NASDAQ OMX Group (NDAQ)

Cost Reduction and Operating Efficiencies

We have taken significant steps to grow our business and enhance our competitive position, including developing fast, reliable and scalable systems, focusing on maintaining an efficient cost structure, designing a competitive pricing strategy for our products and services consistent with our regulatory obligations and pursuing acquisitions designed to yield cost savings through technology and corporate synergies. We have successfully reduced our technology costs, eliminated non-core products, scaled back our workforce and consolidated our real estate facilities and consolidated our operations. We expect to realize additional savings from the outsourcing of our disaster recovery systems, which began in September 2005. As a result of outsourced disaster recovery systems, we sold real estate that was no longer needed to house our owned disaster recovery data center. We continue to migrate our technology operations to fewer, scalable, less expensive non-proprietary platforms. We are also continuing to take steps to exit certain low-margin businesses, primarily relating to providing proprietary network connectivity to the Nasdaq Market Center. As we phase out these low margin Access Services, we expect our revenues and the corresponding expenses to decrease (see Operating Results-Nasdaq Market Center below for further discussion). As a result, for the three and nine months ended September 30, 2005, we reduced total direct expenses by $23.8 million, or 21.1%, from $112.6 million to $88.8 million and by $45.1 million, or 14.1%, from $320.7 million to $275.6 million, respectively, as compared with the same periods of 2004. During the three and nine months ended September 30, 2005, in connection with taking certain actions to improve our operational efficiency, we incurred charges of approximately $4.5 million and $17.9 million, respectively. During the three and nine months ended September 30, 2004, we incurred similar charges of approximately $22.4 million and $37.1 million, respectively.

Some of the key steps we have taken to reduce our costs and expenses include:

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We believe that our actions have positioned us to compete aggressively in all aspects of our business. We plan to continue to rationalize our business activities and generate additional cost savings by managing our expense base and pursuing additional operational efficiencies and have identified additional expense reduction opportunities that we intend to pursue. See “2005 and 2004 Cost Reductions,” of Note 3, “Significant and Related Party Transactions,” to the condensed consolidated financial statements for further discussion. We believe that the proposed INET transaction, once consummated, could provide additional opportunities for cost reductions and synergies.

Cost Reduction and Operating Efficiencies

We have taken significant steps to grow our business and enhance our competitive position, including developing fast, reliable and scalable systems, focusing on maintaining an efficient cost structure, designing a competitive pricing strategy for our products and services consistent with our regulatory obligations and pursuing acquisitions designed to yield cost savings through technology and corporate synergies. We have successfully reduced our technology costs, eliminated non-core products, scaled back our workforce and consolidated our real estate facilities and consolidated our operations. We expect to realize additional savings by outsourcing our disaster recovery systems in September 2005, which resulted in proceeds from the sale of Nasdaq-owned real estate that will no longer be needed to house the current disaster recovery data center. We continue to migrate our technology operations to fewer, scalable, less expensive non-proprietary platforms. We are also continuing to take steps to exit certain low-margin businesses, primarily relating to providing proprietary network connectivity to the Nasdaq Market Center. As we phase out these low margin Access Services, we expect our revenues to decrease but we expect the corresponding expenses to decrease at a greater rate. As a result, for the three and six months ended June 30, 2005, we reduced total direct expenses by $6.0 million, or 6.0%, from $99.7 million to $93.7 million and by $21.3 million, or 10.2%, from $208.1 million to $186.8 million, respectively, as compared with the same periods of 2004. During the three and six months ended June 30, 2005, in connection with taking certain actions to improve our operational efficiency, we incurred charges of approximately $5.9 million and $13.4 million, respectively. During the three and six months ended June 30, 2004, we incurred similar charges of approximately $6.0 million and $14.7 million, respectively.

Some of the key steps we have taken to reduce our costs and expenses include:

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We believe that our actions have positioned us to compete aggressively in all aspects of our business. We plan to continue to rationalize our business activities and generate additional cost savings by managing our expense base and pursuing additional operational efficiencies and have identified additional expense reduction opportunities in computer operations and real estate that we intend to pursue. See “2005 and 2004 Cost Reductions,” of Note 3, “Significant Transactions,” to the condensed consolidated financial statements for further discussion. We believe that the proposed INET transaction, once consummated, could provide additional opportunities for cost reductions and synergies.

Cost Reduction and Operating Efficiencies

In response to increased competition, we performed a strategic review in 2003 of our operations to develop a plan to focus our business and improve our profitability, margins and growth. In implementing our strategic plan, we have successfully reduced our technology costs, eliminated non-core products, scaled back our workforce and consolidated our real estate facilities. In addition, we are also taking steps to exit certain low-margin businesses, primarily relating to providing proprietary network connectivity to the Nasdaq Market Center. As we phase out these low margin Access Services, we expect our revenues to decrease but we expect the corresponding expenses to decrease at a greater rate. In 2004 and during the three months ended March 31, 2005, Nasdaq continued to take certain actions to improve its operational efficiency and incurred certain cost reduction charges. For the three months ended March 31, 2005, we reduced total direct expenses by $15.3 million or 14.1%, from $108.4 million to $93.1 million, as compared with the three months ended March 31, 2004. During the three months ended March 31, 2005, in connection with taking certain actions to improve our operational efficiency, we incurred charges of approximately $7.5 million. During the three months ended March 31, 2004, we incurred similar charges of approximately $8.7 million.

We plan to continue to rationalize our business activities and generate additional cost savings by managing our expense base and pursuing additional operational efficiencies and have identified additional expense reduction opportunities in computer operations and real estate that we intend to pursue. In addition, we expect to increase operational efficiency as a result of our integration of Brut. See “2005 and 2004 Cost Reductions,” and “Acquisition of Brut,” of Note 2, “Significant Transactions,” to the condensed consolidated financial statements for further discussion. After consummation of our recently announced acquisition of INET, Nasdaq will look for synergies and additional cost saving opportunities, which may result in additional charges.

Cost Reduction and Operating Efficiencies

In response to increased competition, we performed a strategic review in 2003 of our operations to develop a plan to focus our business and improve our profitability, margins and growth. In implementing our strategic plan, we have successfully reduced our technology costs, eliminated non-core products, scaled back our workforce and consolidated our real estate facilities. In addition, we are also taking steps to exit certain low-margin businesses, primarily relating to providing proprietary network connectivity to the Nasdaq Market Center. As we phase out these low margin Access Services, we expect our revenues to decrease but we expect the corresponding expenses to decrease at a greater rate. In 2004 and during the three months ended March 31, 2005, Nasdaq continued to take certain actions to improve its operational efficiency and incurred certain cost reduction charges. For the three months ended March 31, 2005, we reduced total direct expenses by $15.3 million or 14.1%, from $108.4 million to $93.1 million, as compared with the three months ended March 31, 2004. During the three months ended March 31, 2005, in connection with taking certain actions to improve our operational efficiency, we incurred charges of approximately $7.5 million. During the three months ended March 31, 2004, we incurred similar charges of approximately $8.7 million.

We plan to continue to rationalize our business activities and generate additional cost savings by managing our expense base and pursuing additional operational efficiencies and have identified additional expense reduction opportunities in computer operations and real estate that we intend to pursue. In addition, we expect to increase operational efficiency as a result of our integration of Brut. See “2005 and 2004 Cost Reductions,” and “Acquisition of Brut,” of Note 2, “Significant Transactions,” to the condensed consolidated financial statements for further discussion. After consummation of our recently announced acquisition of INET, Nasdaq will look for synergies and additional cost saving opportunities, which may result in additional charges.

Cost Reduction and Operating Efficiencies

In response to increased competition, we performed a strategic review in 2003 of our operations to develop a plan to focus our business and improve our profitability, margins and growth. In implementing our strategic plan, we have successfully reduced our technology costs, eliminated non-core products, scaled back our workforce and consolidated our real estate facilities. In addition, we are also taking steps to exit certain low-margin businesses, primarily relating to providing proprietary network connectivity to the Nasdaq Market Center. As we phase out these low margin access services, we expect our revenues to decrease but we expect the corresponding expenses to decrease at a greater rate. In 2003, we reduced total direct expenses by approximately $92.5 million or 15.8%, from $585.2 million to $492.7 million, as compared to 2002. In 2004, we continued to implement operating efficiencies and further reduced total direct expenses from continuing operations by approximately $61.9 million or 12.6%, from $492.7 million to $430.8 million for the year ended December 31, 2003 and 2004, respectively. During 2004, in connection with taking certain actions to improve our operational efficiency, we incurred expenses of approximately $62.6 million. Our results for 2003 include $97.9 million of similar expenses.

We plan to continue to rationalize our business activities and generate additional cost savings by managing our expense base and pursuing additional operational efficiencies and have identified additional expense reduction opportunities in computer operations and real estate that we intend to pursue. In addition, we also expect to increase operational efficiency as a result of our integration of Brut.