Capital Markets & Wealth Creation with Adena Friedman of Nasdaq
Adena Friedman first joined Nasdaq in 1993 as an intern. Today, she is the Chair and CEO, guiding Nasdaq’s transformation into a leading global exchange and technology solutions company, with operations across six continents.
At the 2024 World Economic Forum in Davos, Switzerland, Adena joined Circle Co-Founder, Chairman, and CEO Jeremy Allaire for a wide-ranging conversation about capital markets, financial innovation, wealth creation, and carbon removal.
In their Money Movement conversation, Jeremy and Adena covered:
- [1:10] – IPO momentum
- [7:45] – Stocks and building wealth
- [11:00] – Tech-driven innovation
- [18:00] – Bitcoin ETFs
- [27:00] – Investor protections
Jeremy - 00:00:00: Money is changing. It's evolving. It's innovating. It's getting faster. Safer, more open.
Adena - 00:00:15: Technology innovation is kind of an unstoppable force.
Jeremy - 00:00:30: Hi, I'm Jeremy Allaire, and this is The Money Movement. I'm here in Davos, Switzerland at the World Economic Forum, and I'm very pleased to be joined today by Adena Friedman, the President and CEO of Nasdaq. Adena wonderful to have you.
Adena - 00:00:45: Well, it's great to be here, Jeremy. Thank you.
Jeremy - 00:00:47: Yeah, this is fun. So I know you've just arrived.
Adena - 00:00:50: Yes.
Jeremy - 00:00:50: And obviously, this is the start of Davos, the start of the year, and everyone always wants to ask people about what they're seeing and what's on the horizon. And that's sort of this moment. And you sit in a very unique perch on top of Nasdaq so to speak. And I'm interested to hear just at a very high level, what do you see when you think about capital markets in 2024? Certainly in contrast to the past couple of years, but also just genuinely, what do you see emerging?
Adena - 00:01:22: Sure. Well, I think that, as you mentioned, the last couple of years, it's actually been a very quiet time for IPOs. It's been a time when the overall economy has changed a lot with, in terms of monetary policy, very significant increases in interest rates to stave off inflation. But now, as we've seen through the latter half of 23, you're starting to see inflation come down. You're starting to see the Fed pause on interest rate increases with the hope that as we go through 24, we might get to a more normalized rate environment. I think that as a result of that, you're starting to see some optimism start to come in to the capital markets. And the U.S. Economy has remained resilient. So I think on the back of that, there's more confidence that investors realize that they have an opportunity to put some risk capital to work this year. So we are hopeful that we'll have a more vibrant IPO environment this year. We have about 85 companies that are filed to go public on Nasdaq I think they're waiting for the environment to be ready. So we're really excited to have the opportunity to bring them to market this year if the economy continues to show that resilience that it's been showing.
Jeremy - 00:02:26: Yeah, it's fascinating. Even the anticipation of a change in the monetary policy environment and just the health of the economy and everything else has had such a dramatic, even in the past few months, dramatic impact as well.
Adena - 00:02:26: Yeah, and actually, if you think about the capital markets, the capital markets are there too, especially the equities markets, are really meant to try to predict the future, right? The future earnings of a company, the future potential that a company has. So even when you look at times when there have been recessionary periods, the markets tend to move ahead of the economy. So we're hopeful that even now we are showing resilience in the economy and you're starting to see, as you said, the potential for monetary policy to be eased a bit. I think that that obviously allows investors to model out the future of businesses a little bit more successfully and it gives them more confidence.
Jeremy - 00:03:13: Yeah, absolutely. So I jumped right into the questions about like what's happening in capital markets, but maybe stepping back a little bit, something I like to do with people on the podcast is a little bit about your own journey as well. So I guess in very simple terms, what brought you to Nasdaq and maybe a little bit about your own kind of passion for providing these markets and what you see that as and what you see that bringing to the world and both how you got there and kind of the mission that you're carrying as part of the role.
Adena - 00:03:44: All right. Well, I started at Nasdaq over 30 years ago as an intern right out of business school. And I really wanted to be a product manager, but I wanted to work in finance. And I also wanted to live in Washington, D.C. And the little known fact was that at the time, Nasdaq was headquartered in Washington, D.C.
Jeremy - 00:04:00: Oh, my gosh.
Adena - 00:04:01: Yeah, because we were a subsidiary of the National Association of Securities Dealers, which most associations are in D.C.
Jeremy - 00:04:07: Yeah.
Adena - 00:04:07: NASD, and then automated quotations, NASD-A-Q. My goodness. That's the creation of Nasdaq.
Jeremy - 00:04:13: It tells you I haven't done enough of my Wikipedia.
Adena - 00:04:15: Exactly. So I joined to write product plans for some of the trading products. I really got into the trading part of the business right out of school. And I loved it. I mean, I have to say markets are so dynamic. The capital markets in the United States are filled with so many different interesting forces. I think also the markets were changing a lot. So regulation was changing. We actually demutualized and separated from the NASD my first seven years there. And then very quickly, I actually was offered the opportunity. To be the head of the data business. We created the data division in 1999, and I was the first head of that. So I was able to kind of grow up running a P&L, which then I also then became head of strategy, ultimately a CFO. And then I left. I went to Carlyle as a CFO. And I then came back to Nasdaq now over, I think, nine years ago, almost. And I became the CEO seven years ago. So it's been quite the journey, and I've loved it. I am passionate about what we do.
Jeremy - 00:05:12: Mm-hmm.
Adena - 00:05:12: I think that what we do is important to the economic workings of the country. We now provide our Technology to 130 other markets around the world. We also have a whole suite of software solutions that really help banks and brokers manage integrity within the system in terms of regulatory reporting and anti-fine crime. And then we also offer the opportunity for corporates and investors to have better interactions together by providing a lot of transparency tools. So we do a lot beyond our own markets. But it is the foundation. It is kind of honestly what makes us so passionate about what we do.
Jeremy - 00:05:43: Yeah. Technology through and through.
Adena - 00:05:45: Absolutely. Absolutely.
Jeremy - 00:05:46: Yeah. That's awesome. Well, I have worked with Nasdaq in the past in multiple lives as a tech entrepreneur as well. Well, it's an amazing story. I think a lot about capital markets over the long run. You know, there's sort of always been this concept of... Is there a way to have more democratized access to capital or larger types of capital markets that can serve eventually a much longer tail of companies and others? And I'd be interested in just a little bit of your long-term take on how large can these national or global capital markets become? How many companies can they really support? And, you know, with the JOBS act did a number of different things. And one of those was obviously to change the way people undertake becoming a public company, but it also is sort of changed the rules for how capital formation happens for private companies and different ways and took some steps. But over the long run, from a mission perspective, do you see bigger is better or more participants? How do you think about the sort of evolution of the scale of what these capital markets can be?
Adena - 00:06:54: Well, I think first, it's always good to focus on the investor, right? And saying, how can we get more people to be engaged in capital markets, because it is such a huge wealth creator. And one of the things I was actually quite encouraged by, there's a new study that the Fed has put out that says what quintiles of the economy are invested in stocks. And today's 58% of Americans have indirect or direct ownership of stocks, which is great. And if you're starting to look at it down through the income quintiles, it's actually all the way through the economy now that people are in stocks. And that's really important because when you also look at over the long term. There's a long term metric that I've looked at recently. I think it's over about a 30 year period. You know, the stock market has given well over, let's say, 5,000% return, whereas earnings or wages have increased about 660%. Right. So if you're able to get more people to put money in, either own equities through being part of a company that gives employee equity or own equities to the market. So it's a great opportunity to grow wealth across the economy.
Jeremy - 00:07:55: Yeah.
Adena - 00:07:56: So that's the first thing to recognize. At the same time, there's a huge responsibility that companies take on when they decide to enable public investors to be investors in our company. They have a lot of transparency obligations. They have a lot of regulatory obligations. So not every company is ready for that level of rigor. So I actually view the capital markets as more of a continuum where having seed capital, angel investors, VC. Growing up into becoming a public company, potentially at some point being owned by private equity if you're transforming in a new way. And then coming back out to the public markets. That's a healthy ecosystem of capital raising. Access to capital for companies in different stages of their lives. So I actually am not a believer that every company should be a public company.
Jeremy - 00:08:40: Right.
Adena - 00:08:40: But I also am a believer that we have to be very careful about not overregulating the public markets because then it'll make it so no company wants to go public. And the JOBS Act, I think, was an attempt to make it so that the capital markets are a little more flexible.
Jeremy - 00:08:54: Right.
Adena - 00:08:54: For companies, made it so they could stay private longer.
Jeremy - 00:08:58: Yeah.
Adena - 00:08:58: But now it's a matter of making sure when they are public, they don't suddenly get crushed for the regulation.
Jeremy - 00:09:02: Right. Right. But I think that piece has been effective overall. I won't go down this rabbit hole, but I think it's fascinating to watch with crypto the sort of explosion of these digital exchange markets where these tokens are basically like going public as technology projects in a very different lifecycle. And obviously the need for markets regulation around that is a big topic, which again, I don't want to necessarily go down that rabbit hole. I think with the focus that you have. And obviously coming into Davos and the forum as well, you walk down the street. It's AI everywhere. And, you know, I don't know if it's been blockchain everywhere here and there, but basically the technology trends, the sort of exponential tech, it's in everything from climate to data to all these other areas. You've got a unique vantage point as well as the President and CEO of Nasdaq And when you look at capital formation in these public markets around these technology themes, what are the big themes that you're seeing that are driving markets? And what are you most excited about when you see all these? Existing companies that are transforming themselves as well as these new issues that are emerging around all this.
Adena - 00:10:18: Well, I think it's actually interesting. First of all, finance is an area of immense amounts of innovation, as you know.
Jeremy - 00:10:24: Yeah, I do.
Adena - 00:10:25: And actually, that's what makes it so exciting to be in the financial industry, but also sitting in the capital markets as a capital market and trying to understand how innovation either affects us. So we obviously bring AI capabilities into our markets. We bring it into our software businesses, especially around anti-fin crime. I'm sure you're using it in that regard, too. So how do you root out criminal behavior? How do you make sure that everything stays safe? AI is a wonderful tool for that. But at the same time, you have a lot of other innovations. And in my experiences, the capital markets are extremely data-driven. We've always been probably one of the most data-driven industries in the world, which means that you have the ability to organize that data. You have the ability to track and trace that data. You have the ability to get intelligence off of that data. So new technologies often come first into our industry. So blockchain, I think, as you saw it come onto the scene, it was first and foremost in payments, in finance. And it can be applied to supply chain management. It can be applied to a lot of different industries. But we were kind of the first forum. Same with AI. AI is already in the markets. We have actually our first AI-driven order type that was approved by the SEC that we're launching this quarter.
Jeremy - 00:11:34: I did not know that.
Adena - 00:11:35: To help improve fill rates in the markets. And then we also applied AI as I mentioned before, across a lot of our workflow tools to help our clients manage their liquidity more effectively. So it's a really interesting area because I think that it's everywhere. Now, I think with blockchain, I've always said that blockchain was going to be more of an evolution than a revolution. Because it really takes a village to get that new technology to be fully embraced by the entire industry. It requires a retooling of a lot of technology. But it is, as you know, it's such an incredible innovation. So, it's a matter of how do you leverage it into the markets? How do you make it so payments are faster, safer, more global? I mean, those are the types of things that are really exciting to consider.
Jeremy - 00:12:18: Yeah.
Adena - 00:12:18: But I think right now, AI is, of course, the talk of the town. So I think we're starting to look at how those two things come together.
Jeremy - 00:12:26: Yeah. I'm giving a little talk later this week on sort of machine-mediated money and what does that really mean? And, you know, will things like stablecoins be, are AIs going to use smart contracts and stablecoins to interact with each other and all these things? So there's a sort of world of convergence there for sure.
Adena - 00:12:44: There is actually. I'm thinking about just leveraging the blockchain technology as a way to track and trace the validity of a video.
Jeremy - 00:12:52: Yes.
Adena - 00:12:52: Or, you know, there's a lot of other use cases that will actually apply to the AI world.
Jeremy - 00:12:57: So pretty interesting. We need cryptographic proof of lots of things.
Adena - 00:13:00: Exactly. Exactly.
Jeremy - 00:13:00: And now in a world of generative AI, it's kind of nuts, right? I'm also interested to hear you talk a little bit about what you're seeing in support of the climate agenda. And I remember if it was a year ago or the May, Davos or whatever, you were kind of convening some of the world's financial leaders. And it was a major theme. And I think John Kerry was talking to the group. And what are you seeing happen at Nasdaq in terms of energy, no pun intended, around real financing happening behind the kinds of companies and technologies that are going to have the impact that everyone hopes is going to drive real change on the climate side?
Adena - 00:13:44: I mean, well, first of all, I think it's important to recognize the need to finance these innovations, right? And so that financing can come in a lot of different forms. But one of the areas that it's been actually of particular focus. Right now is how do we find it like bank financing of longer term carbon removal projects or financing of innovative new green technologies? And the banks actually come into the forefront on that because a lot of the early investing is going to be more in the lending space. So how do they actually underwrite these types of projects? Well, one thing that Nasdaq has is something called Puro Earth. We have a majority investment in the largest carbon removal marketplace in the world. So it's basically designed to create for contracts. Where a company who's looking to offset their emissions and they can't do it completely themselves, they can go to this marketplace, they can buy carbon removal credits. They're very high-quality industrial carbon removal credits, but they can buy, let's say, a five-year for a contract. Well, that then gives the company who's providing that capability a forward view of revenue, which then they can go and borrow against so that they can expand their production capability. So it's actually an interesting way to finance. It's tremendous. To try to catalyze financing in this energy transition. And then, of course, there's also just pure technology innovation. And you're seeing the VC community get engaged in that. You're seeing, obviously, the government coming in and providing subsidies and various governments doing that to really catalyze that innovation. All of that's necessary. Every single element of this is necessary to make a difference, for sure.
Jeremy - 00:15:14: Yeah, well, I think... It feels like the dialogue has been ongoing here at The Forum for, I don't know how many years, a long time.
Adena - 00:15:22: A long time.
Jeremy - 00:15:23: A long time. But it actually feels like the dialogue has shifted from, like, I don't know, what do we do?
Adena - 00:15:29: Yes.
Jeremy - 00:15:29: To, like, look at all of these things that are happening and all of the infrastructure that's developing and things that were maybe more theoretical around batteries and energy storage and solar and others. They're industrial scale. It's like, it's really amazing.
Adena - 00:15:43: That's right, actually, that's what I find really interesting is I do feel like we do a lot of talking here in Davos. But I do feel like the last couple of years have been more around what are you doing, not just what are you saying, which I think is helpful. And I think with the end of transition, it's decades long.
Jeremy - 00:15:59: Mm-hmm.
Adena - 00:16:00: Effort here. So maintaining the dialogue, but really coming up with solutions. The other thing is we provide, and you might be interested in this one. So we actually provide a carbon removal registry capabilities that's all built on blockchain. So it's a smart contract. I had remembered you had shared that you were building it. We were building it. Well, we've launched it now. So we've launched it for Puro. We're now offering out to any carbon removal marketplace where they can have a perfect record of all of the removal credits, which I think is important for the integrity of this marketplace.
Jeremy - 00:16:28: Absolutely.
Adena - 00:16:29: But also it enables them to track and trace it, to show change of ownership. And I think it would actually bring a lot of integrity to the carbon removal space in general.
Jeremy - 00:16:39: I love that you're doing that. It's amazing. So thank you.
Adena - 00:16:42: I know. It's a great way to use that innovation. I think it really is.
Jeremy - 00:16:47: Yeah. Yeah. More people need to hear about that. We're trying here.
Adena - 00:16:51: Here we go.
Jeremy - 00:16:52: That's great. All right. I'm going to pivot a little bit to the Bitcoin ETF.
Adena - 00:16:57: Yeah.
Jeremy- 00:16:57: So BlackRock is a big strategic partner of ours. And actually, they manage most of the reserves of USDC. And so they got involved with us there. And now this is another major thing as part of the whole family of these. But I know a couple of these ETFs have landed at the Nasdaq. And I'd be interested just to hear your thoughts on Bitcoin ETFs. What does this mean? Is it any different from any other ETF from a Nasdaq perspective? Or do you think it sort of signals something from a market perspective around this asset class?
Adena - 00:17:32: Oh, I do think it's an interesting signal. So I would start by saying it's the same and different. So, of course, the process for listing an ETF, we have a very well-known process. You go through the SEC process, and then you get approved from the SEC. And then we've gone through our listing agreement, and they get approved for us.
Jeremy - 00:17:48: Right.
Adena - 00:17:49: The difference between an ETF, though, and a company listing is then we have to actually line up a liquidity provider.
Jeremy - 00:17:48: Right.
Adena - 00:17:55: There's something called a lead market maker.
Jeremy - 00:17:56: Yeah.
Adena - 00:17:57: That kind of serves as the way to transfer the ownership of the ETF to ownership of the underlying. So they almost create a repository of the underlying security.
Jeremy - 00:18:06: Mm-hmm.
Adena - 00:18:07: Or the underlying asset.
Jeremy - 00:18:08: Yeah.
Adena - 00:18:08: I call it that in the case of Bitcoin. So that they're always making sure that they're harmonized with what they're buying as ETF and the actual underlying asset that says. So that, I think, has been an important process for us to go through with BlackRock.
Jeremy - 00:18:22: Mm-hmm.
Adena - 00:18:23: As well as, actually, with some of the exchanges that they're relying on.
Jeremy - 00:18:26: Yeah.
Adena - 00:18:26: So Coinbase is a big partner to them. So I think those are important distinctions.
Jeremy - 00:18:31: Mm-hmm.
Adena - 00:18:31: But now we say, okay, now this ETF is listed on Nasdaq traded on Nasdaq.
Jeremy - 00:18:35: Mm-hmm.
Adena - 00:18:35: It's got the regulatory overlay of a security.
Jeremy - 00:18:38: Mm-hmm.
Adena - 00:18:38: Because each has our security. And, of course, we're highly regulated. So I think that it allows investors to have an opinion about Bitcoin, the movement, the trajectory of Bitcoin, without some of the friction that might come with owning the underlying Bitcoin. And so I think that's actually a really, really interesting innovation to help the crypto industry to continue to advance itself. And so it'll be interesting. But I'm curious to hear from your perspective, Jeremy, actually.
Jeremy - 00:19:03: Mm-hmm.
Adena - 00:19:03: As soon as I, you know, we launched it. And you and I were in communication last week. I was wondering what you were thinking about it. Like, how do you see it as part of the evolution of the crypto space?
Jeremy - 00:19:12: Yeah. Thank you for the question. I think it's very significant. And I've been at this now going into my 11th year. So I've been in from the very nascent.
Adena - 00:19:22: Oh, my gosh. Yeah.
Jeremy - 00:19:23: Very early. So from very, very early nascent time in the industry. And my first response is actually related to what you just said, which is. It's fascinating to see effectively what you have is you actually have a regulated market structure wrapped around this, that it has investor protections, that has underlying everything from those market makers to custodians to market surveillance to proper, you know, everything that kind of wraps around that is it's a pretty significant form of de facto regulation. And so I think in some ways, the launch of these ETFs actually reflects a de facto meta level of supervision that maybe didn't exist. And now it kind of comes in. And so that's interesting. I think what's also interesting about it is the range of market participants. Is really broader. I mean, you see Goldman Sachs and JP Morgan and Jane Street and so many other amazing firms who are going to participate in this infrastructure, in a sense, and who wouldn't in the past, but now they are. And so you kind of have a who's who of major electronic markets firms and investment banks and trading divisions and others that are now participating, and they now all have a vested interest in the asset class in a way that they didn't. I mean, there were some futures, there were some other things in the past, but this is a really different level. And so I think the kind of interest and engagement and acceptance at the very top of institutional finance, that's a major shift, right? So that's there. But I think maybe in other ways, it's very significant in that. It will, in fact, send this signal that this is here to stay. And that's been a question mark. You still have... Certain large personalities who will say, you know, this is going to zero or whatever it is. But I think most people are going to say, okay, this is here to stay. I want to understand more about this. What are all of the technologies behind this? What are all the different types of applications, things like stable coins, real world assets, all of tokenization? So there's this much, much broader. I mean, Bitcoin's like the tip of the spear, right? It's one thing. And so there's this whole other arena. And I think it's going to bring more attention and it's going to also. Provide a kind of credibility backstop, in a sense, that will give mainstream institutions, I think, more willingness to evaluate, look at, participate, etc. And, you know, it's frankly, really, I think it's powerful to have a regulated infrastructure like this, especially on the backs of frauds and bankruptcies and all the things that have happened from an unregulated market, right? So all of those things I view as very positive. And so we think it's... Certainly going to be a really strong growth catalyst for the whole industry, not just this as a specific asset or a specific investment opportunity.
Adena - 00:22:25: Yeah, I think it is a bigger signal to how there can be some regulatory overlay in this particular type of asset class. And then the question really is, what's next? But I think right now, having this ecosystem work, having the liquidity in the ETF work well, we're seeing tight spreads, we're seeing strong volumes, and then also making sure that the LMMs, the lead market makers, have the ability to manage the underlying liquidity as well. Those are all things that we're going to learn over the next several months and see how it continues to evolve. But I agree, it's a big step, and we're really pleased to be partnering with BlackRock and Valkyrie on their launches. Very exciting.
Jeremy- 00:23:04: Very much so. Well, it is super exciting. It's interesting. I think it also kind of ties to, I think, some other themes, which are technology and regulation. And you sit at the center of that because the regulations of the technologies that you use to conduct your business are always evolving. And I'm not going to ask you to make public comments about the SEC or anything like that. But I mean, I think your general view on sort of the progression of innovation and the ability for not just markets regulators, regulators more broadly, and you deal with markets around the world. So regulators to adapt to. Build policy around technology innovations. You must face that in your own business. You see lots of businesses that you do business with that face that. We certainly face that in a significant way. Just how do you think about that interplay between technology innovation, regulation, etc.?
Adena - 00:23:59: Well, I think that, first of all, technology innovation is kind of an unstoppable force. And so even though there are many times, moments when the technology comes forward and the regulators aren't quite ready, the fact is that the innovation is going to happen. So it's a matter of the regulators then saying, okay, how do we, I don't want to say catch up, but more adapt themselves to be able to integrate this technology into the regulatory overlay. And you're starting to see that now with AI, which I think is good. I do feel like the regulatory infrastructure has... Turn pretty fast towards addressing or understanding that they have a need to address it. Now, whether or not they actually have to change regulation, whether they just need to interpret their regulations to apply to new technology is the big question. I think that's actually a big open issue whenever innovation comes, but certainly in the crypto space. But how flexible is the regulation as it exists to be able to apply to new things that are coming versus do they actually have to write new rules? And so I think that's the complexity, frankly, that regulators have to deal with. My personal view is that we've operated in a regulated environment. I've been with Nasdaq for almost 30 years. So 30 years of working with a regulator, you can innovate. I mean, we are launching an AI-driven order type. We have hyper-fast, extremely advanced systems that run our markets. We work with regulators all over the world who deploy that technology everywhere. So I do feel like you can operate successfully in a regulated environment and innovatively. But the pace of change might not be quite as fast as you want. But then when you do make the change, you do know that the protections are in place to be able to implement that technology with a view towards investment protection. I think the one thing to recognize in finance, unlike, I won't name another industry, but unlike some other industries, there's just so much money. And these are people's personal savings. You know, they're hard-earned.
Jeremy - 00:25:50: It's the underpinning of society.
Adena - 00:25:51: It's the underpinning of society. And all of their hard work has been poured into something. They've chosen to invest somewhere. And we have a job to do to make sure that they feel like at least they are going to take risk. And we can't protect every investment, but that they have an environment that provides for some level of protection. I think that's important. So as we look at bringing innovation into finance, I do feel like it's important to kind of respect the regulation that exists, but doesn't mean you have to accept it all. You have to respect why it's there. And then say, okay, what might we need to do to change that in order to make it so that this new technology can thrive? Right?
Jeremy - 00:26:26: Totally.
Adena - 00:26:27: So that's kind of the way that we operate at Nasdaq.
Jeremy - 00:26:29: Well, we use that phrase, fostering responsible innovation.
Adena - 00:26:33: Exactly.
Jeremy - 00:26:33: And that is both for industry and regulators. And if you can come together and do that, then I think you can get tremendous outcomes.
Adena - 00:26:41: That's right. And then you also know you have a persistent, sustainable innovation, which is exactly what you've built. So it's pretty exciting.
Jeremy - 00:26:48: Yeah. Well, Adena this has been a lovely conversation. I'm glad that it can be part of your kickoff for the week.
Adena - 00:26:54: Absolutely. Thank you for inviting me, Jeremy. It's great to spend time with you.
Jeremy - 00:26:57: You're very welcome.
Adena - 00:26:58: Great. Thank you.
Adena - 00:00:15: Technology innovation is kind of an unstoppable force.
Jeremy - 00:00:30: Hi, I'm Jeremy Allaire, and this is The Money Movement. I'm here in Davos, Switzerland at the World Economic Forum, and I'm very pleased to be joined today by Adena Friedman, the President and CEO of Nasdaq. Adena wonderful to have you.
Adena - 00:00:45: Well, it's great to be here, Jeremy. Thank you.
Jeremy - 00:00:47: Yeah, this is fun. So I know you've just arrived.
Adena - 00:00:50: Yes.
Jeremy - 00:00:50: And obviously, this is the start of Davos, the start of the year, and everyone always wants to ask people about what they're seeing and what's on the horizon. And that's sort of this moment. And you sit in a very unique perch on top of Nasdaq so to speak. And I'm interested to hear just at a very high level, what do you see when you think about capital markets in 2024? Certainly in contrast to the past couple of years, but also just genuinely, what do you see emerging?
Adena - 00:01:22: Sure. Well, I think that, as you mentioned, the last couple of years, it's actually been a very quiet time for IPOs. It's been a time when the overall economy has changed a lot with, in terms of monetary policy, very significant increases in interest rates to stave off inflation. But now, as we've seen through the latter half of 23, you're starting to see inflation come down. You're starting to see the Fed pause on interest rate increases with the hope that as we go through 24, we might get to a more normalized rate environment. I think that as a result of that, you're starting to see some optimism start to come in to the capital markets. And the U.S. Economy has remained resilient. So I think on the back of that, there's more confidence that investors realize that they have an opportunity to put some risk capital to work this year. So we are hopeful that we'll have a more vibrant IPO environment this year. We have about 85 companies that are filed to go public on Nasdaq I think they're waiting for the environment to be ready. So we're really excited to have the opportunity to bring them to market this year if the economy continues to show that resilience that it's been showing.
Jeremy - 00:02:26: Yeah, it's fascinating. Even the anticipation of a change in the monetary policy environment and just the health of the economy and everything else has had such a dramatic, even in the past few months, dramatic impact as well.
Adena - 00:02:26: Yeah, and actually, if you think about the capital markets, the capital markets are there too, especially the equities markets, are really meant to try to predict the future, right? The future earnings of a company, the future potential that a company has. So even when you look at times when there have been recessionary periods, the markets tend to move ahead of the economy. So we're hopeful that even now we are showing resilience in the economy and you're starting to see, as you said, the potential for monetary policy to be eased a bit. I think that that obviously allows investors to model out the future of businesses a little bit more successfully and it gives them more confidence.
Jeremy - 00:03:13: Yeah, absolutely. So I jumped right into the questions about like what's happening in capital markets, but maybe stepping back a little bit, something I like to do with people on the podcast is a little bit about your own journey as well. So I guess in very simple terms, what brought you to Nasdaq and maybe a little bit about your own kind of passion for providing these markets and what you see that as and what you see that bringing to the world and both how you got there and kind of the mission that you're carrying as part of the role.
Adena - 00:03:44: All right. Well, I started at Nasdaq over 30 years ago as an intern right out of business school. And I really wanted to be a product manager, but I wanted to work in finance. And I also wanted to live in Washington, D.C. And the little known fact was that at the time, Nasdaq was headquartered in Washington, D.C.
Jeremy - 00:04:00: Oh, my gosh.
Adena - 00:04:01: Yeah, because we were a subsidiary of the National Association of Securities Dealers, which most associations are in D.C.
Jeremy - 00:04:07: Yeah.
Adena - 00:04:07: NASD, and then automated quotations, NASD-A-Q. My goodness. That's the creation of Nasdaq.
Jeremy - 00:04:13: It tells you I haven't done enough of my Wikipedia.
Adena - 00:04:15: Exactly. So I joined to write product plans for some of the trading products. I really got into the trading part of the business right out of school. And I loved it. I mean, I have to say markets are so dynamic. The capital markets in the United States are filled with so many different interesting forces. I think also the markets were changing a lot. So regulation was changing. We actually demutualized and separated from the NASD my first seven years there. And then very quickly, I actually was offered the opportunity. To be the head of the data business. We created the data division in 1999, and I was the first head of that. So I was able to kind of grow up running a P&L, which then I also then became head of strategy, ultimately a CFO. And then I left. I went to Carlyle as a CFO. And I then came back to Nasdaq now over, I think, nine years ago, almost. And I became the CEO seven years ago. So it's been quite the journey, and I've loved it. I am passionate about what we do.
Jeremy - 00:05:12: Mm-hmm.
Adena - 00:05:12: I think that what we do is important to the economic workings of the country. We now provide our Technology to 130 other markets around the world. We also have a whole suite of software solutions that really help banks and brokers manage integrity within the system in terms of regulatory reporting and anti-fine crime. And then we also offer the opportunity for corporates and investors to have better interactions together by providing a lot of transparency tools. So we do a lot beyond our own markets. But it is the foundation. It is kind of honestly what makes us so passionate about what we do.
Jeremy - 00:05:43: Yeah. Technology through and through.
Adena - 00:05:45: Absolutely. Absolutely.
Jeremy - 00:05:46: Yeah. That's awesome. Well, I have worked with Nasdaq in the past in multiple lives as a tech entrepreneur as well. Well, it's an amazing story. I think a lot about capital markets over the long run. You know, there's sort of always been this concept of... Is there a way to have more democratized access to capital or larger types of capital markets that can serve eventually a much longer tail of companies and others? And I'd be interested in just a little bit of your long-term take on how large can these national or global capital markets become? How many companies can they really support? And, you know, with the JOBS act did a number of different things. And one of those was obviously to change the way people undertake becoming a public company, but it also is sort of changed the rules for how capital formation happens for private companies and different ways and took some steps. But over the long run, from a mission perspective, do you see bigger is better or more participants? How do you think about the sort of evolution of the scale of what these capital markets can be?
Adena - 00:06:54: Well, I think first, it's always good to focus on the investor, right? And saying, how can we get more people to be engaged in capital markets, because it is such a huge wealth creator. And one of the things I was actually quite encouraged by, there's a new study that the Fed has put out that says what quintiles of the economy are invested in stocks. And today's 58% of Americans have indirect or direct ownership of stocks, which is great. And if you're starting to look at it down through the income quintiles, it's actually all the way through the economy now that people are in stocks. And that's really important because when you also look at over the long term. There's a long term metric that I've looked at recently. I think it's over about a 30 year period. You know, the stock market has given well over, let's say, 5,000% return, whereas earnings or wages have increased about 660%. Right. So if you're able to get more people to put money in, either own equities through being part of a company that gives employee equity or own equities to the market. So it's a great opportunity to grow wealth across the economy.
Jeremy - 00:07:55: Yeah.
Adena - 00:07:56: So that's the first thing to recognize. At the same time, there's a huge responsibility that companies take on when they decide to enable public investors to be investors in our company. They have a lot of transparency obligations. They have a lot of regulatory obligations. So not every company is ready for that level of rigor. So I actually view the capital markets as more of a continuum where having seed capital, angel investors, VC. Growing up into becoming a public company, potentially at some point being owned by private equity if you're transforming in a new way. And then coming back out to the public markets. That's a healthy ecosystem of capital raising. Access to capital for companies in different stages of their lives. So I actually am not a believer that every company should be a public company.
Jeremy - 00:08:40: Right.
Adena - 00:08:40: But I also am a believer that we have to be very careful about not overregulating the public markets because then it'll make it so no company wants to go public. And the JOBS Act, I think, was an attempt to make it so that the capital markets are a little more flexible.
Jeremy - 00:08:54: Right.
Adena - 00:08:54: For companies, made it so they could stay private longer.
Jeremy - 00:08:58: Yeah.
Adena - 00:08:58: But now it's a matter of making sure when they are public, they don't suddenly get crushed for the regulation.
Jeremy - 00:09:02: Right. Right. But I think that piece has been effective overall. I won't go down this rabbit hole, but I think it's fascinating to watch with crypto the sort of explosion of these digital exchange markets where these tokens are basically like going public as technology projects in a very different lifecycle. And obviously the need for markets regulation around that is a big topic, which again, I don't want to necessarily go down that rabbit hole. I think with the focus that you have. And obviously coming into Davos and the forum as well, you walk down the street. It's AI everywhere. And, you know, I don't know if it's been blockchain everywhere here and there, but basically the technology trends, the sort of exponential tech, it's in everything from climate to data to all these other areas. You've got a unique vantage point as well as the President and CEO of Nasdaq And when you look at capital formation in these public markets around these technology themes, what are the big themes that you're seeing that are driving markets? And what are you most excited about when you see all these? Existing companies that are transforming themselves as well as these new issues that are emerging around all this.
Adena - 00:10:18: Well, I think it's actually interesting. First of all, finance is an area of immense amounts of innovation, as you know.
Jeremy - 00:10:24: Yeah, I do.
Adena - 00:10:25: And actually, that's what makes it so exciting to be in the financial industry, but also sitting in the capital markets as a capital market and trying to understand how innovation either affects us. So we obviously bring AI capabilities into our markets. We bring it into our software businesses, especially around anti-fin crime. I'm sure you're using it in that regard, too. So how do you root out criminal behavior? How do you make sure that everything stays safe? AI is a wonderful tool for that. But at the same time, you have a lot of other innovations. And in my experiences, the capital markets are extremely data-driven. We've always been probably one of the most data-driven industries in the world, which means that you have the ability to organize that data. You have the ability to track and trace that data. You have the ability to get intelligence off of that data. So new technologies often come first into our industry. So blockchain, I think, as you saw it come onto the scene, it was first and foremost in payments, in finance. And it can be applied to supply chain management. It can be applied to a lot of different industries. But we were kind of the first forum. Same with AI. AI is already in the markets. We have actually our first AI-driven order type that was approved by the SEC that we're launching this quarter.
Jeremy - 00:11:34: I did not know that.
Adena - 00:11:35: To help improve fill rates in the markets. And then we also applied AI as I mentioned before, across a lot of our workflow tools to help our clients manage their liquidity more effectively. So it's a really interesting area because I think that it's everywhere. Now, I think with blockchain, I've always said that blockchain was going to be more of an evolution than a revolution. Because it really takes a village to get that new technology to be fully embraced by the entire industry. It requires a retooling of a lot of technology. But it is, as you know, it's such an incredible innovation. So, it's a matter of how do you leverage it into the markets? How do you make it so payments are faster, safer, more global? I mean, those are the types of things that are really exciting to consider.
Jeremy - 00:12:18: Yeah.
Adena - 00:12:18: But I think right now, AI is, of course, the talk of the town. So I think we're starting to look at how those two things come together.
Jeremy - 00:12:26: Yeah. I'm giving a little talk later this week on sort of machine-mediated money and what does that really mean? And, you know, will things like stablecoins be, are AIs going to use smart contracts and stablecoins to interact with each other and all these things? So there's a sort of world of convergence there for sure.
Adena - 00:12:44: There is actually. I'm thinking about just leveraging the blockchain technology as a way to track and trace the validity of a video.
Jeremy - 00:12:52: Yes.
Adena - 00:12:52: Or, you know, there's a lot of other use cases that will actually apply to the AI world.
Jeremy - 00:12:57: So pretty interesting. We need cryptographic proof of lots of things.
Adena - 00:13:00: Exactly. Exactly.
Jeremy - 00:13:00: And now in a world of generative AI, it's kind of nuts, right? I'm also interested to hear you talk a little bit about what you're seeing in support of the climate agenda. And I remember if it was a year ago or the May, Davos or whatever, you were kind of convening some of the world's financial leaders. And it was a major theme. And I think John Kerry was talking to the group. And what are you seeing happen at Nasdaq in terms of energy, no pun intended, around real financing happening behind the kinds of companies and technologies that are going to have the impact that everyone hopes is going to drive real change on the climate side?
Adena - 00:13:44: I mean, well, first of all, I think it's important to recognize the need to finance these innovations, right? And so that financing can come in a lot of different forms. But one of the areas that it's been actually of particular focus. Right now is how do we find it like bank financing of longer term carbon removal projects or financing of innovative new green technologies? And the banks actually come into the forefront on that because a lot of the early investing is going to be more in the lending space. So how do they actually underwrite these types of projects? Well, one thing that Nasdaq has is something called Puro Earth. We have a majority investment in the largest carbon removal marketplace in the world. So it's basically designed to create for contracts. Where a company who's looking to offset their emissions and they can't do it completely themselves, they can go to this marketplace, they can buy carbon removal credits. They're very high-quality industrial carbon removal credits, but they can buy, let's say, a five-year for a contract. Well, that then gives the company who's providing that capability a forward view of revenue, which then they can go and borrow against so that they can expand their production capability. So it's actually an interesting way to finance. It's tremendous. To try to catalyze financing in this energy transition. And then, of course, there's also just pure technology innovation. And you're seeing the VC community get engaged in that. You're seeing, obviously, the government coming in and providing subsidies and various governments doing that to really catalyze that innovation. All of that's necessary. Every single element of this is necessary to make a difference, for sure.
Jeremy - 00:15:14: Yeah, well, I think... It feels like the dialogue has been ongoing here at The Forum for, I don't know how many years, a long time.
Adena - 00:15:22: A long time.
Jeremy - 00:15:23: A long time. But it actually feels like the dialogue has shifted from, like, I don't know, what do we do?
Adena - 00:15:29: Yes.
Jeremy - 00:15:29: To, like, look at all of these things that are happening and all of the infrastructure that's developing and things that were maybe more theoretical around batteries and energy storage and solar and others. They're industrial scale. It's like, it's really amazing.
Adena - 00:15:43: That's right, actually, that's what I find really interesting is I do feel like we do a lot of talking here in Davos. But I do feel like the last couple of years have been more around what are you doing, not just what are you saying, which I think is helpful. And I think with the end of transition, it's decades long.
Jeremy - 00:15:59: Mm-hmm.
Adena - 00:16:00: Effort here. So maintaining the dialogue, but really coming up with solutions. The other thing is we provide, and you might be interested in this one. So we actually provide a carbon removal registry capabilities that's all built on blockchain. So it's a smart contract. I had remembered you had shared that you were building it. We were building it. Well, we've launched it now. So we've launched it for Puro. We're now offering out to any carbon removal marketplace where they can have a perfect record of all of the removal credits, which I think is important for the integrity of this marketplace.
Jeremy - 00:16:28: Absolutely.
Adena - 00:16:29: But also it enables them to track and trace it, to show change of ownership. And I think it would actually bring a lot of integrity to the carbon removal space in general.
Jeremy - 00:16:39: I love that you're doing that. It's amazing. So thank you.
Adena - 00:16:42: I know. It's a great way to use that innovation. I think it really is.
Jeremy - 00:16:47: Yeah. Yeah. More people need to hear about that. We're trying here.
Adena - 00:16:51: Here we go.
Jeremy - 00:16:52: That's great. All right. I'm going to pivot a little bit to the Bitcoin ETF.
Adena - 00:16:57: Yeah.
Jeremy- 00:16:57: So BlackRock is a big strategic partner of ours. And actually, they manage most of the reserves of USDC. And so they got involved with us there. And now this is another major thing as part of the whole family of these. But I know a couple of these ETFs have landed at the Nasdaq. And I'd be interested just to hear your thoughts on Bitcoin ETFs. What does this mean? Is it any different from any other ETF from a Nasdaq perspective? Or do you think it sort of signals something from a market perspective around this asset class?
Adena - 00:17:32: Oh, I do think it's an interesting signal. So I would start by saying it's the same and different. So, of course, the process for listing an ETF, we have a very well-known process. You go through the SEC process, and then you get approved from the SEC. And then we've gone through our listing agreement, and they get approved for us.
Jeremy - 00:17:48: Right.
Adena - 00:17:49: The difference between an ETF, though, and a company listing is then we have to actually line up a liquidity provider.
Jeremy - 00:17:48: Right.
Adena - 00:17:55: There's something called a lead market maker.
Jeremy - 00:17:56: Yeah.
Adena - 00:17:57: That kind of serves as the way to transfer the ownership of the ETF to ownership of the underlying. So they almost create a repository of the underlying security.
Jeremy - 00:18:06: Mm-hmm.
Adena - 00:18:07: Or the underlying asset.
Jeremy - 00:18:08: Yeah.
Adena - 00:18:08: I call it that in the case of Bitcoin. So that they're always making sure that they're harmonized with what they're buying as ETF and the actual underlying asset that says. So that, I think, has been an important process for us to go through with BlackRock.
Jeremy - 00:18:22: Mm-hmm.
Adena - 00:18:23: As well as, actually, with some of the exchanges that they're relying on.
Jeremy - 00:18:26: Yeah.
Adena - 00:18:26: So Coinbase is a big partner to them. So I think those are important distinctions.
Jeremy - 00:18:31: Mm-hmm.
Adena - 00:18:31: But now we say, okay, now this ETF is listed on Nasdaq traded on Nasdaq.
Jeremy - 00:18:35: Mm-hmm.
Adena - 00:18:35: It's got the regulatory overlay of a security.
Jeremy - 00:18:38: Mm-hmm.
Adena - 00:18:38: Because each has our security. And, of course, we're highly regulated. So I think that it allows investors to have an opinion about Bitcoin, the movement, the trajectory of Bitcoin, without some of the friction that might come with owning the underlying Bitcoin. And so I think that's actually a really, really interesting innovation to help the crypto industry to continue to advance itself. And so it'll be interesting. But I'm curious to hear from your perspective, Jeremy, actually.
Jeremy - 00:19:03: Mm-hmm.
Adena - 00:19:03: As soon as I, you know, we launched it. And you and I were in communication last week. I was wondering what you were thinking about it. Like, how do you see it as part of the evolution of the crypto space?
Jeremy - 00:19:12: Yeah. Thank you for the question. I think it's very significant. And I've been at this now going into my 11th year. So I've been in from the very nascent.
Adena - 00:19:22: Oh, my gosh. Yeah.
Jeremy - 00:19:23: Very early. So from very, very early nascent time in the industry. And my first response is actually related to what you just said, which is. It's fascinating to see effectively what you have is you actually have a regulated market structure wrapped around this, that it has investor protections, that has underlying everything from those market makers to custodians to market surveillance to proper, you know, everything that kind of wraps around that is it's a pretty significant form of de facto regulation. And so I think in some ways, the launch of these ETFs actually reflects a de facto meta level of supervision that maybe didn't exist. And now it kind of comes in. And so that's interesting. I think what's also interesting about it is the range of market participants. Is really broader. I mean, you see Goldman Sachs and JP Morgan and Jane Street and so many other amazing firms who are going to participate in this infrastructure, in a sense, and who wouldn't in the past, but now they are. And so you kind of have a who's who of major electronic markets firms and investment banks and trading divisions and others that are now participating, and they now all have a vested interest in the asset class in a way that they didn't. I mean, there were some futures, there were some other things in the past, but this is a really different level. And so I think the kind of interest and engagement and acceptance at the very top of institutional finance, that's a major shift, right? So that's there. But I think maybe in other ways, it's very significant in that. It will, in fact, send this signal that this is here to stay. And that's been a question mark. You still have... Certain large personalities who will say, you know, this is going to zero or whatever it is. But I think most people are going to say, okay, this is here to stay. I want to understand more about this. What are all of the technologies behind this? What are all the different types of applications, things like stable coins, real world assets, all of tokenization? So there's this much, much broader. I mean, Bitcoin's like the tip of the spear, right? It's one thing. And so there's this whole other arena. And I think it's going to bring more attention and it's going to also. Provide a kind of credibility backstop, in a sense, that will give mainstream institutions, I think, more willingness to evaluate, look at, participate, etc. And, you know, it's frankly, really, I think it's powerful to have a regulated infrastructure like this, especially on the backs of frauds and bankruptcies and all the things that have happened from an unregulated market, right? So all of those things I view as very positive. And so we think it's... Certainly going to be a really strong growth catalyst for the whole industry, not just this as a specific asset or a specific investment opportunity.
Adena - 00:22:25: Yeah, I think it is a bigger signal to how there can be some regulatory overlay in this particular type of asset class. And then the question really is, what's next? But I think right now, having this ecosystem work, having the liquidity in the ETF work well, we're seeing tight spreads, we're seeing strong volumes, and then also making sure that the LMMs, the lead market makers, have the ability to manage the underlying liquidity as well. Those are all things that we're going to learn over the next several months and see how it continues to evolve. But I agree, it's a big step, and we're really pleased to be partnering with BlackRock and Valkyrie on their launches. Very exciting.
Jeremy- 00:23:04: Very much so. Well, it is super exciting. It's interesting. I think it also kind of ties to, I think, some other themes, which are technology and regulation. And you sit at the center of that because the regulations of the technologies that you use to conduct your business are always evolving. And I'm not going to ask you to make public comments about the SEC or anything like that. But I mean, I think your general view on sort of the progression of innovation and the ability for not just markets regulators, regulators more broadly, and you deal with markets around the world. So regulators to adapt to. Build policy around technology innovations. You must face that in your own business. You see lots of businesses that you do business with that face that. We certainly face that in a significant way. Just how do you think about that interplay between technology innovation, regulation, etc.?
Adena - 00:23:59: Well, I think that, first of all, technology innovation is kind of an unstoppable force. And so even though there are many times, moments when the technology comes forward and the regulators aren't quite ready, the fact is that the innovation is going to happen. So it's a matter of the regulators then saying, okay, how do we, I don't want to say catch up, but more adapt themselves to be able to integrate this technology into the regulatory overlay. And you're starting to see that now with AI, which I think is good. I do feel like the regulatory infrastructure has... Turn pretty fast towards addressing or understanding that they have a need to address it. Now, whether or not they actually have to change regulation, whether they just need to interpret their regulations to apply to new technology is the big question. I think that's actually a big open issue whenever innovation comes, but certainly in the crypto space. But how flexible is the regulation as it exists to be able to apply to new things that are coming versus do they actually have to write new rules? And so I think that's the complexity, frankly, that regulators have to deal with. My personal view is that we've operated in a regulated environment. I've been with Nasdaq for almost 30 years. So 30 years of working with a regulator, you can innovate. I mean, we are launching an AI-driven order type. We have hyper-fast, extremely advanced systems that run our markets. We work with regulators all over the world who deploy that technology everywhere. So I do feel like you can operate successfully in a regulated environment and innovatively. But the pace of change might not be quite as fast as you want. But then when you do make the change, you do know that the protections are in place to be able to implement that technology with a view towards investment protection. I think the one thing to recognize in finance, unlike, I won't name another industry, but unlike some other industries, there's just so much money. And these are people's personal savings. You know, they're hard-earned.
Jeremy - 00:25:50: It's the underpinning of society.
Adena - 00:25:51: It's the underpinning of society. And all of their hard work has been poured into something. They've chosen to invest somewhere. And we have a job to do to make sure that they feel like at least they are going to take risk. And we can't protect every investment, but that they have an environment that provides for some level of protection. I think that's important. So as we look at bringing innovation into finance, I do feel like it's important to kind of respect the regulation that exists, but doesn't mean you have to accept it all. You have to respect why it's there. And then say, okay, what might we need to do to change that in order to make it so that this new technology can thrive? Right?
Jeremy - 00:26:26: Totally.
Adena - 00:26:27: So that's kind of the way that we operate at Nasdaq.
Jeremy - 00:26:29: Well, we use that phrase, fostering responsible innovation.
Adena - 00:26:33: Exactly.
Jeremy - 00:26:33: And that is both for industry and regulators. And if you can come together and do that, then I think you can get tremendous outcomes.
Adena - 00:26:41: That's right. And then you also know you have a persistent, sustainable innovation, which is exactly what you've built. So it's pretty exciting.
Jeremy - 00:26:48: Yeah. Well, Adena this has been a lovely conversation. I'm glad that it can be part of your kickoff for the week.
Adena - 00:26:54: Absolutely. Thank you for inviting me, Jeremy. It's great to spend time with you.
Jeremy - 00:26:57: You're very welcome.
Adena - 00:26:58: Great. Thank you.
Jeremy Allaire
Co-Founder, CEO & Chairman at Circle
Adena Friedman
Chair & CEO, Nasdaq