TLDR;
This interview with Adena Friedman, the CEO of NASDAQ, covers a wide range of topics including the evolution of NASDAQ beyond just a stock market, the tokenization of equities, the potential for 24/7 trading, the role of the SEC in regulating crypto markets, the challenges and opportunities in the IPO market, the rise of index investing, and the stability of the US dollar as a reserve currency. Friedman also shares her insights on the independence and data-driven approach of the Federal Reserve, as well as her perspective on the biggest risks in the market today.
- NASDAQ's expansion into market infrastructure, index products, and anti-financial crime technology.
- Tokenization of equities and the move towards 24/5 trading.
- The balance between public and private markets and the need to reduce the burden of going public.
- The potential for regulatory clarity in crypto markets and NASDAQ's interest in institutional crypto offerings.
- The Fed's independence, data-driven approach, and focus on systemic risk.
Introduction and NASDAQ's Evolution [0:00]
Adena Friedman discusses NASDAQ's growth from a market into a global tech powerhouse. When she became CEO, NASDAQ had about $2.5 billion in revenue, and by the end of last year, it had over $2.5 billion in IBIDA. This growth was achieved by expanding NASDAQ's services to meet client needs, including providing technology to 17 markets and selling it to 135 other markets worldwide. NASDAQ has expanded its index business to include $700 billion of assets under management tied to innovators and is focused on building trust in the financial system through anti-financial crime and market surveillance technology.
Tokenization and the Future of Trading [2:57]
Friedman announces NASDAQ's plans to bring tokenization into its markets, aiming to have equities tokenized and traded within the core markets. While immediate 24/7/365 trading isn't the current goal, NASDAQ is moving towards 24/5 trading. Tokenization is expected to streamline post-trade processing, reduce friction, and manage capital flows across the global ecosystem. She also expresses excitement about the convergence of regulatory approaches between traditional and digital markets, which will advance all markets.
Balancing Tradition and Innovation in Market Regulation [5:28]
Friedman addresses concerns about the potential loss of work-life balance with the move towards extended trading hours. She notes that NASDAQ has been considering 24/7 markets since the 1990s but was previously limited by technology and regulatory resistance. While the official U.S. trading day will remain 9:30 AM to 4:00 PM for setting NAVs for mutual funds, allowing global trading of U.S. securities aligns with the global nature of companies listed on NASDAQ, especially the NASDAQ 100.
The IPO Market and Encouraging Public Listings [7:21]
Friedman emphasizes the importance of public markets for the economy, as they provide access to billions of investors and allow citizens to become owners in the economy. The NASDAQ 100 has shown an average annual return of 14.25% over 40 years, which is double the broader market return. She acknowledges that the process of going public has become a significant burden for companies, and NASDAQ is working with the SEC to lighten the load through disclosure reforms, proxy reform, and litigation reform.
SEC's Role and Crypto Market Regulation [10:51]
Friedman expresses optimism about SEC Chair Atkins' forward-leaning approach to creating change and supporting public markets. She highlights the potential for regulatory convergence between traditional and crypto markets, aiming to create regulatory frameworks for both crypto and tokenized securities. NASDAQ's hesitation to enter the crypto market is due to the lack of regulatory clarity, as they prefer operating in regulated markets with investor protection as a priority.
Institutional Crypto and Prediction Markets [13:00]
Friedman discusses NASDAQ's interest in working with institutional clients to bring them into the crypto asset space, alongside tokenizing securities assets. She also compares prediction markets to options markets, noting that NASDAQ owns and operates the largest options marketplace in the U.S. While prediction markets may be more accessible due to their simplicity, options markets offer more complex betting strategies across multiple price points and durations.
Private Markets and Secondary Sales [15:42]
Friedman explains NASDAQ's approach to private markets through NASDAQ Private Market, which prioritizes working with issuers to provide liquidity for employees and early investors while maintaining control over their shareholder base. They facilitate secondary sales and SPVs, ensuring that issuers have the ultimate decision on inviting investors. This approach distinguishes NASDAQ from other providers in the private space.
Index Investing and Market Concentration [18:18]
Friedman acknowledges the rise of index investing as a more accessible and inexpensive way to invest, but also emphasizes the importance of balancing it with active management. She notes that the concentration of returns in the top companies makes it difficult for active managers to beat the index, as these innovative companies are performing exceptionally well.
The Dollar as a Reserve Currency and the Federal Reserve [20:18]
Friedman expresses strong belief in the U.S. dollar as a persistent reserve currency due to the strength of the U.S. economy, the rule of law, and the stability it provides. However, she acknowledges that increasing U.S. debt could lead investors to seek alternatives. She also affirms the Federal Reserve's commitment to maintaining the dollar's status as a reserve currency.
Fed Independence, Data, and Leverage [23:24]
Friedman emphasizes the importance of the Federal Reserve's independence, allowing it to think long-term and remain data-dependent. She describes the Fed as a data-driven and apolitical organization that utilizes various sources of data to understand the economy. While acknowledging concerns about leverage in the market, she believes that the Fed focuses on systemic risk and has addressed many issues related to banks being too big to fail.
Market Risks and Investment Opportunities [27:14]
Friedman discusses potential risks in the market, including climbing defaults in commercial real estate and private credit. However, she notes that banks have been working through these issues and that the risk is distributed across many institutions. She expresses optimism that decreasing rates and people returning to work will ease some of these concerns.