NASDAQ Press Release

New York, NY— The Nasdaq Stock Market, Inc. ("NASDAQ"; OTCBB: NDAQ), today reported a net loss of $38.0 million for the third quarter ended September 30, 2003. The net loss applicable to common shareholders was $40.5 million or $(0.52) per basic and diluted earnings per share ¹. Included in the results are pre-tax expenses totaling $49.3 million associated with NASDAQ's strategic review initiated in the second quarter 2003, which includes the elimination of non-core product lines, initiatives and severance. Excluding the impact of NASDAQ's strategic review, net income was $0.7 million for the period calculated on a Non-GAAP basis. The Non-GAAP net loss applicable to common shareholders was $1.8 million or $(0.02) per basic and diluted share. Total revenue for the third quarter 2003 was $144.8 million.

"NASDAQ continues to achieve operational milestones including significant functional enhancements and the deepening of the pool of liquidity in SuperMontage, additional brand leverage with the launch of the ONEQ financial product and the continuing organizational realignment," commented Bob Greifeld, President and Chief Executive Officer. "On the regulatory front, we continue to work with the SEC to restore investor confidence in the capital markets recently culminating in the commission's approval of NASDAQ's revised corporate governance listing standards. These are all positive steps toward our quest of becoming the predominant U.S. equities market."

Financial Results
Total revenue declined 27.2% to $144.8 million in the third quarter 2003 from $198.8 million in the third quarter 2002 and 4.4% from $151.4 million when compared with the second quarter 2003.

Transaction Services (TS) revenue declined 41.6% to $54.4 million when compared to the third quarter of 2002 due to the competitive pressure on NASDAQ's Access services, Execution services and Trade reporting revenue. Transaction Services revenue declined 9.9% when compared with the second quarter 2003 largely due to competitive initiatives in Trade reporting and Execution services.
Market Information Services (MIS) revenue declined 27.6% to $36.0 million when compared with the third quarter 2002 primarily due to a decline in InterMarket Tape Fee revenue (net of revenue sharing), NASDAQ's Level 1 revenue and an increase in UTP revenue sharing. MIS revenue was relatively flat when compared with the second quarter 2003.
Corporate Client Group revenue declined 7.0% to $41.2 million when compared with the third quarter 2002 and declined 4.0% when compared with the second quarter 2003 primarily due to the decline in annual renewal fee revenue. 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 revenue increased 13.8% to $13.2 million when compared with both the third quarter 2002 and the second quarter 2003 primarily due to the receipt of a business interruption insurance claim related to the events of September 11, 2001 of $1.9 million.

NASDAQ continued to take decisive action to effectively reduce the cost and infrastructure required to operate its business.

Direct expenses decreased 17.5% to $125.7 million from $152.3 million when compared with the third quarter 2002 and decreased 14.3% from $146.6 million when compared with the second quarter 2003 primarily due to reductions in compensation and general discretionary spending.
Total expenses increased 9.8% to $190.4 million from $173.4 million when compared to the third quarter 2002 and declined 12.4% from $217.3 million when compared to the second quarter 2003. The increase from the previous year pertains to costs associated with NASDAQ's aforementioned strategic review.

Expenses associated with NASDAQ's Strategic review totaling $49.3 million. The net impact to NASDAQ after tax on a Non-GAAP basis is $38.7 million. The strategic review costs primarily relate to the following:
- NASDAQ Europe - The orderly wind-down of market operations of the pan-European stock market located in Belgium and the suspension of operations of NASDAQ Deutschland resulted in a third quarter 2003 charge totaling $26.1 million. The orderly wind-down of the Nasdaq Europe market is nearing completion.
- Product Lines - Includes net costs associated with the cancellation of NASDAQ Tools and other products totaling $1.3 million. NASDAQ anticipates recognizing additional closing costs throughout the remainder of 2003.
- Severance - The fulfillment of employment contracts and obligations associated with the reduction in force initiative as well as the retirement and departure of certain members of senior management totaling $8.7 million. Total headcount was 1,029 as of the end of the third quarter 2003 versus 1,155 at the end of second quarter 2003 and 1,388 for the same period a year ago.
- Extinguishment of Debt - Includes costs totaling $13.2 million associated with the redemption of the 5.83% senior notes due May 9, 2007.
Excluding the strategic review costs, total expenses calculated on a Non-GAAP basis improved 18.6% to $141.1 million, a decrease of $32.3 million when compared to the third quarter 2002. After excluding similar strategic review costs in the second quarter 2003, total expenses calculated on a Non-GAAP basis improved 10.4% or $16.4 million from $157.5 million.

NASDAQ currently expects to continue to recognize additional costs throughout the balance of the year in the range of $20 million to $25 million related to the wind-down of these eliminated products, excluding any reduction-in-force charges.

NASDAQ's Chief Financial Officer, David Warren, commented: "NASDAQ made strong progress in the quarter eliminating more than $15 million in recurring core expenses when compared to the previous quarter and more than $30 million of similar expenses when compared to the same period last year. We believe there is still work to be done as NASDAQ transitions to an efficient, for-profit, publicly owned entity."

Conclusion
"As an engine of economic growth, NASDAQ is focused on providing a framework that creates and maintains stable and orderly markets, provides broad public access to market information and promotes competition," concluded Mr. Greifeld. "This flexible framework breeds innovation and results in quality capital markets that investors can trust."

NASDAQ is the world's largest electronic stock market. With approximately 3,400 companies, it 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.

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

In addition to disclosing results determined in accordance with generally accepted accounting principles ("GAAP"), NASDAQ also discloses certain non-GAAP results of operation that exclude items associated with the strategic review. Management believes that the Non-GAAP information provides investors with additional information to access NASDAQ's operating performance by excluding these costs, which are non-operational items. The Non-GAAP information may not be comparable to other companies and should not be viewed as a substitute for or superior to net loss or other data prepared in accordance with GAAP. A reconciliation table is provided at the end of this release.

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 the National Association of Securities Dealers Inc. ("NASD") as the holder of NASDAQ's 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. The dividend for the third quarter, and subsequent quarters in 2003, is approximately $2.5 million.

NASDAQ 3rd Quarter 2003 Financial Statements in PDF Format