Earnings Call Transcript - NDAQ Q1 2026

Operator, Operator

Good day, and thank you for standing by. Welcome to Nasdaq's First Quarter 2026 Results Conference Call. Operator Instructions: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Ato Garrett, Senior Vice President and Investor Relations Officer. Please go ahead.

Ato Garrett, Senior Vice President & Investor Relations Officer

Good morning, everyone, and thank you for joining us today to discuss Nasdaq's First Quarter 2026 Financial Results. On the line are Adena Friedman, our Chair and Chief Executive Officer; Sarah Youngwood, our Chief Financial Officer; and other members of the management team. After our prepared remarks, we will open the line for Q&A. The press release and earnings presentation accompanying this call can be found on our Investor Relations website. I would like to remind you that we will be making forward-looking statements on this call that involve risks. A summary of these risks is contained in our press release and a more complete description in our annual report on Form 10-K. We will discuss our financial performance on a non-GAAP basis, excluding the impact of acquisitions and divestitures as well as the impact of changes in FX rates. Definitions and reconciliations of U.S. GAAP to non-GAAP plus adjustments can be found in our earnings presentation as well as in a file located in the Financials section of our Investor Relations website at ir.nasdaq.com. And with that, I will now turn the call over to Adena.

Adena Friedman, Chair & Chief Executive Officer

Thank you, Ato, and good morning, everyone. Today, I'll start with a review of our first quarter financial results, and we'll then review the operating performance across our divisions. I will then hand the call over to Sarah to walk through the financial results in more detail. Nasdaq entered 2026 with strong momentum, and our first quarter performance reflects one of the strongest starts to a year in our company's history. We delivered the highest Q1 organic growth since 2021 across net revenue, solutions revenue and operating income as well as our highest ever quarterly revenue growth in the Financial Technology division. The results this quarter demonstrate the breadth and depth of the client engagement we are experiencing across our platform, which is resulting in meaningful growth. As we outlined at Investor Day, the power of our platform enables us to serve as a trusted transformation partner to our clients, underpinned by our embedded client community, deeply integrated solutions, gold standard data and engineering excellence. This is a dynamic moment for the world and for markets, underpinned by an accelerated pace of technological change, persistent geopolitical tensions and concerns about the stability of the private credit market as well as overall complexity across the global economy. In the U.S., softer labor conditions and inflation pressures are offset by resilient spending from higher income households and continued capital deployment in AI. Investment in AI continues to be a meaningful driver of economic activity, especially in the United States through large-scale data center and infrastructure build-out. Within this overall environment, macroeconomic growth remains balanced and constructive in the U.S. and across other major economies. Smart regulation is also starting to take shape across the capital markets and banking industry. And as a result, clients are moving forward with investments in the modernization of their core infrastructure. Within the banking sector, we're experiencing increasing demand for cloud-based mission-critical solutions that include AI features to support workflow automation. Within Capital Markets, we're experiencing demand for solutions and services related to the transition to always on markets and the tokenization of assets. As the industry addresses these trends, Nasdaq is well positioned to reinforce its role as the trusted fabric of the global financial system. Turning to our financial results. In the first quarter, we delivered $1.4 billion in net revenue, a 13% year-over-year increase. Our overall annualized recurring revenue, or ARR, grew 12% year-over-year to $3.2 billion. Expenses were $608 million, up 8% year-over-year. Operating income was $799 million, up 17%, and we delivered 21% diluted EPS growth. Within our divisions, Capital Access Platforms generated 10% revenue growth and 7% ARR growth. Financial Technology delivered 18% revenue growth and 16% ARR growth. And Market Services delivered 10% net revenue growth. As we move into divisional performance, I'll cover how our results reflect disciplined execution against our expand, evolve and transform growth framework from delivering on One Nasdaq across our core franchises to evolving our solutions with new innovations to transforming the business in key strategic areas. Starting with Capital Access Platforms, where I'll first discuss data and listings. In our U.S. listings franchise, we welcomed 15 new operating companies raising over $5 billion in proceeds during the quarter, including 7 of the top 10 IPOs. Early in the second quarter, we were pleased to welcome Arxis and Kailera Therapeutics, two of the biggest IPOs in Q2 so far. While the IPO environment has been uneven amid market volatility, issuer engagement remains strong. Companies in our pipeline continue to prepare for market entry. We are seeing an encouraging environment for improving IPO activity entering the second quarter, and we believe that we are well positioned to support that activity as momentum builds. In our data business, we continue to deliver strong revenue growth, highlighted by 32% year-over-year growth of enterprise license agreements and continued momentum in Asia and the Middle East. Looking ahead, we see continued progress towards always-on markets, creating meaningful opportunities for our data business, enabling trading activity in regions where demand for Nasdaq's proprietary market data is already rising. Our index franchise delivered $79 billion in net inflows over the last 12 months, including $6 billion in the quarter, exiting the quarter with ETP AUM of $836 billion. Our average AUM this quarter increased 32% year-over-year to reach a record of $877 billion. Net inflows were modestly positive, impacted by sector rotation and a risk-off environment tied to market uncertainty in March. We view this impact as short-term tactical behavior and not representative of structural trends. Although we don't view early quarter flows as predictive, we are encouraged by the momentum we've seen to date in the second quarter with $15 billion of net ETP inflows as of April 20. Our index performance has been underpinned by our success in product innovation. Forty-six percent of inflows were driven by product launches over the last five years and 25% were driven by launches over the last three years. Institutional adoption of our index products grew among annuity providers contributing to a 30% increase in insurance-related revenues. International expansion was driven by strong demand from EMEA and APAC this quarter. This contributed to 19% of total ETP AUM coming from non-U.S. clients. We launched 31 new products in the quarter, including 12 international products and 11 in the institutional annuity space. We also launched the Nasdaq Private Capital indexes, a way for investors to benchmark private market investment allocations, an asset class that has historically lacked transparency. We were also pleased to announce that we will expand access to the Nasdaq-100 later in the spring with two new carefully selected partners, BlackRock and State Street, while continuing to work closely with our long-standing partner, Invesco. The pricing terms related to the index license for these upcoming new U.S.-listed ETFs will be consistent with the QQQ pricing terms. We are excited to continue to grow and expand distribution of our flagship index to new investors across the U.S. and globally with all of our high-quality partners. For example, with Invesco, we continue to create new marquee products to address investors' evolving needs. Recently, we expanded the Invesco QQQ innovation suite with the launch of the Invesco QQQ Equal Weight ETFs. Additionally, with the expanded partnerships with BlackRock and State Street, we look forward to working with them to make the Nasdaq 100 more accessible to their investor universe and to help drive additional institutional adoption. Turning to Workflow and Insights. Revenue grew 6%, driven by continued strength in analytics. Analytics delivered solid revenue growth, underpinned by eVestment's strong performance, which benefits from powerful network effects and sustained demand in volatile markets. With an investment, we continue to expand the reach of our data assets to meet the evolving needs of our clients and to enhance the value that we bring to asset owners and asset managers, including in private markets. This quarter, we integrated our data with Databricks to broaden entitled access to eVestment's comprehensive institutional investor data. Across analytics, we're leveraging our gold standard data assets to support our clients' AI strategy. The investment AI-ready data has been adopted by global asset managers, GPs and institutional investors representing over $9 trillion in assets under management, and helped drive a 29% year-over-year increase in Q1 bookings. In Corporate Solutions, AI adoption is strong with 74% of IR Insight users and 51% of Boardvantage users leveraging our AI solutions. Overall, the corporate buying environment remains muted, driven by lower IPO activity compared to historical levels. Turning to Financial Technology. We delivered record revenue growth of 18%, driven by sustained global demand for our mission-critical technologies. We continue to deliver on our One Nasdaq strategy with strong bookings performance for Q1 signing 64 new clients, one cross-sell and 85 upsells during the quarter. The division sustained compelling land and expand momentum, driving more than 50% year-over-year growth in ACV bookings while supporting clients' transition to cloud. Cloud-based solutions accounted for 80% of ACV bookings in the quarter. I would like to call out a key expansion this year of an existing AxiomSL and Calypso Tier 1 bank client that brings our cloud, AI and One Nasdaq strategy to life. In Q1, we completed a significant renewal and expansion of AxiomSL driven by our ability to deliver cloud and AI-enabled regulatory solutions. Early in the second quarter, we expanded the relationship further with a cross-sell for Nasdaq Verafin, our cloud-based AI-native financial crime management solution. The expansion of this relationship illustrates the power of our platform as we deliver innovative technology to address our clients' top regulatory and risk management needs. Turning now to a review of the subdivisions, starting with financial crime management technology. Nasdaq Verafin delivered another strong quarter with 21% revenue growth across a growing client base of more than 2,800 clients representing nearly $12 trillion in collective assets. During the quarter, we signed 58 new SMB clients, driving a 24% year-over-year increase in ACV bookings from that client segment. In enterprise, we signed two renewals and one expansion with existing clients and early in the second quarter, we added further momentum with an enterprise upsell and a new Tier 1 client cross-sell that I mentioned a moment ago. Nasdaq Verafin is evolving its platform through strategic partnerships, including our recently announced partnership with FIS. This agreement expands our ability to deliver leading AML and fraud solutions to FIS' banking and payments clients. We continue to lead through advanced AI-driven innovation. Our Agentic-AI workforce is now deployed by more than 500 clients, up 40% since Investor Day. Later this quarter, we will launch our new drug trafficking analytic, which embeds generative AI directly into our models and synthesizes open-source intelligence, social media, and third-party research to help clients more effectively detect potential drug trafficking activity. Regulatory technology delivered sustained momentum supported by new capabilities introduced across our product suite as well as structural trends impacting the industry. These trends include the transition to always-on markets, sustained investment in infrastructure modernization and improving clarity of the regulatory environment. Specific to AxiomSL, this momentum is translating into meaningful client expansion and new wins across regions as global institutions deepen their use of our regulatory reporting and capital management solutions. For instance, a large international bank significantly expanded its U.S. footprint with us, extending the use of our platform to support CCAR reporting. Another large bank expanded into cloud-based broker-dealer capital management and regulatory reporting, underscoring growing confidence in our cloud-enabled regulatory infrastructure. We also secured a new client in Europe for consolidated reporting across capital, liquidity and financial regulatory requirements, highlighting continued momentum across the continent. We are realizing the benefits from investments we've made in our cloud capabilities as approximately 90% of AxiomSL ACV bookings in Q1 have been for cloud-based solutions. We're also experiencing strong interest in our AI solutions within AxiomSL, including Reg-Copilot, REG Simplify, RegNavigator and REG Investigator, the products we detailed during Investor Day. In surveillance, we delivered strong growth this quarter, supported by upsells and renewals, including a renewal of a global Tier 1 bank. We are experiencing interest in our crypto surveillance services, both with new clients and upsell opportunities. We are also continuing to invest in our core product to sustain strong client engagement and demand. For example, we recently introduced our calibration copilot, an AI-powered tool that's enabling clients to optimize workflows, reduce false positives and increase accuracy of detection. In the second quarter, we will release our Gen AI platform extension, which connects news and market events to trade data. In beta, this capability has proven to be an effective solution for clients to uncover risks faster and more effectively. Capital Markets Technology delivered an excellent quarter with strong demand driven by broad-based growth across the subdivision. In trade management services, we had outstanding results, driven by robust demand and pricing increases that Sarah will address in her remarks. In Market Technology, we continue to experience momentum in our managed trading services business with a new cloud-hosted trading client for tokenized assets in addition to an expansion of services with several of our large clients. We also continued progress on the rollout of our Eclipse product suite with two significant client implementations for trading and clearing completed in the first quarter. This progress demonstrates the strength and readiness of our modern cloud-enabled platform. For Calypso, we delivered four new sales, including one cross-sell. One of these wins was a new cloud-based booking for an enterprise-wide derivatives platform with a large U.S. insurance company, supporting the company's broader technology transformation efforts. Now turning to Market Services. The division delivered 10% organic net revenue growth driven by record volumes in our U.S. markets in both U.S. equity options and U.S. equities as well as elevated volumes in our European markets. We're experiencing strong industry-wide momentum in short-dated options and our market share and volumes align with our established leadership in equity options. We also continue to expand our opportunity within index options with revenue more than doubling year-over-year. Looking ahead, we're excited to be leading the transition to always-on markets. With SEC approval to extend our market operations to 23/5, we are focused on expanding access, resiliency and continuity for global market participants with the projected launch of December 6, 2026. We are excited to set a new standard for how regulated markets operate in an increasingly global and digital economy. In parallel, the FCC's approval of our proposal to enable the trading of tokenized securities allows us to enhance how investors access markets and how issuers connect with shareholders. We will continue to collaborate with DTCC and the industry to build the infrastructure needed to launch tokenized equities. Building on this foundation, we're advancing the Nasdaq equity token design that takes modernization a step further by putting issuers at the center of ownership rights. This approach will give issuers greater control over how their shares are represented and managed in tokenized form. As stated in our initial announcement, we expect to provide early benefits of the Nasdaq Token design in the first half of 2027. Looking ahead, the broader forces shaping the global financial system, including rising complexity, investment in AI and the need for resilient trusted infrastructure continued to reinforce the role that Nasdaq plays at the center of the financial ecosystem. Supported by the scale of our platform and disciplined execution across our priorities, we remain confident in our ability to create durable value for clients as well as long-term value for our shareholders. And with that, I'll turn the call over to Sarah to walk through our financial results in more detail.

Sarah Youngwood, Chief Financial Officer

Thank you, Adena, and good morning, everyone. In the first quarter of 2026, Nasdaq delivered exceptional results, headlined by solutions revenue growth of 14%, record financial technology revenue growth of 18% and diluted EPS growth of 21%. The strong performance in the quarter demonstrates the engine of profitable and durable growth we have created and the outstanding execution of our teams, particularly in the context of the volatile macro environment throughout the quarter. Let's start with quarterly results on Slide 11. We reported net revenue of $1.4 billion, up 13% with solutions revenue of $1.1 billion, up 14%. Operating expense was $608 million, up 8%, leading to an operating margin of 57% and an EBITDA margin of 60%, both up 2 percentage points. This resulted in net income of $549 million and diluted EPS of $0.96, up 21%. Slide 12 shows the drivers of our 13% net revenue growth for the quarter. We generated 10 percentage points of organic growth, driven by new and existing clients and product innovation. Meanwhile, beta factors contributed 3 percentage points of growth this quarter, driven by higher overall volumes in Market Services, one-time items in FinTech representing just under 1 percentage point of beta and higher volumes in index derivatives. Let's review division results starting on Slide 14. In Capital Access Platforms, we delivered revenue of $565 million, up 10% with ARR growth of 7%. Data and listings revenue was up 9% in the quarter with ARR up 8%. Data revenue growth was strong and driven primarily by upsells and pricing. Listings revenue benefited from the improving IPO environment, pricing increases and a $2 million one-time benefit from prior period application fees partially offset by delisting and lower amortization of prior period initial listing fees, in line with our previous comments. Index revenue was up 14% in the quarter, with ARR up 6%, driven by record average ETP AUM of $877 billion. The quarter's performance reflects Index's ability to deliver inputs in a volatile macro environment, including the Nasdaq-100 declining 6% in market performance in the first quarter. ETP AUM reflected $79 billion in net inflows over the last 12 months, including $6 billion in the first quarter. As Adena said, we are encouraged by the momentum of ETP inflows we are experiencing earlier in the second quarter with $15 billion of net inflows as of April 20. Annual recurring revenue growth was partially offset by a decline in volume-based revenue versus the prior year period, driven by continued mix shift in derivative volumes from higher-priced muni contracts to lower-priced micro and mini contracts due to higher retail volumes and a year-over-year decline in capture. Those factors were partially offset by record derivative volumes, up 9% in the quarter. In Workflow and Insights, revenue was up 6% in the quarter with ARR growth also at 6%. The revenue increase was driven primarily by analytics, mainly eVestment and Datalink, with both businesses benefiting from strong sales momentum, client engagement to the platform's AI capabilities and demand for data to power AI. Corporate Solutions revenue was essentially flat, driven by the trends we have previously described. Quarterly operating margin for the division was 62%, up 2 percentage points versus the prior year period. Moving to Financial Technology on Slide 15. The quarter reflected record revenue and ARR growth. Revenue was $517 million, up 18%, with ARR growth of 16%. Our business continues to experience strong demand across all fintech subdivisions and high levels of client engagement. We had very strong ACV bookings growth of more than 50% in the quarter versus the prior year period, setting a new first quarter bookings record as we executed on our land and expand strategy. Eighty percent of those ACV bookings were cloud-based deals, reflecting our position as the trusted transformation partner to drive modernization for our clients. The division signed new clients, 85 upsells and one cross-sell in the quarter with another cross-sell signed early in the second quarter. Gross sales continue to represent over 15% of the Financial Technology division pipeline with strength across all three subdivisions. Financial crime management technology revenue grew 21% in the quarter, with ARR growth of 17% and net revenue retention of 110%. We signed 58 new SMB clients in the first quarter compared to 35 in the prior year period with a 24% year-over-year increase in ACV bookings from SMBs. In enterprise, we signed one expansion and two renewal deals during the quarter as well as one new Tier 1 cross-sell and one upsell early in the second quarter. As we discussed last quarter, the sequential revenue improvement in the fourth quarter was primarily driven by professional services fees related to SMB and enterprise client implementations. And as such, we did not expect to maintain those levels over the first half of 2026 based on the implementation timing for deals signed in the second half of 2025. Regulatory Technologies delivered revenue growth of 12% and ARR growth of 13%. Revenue growth in the quarter reflects strong performance in surveillance and solid growth in AxiomSL, driven by our successful sales execution as well as sequentially improved professional services revenue, consistent with our previous comments. Capital Markets Technology revenue grew 20% with ARR growth of 18%. This quarter's exceptional performance reflects ongoing momentum and broad-based demand across Calypso, Market Technology and trade management services. Specifically, we had strong demand for data center services in trade management services, a large increase in upfront revenue recognition versus a year ago related to on-prem Calypso deals signed and renewed in the quarter and two one-time items which were termination fees related to M&A in Market Tech operators, representing four percentage points of Capital Markets Technology revenue growth in the quarter. Financial Technology quarterly operating margin was 47%, up nearly 3 percentage points versus the prior year period. Turning to Market Services on Slide 16. We had record net revenue of $317 million, up 10%. Growth was primarily driven by record market volumes in U.S. equities and U.S. options, volumes increasing in European equities and strong volumes in Canadian equities due primarily to market volatility in commodities. We also continued to deliver alpha as reflected in strong revenue growth in index options, elevated market share in U.S. equities and U.S. options, strong initial adoption of newly launched short-dated options products and elevated capture in European derivatives. This was partially offset by lower capture in U.S. equities and U.S. options driven by the strong volumes we mentioned in the quarter coming with a mix shift towards lower revenue capture order flow. We continue to manage effectively the balance between capture and market share while maintaining our strong lead in U.S. equities capture and in U.S. options market share. Quarterly operating margin for the division was 63%, up 2 percentage points versus the prior year period. Moving to expense on Slide 17. We had operating expense of $608 million in the first quarter, an increase of 8%, driven by investments in people and technology to support revenue and drive innovation and higher compensation costs related to delivering strong revenue performance. The first quarter operating margin was 57%, and the EBITDA margin was 60%, both up 2 percentage points versus the prior year period. We are updating our non-GAAP expense guidance for the year to a range of $2.485 billion to $2.545 billion from $2.455 billion to $2.535 billion given the strong revenue performance we have experienced year-to-date. Our updated guidance assumes an FX impact consistent with our previous expectations. Looking ahead, we expect a higher expense growth rate in the second quarter than the first quarter, driven in part by the timing of our annual compensation cycle consistent with the prior year. We maintain our 2026 non-GAAP tax rate guidance of 22.5% to 24.5%. Turning to capital allocation on Slide 18. Nasdaq generated free cash flow of $629 million in the first quarter and $2.1 billion in free cash flow over the last 12 months at a conversion ratio of 12%. Without the impact of the timing of tax payments, the conversion ratio would have been 108%. We paid a dividend of $0.27 per share or $153 million in the quarter representing a 29% annualized payout ratio. As a reminder, we announced at Investor Day that our Board has approved an increase in our dividend by $0.04 per share to $0.31 per share going forward, which will be reflected in the June payment. We ended the quarter with a gross leverage ratio of 2.8x within the mid- to high-to-target we established at Investor Day. We took advantage of market volatility and accelerated our share repurchases. In the first quarter, we repurchased $548 million as compared to a total of $616 million of repurchases in all of 2025. In combination with the dividend, Nasdaq returned over $700 million to shareholders in the first quarter. In closing, Nasdaq delivered excellent results in a dynamic operating environment, reinforcing our track record of delivering profitable and durable growth across macro cycles. As we highlighted at our Investor Day in February, we are the trusted transformation partner to our clients as they navigate structural shifts in the financial markets and accelerate their AI journey. The exceptional solutions revenue growth and record Financial Technology performance we delivered in the first quarter are important proof points of the Nasdaq story. They give us the confidence that we are achieving our ambitious strategic objectives and generating long-term value for our investors. With that, I'll open the call for Q&A.

Operator, Operator

Operator Instructions: And I show our first question comes from the line of Bill Katz from TD Cowen.

William (Bill) Katz, Analyst (TD Cowen)

So at the Investor Day, I thought you guys did a great job of just sort of debunking some of the concerns around Agentic AI and it seems like there's some really good stats here this morning as well to that score. So maybe a two-part question. Number one, can you maybe step back and help us frame out the Agentic AI capabilities for the Nasdaq platform itself? And then secondly, can you unpack some of the growth that you saw in the first quarter from clients just in terms of where you see the greatest uptake around Agentic-AI adoption?

Adena Friedman, Chair & Chief Executive Officer

Bill, and when you say—just so I can understand, when you say the Nasdaq platform itself, are you—what are you referring to?

William (Bill) Katz, Analyst (TD Cowen)

So your core business, like your expense structure, innovation, that kind of efficiencies, et cetera.

Adena Friedman, Chair & Chief Executive Officer

I just wanted to make sure. Okay, great. I just wanted to make sure we were on the same page. So thank you for the comments and the question. So as we mentioned at Investor Day, we do have an internal program to drive AI adoption within the operations of Nasdaq, and we say that's AI on the business. And we are focused in some key areas, and we have a program in place where we are striving to achieve $100 million of expense efficiencies by the end of 2027 and we also did mention that the majority of that will show up in 2027 because we also are making investments in AI to make sure that we can achieve those efficiencies. And so as we are focused—where we're focused is certainly on making sure we're automating key elements of the product development lifecycle, making sure we're creating new automations and capabilities for our clients in the client success area in terms of client service, implementations and managing our client interactions as they're working with our systems and our products. And then also, we have other areas across our expert teams, too. We have automation in finance, in marketing, legal, HR, all of those areas have benefits that are coming in from the generative AI capabilities that we see across the business. It's an exciting time. I have to tell you to understand and tap into the technology and the benefits it can provide. If I were to highlight on product development, I think the most exciting part of that is our ability to speed up the ability to deliver new capabilities to clients—to use automation to really make sure that the code that we're delivering is really clean. It's fit for purpose. It really enables teams to be more creative as a product team if you know you can deliver things faster. So it's pretty exciting in terms of how we're thinking about the product road maps as well. So hopefully, that answers your question on that. In terms of the areas where our clients are seeing the most benefit from our AI capabilities, anti-financial crime is a key area because we have so many ways to automate workflows associated with financial crime management in terms of there's a lot of manual work that goes into investigating potential actors to managing on the regulatory reports. And all of that we have automation tools around. We're now bringing some of those automation tools into the surveillance area and into the AxiomSL regulatory reporting areas. So we're also kind of building once, deploying many in terms of the skills that we're learning from these deployments. And then as we mentioned, AxiomSL, we have some clients that are signing up and moving to our cloud-based solutions because we are only offering our AI capabilities through the cloud-based solutions, and they really like the automation that we can bring in from a regulatory reporting perspective. And then in Capital Access Platforms, we have AI deeply embedded in our Boardvantage tool to summarize board documents and board agendas to make it so you can auto-build board agendas in addition to IR. So it's kind of everywhere. Some of the products we purposely charge for and some of the products are embedded in the products so that we work with our clients on thinking about the value that they're getting upon renewal.

Operator, Operator

And I show your next question comes from the line of Alexander Blostein from Goldman Sachs.

Alexander Blostein, Analyst (Goldman Sachs)

I was hoping we can double-click on trends you're seeing in fintech, in particular, in Capital Markets stack. Sarah, you highlighted a couple of drivers this quarter. But given the really strong momentum in ARR even sequentially, I was hoping you can give us a little more detail on where you're seeing the incremental uptake, particularly within capital markets as well as your view for the rest of the year within that segment.

Adena Friedman, Chair & Chief Executive Officer

Great. Thank you. So there is actually good momentum across all three elements of the Capital Markets Tech business. We start with trade management services where we offer connectivity services to our clients who trade within the Nasdaq exchanges. There, we're definitely seeing more and more interest in bringing in more connectivity capabilities to make sure that they can manage the volumes in the markets, but also to drive new strategies that they want to execute within our markets. And so that has been—and also, as a reminder, we did expand our data center two years ago. So we have more opportunity to offer capabilities to our clients now with the larger data center footprint that we have. We're working on some new innovations within the data center too, including investments in cooling and other infrastructure to continue to allow our clients to drive new strategies in the markets. In Calypso, the key areas where we're seeing demand include collateral management, which is one of our strongest modules, and we are seeing really strong momentum in collateral management demand from our clients. We are seeing demand both domestically and internationally in Calypso. In Market Technology, we see a lot of trading opportunities with new asset classes and new markets that are coming up. In addition to modernizing our core clientele, we have had really good success bringing our clients into the next-generation trading and clearing solutions. We also launched an intelligence suite which allows our clients to manage all their data within their infrastructure in a modern way. That's been a great add-on sale to our clients as they're thinking about how they leverage AI and they're leveraging us to help them modernize their data management infrastructure. So those are the areas of demand that we're really focused on, and it is driving good momentum. We don't provide a specific short-term outlook by subsegment, but we are definitely seeing really good demand and momentum across all three areas of FinTech and Capital Markets Technology.

Operator, Operator

And our next question comes from the line of Dan Fannon from Jefferies.

Daniel (Dan) Fannon, Analyst (Jefferies)

I wanted to expand upon your comments on the strength in data. I think you've mentioned 23/5 and some of the growth internationally from clients. So I was hoping you could just expand a bit upon that and how you see that progressing as we think about the year.

Adena Friedman, Chair & Chief Executive Officer

Sure. Well, it's been interesting over the last really five to six years, we've seen a broad-based increase in demand internationally for Nasdaq's market data. Part of it is the fact that there's just more demand for the companies that are listed on Nasdaq and U.S. equities in general from global investors. The second thing is that retail investors have grown and expanded around the world, and there's just more accessibility to the U.S. markets by retail investors. Retail brokerage platforms around the world want to be able to provide real-time access to the market data from our markets. All of that has been driving a longer-term trend of global expansion of data. We have seen some acceleration of that in the last year as 23/5 trading preparations for U.S. equities are underway. Some trading already occurs today in off hours, but as firms get ready for 23/5 trading with lit markets like ours and central transparency, they're preparing to offer those capabilities so they can trade in domestic hours. That is driving more demand for enterprise license deals with our clients around the world.

Operator, Operator

And our next question comes from the line of Ben Budish from Barclays.

Benjamin (Ben) Budish, Analyst (Barclays)

I wanted to ask about index revenues in the quarter—they were down a bit sequentially when your volumes are quite good. Average AUM was up. I know there's a dynamic with the CME fee sort of resetting at the beginning of the year, but it looks like the volumes are quite strong. So I'm curious if there's anything else going on in the quarter, if there's any color on the timing of that fee reset and what that means for Q2.

Sarah Youngwood, Chief Financial Officer

What we've experienced is a mix shift in futures. As I talked about earlier, retail is driving more micro volumes and those have a lower capture than the mini contracts. So that was the main driver. The volume in futures was actually good. And then there is a second, smaller driver, which is a continued mix shift as we've been describing in ETP AUM as we go towards a bit more institutional mix.

Adena Friedman, Chair & Chief Executive Officer

On the reset, you're right that the fee sharing agreement reset occurs at the beginning of the year. We have now moved to the higher tier as of the end of Q1, so that will start to come in at a higher level in Q2.

Operator, Operator

And our next question comes from the line of Owen Lau from Clear Street.

Owen Lau, Analyst (Clear Street)

So far your tokenization strategy, could you please give us an updated timeline on your tokenized trading capabilities? I know you have 23/5 trading going on, but what are the remaining hurdles you need to cross before you can execute the first trade?

Adena Friedman, Chair & Chief Executive Officer

Sure. We are very active in working with DTCC and with the industry to make sure that we're doing this in lockstep and in an organized way. DTCC has significant efforts underway, and they have expressed an interest in trying to get to that first trade before the end of the year. That's their goal, and they're working collaboratively with us and other industry players to go through the whole process, advance their systems, and do test trades as they get further into the year. That will allow us to get to that first trade. I would say though that it's likely this will still be an early-phase effort by the end of the year as we make sure the end-to-end process is working seamlessly, so it will be a little while. We're doing a lot of work together and it's going well so far.

Operator, Operator

I show our next question comes from the line of Brian Bedell from Deutsche Bank.

Brian Bedell, Analyst (Deutsche Bank)

Maybe Adena, you talked about the impact of always-on markets helping data, but can you also talk about the potential impact across your FinTech platform as clients increasingly need to respond to always-on, particularly in the Calypso and Capital Markets business? I know we talked about in the past the initial guidance from those businesses didn't contemplate crypto as much and that's already been a help. To what extent do you see this always-on dynamic advancing growth in these businesses?

Adena Friedman, Chair & Chief Executive Officer

Yes. We are having many conversations with clients, and in some cases, clients are already signing up for expanded services. The first area is surveillance. Even without established always-on markets, clients want to be able to surveil trading activity if they are offering trading to clients during international hours, and that's driving demand for surveillance services. Second, trading: clients around the world who are other markets considering expanding trading hours are modernizing their infrastructure and that is driving demand for our Eclipse trading platform because it supports 24/7 operations. Third, Calypso: collateral management, risk management and capital management are core trade infrastructure areas where clients want to ensure they support collateral management across all their markets and remain connected to clearing firms and clearing houses. Finally, trade management services within Capital Markets Technology is seeing demand as firms think about how to support 23/5 markets, including more colocation capabilities. Those are areas where we have active dialogue with clients as we prepare for 23/5.

Operator, Operator

And our next question comes from the line of Michael Cho from JPMorgan.

Michael Cho, Analyst (JPMorgan)

I just wanted to touch on the index business again. I think one of the benefits you cited in terms of licensing it to BlackRock and State Street is on access to new investors. And so I was wondering what kind of incremental investor segments do you think BlackRock and State Street might provide for Nasdaq? And then just longer term, how are you thinking about the potential for AUM and product expansion from the index licensing versus any licensing fee changes that might emerge in the coming years? I'm just looking at the evolution of other flagship index providers who have been more susceptible to that than Nasdaq in the past.

Adena Friedman, Chair & Chief Executive Officer

Sure. Just to be clear on pricing, the licensing terms with BlackRock and State Street for the new relationships are the same as the QQQ terms. We're focused on distribution and access. BlackRock and State Street have unique investor universes, with broad institutional distribution as well as retail reach that complement Invesco, who remains an excellent partner. The Nasdaq-100 is becoming a core component of investment strategies among asset owners and insurance companies, and our goal is to distribute it through the channels these partners use so investors can access products seamlessly. This feels like a natural next step for global and institutional growth of the Nasdaq-100. We already work with State Street and BlackRock in other product areas, and this continues the evolution of those relationships to support product expansion and distribution. More broadly across the index business, our franchise focuses on innovation and thematic indexes. We collaborate closely with partners and use our marketing assets to drive distribution and adoption. We believe we're delivering strong value to partners and to Nasdaq, and we expect that to continue as we launch new products.

Operator, Operator

And our next question comes from the line of Elias Abboud from Bank of America.

Elias Abboud, Analyst (Bank of America)

Anthropic's new Mythos model is expected to pose significant cybersecurity risks for financial institutions. So as one of the largest bank software vendors, I was wondering if you previewed Mythos and if you can speak to the extent to which the release poses risks or creates liability for Nasdaq. And then separately, does it create any new opportunities? Is bank cybersecurity an interesting adjacency for you? Or is that too far afield from your current business?

Adena Friedman, Chair & Chief Executive Officer

I'll answer the second part first. There are many advanced cyber companies, many listed on Nasdaq, that provide very advanced cyber capabilities to us and our bank clients. We expect to continue partnering with them, and we have a lot of engagement with our cyber partners, hyperscaler partners, the banks and government on how new models are introduced into the financial industry. We're careful in how we bring new models into Nasdaq. We leverage Bedrock, AWS' AI platform infrastructure, as well as Microsoft Azure, and we have those partners supporting our AI infrastructure. We conduct extensive testing and security reviews before bringing any new model into production. We won't race forward with new models without evaluating utility and performing rigorous IT security assessments. As new models are introduced, both the model providers and their partners will provide new protections to support secure adoption. So we see the need for careful security processes and partnership rather than immediate direct expansion into bank cybersecurity as a standalone product for Nasdaq.

Operator, Operator

And our next question comes from the line of Patrick Moley from Piper Sandler.

Patrick Moley, Analyst (Piper Sandler)

Big picture question on tokenization. You mentioned the equity token design, putting issuers at the center of ownership rights, governance, investor experience. So if tokenized settlement and 23/5 trading becomes a reality, do you see this fundamentally transforming the IPO process itself, particularly as it relates to expanding global retail access and reducing some of the frictions and costs associated with traditional underwriting? And if so, does this represent any sort of structural opportunity for Nasdaq's ability to grow the listings business?

Adena Friedman, Chair & Chief Executive Officer

I think there are multiple paths to the public markets today—direct listings, SPAC combinations, IPOs—so companies already have choices. The underlying construct of securities and new technological capabilities are interesting and could allow for more direct interaction between companies and investors over time. Tokenization can improve engagement with retail investors during the listing process and may expand reach, but I don't envision a fundamental change to the entire IPO process overnight. The process of engaging institutional and retail investors prior to going public provides value—underwriting and the initial support in the early days of trading is important. Tokenization could enhance investor reach and engagement, but whether it fundamentally changes the IPO process remains to be seen and will evolve over time.

Operator, Operator

And our next question comes from the line of Jeff Schmitt from William Blair.

Jeffrey (Jeff) Schmitt, Analyst (William Blair)

You mentioned you're working on outcome-related options in Market Services. Would these be similar to prediction market products? And could you just provide some more detail on what you're doing there?

Adena Friedman, Chair & Chief Executive Officer

Yes. Essentially, you can call them outcome-oriented or event options. The first one we are seeking SEC approval for is an option on predicting the future performance of the Nasdaq-100—some people call it a binary option—where the question is whether the index will go up or down. It's a way to introduce a prediction-market-like construct into a regulated market. The benefits are that this is fully overseen by the SEC and subject to regulatory controls. We're working with the OCC, the clearing house, to think through risk models and margin models so we can introduce the concept of an entry-level options product into a marketplace that has a well-established regulatory framework. So this is our first effort in that area.

Operator, Operator

And our next question comes from the line of Ashish Sabadra from RBC Capital Markets.

Ashish Sabadra, Analyst (RBC Capital Markets)

Very strong ACV momentum in Verafin and you also talked about the Tier 1 placement signed in 2Q. My question was, can you talk about the pipeline for Tier 1 and Tier 2 clients? And just a follow-up there would be, as we think about these implementations going live, is it fair for us to assume that we start getting the ARR growth back into the midteens as we get into the back half of the year?

Adena Friedman, Chair & Chief Executive Officer

Great. As Sarah mentioned, a lot of signings picked up in the second half of last year, so momentum in enterprise signings accelerated. We don't recognize ARR for a client until they're fully implemented, and many of those clients are still in implementation, so we do anticipate benefits from those deals to start flowing later this year. Our pipeline is strong with many clients in POCs, contract negotiation or active dialogue about modernizing capabilities. The pipeline activity and signings have been very strong, and we're excited to start to show the benefit from implementations.

Operator, Operator

And our next question comes from the line of Alex Kramm from UBS.

Alex Kramm, Analyst (UBS)

Just wanted to come back quickly on the Capital Markets disclosures that Sarah gave on those terminations. First of all, is that fully in the run rate? Or is that still coming out? I think you mentioned a 4% one-timer. So does that mean that maybe there's a 1% headwind to growth? Or maybe you can just size up what kind of headwind that is? And then overall, as we think longer term with the expectation that bank M&A may be picking up, do you expect to see more of these termination-type events? Or do you think these are one-time events here?

Sarah Youngwood, Chief Financial Officer

I would say that the impact going forward is actually not very much. The four percentage points you referenced was a positive impact this quarter related to termination fees in Market Tech operators tied to M&A activity. That's not the same as bank M&A, and we're not seeing a sequence of those as a trend. It just so happens that we had that impact this quarter and we've been aware of it for some time. We're not seeing continued similar events as a trend.

Adena Friedman, Chair & Chief Executive Officer

I'd add that the termination fees are not commensurate with the underlying ACV. The ACV value coming out of ARR is modest versus the termination fees we received as a result of those changes.

Operator, Operator

And our last question in the queue comes from the line of Michael Cyprys from Morgan Stanley.

Michael Cyprys, Analyst (Morgan Stanley)

Just wanted to ask about 23/5 trading that's expected to launch. I heard you mentioned December 6. I was hoping you could update us on the steps that you're taking between now and then, how do you see this rolling out? What sort of milestones do you anticipate in the first year? We also hear some hesitation from certain market participants around potentially limited liquidity in the overnight session. So what sort of steps are you taking to address some of those concerns out there?

Adena Friedman, Chair & Chief Executive Officer

Sure. I'll take the question about concerns first. Anytime you have industry change, some participants get excited and others get nervous—that's healthy because it means concerns are being raised and addressed. Today, there is already trading activity outside our current hours; from 8 p.m. to 4 a.m. U.S. time, roughly 2% of volumes occur. We are excited to tap into that demand and to use the infrastructure the industry is putting in place to grow that activity. In terms of steps, by December not only will Nasdaq be launching its venue extended hours, but the consolidated tape has announced plans to expand to support those hours so NBBO and last sale data will be available. Our market data will be available, and MarketWatch will expand its hours. We are expanding our market operations, tech ops and network ops teams to support clients trading across the globe. We also plan extensive investor education, working with retail brokers and data customers to prepare investors to trade during extended hours. It's a holistic effort across markets, infrastructure, participants and education. Over time we expect expansion of investor interest to trade in home hours and grow liquidity across the 23-hour period. The Nasdaq futures market already trades 24/5, so enabling trading in ETFs and underlying securities in domestic hours is a natural next step. It will be an evolution, not a revolution, and it will take time to achieve broad penetration.

Operator, Operator

That concludes our Q&A session for today. I would now like to turn the conference back over to Adena Friedman, President and CEO, for closing remarks.

Adena Friedman, Chair & Chief Executive Officer

Great. Well, thank you very much. We are very pleased with the performance and momentum across Nasdaq as we execute our strategy to modernize markets, power the innovation economy and build trust in the financial system. Thank you very much for joining the call, and have a great day.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect. Goodbye.