10. Share-Based Compensation

We have a share-based compensation program that provides our board of directors broad discretion in creating employee equity incentives. Share-based awards, or equity awards, granted under this program include stock options, restricted stock (consisting of restricted stock units), and performance share units, or PSUs. Grants of equity awards are designed to reward employees for their long-term contributions and provide incentives for them to remain with us. For accounting purposes, we consider PSUs to be a form of restricted stock.

Restricted stock is generally time-based and vests over three- to five-year periods beginning on the date of the grant. Stock options are also generally time-based and expire ten years from the grant date. Stock option and restricted stock awards generally include performance-based accelerated vesting features based on achievement of specific levels of corporate performance. If NASDAQ OMX exceeds the applicable performance parameters, the grants vest on the third anniversary of the grant date, if NASDAQ OMX meets the applicable performance parameters, the grants vest on the fourth anniversary of the grant date, and if NASDAQ OMX does not meet the applicable performance parameters, the grants vest on the fifth anniversary of the grant date.

PSUs are based on performance measures that impact the amount of shares that each recipient will receive upon vesting. PSUs are granted at the fair market value of our stock on the grant date and compensation cost is recognized over the performance period and, in certain cases, an additional vesting period. For each grant of PSUs, an employee may receive from 0% to 150% of the target amount granted, depending on the achievement of performance measures. We report the target number of PSUs granted, unless we have determined that it is more likely than not, based on the actual achievement of performance measures, that an employee will receive a different amount of shares underlying the PSUs, in which case we report the amount of shares the employee is likely to receive.

We also have a performance-based long-term incentive program for our chief executive officer, executive vice presidents and senior vice presidents that focuses on total shareholder return, or TSR. This program represents 100% of our chief executive officer’s and executive vice presidents’ long-term stock-based compensation and 50% of our senior vice presidents’ long-term stock-based compensation. Under the program, each individual receives PSUs with a three-year cumulative performance period and vest at the end of the performance period. Performance will be determined by comparing NASDAQ OMX’s TSR to two peer groups, each weighted 50%. The first peer group consists of exchange companies, and the second peer group consists of all companies in the Standard & Poor 500 Index. NASDAQ OMX’s relative performance ranking against each of these groups will determine the final number of shares delivered to each individual under the program. The payout under this program will be between 0% and 200% of the number of PSUs granted and will be determined by NASDAQ OMX’s overall performance against both peer groups. However, if NASDAQ OMX’s TSR is negative for the three-year performance period, regardless of TSR ranking, the payout will not exceed 100% of the number of PSUs granted. We estimate the fair value of PSU’s granted under the TSR program using the Monte Carlo simulation model, as these awards contain a market condition. The following weighted-average assumptions were used to determine the weighted-average fair values of the PSU awards granted under the TSR program for the nine months ended September 30, 2013 and 2012:



	Nine Months Ended September 30,
	2013		2012


Weighted-average risk free interest rate		0.45%		0.34%
Expected volatility⁽¹⁾		31.4%		32.9%
Weighted-average fair value at grant date	$	43.81	$	22.50

(1) We use historic volatility for PSU awards issued under the TSR program, as implied volatility cannot be used when simulating multivariate prices for companies in the S&P 500.

Summary of 2013 Equity Awards

In July 2013, we granted restricted stock to most active employees. The restricted stock granted included a performance-based accelerated vesting feature based on achievement of specific levels of corporate performance, as described above.

Also in July 2013, certain executive officers received grants of 800,425 PSUs. Of these PSUs granted, 531,187 units are subject to the performance measures and vesting schedules of the TSR program as discussed above, and the remaining 269,238 units are subject to a one year performance period and generally vest ratably on an annual basis on December 31, 2014 through December 31, 2016.

Common Shares Available Under Our Equity Plan

As of September 30, 2013, we had approximately 2.6 million shares of common stock authorized for future issuance under our Equity Plan.

Summary of Share-Based Compensation Expense

The following table shows the total share-based compensation expense resulting from equity awards and the 15.0% discount for the ESPP for the three and nine months ended September 30, 2013 and 2012 in the Condensed Consolidated Statements of Income:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012

	(in millions)
Share-based compensation expense before income taxes	$	14	$	12	$	32	$	34
Income tax benefit		(6)		(5)		(13)		(14)
Share-based compensation expense after income taxes	$	8	$	7	$	19	$	20

We estimated the fair value of stock option awards using the Black-Scholes valuation model. No stock option awards were granted during the three and nine months ended September 30, 2013 or 2012.

Summary of Stock Option Activity

A summary of stock option activity for the nine months ended September 30, 2013 is as follows:



	Number of Stock Options⁽¹⁾		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value

					(in years)		(in millions)
Outstanding at January 1, 2013		7,545,777	$	21.10		5.0	$	45
Exercised		1,730,647		10.25
Forfeited or expired		161,492		25.15
Outstanding at September 30, 2013		5,653,638	$	24.29		4.9	$	50
Exercisable at September 30, 2013		3,765,289	$	25.06		4.0	$	32

(1) No stock option awards were granted during the three and nine months ended September 30, 2013.

We received net cash proceeds of $2 million from the exercise of 171,458 stock options for the three months ended September 30, 2013 and received net cash proceeds of $18 million from the exercise of 1,730,647 stock options for the nine months ended September 30, 2013. We received net cash proceeds of $1 million from the exercise of 159,282 stock options for the three months ended September 30, 2012 and received net cash proceeds of $3 million from the exercise of 318,406 stock options for the nine months ended September 30, 2012. We present excess tax benefits from the exercise of stock options, if any, as financing cash flows.

The aggregate intrinsic value in the above table represents the total pre-tax intrinsic value (i.e., the difference between our closing stock price on September 30, 2013 of $32.11 and the exercise price, times the number of shares) based on stock options with an exercise price less than NASDAQ OMX’s closing price of $32.11 as of September 30, 2013, which would have been received by the option holders had the option holders exercised their stock options on that date. This amount can change based on the fair market value of our common stock. The total number of in-the-money stock options exercisable as of September 30, 2013 was 2.5 million.

As of September 30, 2012, 5.7 million outstanding stock options were exercisable and the weighted-average exercise price was $15.47.

Total fair value of stock options vested was immaterial for the three and nine months ended September 30, 2013 and $1 million for the three and nine months ended September 30, 2012. The total pre-tax intrinsic value of stock options exercised was $3 million for the three months ended September 30, 2013, $2 million for the three months ended September 30, 2012, $36 million for the nine months ended September 30, 2013 and $5 million for the nine months ended September 30, 2012.

At September 30, 2013, $2 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.0 year.

Summary of Restricted Stock and PSU Activity

The following table summarizes our restricted stock and PSU activity for the nine months ended September 30, 2013:



	Restricted Stock					PSUs
	Number of Awards			Weighted-Average Grant Date Fair Value		Number of Awards			Weighted-Average Grant Date Fair Value
Unvested balances at January 1, 2013		3,204,188		$	23.20		1,879,799		$	23.14
Granted		1,179,692	⁽¹⁾		32.69		828,453	⁽²⁾		39.68
Vested		(246,246)			23.70		(89,368)			19.77
Forfeited		(232,753)			24.00		(115,788)			22.59
Unvested balances at September 30, 2013		3,904,881		$	25.96		2,503,096		$	28.76

(1) Primarily reflects our company-wide equity grant issued in July 2013, as discussed above.

(2) PSUs granted in 2013 primarily reflect awards issued to certain officers, as described above.

At September 30, 2013, $93 million of total unrecognized compensation cost related to restricted stock and PSUs is expected to be recognized over a weighted-average period of 1.8 years.