its clearing members must contribute to the total regulatory capital related to the clearing operations of Nasdaq Clearing. This structure applies an initial separation of default fund contributions for the financial, commodities and seafood markets in order to create a buffer for each market’s counterparty risks. Simultaneously, a mutualized default fund provides capital efficiencies to Nasdaq Clearing’s members with regard to total regulatory capital required. See “Default Fund Contributions” below for further discussion of Nasdaq Clearing’s default fund. Power of assessment and a liability waterfall also have been implemented. See “Power of Assessment” and “Liability Waterfall” below for further discussion. These requirements ensure the alignment of risk between Nasdaq Clearing and its clearing members.
Default Fund Contributions and Margin Deposits
As of March 31, 2017 , clearing member default fund contributions and margin deposits were as follows:
 
March 31, 2017
 
Cash Contributions
 
Non-Cash Contributions
 
Total Contributions
 
(in millions)
Default fund contributions
$
334

 
$
99

 
$
433

Margin deposits
3,299

 
3,646

 
6,945

Total
$
3,633

 
$
3,745

 
$
7,378


In accordance with its investment policy, of the total cash contributions of $3,633 million , Nasdaq Clearing has invested cash contributions of $576 million in reverse repurchase agreements and $1,610 million in highly rated European, and to a lesser extent, U.S. government debt securities or central bank certificates. The remainder of this balance is held in cash. Of the total default fund contributions of $433 million , Nasdaq Clearing can utilize $370 million as capital resources in the event of a counterparty default. The remaining balance of $63 million pertains to member posted surplus balances.
Default Fund Contributions
Contributions made to the default funds are proportional to the exposures of each clearing member. When a clearing member is active in more than one market, contributions must be made to all markets’ default funds in which the member is active. Clearing members’ eligible contributions may include cash and non-cash contributions. Cash contributions received are held in cash or invested by Nasdaq Clearing, in accordance with its investment policy, either in highly rated government debt securities, time deposits, central bank certificates or reverse repurchase agreements with highly rated government debt securities as collateral. Nasdaq Clearing maintains and manages

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all cash deposits related to margin collateral. All risks and rewards of collateral ownership, including interest, belong to Nasdaq Clearing. Clearing members’ cash contributions are included in default funds and margin deposits in the Condensed Consolidated Balance Sheets as both a current asset and a current liability. Non-cash contributions include highly rated government debt securities that must meet specific criteria approved by Nasdaq Clearing. Non-cash contributions are pledged assets that are not recorded in the Condensed Consolidated Balance Sheets as Nasdaq Clearing does not take legal ownership of these assets and the risks and rewards remain with the clearing members. These balances may fluctuate over time due to changes in the amount of deposits required and whether members choose to provide cash or non-cash contributions. Assets pledged are held at a nominee account in Nasdaq Clearing’s name for the benefit of the clearing members and are immediately accessible by Nasdaq Clearing in the event of a default. In addition to clearing members’ required contributions to the liability waterfall, Nasdaq Clearing is also required to contribute capital to the liability waterfall and overall regulatory capital as specified under its clearinghouse rules. As of March 31, 2017 , Nasdaq Clearing committed capital totaling $115 million to the liability waterfall and overall regulatory capital, in the form of government debt securities, which are recorded as financial investments, at fair value in the Condensed Consolidated Balance Sheets. The combined regulatory capital of the clearing members and Nasdaq Clearing will serve to secure the obligations of a clearing member and may be used to cover losses sustained by a clearing member in the event of a default.
Margin Deposits
Nasdaq Clearing requires all clearing members to provide collateral, which may consist of cash and non-cash contributions, to guarantee performance on the clearing members’ open positions, or initial margin. In addition, clearing members must also provide collateral to cover the daily margin call if needed. See “Default Fund Contributions” above for further discussion of cash and non-cash contributions.
Similar to default fund contributions, Nasdaq Clearing maintains and manages all cash deposits related to margin collateral. All risks and rewards of collateral ownership, including interest, belong to Nasdaq Clearing. These cash deposits are recorded in default funds and margin deposits in the Condensed Consolidated Balance Sheets as both a current asset and current liability. Pledged margin collateral is not recorded in our Condensed Consolidated Balance Sheets as all risks and rewards of collateral ownership, including interest, belong to the counterparty. Assets pledged are held at a nominee account in Nasdaq Clearing’s name for the benefit of the clearing members and are immediately accessible by Nasdaq Clearing in the event of a default.
Nasdaq Clearing marks to market all outstanding contracts and requires payment from clearing members whose positions have lost value. The mark-to-market process helps identify any clearing members that may not be able to satisfy their financial obligations in a timely manner allowing Nasdaq Clearing the
 
ability to mitigate the risk of a clearing member defaulting due to exceptionally large losses. In the event of a default, Nasdaq Clearing can access the defaulting member’s margin deposits to cover the defaulting member’s losses.
Regulatory Capital and Risk Management Calculations
Nasdaq Clearing manages risk through a comprehensive counterparty risk management framework, which is comprised of policies, procedures, standards and financial resources. The level of regulatory capital is determined in accordance with Nasdaq Clearing’s regulatory capital policy, as approved by the SFSA. Regulatory capital calculations are continuously updated through a proprietary capital-at-risk calculation model that establishes the appropriate level of capital.
As mentioned above, Nasdaq Clearing is the legal counterparty for each contract traded and thereby guarantees the fulfillment of each contract. Nasdaq Clearing accounts for this guarantee as a performance guarantee. We determine the fair value of the performance guarantee by considering daily settlement of contracts and other margining and default fund requirements, the risk management program, historical evidence of default payments, and the estimated probability of potential default payouts. The calculation is determined using proprietary risk management software that simulates gains and losses based on historical market prices, extreme but plausible market scenarios, volatility and other factors present at that point in time for those particular unsettled contracts. Based on this analysis, the estimated liability was nominal and no liability was recorded as of March 31, 2017
The market value of derivative contracts outstanding prior to netting was as follows:
 
March 31, 2017
 
(in millions)
Commodity and seafood options, futures and forwards (1)(2)(3)
$
550

Fixed-income options and futures (1)(2)
743

Stock options and futures (1)(2)
132

Index options and futures (1)(2)
101

Total
$
1,526

____________
(1)  
We determined the fair value of our option contracts using standard valuation models that were based on market-based observable inputs including implied volatility, interest rates and the spot price of the underlying instrument.
(2)  
We determined the fair value of our futures contracts based upon quoted market prices and average quoted market yields.
(3)  
We determined the fair value of our forward contracts using standard valuation models that were based on market-based observable inputs including LIBOR rates and the spot price of the underlying instrument.

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The total number of derivative contracts cleared through Nasdaq Clearing for the three months ended March 31, 2017 and 2016 was as follows:
 
March 31, 2017
 
March 31, 2016
Commodity and seafood options, futures and forwards (1)
726,739

 
907,921

Fixed-income options and futures
5,158,237

 
4,368,986

Stock options and futures
7,383,538

 
8,303,721

Index options and futures
11,315,176

 
14,685,731

Total
24,583,690

 
28,266,359

____________
(1)
The total volume in cleared power related to commodity contracts was 379 Terawatt hours (TWh) for the three months ended March 31, 2017 and 420  TWh for the three months ended March 31, 2016 .
The outstanding contract value of resale and repurchase agreements was $6.3 billion as of March 31, 2017 and $6.4 billion at March 31, 2016 . The total number of contracts cleared was 1,979,972 for the three months ended March 31, 2017 and was 1,820,753 for the three months ended March 31, 2016 .
Power of Assessment 
To further strengthen the contingent financial resources of the clearinghouse, Nasdaq Clearing has power of assessment that provides the ability to collect additional funds from its clearing members to cover a defaulting member’s remaining obligations up to the limits established under the terms of the clearinghouse rules. The power of assessment corresponds to 100.0% of the clearing member’s aggregate contribution to the financial, commodities and seafood markets’ default funds.
Liability Waterfall
The liability waterfall is the priority order in which the capital resources would be utilized in the event of a default where the defaulting clearing member’s collateral would not be sufficient to cover the cost to settle its portfolio. If a default occurs and the defaulting clearing member’s collateral, including cash deposits and pledged assets, is depleted, then capital is utilized in the following amount and order:
junior capital contributed by Nasdaq Clearing, which totaled $18 million at March 31, 2017 ;
a loss sharing pool related only to the financial market that is contributed to by clearing members and only applies if the defaulting member’s portfolio includes interest rate swap products;
specific market default fund where the loss occurred (i.e., the financial, commodities, or seafood market), which includes capital contributions of the clearing members on a pro-rata basis;
senior capital contributed to each specific market by Nasdaq Clearing, calculated in accordance with
 
clearinghouse rules, which totaled $28 million at March 31, 2017 ; and
mutualized default fund, which includes capital contributions of the clearing members on a pro-rata basis.
If additional funds are needed after utilization of the mutualized default fund, then Nasdaq Clearing will utilize its power of assessment and additional capital contributions will be required by non-defaulting members up to the limits established under the terms of the clearinghouse rules.
15. Commitments, Contingencies and Guarantees
Guarantees Issued and Credit Facilities Available
In addition to the default fund contributions and margin collateral pledged by clearing members discussed in Note 14, “Clearing Operations,” we have obtained financial guarantees and credit facilities which are guaranteed by us through counter indemnities, to provide further liquidity related to our clearing businesses. Financial guarantees issued to us totaled $12 million at March 31, 2017 and $13 million at December 31, 2016 . As discussed in “Other Credit Facilities,” of Note 8, “Debt Obligations,” credit facilities, which are available in multiple currencies, totaled $172 million at March 31, 2017 and $170 million at December 31, 2016 , in available liquidity, none of which was utilized.
Execution Access is an introducing broker which operates the trading platform for our Fixed Income business to trade in U.S. Treasury securities. Execution Access has a clearing arrangement with Cantor Fitzgerald. As of March 31, 2017 , we have contributed $19 million of clearing deposits to Cantor Fitzgerald in connection with this clearing arrangement. These deposits are recorded in other current assets in our Condensed Consolidated Balance Sheets. Some of the trading activity in Execution Access is cleared by Cantor Fitzgerald through the Fixed Income Clearing Corporation. Execution Access assumes the counterparty risk of clients that do not clear through the Fixed Income Clearing Corporation. Counterparty risk of clients exists for Execution Access between the trade date and the settlement date of the individual transactions, which is one business day. All of Execution Access’ obligations under the clearing arrangement with Cantor Fitzgerald are guaranteed by Nasdaq. Counterparties that do not clear through the Fixed Income Clearing Corporation are subject to a credit due diligence process and may be required to post collateral, provide principal letters, or provide other forms of credit enhancement to Execution Access for the purpose of mitigating counterparty risk.
We believe that the potential for us to be required to make payments under these arrangements is mitigated through the pledged collateral and our risk management policies. Accordingly, no contingent liability is recorded in the Condensed Consolidated Balance Sheets for these arrangements.

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Lease Commitments
We lease some of our office space under non-cancelable operating leases with third parties and sublease office space to third parties. Some of our lease agreements contain renewal options and escalation clauses based on increases in property taxes and building operating costs.
Other Guarantees
We have provided other guarantees of $3 million as of March 31, 2017 and December 31, 2016 . These guarantees are primarily related to obligations for our rental and leasing contracts as well as performance guarantees on certain market technology contracts related to the delivery of software technology and support services. We have received financial guarantees from various financial institutions to support the above guarantees.
Through our clearing operations in the financial markets, Nasdaq Clearing is the legal counterparty for, and guarantees the performance of, its clearing members. See Note 14, “Clearing Operations,” for further discussion of Nasdaq Clearing performance guarantees.
We have provided a guarantee related to lease obligations for The Nasdaq Entrepreneurial Center, Inc. which is a not-for-profit organization designed to convene, connect and engage aspiring and current entrepreneurs. This entity is not included in the condensed consolidated financial statements of Nasdaq.
We believe that the potential for us to be required to make payments under these arrangements is unlikely. Accordingly, no contingent liability is recorded in the Condensed Consolidated Balance Sheets for the above guarantees.
Non-Cash Contingent Consideration 
As part of the purchase price consideration of a prior acquisition, we have agreed to future annual issuances of 992,247 shares of Nasdaq common stock which approximated certain tax benefits associated with the transaction. Such contingent future issuances of Nasdaq common stock will be paid ratably through 2027 if Nasdaq’s total gross revenues equal or exceed $25 million in each such year. The contingent future issuances of Nasdaq common stock are subject to anti-dilution protections and acceleration upon certain events.
Escrow Agreements
In connection with prior acquisitions, we entered into escrow agreements to secure the payment of post-closing adjustments and to ensure other closing conditions. At March 31, 2017 , these escrow agreements provide for future payment of $31 million and are included in other current liabilities in the Condensed Consolidated Balance Sheets.
Routing Brokerage Activities
One of our broker-dealer subsidiaries, Nasdaq Execution Services, provides a guarantee to securities clearinghouses and exchanges under its standard membership agreements, which require members to guarantee the performance of other
 
members. If a member becomes unable to satisfy its obligations to a clearinghouse or exchange, other members would be required to meet its shortfalls. To mitigate these performance risks, the exchanges and clearinghouses often require members to post collateral, as well as meet certain minimum financial standards. Nasdaq Execution Services’ maximum potential liability under these arrangements cannot be quantified. However, we believe that the potential for Nasdaq Execution Services to be required to make payments under these arrangements is unlikely. Accordingly, no contingent liability is recorded in the Condensed Consolidated Balance Sheets for these arrangements.
Litigation 
As previously disclosed, we were named as a defendant in a putative class action, Rabin v. NASDAQ OMX PHLX LLC, et al., No. 15-551 (E.D. Pa.), filed in 2015 in the United States District Court for the Eastern District of Pennsylvania. On April 21, 2016, the court entered an order granting our motion to dismiss the complaint. The plaintiff appealed the dismissal to the Court of Appeals for the Third Circuit on May 18, 2016. Given that the complaint was dismissed at the preliminary stage of the proceeding, we are unable to estimate what, if any, liability may result from this litigation. However, we believe (as the district court concluded) that the claims are without merit, and we intend to defend the dismissal on appeal vigorously.
We also are named as one of many defendants in City of Providence v. BATS Global Markets, Inc., et al., 14 Civ. 2811 (S.D.N.Y.), which was filed on April 18, 2014 in the United States District Court for the Southern District of New York. The district court appointed lead counsel, who filed an amended complaint on September 2, 2014. The amended complaint names as defendants seven national exchanges, as well as Barclays PLC, which operated a private alternative trading system. On behalf of a putative class of securities traders, the plaintiffs allege that the defendants engaged in a scheme to manipulate the markets through high-frequency trading; the amended complaint asserts claims against us under Section 10(b) of the Exchange Act and Rule 10b-5, as well as under Section 6(b) of the Exchange Act. We filed a motion to dismiss the amended complaint on November 3, 2014. In response, the plaintiffs filed a second amended complaint on November 24, 2014, which names the same defendants and alleges essentially the same violations. We then filed a motion to dismiss the second amended complaint on January 23, 2015. On August 26, 2015, the district court entered an o