NASDAQ OMX Group (NDAQ)

Income Taxes

NASDAQ OMX’s income tax provision was $48 million in the first quarter of 2009 compared with $74 million for the same period in 2008. The overall effective tax rate was 34% in the first quarter of 2009 and 38% in the first quarter of 2008. The lower effective tax rate in the first quarter of 2009 when compared to the same period in 2008 was primarily due to the impact of foreign subsidiaries’ earnings.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

As previously discussed, we adopted FSP APB 14-1 on January 1, 2009 and have adjusted all periods presented to reflect the change in tax expense and current and non-current deferred tax liabilities. See “FASB Staff Position APB No. 14-1,” of Note 3, “Recent Accounting Pronouncements” and “Adoption of FSP APB 14-1,” of “2.50% Convertible Senior Notes,” of Note 8, “Debt Obligations,” for further discussion.

We recognize and measure our unrecognized tax benefits in accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109,” or FIN 48. FIN 48 requires management to determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the recognition thresholds, the position is measured to determine the amount of benefit to be recognized in the condensed consolidated financial statements. Interest and/or penalties related to income tax matters are recognized in income tax expense.

NASDAQ OMX and its eligible subsidiaries file a consolidated U.S. federal income tax return, and applicable state and local income tax returns and non-U.S. income tax returns. Federal income tax returns for years 2005-2007 are subject to examination by the Internal Revenue Service. Several state tax returns are currently under examination by the respective tax authorities for years 1996-1998 and 2000-2006 and we are subject to examination for 2007. Non-U.S. tax returns are subject to review by the respective tax authorities for years 2002-2007. In January 2009, we paid New York State $3 million with respect to audits for years 1996-1999. Since this amount was included in our unrecognized tax benefits as of December 31, 2008, such payment does not affect our 2009 effective tax rate. We anticipate that the amount of unrecognized tax benefits at March 31, 2009 will significantly decrease in the next twelve months as we expect to settle certain tax audits. The final outcome of such audits cannot yet be determined. We anticipate that such adjustments would not have a material impact on our consolidated financial position or results of operations.

Income Taxes

NASDAQ OMX’s income tax provision was $202.3 million in 2008 compared with $275.5 million in 2007, and was $85.2 million in 2006. The overall effective tax rate was 38.7% in 2008, 34.7% in 2007 and 40.0% in 2006. Although the income tax provision increased from 2006 to 2007, the overall effective tax rate was lower in 2007 primarily due to the utilization of capital loss carry-forwards and a reduction to the reserve for uncertain tax positions. The higher effective tax rate in 2008 when compared to 2007 was primarily due to the other-than-temporary impairment loss of $34.9 million on a long-term available-for-sale investment security, which is not deductible for tax purposes.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,” or FIN 48, on January 1, 2007. As a result of the implementation of FIN 48, we recognized a $1.0 million increase to reserves for uncertain tax positions. This increase was accounted for as an adjustment to the beginning balance of retained earnings in the consolidated balance sheet. At the adoption date of January 1, 2007, we had $9.2 million of unrecognized tax benefits of which $7.9 million would affect our effective tax rate if recognized. As of December 31, 2007, we had $7.6 million of unrecognized benefits of which $4.0 million would affect our effective tax rate if recognized. As of December 31, 2008, we had $9.2 million of unrecognized benefits of which $5.4 million would affect our effective tax rate if recognized.

Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. We had $1.8 million accrued for interest and penalties, net of tax effect on January 1, 2007. As of December 31, 2007, we had $2.7 million accrued for interest and penalties, net of tax effect. As of December 31, 2008, we had $3.1 million accrued for interest and penalties, net of tax effect.

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NASDAQ OMX and its eligible subsidiaries file a consolidated U.S. federal income tax return, and applicable state and local income tax returns and non-U.S. income tax returns. Federal income tax returns for years 2005-2007 are subject to examination by the Internal Revenue Service. Several state tax returns are currently under examination by the respective tax authorities for years 1996-2006 and we are subject to examination for 2007. Non-U.S. tax returns are subject to review by the respective tax authorities for years 2002-2007. We anticipate that the amount of unrecognized tax benefits at December 31, 2008 will significantly decrease in the next twelve months as we expect to settle certain tax audits. The final outcome of such audits cannot yet be determined. We anticipate that such adjustments would not have a material impact on our consolidated financial position or results of operations.

Income Taxes

Estimates and judgments are required in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred tax assets, which arise from net operating loss carryforwards, tax credit carryforwards and temporary differences between the tax and financial statement recognition of revenue and expense. SFAS No. 109, “Accounting for Income Taxes,” or SFAS 109, requires that deferred tax assets be reduced by a valuation allowance, if it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. We adopted the provisions of FIN 48, on January 1, 2007. FIN 48 requires management to determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the recognition thresholds, the position is measured to determine the amount of benefit to be recognized in the consolidated financial statements. Interest and/or penalties related to income tax matters are recognized in income tax expense.

In assessing the need for a valuation allowance, we consider all available evidence including past operating results, the existence of cumulative losses in the most recent fiscal years, estimates of future taxable income and the feasibility of tax planning strategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

In addition, the calculation of our tax liabilities involves uncertainties in the application of tax regulations in the U.S. and other tax jurisdictions. We recognize potential liabilities for anticipated tax audit issues in such jurisdictions based on our estimate of whether, and the extent to which, additional taxes and interest may be due. While we believe that our tax liabilities reflect the probable outcome of identified tax uncertainties, it is reasonably possible that the ultimate resolution of any tax matter may be greater or less than the amount accrued. If events occur and the payment of these amounts ultimately proves unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If our estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result.

Income Taxes

We use the asset and liability method required by SFAS 109 to provide income taxes on all transactions recorded in the consolidated financial statements. Deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities (i.e., temporary differences) and are measured at the enacted rates that will be in effect when these differences are realized. If necessary, a valuation allowance is established to reduce deferred tax assets to the amount that is more likely than not to be realized.

We recognize and measure our unrecognized tax benefits in accordance with FIN 48. FIN 48 requires management to determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the recognition thresholds, the position is measured to determine the amount of benefit to be recognized in the consolidated financial statements. Interest and/or penalties related to income tax matters are recognized in income tax expense. See Note 10, “Income Taxes,” for further discussion.

Income Taxes

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We use the asset and liability method required by SFAS 109 to provide income taxes on all transactions recorded in the
consolidated financial statements. Deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities (i.e., temporary differences) and are
measured at the enacted rates that will be in effect when these differences are realized. If necessary, a valuation allowance is established to reduce deferred tax assets to the amount that is more likely than not to be realized.

Income Taxes

NASDAQ OMX’s income tax provision was $39.1 million in the third quarter of 2008 and $162.5 million in the first nine months of 2008 compared with $171.6 million in the third quarter of 2007 and $222.3 million in the first nine months of 2007. The overall effective tax rate was 39.4% in the third quarter of 2008 compared to 32.0% in the third quarter of 2007. The overall effective tax rate was 36.5% in the first nine months of 2008 compared to 33.6% in the first nine months of 2007. The lower effective tax rates in 2007 are primarily due to the utilization of capital loss carryforwards and a decrease in state tax liabilities.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

NASDAQ OMX and its eligible subsidiaries file a consolidated U.S. federal income tax return, and applicable state and local income tax returns and non-U.S. income tax returns. Federal income tax returns for years 2005-2007 are subject to examination by the Internal Revenue Service. Several state tax returns are currently under examination by the respective tax authorities for years 1996-2006 and we are subject to examination for 2007. Non-U.S. tax returns are subject to review by the respective tax authorities. We anticipate that the amount of unrecognized tax benefits at September 30, 2008 will significantly decrease in the next twelve months as we expect to settle certain tax audits. The final outcome of such audits cannot yet be determined. We anticipate that such adjustments would not have a material impact on our condensed consolidated financial position or results of operations.

Income Taxes

NASDAQ OMX’s income tax provision was $48.6 million in the second quarter of 2008 and $123.4 million in the first six months of 2008 compared with $38.2 million in the second quarter of 2007 and $50.8 million in the first six months of 2007. The overall effective tax rate was 32.3% in the second quarter of 2008 compared to 40.5% in the second quarter of 2007. The overall effective tax rate was 35.6% in the first six months of 2008 compared to 40.5% in the first six months of 2007. The lower effective tax rate in 2008 is primarily due to a decrease in state tax liabilities as well as non-U.S. earnings taxed at a rate lower than the U.S. statutory tax rate.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

NASDAQ OMX and its eligible subsidiaries file a consolidated U.S. federal income tax return, and applicable state and local income tax returns and non-U.S. income tax returns. Federal income tax returns for years 2004-2006 are subject to examination by the Internal Revenue Service. Several state tax returns are currently under examination by the respective tax authorities for years 1996-2006. Non-U.S. tax returns are subject to review by the respective tax authorities. We anticipate that the amount of unrecognized tax benefits at June 30, 2008 will significantly decrease in the next twelve months as we expect to settle certain tax audits. The final outcome of such audits cannot yet be determined. We anticipate that such adjustments would not have a material impact on our condensed consolidated financial position or results of operations.

NOTE L - INCOME TAXES

The components of the provision for income taxes are as follows:

The 2008 and 2007 provisions for income taxes are different from the amount which would be provided by applying the statutory Federal income tax rate to the income (loss) from continuing operations before income taxes, primarily as a result of permanent book tax differences and tax credits.

Deferred taxes result from federal and state net operating losses, recording depreciation, pension costs, deferred compensation, retiree medical benefits, unrealized gains/losses on investments, stock compensation, the reserve for possible losses on aged items in different periods for financial accounting and income tax reporting purposes, and research credits.

(Continued)

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NOTE L - INCOME TAXES - Continued

The components of the net deferred tax asset/liability recognized in the accompanying consolidated balance sheets are as follows:

During 2006, the Exchange performed a study regarding available Research and Development (“R&D”) tax credits relating to their internally development software. Based upon this study, there are $7,504,000 of R&D credits available to the Exchange that were generated between 1998 and 2006. As of December 31, 2007, the Exchange had net deferred tax assets relating to research and development credits of $6,408,000. These credits expire in 2018 through 2026.

The Exchange files a consolidated federal income tax return. It is the Exchange’s policy to calculate all taxes on a separate company basis. Any tax calculated at the subsidiary level is paid to the parent for subsequent payment to the federal government.

NOTE L - INCOME TAXES

The components of the provision for income taxes are as follows:

The 2007 and 2006 provisions for income taxes are different from the amount which would be provided by applying the statutory Federal income tax rate to the income (loss) from continuing operations before income taxes, primarily as a result of permanent book tax differences and tax credits.

Deferred taxes result from federal and state net operating losses, recording depreciation, pension costs, deferred compensation, retiree medical benefits, unrealized gains/losses on investments, the reserve for possible losses on aged items in different periods for financial accounting and income tax reporting purposes, research and development credits and valuation allowance.

(Continued)

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PHILADELPHIA STOCK EXCHANGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

December 31, 2007 and 2006

NOTE L - INCOME TAXES - Continued

The components of the net deferred tax asset/liability recognized in the accompanying consolidated balance sheets are as follows:

During 2006, the Exchange performed a study regarding available Research and Development (“R&D”) tax credits relating to their internally development software. Based upon this study, there are $5,037,000 of R&D credits available to the Exchange that were generated between 1998 and 2006. As of December 31,2007, the Exchange had net deferred tax assets relating to research and development credits of $4,014,000. These credits expire in 2018 through 2026. Additionally, alternative minimum tax credits are available of approximately $549,000 for 2006. The Exchange has approximately $5,000,000, expiring through 2024, of net operating loss carryforwards available to reduce future federal taxable income. These net operating losses are subject to an annual limitation under Internal Revenue Code Section 382 of approximately $2,100,000.

The Exchange files a consolidated federal income tax return. It is the Exchange’s policy to calculate all taxes on a separate company basis. Any tax calculated at the subsidiary level is paid to the parent for subsequent payment to the federal government.

Income Taxes

NASDAQ OMX’s income tax provision was $74.8 million in the first quarter of 2008 compared with $12.5 million in the first quarter of 2007. The overall effective tax rate was 38.1% in the first quarter of 2008 and 40.6% in the first quarter of 2007. The lower effective tax rate in 2008 is primarily due to a decrease in state tax liabilities as well as non-U.S. earnings taxed at a rate lower than the U.S. statutory tax rate.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

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NASDAQ OMX and its eligible subsidiaries file a consolidated U.S. federal income tax return, and applicable state and local income tax returns and non-U.S. income tax returns. Federal income tax returns for years 2004-2006 are subject to examination by the Internal Revenue Service. Several state tax returns are currently under examination by the respective tax authorities for years 1996-2006. Non-U.S. tax returns are subject to review by the respective tax authorities. We anticipate that the amount of unrecognized tax benefits at March 31, 2008 will significantly decrease in the next twelve months as we expect to settle certain tax audits. The final outcome of such audits cannot yet be determined. We anticipate that such adjustments would not have a material impact on our condensed consolidated financial position or results of operations.

Income Taxes

We and our eligible subsidiaries file a consolidated U.S. federal income tax return and all applicable state and local returns. We use the asset and liability method required by SFAS 109 to provide income taxes on all transactions recorded in the consolidated financial statements. Deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities (i.e., temporary differences) and are measured at the enacted rates that will be in effect when these differences are realized. If necessary, a valuation allowance is established to reduce deferred tax assets to the amount that is more likely than not to be realized.

We adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, we recognized a $1.0 million increase to reserves for uncertain tax positions. This increase was accounted for as an

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The Nasdaq Stock Market, Inc.

Notes to Consolidated Financial Statements—(Continued)

adjustment to the beginning balance of retained earnings in the consolidated balance sheet. Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Income Taxes” and Note 10, “Income Taxes,” for further discussion.

Income Taxes

15. Income taxes

Deferred income taxes are recognized for the tax consequences of differences in future years between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on tax laws and statutory tax rates applicable to the periods in which the differences are expected to result in taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities.

Income Taxes

Our income tax provision was $171.6 million for the third quarter of 2007 as compared with $19.7 million for the third quarter of 2006 and $222.3 million for the first nine months of 2007 compared with $42.7 million for the first nine months of 2006. The overall effective tax rate in the third quarter of 2007 was 32.0% and was 39.4% in the third quarter of 2006. The overall effective tax rate in the first nine months of 2007 was 33.6% and was 39.7% in the first nine months of 2006. Although the income tax provision increased for both periods, the overall effective tax rates were lower in 2007 primarily due to the utilization of capital loss carryforwards and a reduction to the reserve for uncertain tax positions.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

We adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, we recognized a $1.0 million increase to reserves for uncertain tax positions. This increase was accounted for as an adjustment to the beginning balance of retained earnings in the condensed consolidated balance sheet. At the adoption date of January 1, 2007, we had $9.2 million of unrecognized tax benefits of which $7.9 million would affect our effective tax rate if recognized.

Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. We had $1.8 million accrued for interest, net of tax effect on January 1, 2007. There was no accrual for penalties on January 1, 2007.

Nasdaq and its eligible subsidiaries file a consolidated U.S. federal income tax return and applicable state and local income tax returns. Federal income tax returns for years 2004-2006 are subject to examination by the Internal Revenue Service. In the third quarter of 2007, we concluded federal income tax audits for years 2000-2003. To the extent that the respective statute of limitations for a specific tax year is expired we have decreased the reserve for uncertain tax positions. Several state tax returns are currently under examination by the respective tax authorities for years 1996-2002 and we remain subject to state audits for years 2003-2006. The final outcome of such audits cannot yet be determined, however it is expected that adjustments to unrecognized benefits, if any, would be favorable. We anticipate that the adjustments would not have a material impact to our consolidated financial position or results of operations.

Income Taxes

Our income tax provision was $38.2 million for the second quarter of 2007 as compared with $11.1 million for the second quarter of 2006 and $50.8 million for the first six months of 2007 compared with $23.1 million for the first six months of 2006. The overall effective tax rate in the second quarter of 2007 was 40.5% and was 40.0% in the second quarter of 2006. The overall effective tax rate in the first six months of 2007 was 40.6% and was 40.0% in the first six months of 2006. The higher effective tax rates in 2007 is primarily due to an increase in state tax liabilities.

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The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

We adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, we recognized a $1.0 million increase to reserves for uncertain tax positions. This increase was accounted for as an adjustment to the beginning balance of retained earnings in the condensed consolidated balance sheet. At the adoption date of January 1, 2007, we had $9.2 million of unrecognized tax benefits of which $7.9 million would affect our effective tax rate if recognized.

Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. We had $1.8 million accrued for interest, net of tax effect on January 1, 2007. There was no accrual for penalties on January 1, 2007.

Nasdaq and its eligible subsidiaries file a consolidated U.S. federal income tax return and applicable state and local income tax returns. Federal income tax returns for years 2000-2005 are currently under examination by the Internal Revenue Service. Several state tax returns are currently under examination by the respective tax authorities for years 1996-2002 and we remain subject to state audits for years 2003-2006. We expect to conclude several audits during 2007. The final outcome of such audits cannot yet be determined, however it is expected that adjustments to unrecognized benefits, if any, would be favorable. We anticipate that the adjustments would not have a material impact to our consolidated financial position or results of operations.

Income Taxes

Our income tax provision was $12.5 million in the first quarter of 2007 compared with $12.0 million in the first quarter of 2006, an increase of 4.2%. The overall effective tax rate was 40.6% in the first quarter of 2007 and 40.0% in the first quarter of 2006. The higher effective tax rate in 2007 is primarily due to an increase in state tax liabilities.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,” or FIN 48, on January 1, 2007. As a result of the implementation of FIN 48, we recognized a $1.0 million increase to reserves for uncertain tax positions. This increase was accounted for as an adjustment to the beginning balance of retained earnings in the condensed consolidated balance sheet. At the adoption date of January 1, 2007, we had $9.2 million of unrecognized tax benefits of which $7.9 million would affect our effective tax rate if recognized.

Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. We had $1.8 million accrued for interest, net of tax effect on January 1, 2007. There was no accrual for penalties on January 1, 2007.

Nasdaq and its eligible subsidiaries file a consolidated U.S. federal income tax return and applicable state and local income tax returns. Federal income tax returns for years 2000-2005 are currently under examination by the Internal Revenue Service. Several state tax returns are currently under examination by the respective tax authorities for years 1996-2002 and we remain subject to state audits for years 2003-2006. We expect to conclude several audits during 2007. The final outcome of such audits cannot yet be determined, however it is expected that adjustments to unrecognized benefits, if any, would be favorable. We anticipate that the adjustments would not have a material impact to our consolidated financial position or results of operations.

Income Taxes

We and our eligible subsidiaries file a consolidated U.S. federal income tax return and all applicable state and local returns. We use the asset and liability method required by SFAS 109 to provide income taxes on all transactions recorded in the consolidated financial statements. Deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities (i.e., temporary differences) and are measured at the enacted rates that will be in effect when these differences are realized. If necessary, a valuation allowance is established to reduce deferred tax assets to the amount that is more likely than not to be realized.

In June 2006, the FASB issued a new interpretation of accounting for uncertainty in income taxes. For further discussion, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Future Accounting Requirements.

Income Taxes

Our income tax provision was $19.7 million for the third quarter of 2006 as compared with $12.9 million for the third quarter of 2005, an increase of 52.7% and $42.7 million for the first nine months of 2006 as compared with $32.3 million for the first nine months of 2005, an increase of 32.2%. The overall effective tax rate in the third quarter of 2006 was 39.4% and was 42.0% in the third quarter of 2005. The overall effective tax rate in the first nine months of 2006 was 39.7% and was 42.0% in the first nine months of 2005. The higher effective tax rate in 2005 was primarily due to a loss on the restructuring of the $240 million convertible notes, a portion of which is not deductible for tax purposes due to the conversion feature.

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The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

In June 2006, the FASB issued a new interpretation of accounting for uncertainty in income taxes. See “FIN 48,” of Note 2, “Recent Accounting Pronouncements,” to the condensed consolidated financial statements for further discussion.

Income Taxes

Our income tax provision was $11.1 million for the second quarter of 2006 as compared with $10.8 million for the second quarter of 2005, an increase of 2.8% and $23.1 million for the first six months of 2006 as compared with $19.4 million for the first six months of 2005, an increase of 19.1%. The overall effective tax rate in the second quarter of 2006 was 40.0% and was 43.6% in the second quarter of 2005. The overall effective tax rate in the first six months of 2006 was 40.0% and was 42.0% in the first six months of 2005. The higher effective tax rate in 2005 was primarily due to a loss on the restructuring of the $240 million convertible notes, a portion of which is not deductible for tax purposes due to the conversion feature.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

Income Taxes

Our income tax provision was $12.0 million for the three months ended March 31, 2006 compared with $8.6 million for the three months ended March 31, 2005, an increase of 39.5%. The overall effective tax rate in the first quarter of 2006 was 40.0% and was 40.1% in the first quarter of 2005.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

Income Taxes

Nasdaq and its eligible subsidiaries file a consolidated U.S. federal income tax return and all applicable state and local returns. Nasdaq uses the asset and liability method required by SFAS 109, “Accounting for Income Taxes,” to provide income taxes on all transactions recorded in the consolidated financial statements. Deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities (i.e., temporary differences) and are measured at the enacted rates that will be in effect when these differences are realized. If necessary, a valuation allowance is established to reduce deferred tax assets to the amount that is more likely than not to be realized.

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The Nasdaq Stock Market, Inc.

Notes to Consolidated Financial Statements—(Continued)

Income Taxes

The Company files a consolidated income tax return in the U.S. and combined U.S. state and local income tax returns, where applicable. The Company records deferred tax assets and liabilities for the difference between the tax basis of assets and liabilities and the amounts recorded for financial reporting purposes, using current tax rates. Deferred tax expenses and benefits are recognized in the Consolidated Statements of Operations for changes in deferred tax assets and liabilities.

Note 11. Income Taxes

Income tax benefit was $9,779 for the three months ended September 30, 2005 and income tax expense was $1,440 for the three months ended September 30, 2004. Our effective income tax rate was 66.9% for the three months ended September 30, 2005 and 15.5% in the comparable period in 2004. The effective tax rate for the three months ended September 30, 2005 was greater than the comparable period in 2004 primarily due to changes in valuation allowances and other provisions resulting from changes in business conditions.

Income tax expense was $2,521 for the nine months ended September 30, 2005 and $20,961 for the nine months ended September 30, 2004. Our effective income tax rate was 15.9% for the nine months ended September 30, 2005 and 37.4% in the comparable period in 2004. The effective tax rate for the nine months ended September 30, 2005 was less than the comparable period in 2004 primarily due to the offset of a portion of investment gains with capital losses and changes in valuation allowances and other provisions resulting from changes in business conditions.

Income Taxes

Nasdaq’s income tax provision was $12.9 million for the three months ended September 30, 2005 compared to an income tax benefit of $4.8 million for the three months ended September 30, 2004, an increase of $17.7 million. The overall effective tax rate for the three months ended September 30, 2005 was 42.0% compared with 46.9% for the three months ended September 30, 2004. Nasdaq’s income tax provision was $32.3 million and $0.3 million for the nine months ended September 30, 2005 and 2004, respectively, an increase of $32.0 million. The overall effective tax rate for the nine months ended September 30, 2005 was 42.0% compared with 5.6% for the nine months ended September 30, 2004. The change in Nasdaq’s effective tax rate for the nine months ended September 30, 2005 was primarily due to a loss on the restructuring of the $240 million Convertible Notes, a portion of which is not deductible for U.S. income tax purposes. See “Acquisition,” of Note 4, “Acquisition of Instinet,” to the condensed consolidated financial statements for further discussion. Additionally, the effective tax rate for both the three and nine months ended September 30, 2004 was lower than the effective tax rate for the same periods of 2005 due to the realization of research and development tax credits as well as a reduction of a valuation allowance related to a foreign net operating loss carryforward.

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The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

Income Taxes

Nasdaq’s income tax provision was $10.8 million and $2.6 million for the three months ended June 30, 2005 and 2004, respectively, an increase of $8.2 million and was $19.4 million and $5.1 million for the six months ended June 30, 2005 and 2004, respectively, an increase of $14.3 million. The overall effective tax rate for the three and six months ended June 30, 2005 was 43.6% and 42.0%, respectively, compared with 35.0% for both the three and six months ended June 30, 2004. The change in Nasdaq’s effective tax rate was primarily due to a loss on the restructuring of the $240 million Convertible Notes, a portion of which is not deductible for U.S. income tax purposes. See “Acquisition,” of Note 4, “Acquisition of Instinet,” to the condensed consolidated financial statements for further discussion. Also contributing to the change in Nasdaq’s effective tax rate was a reduction in the realization of research and development tax credits.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

Income Taxes

Nasdaq’s income tax provision was $8.6 million for the three months ended March 31, 2005 compared with $2.5 million for the three months ended March 31, 2004, an increase of $6.1 million. The overall effective tax rate for the three months ended March 31, 2005 and 2004 was 40.1% and 35.0%, respectively. The lower rate in 2004 was due to the realization of research & development tax credits.

The effective tax rate may vary from quarter to quarter depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

Income Taxes

Nasdaq’s income tax provision was $8.6 million for the three months ended March 31, 2005 compared with $2.5 million for the three months ended March 31, 2004, an increase of $6.1 million. The overall effective tax rate for the three months ended March 31, 2005 and 2004 was 40.1% and 35.0%, respectively. The lower rate in 2004 was due to the realization of research & development tax credits.

The effective tax rate may vary from quarter to quarter depending on, among other factors, the geographic and business mix of earnings and losses. These same and other factors, including history of pre-tax earnings and losses, are taken into account in assessing the ability to realize deferred tax assets.

Income Taxes

Nasdaq and its eligible subsidiaries file a consolidated U.S. federal income tax return and all applicable state and local returns. Nasdaq uses the asset and liability method required by SFAS No. 109, “Accounting for Income Taxes”, to provide income taxes on all transactions recorded in the consolidated financial statements. Deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities (i.e., temporary differences) and are measured at the enacted rates that will be in effect when these differences are realized. If necessary, a valuation allowance is established to reduce deferred tax assets to the amount that is more likely than not to be realized.