An Inside Look at Creating a Game-Changing Index

Find a need and fill it. That’s the motto John Jacobs, Executive Vice President of Nasdaq OMX Group (NASDAQ:NDAQ), has not only for his career, but also for his life. Jacobs has spent decades working in the financial industry, and more than 30 of those years working at one of the nation’s largest stock exchanges. But a career in the world of finance wasn’t necessarily his first choice. “Early on, I was going to follow my father into the military,” he said. “And he sat me down when I was in college and said, what your best contribution could be is to find somewhere where you can help create jobs.” And that’s exactly what he did. In the early days of the world’s first electronic stock market, Jacobs said the young company’s mission was to help other companies grow. “I keep that, every day, first and foremost in my mind,” Jacobs said. “Are we helping people create companies that create jobs? And are we helping investors invest? It’s become a lifelong passion for me.”Blazing a New Path to Index Success Taking his own advice, in March of 1999, Jacobs helped launch the Nasdaq 100 – an index of large, non-financial stocks. The gauge has since become one of Wall Street’s benchmark barometers. It’s also the basis for a number of exchange-traded funds, including the PowerShares QQQ. Often referred by in the trading community as the “triple-qs,” the ETF is one of the world’s most actively traded, with an average daily volume north of 30 million shares.   For Jacobs, it’s been one of the biggest accomplishments of his career at Nasdaq: To see one of his pet projects grow into a tool that is widely used by the investing community, both institutions and individuals.

Click here to read more Success Stories  While he was running strategic planning in 1987, Jacobs noticed the individual investors in Nasdaq came to the index indirectly – they were shareholders of companies listed on the exchange, or clients of Merrill Lynch or Goldman Sachs (NYSE:GS). Jacobs decided then that was a need that had to filled: Discovering a way to directly touch investors. The 'aha' moment, as Jacobs calls it, came quickly. He met with a head trader at Goldman, gave him a list of all the companies traded on the exchange and asked if there was a way to put a basket of securities together. “He took the list, called over a head trader and asked how long it would take to put a basket together,” Jacobs said. “The trader came back and said, ‘Guys, it took me seconds to put the top 80 names together, a couple of minutes for the rest.’ He looked at me and said, ‘You’re going to give me instant liquidity (with this), and there’s definitely a future here. Sign me up!’”

And  the rest, as they say, is history. “What’s so rewarding about the QQQ is it put ETFs on the map for retail investors…for me it’s been very rewarding seeing go from $14.9 million on March 5, 1999, to $32 billion today and become one of those heavy-traded products out there,” Jacobs said.What’s in a Name? Since its inception, the QQQ has undergone several name changes.

In 1998, when the index was set to launch, certain index symbols were reserved for particular exchanges. The New York Stock Exchange listed companies with one, two, and three letter symbols; the American Stock Exchange listed companies with two symbols, and in those days, Nasdaq listed companies using five-letter symbols.

Before the index launched, Jacobs said he went to the ASE and asked it reserve the symbol “Q” for his new index.

“The guy at the American said they weren’t allowed to do it because single-letter symbols were reserved for NYSE,” Jacobs said. “I told him to show me proof, and he said, ‘Well, there’s an understanding those symbols are reserved for NSYE.”

Still, Jacobs insisted on reserving "QQQ."

“No one noticed at NYSE until a month before the launch when Maria Bartiromo did an interview from the floor and said we were going to break the NYSE hold on single symbols,” he said. “NYSE was furious and launched a suit against us.”

Eventually, the two exchanges came to an agreement and put together a group that was tasked with reviewing symbol assignments.

“Now anyone can do anything,” Jacobs said. “But in order to do that, we gave up the single Q symbol and went with QQQ. For awhile, we were listed on Nasdaq and used the QQQQ, but then moved it back to the triple Q.”

Never Settling for Less

Despite the success Jacobs has seen in his years working for Nasdaq, he’s constantly pushing for bigger and better things. “You have to constantly challenge yourself,” he said. “It is very hard because it’s easy to get complacent. We are the largest exchange company in the world…and you think, ‘Oh, great, we’re doing well.’ And that’s when you have to guard against overconfidence. So you have to be saying, ‘What’s around the corner, what’s the next thing that’s coming?” And for Jacobs and Nasdaq, new things are never far behind. The exchange just recently announced the acquisition of E-Speed, an electronic treasuries trading platform, giving Nasdaq more exposure in the fixed-income market and expanding its reach into other asset classes besides equities.    Jacobs said motivating the team is easy: Promote your successes but highlight the possibilities of the future, and seize every new opportunity. “The goal is not to get complacent. It’s to continue to challenge yourself because if you don’t, someone else will,” he said. A go-to example of that kind of motivation for Jacobs is Nasdaq’s use of stock trading technology. “When we first started, all stocks were traded on a floor. Today, no stocks are traded on a floor,” he said. “That was our mission, and everything we do, whether it’s indexes or data, or anything else…(We ask) why not, why can’t we do something differently?”