Nasdaq CEO Adena Friedman talks SPACs, meme stocks, and the new generation of investors

"Online trading changed everything about the industry,” says Friedman. “Today we’re in a new wave of accessibility and democratization.”
August 3, 2021, 10:00 AM UTC
CNV.0921.Adena Friedman
Photograph by Grace Rivera

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Under Friedman’s leadership, Nasdaq has accelerated its evolution from stock exchange to Fortune 500 tech, data, and analytics force, powering 130 global markets. We met the CEO at Nasdaq’s Times Square HQ to talk about the wild markets of the past year—from virtual IPOs to meme stocks to the SPAC revolution—and get her take on which trends are here to stay. 

This edited Q&A has been condensed for space and clarity.

The evolution of an exchange

You first joined Nasdaq in 1993 as an intern. How does Nasdaq today compare to the company you joined then? 

Friedman: Nasdaq was a for-profit subsidiary of the not-for-profit National Association of Securities Dealers, now FINRA. And it was just a stock exchange. When we separated from FINRA and turned ourselves into a shareholder-owned organization in 2000, that shaped what Nasdaq has become. Today, we’re global, we’re a technology company, and we’re a public company.

In your time away from Nasdaq, you took the Carlyle Group public.¹ What did that experience teach you about how to serve the companies debuting on Nasdaq today? 

It was a great education. I had the unique opportunity to see the capital markets from a different angle. It’s a really interesting process to engage with bankers and investors and have to distill what you know into 15 slides in a 45-minute presentation. 

I got to sit through the exchange selection process—meetings with Nasdaq and the New York Stock Exchange. Nasdaq won—they just did a better job. But when we opened the stock that first day, I did learn that there were things Nasdaq could do better. The first project I worked on when I got back to Nasdaq was, How do we make the opening auction a world-class experience?  

What was it you wanted to address? 

The big thing was transparency. At the time, underwriters didn’t have visibility into how the auction was developing—it was a blind auction. So we developed what we call the book viewer, which allows the lead underwriters to be able to see all of the orders as they’re developing and to have more control over the timing of the auction.

Over your years with Nasdaq, how has the way people invest changed? 

In 1993, the Internet was just starting to be commercialized. The launch of online trading started in 1995. It went from everyone having an indirect relationship with the markets to every single individual having the opportunity to have a direct relationship. That fundamentally changed everything about the industry. We had to change our market structure to facilitate instant access, and that’s the best thing that ever happened to the markets: democratizing access. 

Today we’re in a new wave of accessibility and the democratization of markets. New players are allowing for the same kind of easy access but with new tools.²

There’s been a lot of media attention on younger, more diverse investors getting into the market. What does that shift mean for Nasdaq? 

Our fundamental rule is to maximize access and minimize friction—cutting down impediments to going from being interested in buying a stock, an option, or a Treasury security, to actually getting that trade done at the price you expect with satisfaction. And to have all the information you need to make an informed decision. That’s a big part of our job: making sure the markets are incredibly transparent. 

With these new investors coming to the market, we’re doing a lot more investor education. We see this as a huge opportunity to engage hundreds of millions, billions of people in the markets. It’s our job to make sure they have the access, information, and education. 

You’re one of a handful of women running stock exchanges, both in the U.S. and abroad.³ What is it about exchanges, compared with other corners of the finance industry, that has allowed or helped women rise to the top? 

Stock exchange companies are more focused; we’re operators. The exchange community has always been more supportive of women coming up through the ranks. It’s just a different culture.

Crypto and SPACS and stonks, oh my!

You’ve had a ringside seat in a crazy year for the stock market, from the pandemic to meme stocks.⁴ What trends stand out to you? 

With volatility and change, we expected a pretty challenging year for IPOs. But it turned out to be the busiest time on the capital markets in terms of capital raising since the mid-1990s. That gives rise to all this investor interest. Then the social elements of the pandemic start to come into the markets; investors want to demonstrate their social interests through their activity in the markets. 

That’s really what gave rise to the meme stock phenomenon. When it first started, we were concerned. Whenever stocks move away from their fundamentals, that’s something we have concerns about. What’s motivating that behavior? The SEC is the only agency that can see all the activity in the market, and they’re taking a significant role in making sure it’s truly people being spontaneously interested together and taking a position on a stock [as opposed to illegally manipulating the market].

Investor interest in crypto has exploded this year. How has that changed Nasdaq’s approach to crypto? Do you see those markets as complementary or competitive? 

One of the challenges in the crypto trading space has been market manipulation. Our surveillance technology [which looks for signs of fraud or manipulation] is highly relevant—at least nine crypto markets are using it. But the markets are operating in discrete [noncompetitive] circles today. 

The crypto trading technology today is just not in a position to be able to support the level of trading activity that we experience in the equities and options markets. We’re dealing with 3 million messages a second, 62 billion messages in an eight-hour period. Over the next decade, there will be a greater understanding of how we can make the markets more efficient and effective using the blockchain. We’re really focused on how we can bring this technology into the markets and be a disrupter ourselves.

Will we see more direct listings and SPAC listings in 2021 and 2022? 

In a direct listing, you don’t raise capital. But there are some new rules coming out that will facilitate the ability to raise capital through direct listing. That could make it more of a mainstream way to open stocks. But today, because of that issue, there isn’t as much demand. There are going to be more, but until you can raise capital it won’t become the dominant way people come to market. 

Nasdaq just spun off its Private Market division.⁷ What is Nasdaq’s role in the private markets? 

We are already the preeminent provider of private market liquidity. There are thousands of private companies that are staying private for much longer, and you can’t ask your employees to lock themselves up and not leverage the wealth they’re creating to buy a house, send their kids to school, or advance their life. Businesses now recognize that liquidity is part of being a private company. 

Nasdaq has put forward a groundbreaking proposal on board diversity.⁸ Why did the exchange decide it needed to take action? 

When it comes to choosing which companies are ready to tap the public markets, the SEC is the first line, and we’re the second. The SEC requires enormous amounts of disclosure around business performance, business risks, operating risks, and financial performance. Nasdaq then supplements that with more information we require regarding boards and governance. We examine the independence of board members, the composition of committees; governance has become our domain of expertise. 

There’s a growing amount of evidence that diversity on boards is correlated with improved outcomes in two areas: risk controls—that’s important to us because investor protection is critical—and financial performance. If companies don’t meet the standard, their only obligation is to disclose why not, so investors can make an informed choice; companies will not be delisted. [Companies will not be delisted for not having a diverse board, as long as they disclose their rationale to investors, Nasdaq says.]

The proposal has received some pushback during its comment period. Why do you think that is? 

Whenever you try to create change, you’re going to have debate. Now it’s up to the SEC to decide whether they’re going to approve the proposal. 

What did becoming a public company teach you about serving the businesses on your exchange? 

In terms of our governance, our disclosures, our behaviors, and how we use the quarterly reporting cycle, how do we make sure we’re informing our investors so they can make complete decisions? What kind of disclosures do we provide, and how often do we do it? Those are all things we think about so we can have the right, frankly, to advise other companies on how to become great public companies themselves.

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Between the lines

(1) Taking PE public:
Friedman left Nasdaq in 2011 to serve as CFO for the private equity business ahead of its IPO. She returned to Nasdaq in 2014.

(2) There’s an app for that:
One of the most popular new investing options is Robinhood, which saw accounts soar from 7 million in 2020 to 22 million this year.

(3) Market mavens:
Others include New York Stock Exchange president Stacey Cunningham and Hong Kong Exchanges and Clearing chairman Laura Cha.

(4) Stonk nation:
In early 2021, people trading via apps and gathering on Reddit pushed the price of some stocks. Shares of video game retailer GameStop famously (or infamously) went from $17 to $348 in January.

(5) Crypto goes legit:
The April listing of cryptocurrency exchange Coinbase sent investors into a tizzy; the company closed out its opening day with a valuation of $85.7 billion.

(6) SPACs surge:
The number of companies going public via SPACs in the U.S. has mushroomed.
2019: 59
2020: 248
2021 (YTD): 374
Source: Nasdaq

(7) Going private:
Goldman Sachs, Morgan Stanley, and other big banks are investing in Nasdaq Private Market in a deal designed to drive more transactions to the platform. (Nasdaq will remain the biggest shareholder.)

(8) Bye-bye, all-male, all-white boards:
The proposal would require listed companies to disclose the diversity characteristics of their board members and to have at least one woman or underrepresented minority as a board director. If a company doesn’t meet that standard, it would need to specify why.

Editor’s note: This article has been updated to add context related to Nasdaq’s board diversity proposal.

This article appears in the August/September 2021 issue of Fortune with the headline, “The Conversation: Adena Friedman.”