How Nasdaq Revenue Is Divided Across Trading, Listings, and Data
Summary
The document explains how to examine an exchange operator’s revenue mix using its annual financial filing. It describes Nasdaq’s reported business categories, including market services such as trading, clearing, access, and brokerage; listing services; and information services, including market data and index licensing. The cited breakdown gives percentages for several categories and illustrates that exchange revenue comes from a broader set of activities than trade commissions alone.
The answer also uses this breakdown to discuss proprietary data feeds and colocation. It argues that these services form a small part of the overall business and notes that software vendors and broker-dealers are among their customers. The comparison frames high-frequency trading firms as intermediaries that can access services at scale, while ordinary investors use brokers and other services. The figures are tied to a particular filing and period, and the commentary about public criticism is an argument by the answerer rather than an independent analysis of trading fairness or market quality.
Key ideas
- An exchange’s revenue can include trading, clearing, brokerage, access, listings, data, and index licensing.
- Annual financial filings provide a way to examine the relative contribution of business lines.
- The cited Nasdaq breakdown attributes revenue to market, listing, and information services.
- Colocation and proprietary feeds are presented as a small share of the exchange’s overall business.
- The answer’s defense of HFT services is an interpretation, not an empirical assessment of market impact.
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Full text
# How do exchanges make money? # How do exchanges make money? How does NASDAQ make money? How much of it is from selling market data, and how much of it is from commissions from trades? ## Answer by madilyn (score 5, accepted) https://quant.stackexchange.com/a/15022 Companies with more than $10M in assets and a share class with more than 500 equity owners are required by the SEC to file an annual Form 10-K report. You can reverse engineer how NASDAQ makes its revenues through their latest Form 10-K. After deducting expenses from transaction rebates, brokerage, clearance and exchange fees, this is the breakdown: - Market services, 41.0%. This includes: Derivatives clearing (e.g. on OMX PHLX, BX options) Cash equity trading and platform fees (e.g. on NASDAQ, BX, PSX) Fixed income trading and platform fees (e.g. on eSpeed) Access/broker services (e.g. colocation services, TradeGuard) - Listing services, 12.0% - Information services, 23.3%. This includes: Market data (e.g. from distribution fees; from operating the SIP for the UTP plan, and from proprietary feeds) Index licensing (e.g. NASDAQ 100 index) I want to emphasize a related point: HFT firms that use proprietary feeds and colocation services have been receiving a lot of media flak for untrue reasons. The Nanex and Flash Boys rhetoric is colorful, but poorly researched. As you can see for yourself, exchanges run a huge business and the proprietary feeds and colocation services are only a very small part of the pie. Moreover, even among the users of colocation services and proprietary feeds, the biggest clients are actually the software vendors (Interactive Data, Reuters, Bloomberg) and broker-dealers. And besides, HFT firms are middlemen by design. That's like complaining that Arrow Electronics and Ingram Micro can buy millions of Intel processors at the lowest prices, and that retail consumers like you and me can't compete with them. Well yes, but you and I can buy an Intel processor from Amazon for a very low price, with excellent warranty and replacement services at only several dollars more than Arrow/Ingram are paying per piece.
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