Nasdaq profit beats expectations, helped by anti-financial crime unit

(Reuters) -Nasdaq Inc on Wednesday reported first-quarter profits that beat Wall Street estimates as demand for its anti-financial crime software helped mitigate a hit to the exchange operator’s indexing business and a slump in initial public offerings.

Nasdaq expanded its regulatory technology footprint with its recent $2.75 billion Verafin acquisition and has made the business a key pillar of its corporate structure, which last quarter was split into three divisions – anti-financial crime (AFC), market platforms and capital access platforms.

The exchange operator, which already has around 2,500 banks and credit unions using its AFC cloud-based platform to help detect, investigate, and report money laundering and financial fraud, said it signed up its first big Tier 1 bank, which holds over $1 trillion in assets, in April.

“Getting to that first Tier 1 win has been a very important milestone for us because now that we can prove ourselves there, it will make it easier for other banks to say, ‘Okay, I’m not taking a risk here, I’m actually taking a proven solution,'” Nasdaq Chief Executive Adena Friedman said on an analysts’ call.

Revenue from the AFC unit jumped nearly 17% from a year earlier to $84 million.

Net trading services revenues rose 1% to $267 million as rising interest rates, persistently high inflation and the banking crisis boosted volatility and trading levels.

Revenue from Nasdaq’s indexes, which are widely referenced by exchange-traded products and provide the company with licensing fees, slumped 9.8% to $110 million.

Excluding one-time items, Nasdaq earned 69 cents per share, three cents above analysts’ mean estimate, according to Refinitiv data.

Nasdaq’s main exchange hosted 40 IPOs in the quarter, versus 70 a year earlier, as market volatility kept private companies on the sidelines.

Net revenue, excluding transaction-based expenses, rose 2% to $914 million.