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The NASDAQ OMX Group, Inc. (NASDAQ:NDAQ)

Annual Shareholder Meeting

May 22, 2013 9:00 am ET

Executives

Börje E. Ekholm - Chairman, Chairman of Nominating & Governance Committee, Member of Executive Committee and Member of Finance Committee

Edward S. Knight - Chief Regulatory Officer, Executive Vice President and General Counsel

Robert Greifeld - Chief Executive Officer, President, Staff Director, Member of Executive Committee and Member of Finance Committee

Börje E. Ekholm

Let's see if we can get this focused on one meeting. So good morning, everyone. My name is Börje Ekholm, I'm the Chairman of the NASDAQ OMX board and also Chairman of this meeting. Thank you all for joining us here today for the Annual Meeting of Shareholders of NASDAQ OMX. And the meeting is hereby convened and actually called into order. The Annual Shareholders Meeting gives you all shareholders an opportunity to ask questions about the business you actually own, but also it gives our CEO a possibility to describe the business of the company.

I've been Chairman of NASDAQ OMX for a year, and it's been quite a year actually. I would say the company is in constant work to evaluate the business but also to innovate and come up with new product. And if you look at this past year, I think it's particularly exciting to see the way the management team has handled the challenges we've seen in the business. We've built on the strength basically to broaden the offering of the products, expand the revenue base beyond the dependencies on cash equities, and we've also been able to manage the fluctuations in the global economy.

We have seen that we have broaden the business of the company, as we said, and we've done that through the acquisition of Thomson Reuters, as well as the eSpeed. Of course, acquisitions always the headlines in the media, but therefore, I'd especially like to draw attention to the work done in identifying organic growth opportunities through the GIFT program. And I think this is something that we really should complement the company at, finding new growth avenues and new growth opportunities. But I know our CEO will talk about that later on.

That said, we still have a core belief that the exchanges will continue to be at the center of the global economy and the financial infrastructure. NASDAQ OMX is extraordinarily well-positioned to take advantage of the positive trends that we're beginning to see occurring in the exchange space today. So from my vantage point, during the past year, NASDAQ OMX has achieved remarkable success through the sound implementation of its strategy. I look forward to seeing the team continuing to bring that level of commitment to all our new endeavors, proud to lead the board of this organization and we are at the convergence of forces that drive the global economy forward, including capital formation, technology and corporate and information solutions. So in behalf of all the directors of NASDAQ OMX, welcome to our Annual Meeting of Shareholders.

So with that, I'm pleased to introduce to you the individuals at the head table. So next to me is Robert Greifeld, our CEO; after that is Lee Shavel, who's the Executive Vice -- or Chief Financial Officer and Executive Vice President of Corporate Strategy; after that, it's Ed Knight, Executive Vice President, General Counsel and Chief Regulatory Officer; and to the far right is Joan Conley, Senior Vice President and Corporate Secretary. Members of the NASDAQ OMX board and executive management are also in attendance of this meeting.

We have also representatives from Ernst & Young, the company's independent auditor and from Broadridge Financial Solutions, the inspector of the election, are also in attendance. The representatives from Ernst & Young are available to answer any questions you may have during the Q&A session later on in the meeting.

The Secretary of the Corporation and the Annual Meeting has certified a list of eligible stockholders of the company entitled to vote at this meeting. So I will now ask Mr. Knight, Executive Vice President, General Counsel and Chief Regulatory Officer, to make the report of the general counsel.

Edward S. Knight

Thank you, Chairman Ekholm. On behalf of the legal staff -- and I'm going to go through some of the formalities here, but I want of knowledge Joan Conley's work and her staff in putting this meeting together. I know it will go flawlessly. Right, Joan? But I present proof by affidavit that notice of the meeting has been duly given and that a notice of Internet availability of proxy materials has been mailed on or about April 11, 2013 to every stockholder of record as of April 2, 2013.

As of April 2, 2013 record date, we had 165,763,497 shares of NASDAQ OMX common stock outstanding, subject to voting limitation and our certificate of incorporation that generally prohibits a holder from voting an excess of 5% of the total voting power of NASDAQ OMX. I also report that the Board of Directors has appointed Broadridge Financial Solutions to act as the inspector of the election at this meeting, and any adjournments hereof, and to count and examine all votes. The inspector of election has filed with me an oath of inspector and a report of inspector that a quorum is present at this meeting. The meeting agenda and meeting rules were provided to you as you entered the meeting I ask you to look at those.

Mr. Chairman?

Börje E. Ekholm

Thank you, Mr. Knight. There being a quorum present, we will now proceed with the business of the annual meeting. As you entered the room, you should have received an agenda and a set of meeting rules, which will govern this meeting. As the agenda notes, there are 5 matters for considerations by the stockholders. No other business will be presented at this meeting, although time has been set aside for a question-and-answer session.

At an appropriate time, those stockholders who wish to address the meeting will be provided an opportunity to speak and be recognized by the Chairman. If there are any stockholders or proxy holders present who have completed proxies and have not delivered them, please do so at this time. Please deliver them to Anthony Carideo, sitting over there, marked table inspector of election.

So with that, I'd like to call an you, Bob, to provide a few remarks at this time.

Robert Greifeld

Thank you, Mr. Chairman. And I think everybody for joining us today. It's certainly my great pleasure to be here with you for the Annual Meeting of Shareholders. Before we open it up to the Q&A, I want to point out a few highlights, which I believe profoundly contributed to NASDAQ OMX's progress and results in 2012.

Over the past year, we continued to make significant strides in the thoughtful execution of our business plan despite a tepid volume environment and lingering economic headwinds. A central building block in our approach was the expansion of our diversified portfolio of businesses, which has fundamentally reshaped our owner profile, where, now, over 70% is a recurring, nontransaction-based revenue. This, coupled with strong expense control and the strategic use of capital, led to attractive returns that we delivered to you, our shareholders. In fact, when you look at our performance relative to our exchange peers, we outperformed them in almost every financial category.

We had been outspoken in our approach to expand the depth and the breadth of our stable, recurring revenue profile. And it's this direction and disciplined approach that has enabled us to create a diversified, customer-centric portfolio of corporate trading technology and information solutions. Global equity volumes have declined 30% to 40% since 2007. Our organic EPS growth showed a 58% increase during the same period. Impressive.

In 2012, we ended the year with solid financial and operating results generating over nearly $600 million in cash flow from operations. And we returned $275 million to shareholders through our share repurchase program, and an additional $65 million through dividends.

Remarkably, since 2009, we have generated roughly $2 billion in free cash flow. An equally important part of our performance in 2012 was our fundamental belief that we must invest in our future and we must do that better than any of our peers. We have a strong belief that investments in our future should have the same level of rigor and discipline as exhibited by the leading venture capital firms. Our track record was GIFT initiatives and our ability to find pockets of opportunity is evidenced by the over 20% average return we're able to deliver on these investments. We have delivered $134 million in revenue based upon the investments we made in the last 4 years. 3 outstanding examples of these initiatives were the BX Option markets, our inside sales effort and our index weighting and components effort. We have equally -- we also have an equally strong pipeline of new initiatives that we are excited about for this year and the next.

In addition to the internal organic growth opportunities we cultivate through our GIFT program, a new -- another key element of the strategy has been acquisitions. As you know, the management team here is firmly focused on opportunities across different sectors. During the past year, we completed and set in motion several acquisitions we believe will be important growth drivers for this organization in the years to come. In fact, we've invested $320 million over the past 5 years to acquire a variety of assets, including the index business of Mergent, most recently; a majority interest in BWise; the acquisition of NOS Clearing; the business of RapiData; Glide Technologies' FTEN and SMARTS. One of the most prominent of these moves was in 2012 with the announcement of our acquisition of the Thomson Reuters' Investor Relations, Public Relations and Multimedia Solutions businesses.

Over the years, we have developed unique relationships with our listed companies. It's one of the aspects that distinguishes NASDAQ OMX and makes our model particularly effective. It is through these relationships that drove us to develop the Corporate Solutions business and the products that these Corporate Solutions use to help them communicate with their stakeholders, manage risks and the compliance requirements. Fast-forward to today, after we started this efforts 7 years ago, with the acquisition of Thomson Reuters, this is truly a bold culmination of the strategy. In 2012, from a standing start years ago, our Corporate Solutions delivered $97 million in revenue and there was a 25% year-on-year growth. Once we complete the acquisition of the corporate assets of Thomson Reuters, this will clearly accelerate our strategy, we will be the leading provider of a premiere suite of products and services for public and private companies. We will be truly the envy of this space and we look forward to completing that acquisition in the next number of days.

Equally important to Thomson Reuters was our announcement that we were going to also include the eSpeed platform, the acquisition of eSpeed. It's a fully executable central limit order book for the electronic trading of U.S. treasuries. It's a high quality business, 1 of the 2 market leaders and represents a scale entry point into the fixed income execution business. It fits squarely within the broader strategic direction and falls within the core expertise of this organization, leveraging scale and technology across multiple asset classes. It allows us to leverage continued growth in the U.S. Treasury market, which has certainly, we expect, were buoyed by current macroeconomic trends and we think these trends will continue. As a point to note, we just received HSR approval for this acquisition by the DOJ, and we are on track to close this acquisition by the end of the first half of this year. It's truly a game changer for our transaction business and we're excited about this opportunity.

In 2012, we showed some progress in a number of areas in our business, including listings. Companies are increasingly recognizing the unique value proposition that NASDAQ OMX offers. This was underscored by several high-profile listing wins and switches in 2012, including Texas Instruments, Kraft Foods and, most recently, Goodyear. Now, as we look at their value growth in scale we have created across all our businesses, we'll also realize that we needed to provide greater operational visibility to our investors into these businesses. In this regard, we made several noteworthy moves to segment our businesses with this goal in mind. We announced the combination of Market Technology and the Corporate Solutions business, which creates a leading technology in software business, on par with the larger players in the space and similar in profile to companies such as ACI Worldwide, Fidessa, Fiserv, Fidelity National Information Services.

In addition, we announced the combination of our Global Index and Global Data Products business, both have very attractive margins and saw a positive year-on-year growth in 2012. The combined segment, Global Information Services, will represent approximately 20% of NASDAQ's revenue and will have a similar profile to companies such as MSEI, McGraw Hill and Factset.

Interesting, as an example of the type of innovation we're capable of within this business, we just announced last week that China's first ever cross-border exchange-traded fund, the Guotai NASDAQ-100 ETF began trading last week on the Shanghai Stock Exchange. This unique product provides Chinese investors first-time access to U.S. stocks and traded over 87 million shares in its very first day, truly an impressive start.

In closing, I'd also like to provide a few standout examples of the successful execution of our strategy during the year. Our strategy is working. We are building the foundation for growth and outperformance regardless of the economic, business or volume cycle. A key objective of ours is become one of the top business, technology and information service providers in the world. And I would say, we are well on our way.

In many years, 2012, would be, what I consider to be, a turning point for the organization. In addition to overcoming the challenges we faced as a global team, we continue to execute our mission of improving the value we deliver to our clients and attractive returns we generate for our shareholders. As I've said before, while we're pleased with our performance in 2012, we are by no means satisfied. We know there's more to be done if the full earnings potential of the franchise is to be realized. As a result of the efforts I highlighted here today, and many others we took in 2012, NASDAQ OMX is extremely well-positioned for the future and our business perhaps never more sound.

As CEO, I certainly feel incredibly fortunate to have a world-class team behind me. I see some of them in front of me here today, happy to have you here. And this team is truly committed and passionate in what they do. And we're certainly grateful for the support of the Chairman and the rest of the board in our efforts and our endeavors. Together, we will continue to redefine and reshape our business to create ever greater value for our customers, shareholders and employees.

I appreciate your time here today and look forward to taking all your questions.

Börje E. Ekholm

Thank you, Bob. We will now proceed with the matters described in the proxy statement. And A, the names and bios of the 11 director nominees for election are detailed in the proxy under Proposal 1 or I: Steve Black, Börje Ekholm, Bob Greifeld, Glenn Hutchins, Essa Kazim, John Markese, Ellyn McColgan, Tom O'Neill, Jim Riepe, Mike Splinter, and Lars Wedenborn.

Stockholders are also requested to ratify the appointment of Ernst & Young LLP as NASDAQ OMX's independent registered public accounting firm for the fiscal year ending December 31, 2013 under Proposal II.

Stockholders are requested to approve the company's executive compensation on an advisory basis under Proposal III. NASDAQ OMX's proposes to amend the company's restated Certificate of Incorporation to replace the supermajority voting requirement with the majority outstanding voting requirement. And then, NASDAQ OMX proposes to make non-substantive changes to the company's restated certificate of incorporation. So let's see if there are any questions on this? Nope? Not even from you?

We will now proceed with the vote on these 5 matters. Stockholders who wish to vote in person should now take a ballot. Make a pause to see if there is anyone -- no? It's now 9:20 a.m. The polls will now open and will remain open for up to 5 minutes. We can probably do it in 2 minutes now. I suggest we just have it open for 2 minutes. A big rush to the table.

[Voting]

Börje E. Ekholm

There's nobody here, so can I actually proceed? Then we can actually say that the polls are to close. I guess it's about 9:20, a little bit more. And the polls are closed, I suggest. So no further voting will be permitted.

So with that, we can take a few questions if there are any. I don't see any hands coming up.

Robert Greifeld

Tom? Not one question.

Börje E. Ekholm

Not one question? No? So with that, that concludes the question-and-answer session. I will now call upon Anthony Carideo to announce the preliminary results at this time.

Unknown Attendee

Mr. Chairman, preliminary results indicate that all of the company's nominees as director were elected to another term and the company's shareholder Proposals II through V were approved.

Börje E. Ekholm

Thank you. This concludes the official business portion of our meeting. I want to thank you all for attending today's meeting and for the interest you've shown in the affairs of NASDAQ OMX. Since there is nothing further to come before the meeting, I will declare this meeting adjourned as of 9:22 a.m.

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