This excerpt taken from the NDAQ 10-K filed Mar 14, 2005.
Service, Regulatory and Technology Contractual Relationships with NASD, NASDR and Amex
Regulatory Services Agreement. Pursuant to the Delegation Plan, NASD Regulation, Inc. (NASDR), a wholly-owned subsidiary of NASD, currently provides us with regulatory services, including the regulation of trading activity on The Nasdaq Stock Market and the over-the-counter market and market surveillance functions of Nasdaq. We do not have a formalized written agreement with NASDR for the performance of regulatory services prior to us receiving exchange registration. We have approached NASD about formalizing the services provided pursuant to the Delegation Plan in a new written contract to be effective until exchange registration is granted, but we can offer no assurances that NASD will enter into such an agreement with us. In 2004, we paid NASDR $45.6 million for regulatory services provided pursuant to the Delegation Plan, versus $61.8 million in 2003. The reduction was due to careful review of NASDR charges and the allocation of these charges among the markets and members it regulates. The ongoing review of these charges and the related services will continue and may result in a further reduction of these costs in 2005 without affecting the quality of regulatory oversight.
We have entered into a regulatory services agreement pursuant to which NASDR would provide regulatory services to us commencing upon the effectiveness of exchange registration. As we have not been granted exchange registration by the SEC, no services have been performed under this agreement. Pursuant to the terms of the regulatory services agreement, the services provided will be of the same type and scope as are currently provided by NASDR to us under the Delegation Plan. Each regulatory service is to be provided for a minimum of five years, after which time the parties may determine to terminate a particular service. The termination of a particular service will generally be based upon a review of pricing and the need for such services.
Similar to the services NASDR currently provides us, under the regulatory services agreement, NASDR will:
Separation and Common Services Agreement. Although it is contemplated that NASD will eventually completely divest its ownership interest in Nasdaq, there may still exist certain contractual relationships between the parties once this happens. For example, under the separation and common services agreement with NASD, NASD has provided us certain facilities sharing services for which we have paid NASD the costs of the services provided, including any incidental expenses associated with such services. The services provided by NASD have declined in recent years and were $1.2 million in 2003 and de minimis in 2004. We do not anticipate NASD providing services of this nature to Nasdaq in future periods.
Agreements related to Amex. We entered into a technology transition agreement with NASD and Amex to provide for the sharing of certain administrative and regulatory technologies between us and Amex and the provision of certain technology services by us to Amex. Pursuant to this agreement, Amex will pay us the direct costs of the services provided by us, plus certain administrative costs. In addition, this agreement provides that we and NASD contribute to a fund, administered by NASD, to pay the costs incurred in the implementation of this agreement. In 2002 and 2001, we accrued $5.3 million and $9.2 million, respectively, under this commitment, fulfilling our commitment. As of December 31, 2003, $9.5 million has been paid to Amex. The remaining funds were paid in 2004.
In January 2005, Amex announced that a transaction transferring control of Amex to The Amex Membership Corporation from NASD had closed.
We also entered into a master agreement with NASD and Amex to govern certain non-technology related matters among the parties. This agreement, among other things, set forth the terms, as between Nasdaq and Amex, pursuant to which Amex continued to list the QQQ. In November 2004, we amended the master agreement and on December 1, 2004, the QQQ switched its listing venue to The Nasdaq Stock Market and trades under the ticker symbol QQQQ. Under the agreement, as amended, Amex will pay us a fee of $1.6 million for its listing, trading and marketing of QQQ for a period prior to transfer of the QQQ listing to Nasdaq, which was partially offset by a payment by us to Amex of approximately $0.5 million for past services.
For further discussion of these agreements and our other related party transactions, see Risk FactorsWe have a lack of operating history as for-profit entity, Risk FactorsOur agreements with NASD and its other affiliates may not be on terms as favorable to us as could have been obtained from unaffiliated third parties and we have potential conflicts of interest with NASD and related parties, Risk FactorsNASD will continue to maintain voting control over us until exchange registration is granted and may have interests that are different from yours and, therefore, may make decisions that are adverse to your interests and Item 13. Certain Relationships and Related Transactions.