The Nasdaq is the second largest securities exchange in the world, behind only the New York Stock Exchange (“NYSE”). An exchange is a platform in which investors buy and sell securities, like stocks. Unlike the NYSE, the Nasdaq has no physical location and instead all of its trades are executed electronically. Created in 1971, the Nasdaq got its name as the acronym for the National Association of Securities Dealers Automated Quotations. Generally speaking, the Nasdaq has a technology tilt, and some of the major stocks that trade on it include Apple, Amazon, Microsoft, Facebook, Starbucks, and Tesla. In addition to being an exchange, the Nasdaq Composite is an index of approximately 3,000 stocks that is a commonly used benchmark for U.S. equities with a technology focus.

Throughout history, the Nasdaq has a track record of paving the way. For example, the Nasdaq was the first exchange to offer electronic trading, launch a website, and store records to the cloud. In December, the Nasdaq continued to prove itself as a leader when it announced that it is pushing to enhance board diversity on the companies listed on its exchange. Specifically, the Nasdaq filed a proposal with the Securities and Exchange Commission (“SEC”) that would require companies listed on Nasdaq to have at least one woman on their boards, in addition to a director who is a racial minority or one who self-identities as lesbian, gay, bisexual, transgender, or queer. Companies that do not meet this standard would be required to disclose why. As a reminder, Nasdaq has an extensive reach, touching approximately 3,000 companies with its recent proposal.

According to the Wall Street Journal, Nasdaq carried out an assessment over the past six months and discovered that more than 75% of its listed companies would have fallen short of the proposed requirements. Approximately 85% of companies had at least one female director, but only about 25% had a second director who would meet the diversity requirements. In its findings, Nasdaq clarified that it was difficult to analyze diversity due to inconsistencies in the way companies report such data. For instance, Nasdaq uniquely defines underrepresented minorities as individuals self-identifying as Black, Hispanic, Asian, Native American, or belonging to two or more races or ethnicities.

If Nasdaq’s proposal is approved by the SEC, then companies would have to disclose board diversity statistics within one year. Larger companies listed on Nasdaq would have approximately four years to satisfy board diversity requirements, whereas smaller companies would be given five years to do the same.