Jeff Cunningham (left) and Robert Greifeld (photo by David Nicholas/Longview)

As Nasdaq OMX celebrates its 40th anniversary, what aspect of the global financial markets concerns you most?
When you’re looking at the markets around the world, they have routinely done a very good job with large companies. With the advent of electronic trading, with fair access standards, which Nasdaq pioneered back in 1971, you see the actively traded cycles treated very well. Where we have issues on a global basis is the SMEs, the smaller companies. We have not yet solved what is the proper market structure and what is the proper ecosystem to make sure those companies have truly the best capital markets experience possible.

What is the upside of all the exchange merger activity, cost synergies or revenue enhancement?
When exchanges went to electronic markets, they became dictated by the laws of the transaction-processing business. With the technology I built in our data center in New Jersey I have enough computer power today to process every single equity transaction in the world. So obviously, as we put more volume against that relatively fixed cost platform, the marginal revenue tends to drop to the bottom. There are fairly valid reasons for exchanges to want to come together. What has not worked with exchange transactions in any noticeable fashion are revenue synergies. Our transaction in the Nordics happened four years ago, and we’re only now seeing some real revenue synergies from that. So revenue synergy is somewhat uncertain; expense synergies are fairly straightforward.

After your attempted takeover of the New York Stock Exchange, what did you discover about the way our antitrust laws work?
With our approach to the New York Stock Exchange, we certainly went into it with our eyes wide open—it was opportunistic. Working with the antitrust process—and it wasn’t my first time through—you realize there is typically more art than science. At the end of the day, especially in the U.S., there is one person who has the vote. Depending on who that person is, there are different ways to take a look at the elephant.

The credit crisis was an opportunity to lay blame at the feet of many constituents. Do you have any advice for directors whose role is to reduce risk?
What you see evolving is the concept of risk being managed on a holistic basis. We at Nasdaq OMX have clearly evolved in the last two to three years, and we have our clearinghouse risk, but then we also have business risk. We produce a report to our audit committees and our directors. If we come out with a new product, we put it through a risk filter today, and a lot of these projects are not things you intuitively think about from a risk point of view, but every activity has the opportunity to introduce a new incremental risk into the organization, so you have to have that kind of discipline. When you look at our product release schedule, the risk component of it is as important to us as the product management. I think you’ll see that as an emerging best practice. It’s up to directors to insist upon that. It’s another area of frustration for line management because they feel like they are giving up some autonomy with a risk committee. Like anything else, the risk committee has to be balanced in their viewpoints. It’s the same thing with information security—that’s its own topic right now, and we’ve got our own army of people trying to protect everything we do so the overall risk committee doesn’t have to spend a lot of time on that. It’s about finding pockets of latent risks that people have not thought about before.

As a clearinghouse, you do take on some of your customers’ risks? How do you manage that less transparent aspect of the equation?
We’re at a certain tension with our customers. The clearinghouse services we think of as a fundamental reduction of risks that takes the notional and gets it down to a net number. It demands margin— there’s just no way around that. So when you look at the large over-the-counter market that exists in the world today, the large banks have increased their notional risk by 50 or 60 percent on these over-the-counter derivatives. The question is what percentage of those are actually margin, because a lot of times they are done in the context of an overall relationship. So we’re self-interested when we say that we believe the financial players are misadvised to be having this type of off-balance-sheet risk. For us who run a clearinghouse, we’ve obviously had some interesting calls as we went through 2008. It’s about managing the margin properly by taking signals from the market. As we’ve just had the MF Global situation, we’ve assessed our margin that we had against that, and that margin was, in a sense, assessed against how liquid and deep the market was for us to liquidate positions. We said, “Okay we’re fine.” So clearinghouses bring that discipline all day, every day.

To what extent is the U.S over-regulated relative to the rest of the world?
I’m a little different than most on this. I’m calling for some changes to Sarbanes-Oxley, but a lot of that is about the perception and not the reality. My personal view is that Sarbanes-Oxley has been a net benefit to our corporate governance standards. Boards are more fruitfully engaged. When you look at the developed markets around the planet, they have all basically followed our lead with Sarbanes- Oxley. The notable exception is Section 404. I certainly believe that if we were to have Section 404 for those companies that have successfully negotiated in the past be an every two-year requirement, just the publicity around that would address the perception issue. I think it’s a proper modification of the 404. We called for 404 [to exempt] companies below the $700 million market cap, and I think we’d be happy to see that the presidential commission’s even thinking about a billion dollars. Clearly, the European folks back in the day were using that against us, and that’s fine enough, but that wasn’t really where our international market was. We’ve done particularly well in Israel and China. Those markets were not as developed, and they’re anxious to come to the U.S., and I never heard of SOX being an item of substance against us.

Will China create a robust, regulated and reliable domestic market?
I’d say China and Hong Kong have tougher listing standards than we do. It comes back to when I claimed Nasdaq invented the modern IPO. What we meant by that is we were successful in letting companies that had an unproven business model come to market, but the absolute requirement was that they had solid accounting and governance behind them. We believe investors should be able to make an investment on the success of the next Apple or Groupon. That investor cannot be making a bet on whether the numbers and accounting are good, and the management honest and ethical. When we look at the Chinese companies, concentrated in one province and in reverse mergers, then obviously they violated that sacred trust, so we had to make sure that we had that much more rigor to the process. We’ve put a seasoning requirement that doesn’t just apply to Chinese companies because we don’t want to be profiling, and it’s a good improvement for all of our companies.

This partnership reinforces the fact that NACD provides the broadest inventory of premium director education and board development services available. After conducting its due diligence, NASDAQ OMX determined that partnering with NACD, and encouraging its issuers to engage with NACD, was the most effective and efficient path to bolster its suite of corporate governance services. As performance requirements and expectations of boards and directors are at all-time highs, this partnership reinforces the importance of all directors to be professionally committed to continuous education.

In order to maximize interest and engagement, boards and directors of NASDAQ OMX-listed companies will receive preferred pricing to become Full Board Members of NACD, utilize NACD’s Board Advisory Services, and attend NACD’s Annual Conference and NACD Directorship Forums. NACD and NASDAQ OMX will collaborate to optimize all relevant media and channels to maximize the strategic value of this partnership.

Additionally, clients of NASDAQ OMX’s Directors Desk online board portal can integrate select content from NACD’s proprietary database to optimize their Director Desk experience and value.

We look forward to our members and prospective members taking advantage of these opportunities. Many thanks to all of our current members who help us make a difference.

Let’s begin with Washington: what are you telling your boards to be on the lookout for?

Mostly there is trepidation around what is unknown. Washington is focused on health care right now, but boardrooms, obviously, need to be aware of what’s happening. At Nasdaq OMX and on behalf of our issues, we want companies to be public companies. It’s good for our capital market. It’s good for job creation and it’s good for innovation. There is certainly an awareness that Washington is going to play a key role as we come out of the recession on issues such as tax, cap and trade, immigration and jobs.

And there any non-corporate governance challenges that concern you?

There’s a common belief that health care is going to be expensive and we will need resources to pay for it. Where are those resources going to come from? It’s still an unknown and is making a lot of people very uneasy.

Is the recession over? What are some of the important challenges that remain in your opinion?

There are positive signs. We’ve had resurgence in the IPO market. The second half was strong with some private equity and a few venture capital deals…There is general awareness that we need to create more jobs and more opportunity.

What should we to come out of the great compensation debate?

We just completed a corporate governance survey going into 2010. Proxy access, compensation and board elections are all up in the air. We do believe that there will be changes driven by the SEC and the exchange will follow suit. The U.K. financial services sector has been interesting in particular but I don’t think here you will see changes that lead to other industries. Instead, I do think there’s a greater move toward more disclosure around executive pay and I would expect that to continue.

What’s new on the activist shareholder front and what is NASDAQ OMX doing to help directors navigate this landscape?

Activism has been increasing from even before the economic downturn. We have tools to help you understand your shareholder better, to identify when shareholders are in acquiring positions, and to get messages out to your shareholders. Activists were here before the downturn and it’s likely we will see an increase as more investors turn to stock. We may see an increase–see more investors for stocks

As you look ahead to the New Year, what are the main governance themes you see for 2010?

This will be the first year that brokers will not be allowed to vote shares, which will create new costs, as you make sure you’re getting your shareholder vote. Given that this is the first year, companies will have to spend a lot more time making sure that every vote is counted. The other question that every board member is going to want to know is what is the risk element and it could be as minor as is our cash protected to what’s the dollar doing. I think the government will put into place greater transparency around securities and risk. Nobody liked the stock price but at least you knew what the stock price was. I think you will see over-the-counter derivatives traded on more exchange-type platforms as well to give investors a better sense of their value.

Green initiatives took a back seat during the recent global climate, but do you see things changing coming out of the Copenhagen  summit? ?

Carbon trading is going to be looked at in 2010, 2011, 2012–it’s a matter of priorities. We just saw that coming out of Copenhagen. I do believe that companies must be prepared and understand that we will have carbon trading. To that point, Nasdaq acquired Nord, an energy and carbon-trading platform in Norway where there is more trading. Directors need to keep a close watch. Europe has a lot of trading.

What’s are your professional priorities for the New Year?

To continue to execute on our strategy. As part of our deal with OMX, we now operate 70 exchanges around the globe. Nasdaq itself was always known and now with the Philadelphia options market we are much more diversified for equity. In the last year, 24 companies have switched to Nasdaq including large cap brands such as Mattel, DreamWorks, and most recently, Micron.