NASD Members Approve Plan to Make Nasdaq a Company
Washington, April 14 (Bloomberg) -- National Association of
Securities Dealers' members voted overwhelmingly to turn the
Nasdaq Stock Market into a for-profit company.
The approval by 84 percent of the NASD's member brokerages
clears the way for the association to sell Nasdaq by September.
The NASD plan seeks to raise $1.5 billion by making two sales of
Nasdaq stock and warrants to brokerages, companies and
institutional investors.
``The members' message is a realization that this is not only
good for them but represents survival for Nasdaq,' NASD and
Nasdaq Chairman Frank Zarb said in an interview.
Zarb said turning Nasdaq from a not-for-profit membership
organization into a private company would let it more nimbly
compete with electronic trading rivals in the U.S. and in Europe.
A shareholder-owned company can make corporate decisions more
quickly and raise money more easily to fund Nasdaq's growing
technology needs, he said.
After Nasdaq is sold, its new board of directors will
decide by the end of the year whether to make an initial public
offering of Nasdaq stock, Zarb said. The New York Stock Exchange,
the largest U.S. stock market, also is considering raising money
through an IPO next year.
Clear Majority
The NASD member vote handed a victory to Zarb and a stinging
defeat to dissident NASD board member Alan Davidson. Davidson, a
small-firm activist, campaigned against the plan after endorsing
it in January.
Davidson said he was disappointed by the vote but unrepentant
in his opposition.
``The vote reflects confusion and fear of retaliation by the
member firms,' said Davidson, who also is president of the 200-
member Independent Broker-Dealers Association.
Of the 4,185 member firms voting, 3,423 approved the plan,
652 opposed it, and 110 abstained, the NASD announced today. About
1,300 firms didn't vote. About 60 percent of NASD member firms
have fewer than 10 employees.
The NASD's next step will be to sell a minority block of
Nasdaq stock and warrants to brokerages, companies and
institutional investors by the end of May. A second sale, expected
by the end of September, will complete Nasdaq's transformation
into a private company. The sale will leave NASD with a 22 percent
stake in the new Nasdaq firm.
Zarb said the Nasdaq Composite Index's plunge during the past
month, including its 9.7 percent decline today, wouldn't affect
the desirability of the Nasdaq stocks and warrants being sold.
``They're being sold to professionals who know that markets
go up and markets go down,' the NASD chairman said.
More than 1,000 member firms have committed to buying Nasdaq
shares for $11 a share during the first private placement, he
said.
Nasdaq Slump
The Nasdaq index fell 25 percent this week, its worst weekly
performance ever. Since its March 10 record high, the index has
lost 34 percent of its value as investors sold many of Nasdaq's
technology stocks, judged overpriced by many analysts.
The Securities and Exchange Commission still needs to approve
by-law changes for the new Nasdaq company, a process that Zarb
said will take about two months. SEC Chairman Arthur Levitt has
expressed support for the Nasdaq sale.
Nasdaq, which lists technology leaders such as the Microsoft
Corp., Intel Corp., and Cisco Systems Inc., is facing competition
from low-cost electronic trading networks such as Datek Online
Holdings Corp.'s Island. These screen-based networks automatically
match buyers and sellers.
Davidson's brokerage, Zeus Securities Inc. of Smithtown, New
York, has filed a lawsuit seeking to halt today's election and the
Nasdaq conversion in general. A New York state judge ruled
Thursday that the election could go forward, while deferring to
Monday a hearing on the overall plan.
Davidson, in campaigning against the Nasdaq plan, argued that
the sale should be delayed until regulators can decide whether to
form a single, self-policing industry organization. He has voiced
concern that the large brokerages could come to dominate the
regulatory process.
The NASD plans to continue to own its regulatory unit, headed
by Mary Schapiro, which polices all 5,500 U.S. brokerages.
Zarb's Plans
Zarb, whose chairmanship is set to expire next February, said
today he was willing to serve beyond that time as interim chairman
of the new Nasdaq company but not as a permanent chairman.
``Whether that means another nine, or 19 months, in the job
is up to the board,' he said. ``But first, we need a visible,
clearly determined succession in place.'
Zarb, 65, said a new chairman of Nasdaq should be willing to
serve in that post for at least five years. Two search committees
have been appointed to recommend candidates for chairmen of Nasdaq
and NASD.
Of the $1.5 billion to be generated by the stock sale, the
NASD plans to use about $500 million to fund its regulatory unit,
$215 million to pay for improvements at the American Stock
Exchange, and most of the remainder to upgrade the Nasdaq. NASD
also plans to reduce member fees by $114 million over seven years.
Under the planned allocation of Nasdaq shares, member firms
would get as much as 28 percent of the total and possibly 33
percent if there's an IPO. Dealers would get as much as 32 percent
of the stock and the largest companies listed on Nasdaq would get
as much as 16 percent. Institutional investors would receive as
much as 4 percent. |
