Nasdaq Inc (NASDAQ:NDAQ) is an American multinational corporation that owns and operates three major stock exchanges in the United States. You’ve seen it referenced through every financial media outlet, but its operations are a mystery to some.
Many wonder if you can buy stock in Nasdaq and whether it’s a safe financial investment.
Both Nasdaq and the New York Stock Exchange (the country’s other widely quoted stock exchange) are, in fact, publicly traded companies. The NYSE is owned by Intercontinental Exchange (ICE).
They’re the original Coinbase and Binance, long before cryptocurrency was invented. In fact, Nasdaq was founded in 1971, while the NYSE dates back to the 1700s.
It may seem like easy mode to simply invest in the stock exchanges themselves, but anyone who had money in Mt Gox or any failed crypto exchange will tell you it’s possible for a market itself to collapse.
Is NADQ a good investment?
Who Is Nasdaq Inc?
In 1971, the National Association of Securities Dealers Automated Quotations (NASDAQ) was founded by the National Association of Securities Dealers, which was rebranded as FINRA.
It was the first electronic stock market and provided quotes to help firms make more accurate trades. It eventually grew into the largest OTC stock exchange by the 1980s.
Nasdaq’s history also has connections to Sweden, where Olof Stenhammar founded a futures exchange in the 1980s to enable options trading in the country. By 1998, the exchange acquired the Stockholm Stock Exchange, which kicked off a series of market acquisitions.
After explosive growth in the 20th century, FINRA sold its stake in the Nasdaq in a series of sales from 2000-2001. By 2008, the European and American Nasdaq branches were unified under a single company that also expanded into public relations, multimedia, and investing in businesses on top of providing market data.
At the foundation is the Nasdaq Composite index.
What is the Nasdaq Composite?
The Nasdaq composite is a market index that includes stocks listed on the Nasdaq stock exchange. It joins the Dow Jones Industrial Average and S&P 500 as the top three most cited stock indices in the country.
It’s a capitalization-weighted index that only includes Nasdaq-exclusive listings that fit specific security criteria. The index crashed during the dotcom bubble and housing crisis, along with a brief coronavirus crash that quickly led to historic highs.
Of course, the index isn’t tracking Nasdaq as a business – it’s only tracking the securities listed on its exchange. That leads to the question of what exactly Nasdaq’s business model is.
How Does Nasdaq Inc Make Money?
Nasdaq has an investor relations section on its website like any other company. In fact, it helps businesses prepare these required financial documents with market intelligence on a quarterly basis. Its most recent quarter showed $846 million in net revenues, a $147 million increase from the previous year’s quarter.
It earned $534 million of that revenue from its solutions segments, which includes all the financial technology, market intelligence, workflow, and anti-financial crime solutions it provides.
Midway through the year, it held $390 million in cash and total debt of $5.7 billion. That debt increased since December 2020.
With such a huge debt load, this $30 billion company could be a bit too risky for some investors. You wouldn’t be wrong to question if it’s safe to invest in Nasdaq.
Is Nasdaq a Safe Investment?
Investing on the Nasdaq exchange is about as safe as any other exchange. It could go out of business as a company, but its held assets are most likely to be honored in perpetuity. People often wonder what happens if the stock market were to no longer exist.
Most answers you’ll find on Google discuss trading halts, but the reality is the companies behind them could go bankrupt and shut down.
Nasdaq Inc is ultimately a FinTech company that rose from the 1970s to become what we now consider a legacy exchange. In the modern world, cryptocurrency exchanges are prolific, and increasingly decentralized exchanges are discussed as the future.
What happens when an exchange is shut down?
Risks of Investing in Nasdaq Inc
Almost 20 crypto exchanges have been shutdown over the past decade, but Nasdaq is a very different type of exchange, featuring more traditional companies.
In the crypto world of exchanges, Mt. Gox, Cryptsy, Bitcoinica, Coin-Swap, Virtex, and others have shuttered their doors over the years due to a variety of issues, like mismanagement, hacking, and theft.
Mt. Gox was the largest bitcoin exchange when it went bankrupt in 2014 while holding 850,000 bitcoins belonging to users. As of 2021, the assets were still tied up litigation. That kind of catastrophic outcome is highly unlikely to be mirrored at Nasdaq exchange.
More likely, investors who bought a security like Apple through Nasdaq would still be able to access it. Apple (AAPL) would need to migrate to another exchange for its listing, and Nasdaq itself has a comprehensive guide on how that works.
But Nasdaq’s investors could still lose money if the company went insolvent. Even the stock exchanges themselves are not guaranteed bets.
One day, fintech apps like Robinhood and Public or crypto exchanges like Coinbase or Binance could upend legacy markets like Nasdaq and the NYSE.
Can You Buy Stock in Nasdaq: The Bottom Line
Nasdaq is one of the largest stock exchanges in the world, with subsidiaries throughout the U.S. and Europe. The namesake exchange is widely used by major companies like Apple to exclusively list their public shares.
Investing in the Nasdaq as a company still doesn’t guarantee success. The multinational conglomerate grew through a series of acquisitions of struggling markets. And although a lot of crypto exchanges were shut down over the past decade, those that survived are disrupting all aspects of traditional financial technology.
Nasdaq isn’t immune.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.