Adena Friedman, President and CEO, Nasdaq
In conversation with: Bernhard Warner, FORTUNE

Fortune Global Forum 2021: Moving markets

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In many respects, tech led the way in 2020 and no surprise the tech heavy NASDAQ did well to. After a record year, it joined the Fortune 500 for the first time. The rapid shift to digital as well as an abundance of iPOs and SPAC helped boost the exchange. Adena Friedman is the president and Ceo of NASDAQ. She joins us now to talk about the booming business in challenging times. Adina, thank you very much for joining us today. Um, I want to run through a couple of data points. I just kind of blew me away by almost every measure of the NASDAQ blew away the world's global exchanges last year. So you had 316 I. P. O. S including 18 of the 30 largest 81 billion in capital was raised. And then this year in 2021, you are leading again in in new listings, Uh, which is really kind of impressive in any year. But of course last year we had this pandemic. And so I want to bring you back to that point in March of 2020 where investors saw in their lifetime, probably the biggest crash of their lives. Um So I'm wondering how did you and your team adapt so quickly do an historic market collapse like that? Sure, well, first of all, thank you so much for having me Bernard, it's great to be here. Uh it was really a seminal moment for the markets last year in March. And when you think about, you know, we walked into 2020 in pretty good economic shape. I mean the mark, the markets are doing well, the economy is doing well. We anticipated having a lot of companies have the public markets. Last year we had just come off of 2019 with 185 I. P. O. S. So and the year before the 185. So we are marching into 2020 feeling pretty good about things and then everything stopped and and everything changed. So in March we saw as you said a significant drop, a lot of a lot of disruption in the market. And at the same time we had to make sure we manage the safety of our employees that we sent everyone home in a period of two days and and we continue to manage the markets remotely. I have to say. I think that the entire financial industry did handle those early days of the pandemic extremely well through an enormous amount of disruption. Um A lot of you know fear was entering the markets, a huge amount of trading. So we did have um some some peak days within our markets during that period of time. And at the same time we all had built up a lot of business continuity so that we could manage pretty much running all the markets and managing the financial system remotely. So it was uh stressful but also I think a proud moment for for us and for others in the industry to know that we could weather that storm. What do you think that some of the aspects, I mean everything has changed since since uh Covid came around and obviously so I'm wondering what you think is well stay with us. What are the things that will be permanent from this transition? Well it's interesting because uh if you think about this first IPO's that came out right after the crisis moments, we had to change everything we did. So we had to turn I. P. O. Experience into a remote experience. We had to launch an app that allowed the the employees of a company going public to connect with the company as it was going public even though they weren't here in Times Square. Um We had to make sure that obviously the I. P. O. Pricing went flawlessly even with everyone working from home. But one of the things that also changed was the I. P. O. Road Show. You know it had always been one of these really grueling periods of time where you go on the road and you spend two weeks Going around the country meeting investors and each meetings 45 minutes and you're just doing a you know eight or eight meetings sunday meetings a day. But now what happened in the in uh during covid was that all went online. So it was all done over video conferencing and it was much more efficient. So instead of two weeks it was three days you could just do you can get so many more meetings in so that I hope that that road show experience actually um remains because it's a much more efficient use of time for the Ceo and the company and to the investors who are meeting with the company. And it frankly allowed us to manage through a lot more I. P. O. S. Last year. As you said we have 315 I. P. O. S. Last year we have had three almost 350 IPO's so far In 2021. Um And that remote experience of being able to manage those road shows I think has helped a lot. I would be remiss if we had a conversation and we didn't talk about the the four letter word which is back. Um These are the earlier in the year there was about five a day and now there's about three or four a day and it looks like from the data that I've seen it at least two or two of those three happen on the NASDAQ, which is pretty remarkable there. I'm wondering um, is there there's a, there's a lot of conversation about the, the, the pros and the cons of this. It's great for getting uh, early startup companies to get, to get a quick route to market to get capital. But then investors, more than half of them have invested in these facts are underwater. So I'm just wondering if how do you, how does your team view these things? Like, is it a fact comes to you? Do do you say yes to all of them? Or are they have to meet certain requirements? And how does this process work? Yeah. So first of all, a back when, when a company are a sponsor comes forward and they say, we want to raise capital, we want to create, we want to create a corporate, we want to raise capital. We want to make that capital of it, you know, that, that, um, that entity available to public investors. We have certain rules, and so does so does our period down the street. We have certain rules that every stack has to follow their the same rules across the exchanges. And that company then is able to come into the public markets. It's a relatively straightforward process. They go through an sec review, they go through an exchange review and they come out and then they go through the period of looking for a company to buy. Um, and that period of time they have a generally a defined period of time to find a company. Goodbye when they buy that company. That's when it goes through a much more rigorous review in terms of the company that they're requiring all the disclosures around that company, That operating company, making sure all the risks are disclosed in the in the public documents to the sec. Think about as a merger document. That merger document is made available to investors. And there are and there's been a lot of these entities created. But now it's a matter of them finding those companies and bringing them public. So think about it is like they kind of I. P. O. Twice, once as a as the back and then once as the operating company. And I would say, I think that there has been, you know, there have been a record number of facts coming out now. There are a lot of combinations being done. And that's where the SEc and NASDAQ review those companies again. Uh, and that's where the disclosures for investors are. So important. I think that, you know, we're disclosure economy. Everything we do is based on making sure investors have a fully informed understanding of a company. It's up to them to read that information and and educate themselves on the company, understand the risk and then they can actually vote on whether or not they agree that this, this fact should by the company. And even if they vote for the deal, they can also then redeem their shares before the deal is Consummated if they don't want to be an owner of the company after the acquisition. So I would say investors do have ways to manage their investments leading up to the combination. Once the combination occurs, it's a public company like every other. And then investors can of course buy and sell on the open market, um, as I normally would. So it's an interesting phenomenon. There have been obviously a lot of capital raised through stacks. And now it's this this period of time of finding the right companies to bring to the public markets um, in that back structure. Do you think the markets and exchanges themselves are do a sufficient job of scrutiny? Or do you think that the sec would you welcome message further as the scrutiny around disclosure? Well, I think that first of all, I think the FCC is evaluating that. So they changed some of their interpretations earlier in the year in terms of the treatment of warrants, in terms of understanding, uh, particularly during that stack combination, uh, the way that the documents are presented, there are differences between a merger document and an S. One in an I. P. O. And they're trying to figure out should there be harmonization of the different disclosure obligations? So I think the sec is going through a review right now to make sure that they do feel that investors have all the transparency they need. But that will be a process that will go up for comments. It'll be well understood process out in the industry if they choose to make changes. But I would say in both situations whether it's a suspect or a bad combination or an I. P. O. There are a lot of disclosures. It is important though that investors um, take the time to understand them because I think, you know, they might just say every aspect is the same and I would I would say every speck is quite different. So just understanding those differences, understanding what you know what the themes are, who the sponsors are and then also understanding what kind of combinations coming through, Taking the time to read the information to vote on that combination. There's, you know, exercise the rights I think is an important part of being an investor in respect. I want, I want to switch gears a little bit here to another, uh, initiative that the NASDAQ is pushing, which surprised me that it's, it's so controversially, it seems like it shouldn't be in this day and age, but you're really pushing for diversity on boards. Um, can you tell us where this stands at the moment? Is there is there anything new to report on this? Um, and also, if you could tell us anything about just the uptake of companies that you pushed as you're pushing this initiative? Yeah. So first of all, so we proposed a change in our rules that requires anyone, any company that's listed on NASDAQ to provide disclosure of the composition of their boards from a diversity perspective based on self reported information from each board member, but then anonymous. Ized into a table. And so it's really a gorgeous, it's really a board diversity disclosure. And then on top of that, we have encouraged companies to introduce at least one woman and one other underrepresented minority or LGBT Q member onto their board over the coming four years. Now, if they're not able to achieve that or they choose that they choose not to. Their only obligation is to disclose why not? So that that investors again can make that informed decision around this issue. And so that's the proposal. It went into the sec in december. The sec has to approve it because it's a change to our rules. The sec goes through common period and it's gone through it's an extensive common period at this point, it's now sitting under deliberation. And yesterday, the SEc chose to extend the period of deliberation just to give themselves more time to make sure that they understand all of the implications and that they can make an informed decision in the coming months. So that's really where it stands today. We are really proud of the fact that we've had over 200 public, uh, 200 firms comments on the filing with the sec, 85% of those comments have been positive coming from investors, coming from, um, companies coming from advocacy groups, coming from the government. So we do feel that we have a broad basis support for the proposal, but the FCC of course has to do a very thorough job of reviewing it. So they're taking their time to do that. I see. Um, I should tell our participants that if they have any questions, you can of course leave them in the chat and we will get to them as well with the time that we have left. Um one of the things I wanted to ask you as well in regard to um NASDAQ is, it's a marketplaces so it brings buyers and sellers together. It's not just equities. And so I wanted, what could it cause what are some of the things we may see going forward that you would be creating exchanges or marketplaces for people? Would it be things like for instance, there's a lot of talk about digital currencies. There's a lot of talk about this and there's other financial assets. Where are the things that you could, you see you being able to use your technology to bring virus and sellers together? Sure. Well, one of the areas of the business that we've really focused on growing over the last many years is our technology business. And so we now provide the technology that powers 130 other markets around the world. They're not just equities market so they can be any really can trade there and settle any instruments. And as you said, more and more economies are looking at this concept of two sided market places to help with the price discovery we have seen for instance, the real estate market. There have been these fractionalized real estate markets that have come up to allow investors to invest in a piece of a building and they've done it in a digital format. So they've tokenize the building. You then can come in and buy and sell a piece of that building for a tokenized structure. And that's using our technology. Um We have a sports betting platforms that have actually been leveraged our technology, very advanced auction technology to create pool betting. We obviously definitely have the Cryptocurrency markets leveraging our technology for trading and surveillance. Um and so we do have a technology business that allows more and more of these two sided market places to be created. We did also make an investment in and also helped launch a healthcare data exchange. That is really an interesting way for health care researchers and health care professionals to share research in an anonymous and of course, uh you know, HipAA compliant way. So I think that we're going to find that more and more of the industries are looking at these two sided market places as a next generation of price discovery for their products. So pretty excited about what we can do with our technology there. Right? The in the time we have left is a quick question for you. The the this is a really unique moment in the market if, uh, there's the specter of inflation, there's a labor market tightening, there's commodity prices going higher. The, and then there's those. His question about our equity is just too expensive. And how do you feel about the, where the market is at the moment? Well, I think the market obviously reflects one demand. And so you have to say, what are the demand drivers in the market right now. One is of course that the interest rate environment does remain low and very accommodating number two. Um, I think that there have been a lot of really interesting and innovative companies coming out and that digital transformation is hitting more and more of the economy. So investors are really leaning in on that with their investment choices. And then I think, as you said before, also there's a reopening of the economy and that's also going to drive interest into certain companies that may have had more challenges last year. So yourself is seeing them coming back in. I think the earnings are supporting a lot of what you're seeing. So it's an interesting time for the marketplace and and it will be an interesting time to see what happens next as the economy's reopen around the world. Okay, great. Thank you, Adena, thank you for your time. We really appreciate it today. Thank you.