To Our Shareholders

In 2012, NASDAQ OMX demonstrated the strength of its business model and the innovative spirit of its employees.

Despite the challenges we faced, we continued to execute our mission of improving the value we deliver to our clients and the attractive returns we generate for our shareholders

In my view, history will judge 2012 to be an inflection point in our markets, our business, and the future of NASDAQ OMX. Our long-term vision of building a diversified portfolio of businesses, combined with sound expense control and a strong capital position, has not only been a sensible approach, but a key differentiator for our organization.
The successful execution of our business plan has allowed for an independent and thoughtful approach to the future, and has strengthened our long-term competitive position–which is stronger than ever. In fact, in 2012, our relative revenue and earnings position outperformed the majority in our peer group.

Our Evolution - From U.S. Equity Exchange to a Diversified Portfolio of Global Businesses

Although historically we have been predominately known as a U.S. equities exchange, NASDAQ OMX continued on its path of becoming much more than that. We are transforming into a technology services and transaction company, dedicated to helping customers worldwide improve their productivity and manage risks more effectively. We have strategically redefined who we are over the past several years through a combination of new product and service launches and bolt-in acquisitions. Our strategy is working. We are building the foundation for growth and outperformance regardless of the economic, business, or volume cycles. A core objective of ours is to become one of the top business, technology, and information services providers in the world.

We ended the year with solid financial and operating results, and began 2013 cautiously optimistic that, for the first time since 2007, many global markets in which we operate are beginning to show signs of improving. While we are pleased with our results in 2012, by no means are we complacent. The management team and Board of Directors believe the full earnings power of this franchise has yet to be realized.

In 2012, we generated nearly $600 million in cash flow from operations, and returned $275 million to shareholders through repurchase of 11.5 million shares at an average price of $23.82 and $65 million through cash dividends. In the past three years, we repurchased 53.4 million shares at an average price of $21.97, returning a total of $1.2 billion to shareholders.

Perhaps even more noteworthy was the fact that we were able to maintain roughly the same level of net revenues while significantly diversifying our franchise. Our businesses providing recurring and subscription-based revenues contributed to 71 percent of our net revenues in 2012, substantially above the comparative level of 55 percent in 2007. Over the same period, global equity volumes witnessed a 30 to 40 percent decline.

In addition, our efforts to provide public and private companies with the tools and resources they require to effectively manage their constituents have resonated throughout the marketplace. The unique value proposition that NASDAQ OMX offers was evidenced by several high-profile listing wins and switches, including: Texas Instruments, Kraft Foods, and more recently, Goodyear. We will continue to stand out and attract new firms to our market because of the unique and compelling value that we offer.

That said, we love our transaction businesses. They are the largest contributor of net revenues and earnings to our consolidated business. Bringing buyers and sellers together in an open and transparent environment has always been in our DNA, and remains a thriving center of technology excellence and innovation at NASDAQ OMX.

Today, NASDAQ OMX operates 26 markets, 3 clearing houses, and 5 central depositories. The U.S. and Nordic exchanges are solid businesses in which we continue to achieve greater scale efficiencies and diversify into a variety of asset classes, such as with NASDAQ OMX BX Options, our newest options exchange. Our Helsinki exchange marked its 100th year of operation in 2012, and our Stockholm exchange celebrated 150 years of service in early 2013.

Yet we never stop looking for new and better ways to serve our customers and pursue growth opportunities across different sectors that complement our portfolio of products and services. For example, we continue to bring to market innovative data products, such as NASDAQ Basic and TotalView, and market systems software and services based on Genium INET for our customers to power their businesses throughout the world. We have also introduced a suite of solutions that covers the entire trading lifecycle for our members.

Enhancing our Client Offering, Delivering Returns to Shareholders

Acquisitions, both those completed and those set in motion in 2012, were analyzed through a rigorous set of financial disciplines, which allowed us to provide value for our clients as well as our shareholders. Without a doubt, this core discipline also contributed to the resiliency of our model. For NASDAQ OMX, a prospective acquisition must be strategically significant, accretive to shareholders within a year (excluding transaction costs), and deliver an adequate return on capital. Applying those filters, we invested $320 million net of dispositions over the past five years to acquire a variety of assets, including the index business of Mergent, a majority interest in BWise, NOS Clearing, the business of RapiData, Glide Technologies, FTEN, and SMARTS.

Late last year, we also announced an agreement to acquire Thomson Reuters´ Investor Relations, Public Relations, and Multimedia Solutions businesses. We have long admired Thomson Reuters´ model in providing these services to many of our listed companies. Through this acquisition, we plan to accelerate our strategy and create one of the premier suites of products and services for public and private companies in our industry. We will bring the assets, talents, and technology together to continue to deliver a powerful suite of services to roughly 10,000 clients in more than 60 countries. The acquisition is subject to customary regulatory approvals and is expected to close in the first half of 2013. Once the transaction closes, we plan to integrate these complementary businesses into NASDAQ OMX Corporate Solutions, a step that will create a global corporate services portfolio, with a unique and comprehensive offering for our corporate clients.

We anticipate that these acquisitions, along with ongoing capital deployment efforts, will yield substantial client and shareholder value in the years ahead. However, it is imperative to be flexible and opportunistic in responding to rapidly changing markets, and to continually evolve our organization to address the needs of our diverse client base.

To this end, in January 2013, we brought together our Market Technology and Corporate Solutions businesses to establish a new technology and software segment, Global Technology Solutions. The transaction with Thomson Reuters was one of the catalysts for this change. Global Technology Solutions will compete with a more comprehensive and strategic rationale and with a new profile similar to companies such as ACI Worldwide, Fidessa, Fiserv, and Fidelity National Information Services. We anticipate that our software and services will continue to be the preferred solutions for customers across many different businesses, industries, and regions.

In January 2013, we also combined our Global Data Products and Global Index Group into a new segment known as Global Information Services. These areas share healthy margins and experienced rising revenues last year. They are rooted in technology and the distribution of data–things we do exceptionally well. We have been creating innovative and transparent indexes since 1971. Today there are more than 7,000 structured products based on NASDAQ OMX indexes, spanning different geographies and asset classes with nearly $1 trillion in notional value. As a result of this move, Global Information Services now has a profile similar to companies such as MSCI, McGraw Hill, and Factset, and contributes about 24 percent of NASDAQ OMX´s net annual revenues.

Setting a New Standard of Excellence

In 2012, the transformation we embarked on as a company clearly allowed us to deliver sound results in the face of adversity. In many respects, however, that journey is only beginning. Our mission and focus will remain on driving new organic growth opportunities and adjacent opportunities that enhance our client offering.

Although our focus is primarily on delivering value to our clients and shareholders, we also recognize the critical role we play in a larger ecosystem. From the capital raising process, where emerging companies access the necessary resources that spur growth, to helping those same companies generate their own shareholder value, by more efficiently and effectively managing their constituents around the globe, to helping markets run more efficiently–we interact with the larger economic, business, and financial systems in many ways. To this end, we also partner with governments, industry leaders, and regulators to help forge new solutions for issues central to our markets and economies.

In 2012, NASDAQ OMX was an advocate for companies and investors on several key issues including market structure, federal fiscal reform, and immigration. We are proud to be central to the economy and the issues that drive global competitiveness.
As the global economy continues to recover, and because of the resiliency we exhibited as a company, NASDAQ OMX is well-positioned for the future. Our aggressive steps in meeting our cost, revenue, and technology objectives over the past three years should enable us to benefit from these improving economic conditions.

For NASDAQ OMX, resiliency has always been about more than bouncing back from adversity, but also possessing the ability to adapt to and transform itself in new and innovative ways. It is with this in mind that we will strive to create even greater value for our customers and shareholders while continuing to make lasting contributions to our employees, listed companies, and the global community at large.

Robert Greifeld
Chief Executive Officer