New York, N.Y.—-The Nasdaq Stock Market, Inc. ("NASDAQ"; OTCBB: NDAQ), today reported first quarter 2003 net income of $2.6 million for the quarter ended March 31, 2003. Net income applicable to common stock holders was $1.9 million or $0.02 per basic and diluted share¹.

"Throughout NASDAQ's 30 years of evolution, the focus of the Company has remained clear: to provide the most transparent and competitive marketplace for investors, listed companies and traders; a market that inspires and demands confidence and integrity," noted Wick Simmons, Chairman and Chief Executive Officer of The NASDAQ Stock Market. "The equity market environment is as challenging today as at any time in our past, from transactional, compositional and regulatory perspectives. I can assure you that NASDAQ will continue to take the appropriate steps to ensure that we maintain our focus for the benefit of all those who participate in our market."

First Quarter 2003 and Year-to-Date Highlights

• Ongoing cost containment efforts - NASDAQ reduced the effective cost of running its business, furthered its separation from the National Association of Securities Dealers ("NASD") and continued to develop its self-sufficient infrastructure.
• Enhanced SuperMontage^SM functionality - NASDAQ added enhancements to its SuperMontage trading platform including the ability for non-market maker firms to enter more types of orders directly into the system.
• Launched the NASDAQ Official Closing Price - NASDAQ launched its Official Closing Price, part of an ongoing effort to improve the value of its proprietary data.
• Increased value to listed companies - NASDAQ touched an average of 1,600 of its listed companies a month through the Market Intelligence Desk^SM during the first quarter, providing real-time insight into the equity markets.
• Appointed new Chief Executive Officer and Chairman - NASDAQ announced the appointment of President and Chief Executive Officer, Robert Greifeld, and non-executive Board Chairman, H. Furlong Baldwin, effective May 12, 2003.

Mr. Simmons continued, "Until market conditions improve we will continue to take the decisive actions to right-size our business while providing increased value to our constituents."

Financial Summary
In the face of increased pressure on revenue from lower share volume, pricing competition and changes in market demographics, NASDAQ continued to reduce its operating costs in the first quarter of 2003, focusing on fundamental business operations and reducing discretionary spending:

• Net income was $2.6 million in the first quarter of 2003, up $2.3 million when compared with the fourth quarter of 2002, but down 87.8% from $21.3 million in the first quarter of 2002.
• Net income applicable to common stockholders was $1.9 million or $0.02 per basic and diluted share in the first quarter of 2003, up $4.0 million from a loss of $2.1 million or ($0.03) per basic and diluted share in the fourth quarter of 2002, and down 89.9% from $18.9 million or $0.19 per basic share and $0.18 per diluted share in the first quarter of 2002¹.
• Revenue fell 9.6% to $165.9 in the first quarter of 2003 from $183.5 million in the fourth quarter of 2002, and was down 21.5% from $211.3 million in the first quarter of 2002.
  • Transaction Services revenue declined 13.8% to $67.9 million when compared to the fourth quarter of 2002 and fell 35.5% when compared with the first quarter of 2002, primarily due to the decline in NASDAQ's Execution Services revenue.
  • Market Information Services revenue declined 11.3% to $43.9 million when compared with the fourth quarter of 2002 and declined 16.7% when compared with the first quarter of 2002, primarily due to the decline in NASDAQ's Level 1 and InterMarket Tape Fee revenue.
  • Corporate Client Group revenue declined 4.5% to $42.6 million when compared with the fourth quarter of 2002 and declined 3.0% when compared to the first quarter of 2002, primarily driven by the decline in annual renewal fee revenue.
• Total expenses were $161.6 million in the first quarter of 2003, down 12.3% from $184.3 million in the fourth quarter of 2002, and down 6.2% from $172.3 million in the first quarter of 2002.

NASDAQ's President and Deputy Chairman, Rick Ketchum, noted: "At NASDAQ, we are focusing on the factors impacting our portfolio of revenue streams that are within our control. We are implementing product enhancements and initiatives to further proliferate SuperMontage in Transaction Services, which translates into greater value for our proprietary data products. We continued to identify additional value added services for our listed companies, and we are expanding on our financial products business. All of the while, focusing intently on internal expense reductions and efficiencies."

Strategic Initiatives
NASDAQ remained focused on its three main business initiatives during the quarter:

• Focusing on customer needs through the continued expansion of SuperMontage's functionality, the increased adoption of NASDAQ's ViewSuite^SM data products and further proliferation of the services provided to NASDAQ-listed companies through NASDAQ's Market Intelligence Desk.
• Optimizing the cost-base needed to effectively and efficiently run the market while providing NASDAQ's constituents with well regulated listing and trading venues.
• Filing petitions with the Securities Exchange Commission ("SEC") aimed at positioning NASDAQ to compete on a level playing field with other members of the marketplace.

Business Line Results

Transaction Services
Transaction Services revenue was $67.9 million in the first quarter of 2003, down 35.5% compared with revenue of $105.2 million in the first quarter of 2002.

• Access Services revenue declined 20.3% in the first quarter to $30.3 million when compared to the first quarter of 2002.
• Execution Services revenue declined 57.3% in the first quarter to $19.2 million when compared to the first quarter of 2002.
• Trade Reporting revenue declined 15.5% in the first quarter to $17.4 million when compared to the first quarter of 2002.

Impacting the decline in NASDAQ's Access Services revenue was a reduction in the number of subscriber log-ons to its systems due to consolidation across the industry, cost savings initiatives by NASDAQ's customers and competition from third-party vendors providing access to the NASDAQ Market.

Underlying the performance of NASDAQ's Execution and Trade Reporting businesses during the quarter were continued lower share volumes across the equity markets. Furthermore, increased competition and shifts in market composition continued to place pressure on revenue during the first quarter of 2003 as firms executed transactions and reported trades in NASDAQ-listed securities outside of NASDAQ's systems to other exchanges and facilities:

• Average daily share volume declined 19.8% during the quarter to 1.46 billion shares per day from an average of 1.82 billion shares in the first quarter of 2002.
• Average daily trade volume increased 0.8% during the quarter to 2.41 million trades from an average of 2.39 million trades in the first quarter of 2002.
• The percentage of trades reported to NASDAQ decreased to 79.3% in the first quarter of 2003, from 89.7% in the first quarter of 2002.
• The percentage of share volume executed in NASDAQ's systems fell to 19.0% during the quarter from 31.6% in the first quarter of 2002. This decrease continued to be the result of increased competition².
• The percentage of trades executed in NASDAQ's systems fell to 23.7% during the quarter from 36.1% in the first quarter of 2002. This decrease continued to be the result of increased competition².

To increase participation in SuperMontage, NASDAQ is working closely with participating firms on specific functionality enhancements. Additionally, the SEC has approved NASDAQ's initiative to allow its participants that are not registered market makers to represent limit orders in SuperMontage, thereby expanding the potential customer base for the trading platform.

NASDAQ Transaction Services derives revenue primarily from system access fees, transaction fees associated with SuperMontage and trade reporting fees associated with NASDAQ's Automated Confirmation Transaction Services ("ACT").

Market Information Services
Market Information Services revenue declined 16.7% in the first quarter of 2003 to $43.9 million from $52.7 million in the first quarter of 2002.

• NASDAQ's Level 1 revenue fell 17.2% during the quarter to $31.2 million when compared with the first quarter of 2002.
• NASDAQ Quotation Dissemination Service (NQDS) revenue fell 4.1% during the quarter to $9.3 million when compared with the first quarter of 2002.
• NASDAQ began charging for its ViewSuite data products in the first quarter of 2003, reporting $2.7 million in revenue for the quarter.
• NASDAQ InterMarket Tape Fee revenue, net of revenue sharing, decreased 60.4% during the quarter to $4.0 million when compared to the first quarter of 2002.
• The amount of revenue sharing attributable to the Unlisted Trading Privileges Plan increased $3.2 million to ($6.0) million during the quarter when compared to the first quarter of 2002.

Market Information Services revenue was largely impacted by continued competition for trade reporting, which resulted in a higher level of revenue sharing starting late in the first quarter of 2002. This competition has increased since then with the addition of new alternative trading venues. Additionally, lower share volume and cost cutting by customers had a negative impact on data revenue during the first quarter of 2003.

Market Information Services derives revenue primarily from the sale of Level 1, NQDS and ViewSuite data, as well as the receipt of Consolidated Quotation Plan and the Consolidated Tape Association Plan (CQ/CTA) tape revenue for trades processed through the NASDAQ InterMarket.

Corporate Client Group
Corporate Client Group revenue decreased 3.0% in the first quarter of 2003 to $42.6 million from $43.9 million in the first quarter of 2002.

• Annual renewal fee revenue decreased 7.7% during the quarter to $23.9 million, when compared to the first quarter of 2002, as the number of companies listed on The NASDAQ Stock Market fell from 4,109 companies on January 1, 2002 to 3,659 on January 1, 2003. As of March 31, 2003 there were 3,536 companies listed on The NASDAQ Stock Market. The revenue impact of the decline in the number of companies listed on the NASDAQ market was partially offset by an increase in the annual renewal fees which NASDAQ charges companies that are listed on the NASDAQ SmallCap Market. This fee increase was announced in the fourth quarter of 2002 and took effect on January 1, 2003.
• Listing of additional shares revenue was flat during the quarter at $9.3 million when compared to the first quarter of 2002. Underlying this performance, there were 18 secondary offerings during the first quarter of 2003 compared with 54 in the first quarter of 2002.
• Initial listing revenue was flat during the quarter to $8.6 million, when compared to the first quarter of 2002, reflecting continued weakness in the Initial Public Offering (IPO) market. There were three IPOs on The NASDAQ Stock Market during the first quarter of 2003 compared with seven IPOs in the first quarter of 2002.

Corporate Client Group revenue is primarily earned through annual listing renewal fees, fees associated with the listing of additional shares and initial listing fees for new NASDAQ-listed securities. Initial listing fees and fees associated with the listing of additional shares are amortized over six-year and four-year periods, respectively, in accordance with SEC Staff Accounting Bulletin 101.

Other
Other revenue increased 21.1% in the first quarter of 2003 to $11.5 million from $9.5 million in the first quarter of 2002. The increase is primarily attributable to an increase in the number of option contracts issued on QQQ for which NASDAQ receives trademark license revenues.

NASDAQ generates revenue related to the licensing of NASDAQ Indexes for financial instruments, including the NASDAQ-100 Index^®, which is the benchmark for financial products such as the QQQ. The Index, launched in 1985, includes the 100 largest non-financial stocks traded on The NASDAQ Stock Market. The NASDAQ-100 Index^® is one of the world's most widely watched financial barometers and has become the basis for a broad range of financial instruments, including futures contracts, mutual funds, index options, structured products and exchange-traded funds. NASDAQ also generates revenue from NASDAQ.com and advertising revenue from the MarketSite^SM tower.

Expenses

Total expenses decreased 6.2% in the first quarter of 2003 to $161.6 million from $172.3 million in the first quarter of 2002. Driving the improvement during the quarter was continued focus on reducing NASDAQ's overall cost base.

Direct Expenses
Direct Expenses declined 6.6% in the first quarter of 2003 to $144.4 million from $154.6 million in the first quarter of 2002.

During the quarter, NASDAQ continued to benefit from initiatives taken to reduce direct expenses, namely:

• Computer operations and data communication costs were reduced 21.2% to $33.5 million, when compared to the first quarter of 2002, as NASDAQ continued to realize the benefit of key contract renegotiations.
• Travel, meetings and training, and publications, supplies and postage costs reduced 24.5% to $4.0 million, when compared to the first quarter of 2002, as NASDAQ better managed its discretionary expenses.
• Other expenses reduced 33.8% to $4.9 million in the first quarter of 2003, compared to the first quarter of 2002, mainly due to losses recorded in the first quarter of 2002 from NASDAQ's equity investment in NASDAQ Japan. During the second quarter of 2002, NASDAQ recognized an other-than-temporary impairment charge on its investment in NASDAQ Japan, which represented a complete write-down of the investment.

Offsetting these efficiencies during the quarter:

• Marketing expenses increased 39.5% to $5.3 million, when compared to the first quarter of 2002, due to costs associated with NASDAQ's previously planned "Listed on NASDAQ" marketing campaign.
• Occupancy increased 21.7% to $8.4 million when compared to the first quarter of 2002. This increase is due to the direct payment of occupancy expenses to third party vendors previously paid to NASD and recorded in Support Costs from Related Parties.

Support Costs from Related Parties
Support Costs from Related Parties, net, decreased 2.8% in the first quarter of 2003 to $17.2 million when compared with the first quarter of 2002. Two factors contribute to NASDAQ's support costs:

• The first is related to the regulatory role that NASD performs for The NASDAQ Stock Market.
• The second is related to the support functions that NASD has traditionally provided NASDAQ.

The improvement during the quarter is due to NASDAQ's decreased reliance on NASD for administrative support functions as NASDAQ continued the development of its independent infrastructure.

Net Income and Earnings Per Share

Net Income
Net income was $2.6 million in the first quarter of 2003, up $2.3 million when compared with the fourth quarter of 2002, but down 87.8% from $21.3 million in the first quarter of 2002.

Earnings Per Share
Net income applicable to common stockholders was $1.9 million or $0.02 per basic and diluted share in the first quarter of 2003, up $4.0 million from a loss of $2.1 million or ($0.03) per basic and diluted share in the fourth quarter of 2002, and down 89.9% from $18.9 million or $0.19 per basic share and $0.18 per diluted share in the first quarter of 2002¹.

NASDAQ's Chief Financial Officer, David Warren, noted: "NASDAQ remained focused on reducing the overall cost of running our business. We eliminated approximately $11 million in operating expenses from our business, when compared with the first quarter of 2002, and furthered our separation from the NASD. We are continuing our efforts to identify and reduce both variable and fixed costs through process efficiencies and contract renegotiations. We believe we are taking the appropriate measures to make NASDAQ an efficient, for profit, publicly owned entity."

Conclusion

Mr. Simmons concluded: "NASDAQ continues to focus on initiatives designed to improve our competitive, regulatory and financial position despite the cyclical challenges of the marketplace. We are working closely with our customers to build value-added enhancements across all of our businesses and intend to continue this effort as NASDAQ looks to complete its separation from NASD."

"Finally, NASDAQ is excited about the opportunities for its future as Bob Greifeld takes over as NASDAQ's President and Chief Executive Officer and H. Furlong Baldwin as NASDAQ's non-executive Chairman on May 12th. The appointment of these two individuals to their respective roles will provide NASDAQ with the leadership that it needs to capitalize on its current initiatives and continue to focus on the needs of its customers."

With approximately 3,530 companies, NASDAQ lists more companies and, on average, trades more shares per day than any other U.S. market. It is home to category-defining companies that are leaders across all areas of business including technology, retail, communications, financial services, media and biotechnology industries.

For more information about NASDAQ, visit the NASDAQ Web site at www.NASDAQ.com or the NASDAQ Newsroom^SM at www.nasdaq.com/newsroom.

Cautionary Note Regarding Forward-Looking Statements

The matters described herein may contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks, uncertainties or other factors beyond the control of The Nasdaq Stock Market, Inc. (the "Company"), which could cause actual results to differ materially from historical results, performance or other expectations and from any opinions or statements expressed or implied with respect to future periods. These factors include, but are not limited to, the Company's ability to implement its strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors detailed in the Company's annual report on Form 10-K, and periodic reports filed with the U.S. Securities and Exchange Commission. We undertake no obligation to release any revisions to any forward-looking statements.

¹ Dividends payable to NASD on the Series A Preferred Stock began accruing in March 2003. The Series A Preferred Stock carries a 7.6% dividend rate for the year commencing March 2003 and 10.6% in all subsequent years. NASDAQ is obligated to pay this dividend to the extent of its capital surplus. As of March 31, 2003, the dividend payable totaled $0.7 million. The dividend for all future quarters in 2003 will be approximately $2.5 million.

² In order to use data more consistent with the separation of the Securities Information Processor (SIP) function from The NASDAQ Stock Market that began in July 2002, the methodology for calculating systems market share of volume and trades was adjusted. As a result, information on volume market share and trade market share provided here may not be comparable to such data previously provided by NASDAQ for prior periods based on the old methodology. A discussion of the SIP separation is contained in NASDAQ's Form 10-K.

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The Nasdaq Stock Market, Inc.
Condensed Consolidated Balance Sheets (continued)
(in thousands, except share and par value amounts)