Nasdaq Breach Points to Growing Security Needs

April 4th, 2011 by Trefis Team
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Nasdaq OMX (NYSE:NDAQ) reported a security breach which took place in October last year when computer hackers penetrated its systems and may have planted some malicious software to pilfer sensitive data. Nasdaq had said that its document sharing service, Directors Desk, was compromised but no data or documents were stolen. However, the involvement of the National Security Agency (NSA) in the investigation suggests that the attack on Nasdaq may have been more severe or sophisticated than previously thought. Major competitors of Nasdaq OMX are NYSE Euronext (NYSE:NYX), CME Group (NYSE:CME), BATS Global and Direct Edge.

We have a price estimate of $25.87 on Nasdaq OMX’s stock which is nearly the same as the current market price.

Directors Desk is a web application which allows members of Nasdaq to share documents, conduct online meetings and exchange information. It also contains detailed information about companies, their board members and key executives. Hackers could use this information to carry out attack on company networks. Another possible intent behind such an attack could be to gather information for insider trading.

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According to the former head of U.S. counterintelligence, Joel Brenner, “By bringing in the NSA, that means they think they’re either dealing with a state-sponsored attack or it’s an extraordinarily capable criminal organization.” Foreign intelligence agencies and the FBI are also involved in the investigation. [1]

Concerns for Nasdaq

Although Nasdaq has said that it hasn’t lost any clients because of the cyber attacks, the growing demands of electronic trading necessitates a secure trading platform and any loss of confidence among users could undermine Nasdaq’s credibility and hinder its growth. [2]

Nasdaq had about 19% of the US cash equity market in 2010, which declined from around 30% in 2008. Newly opened stock exchanges like BATS Global and Direct Edge have taken market share in a short period of time. As new competitors emerge and as electronic trading continues to mushroom, the importance of software security will continue to rise.

See our full analysis for Nasdaq.

Notes:
  1. National Security Agency Joins Nasdaq Cyber Breach Probe, Fox Business [↩]
  2. Nasdaq Hasn’t Lost Any Clients Because Of Hacking – Executive, WSJ [↩]