New CEO to be asked: Is Nasdaq obsolete?
THE ASSOCIATED PRESS Apr 24, 2003
NEW YORK - When Robert Greifeld becomes Nasdaq's CEO next month, he must answer a question that a few years ago hardly anyone on Wall Street would have asked: Has the institution that once touted itself as "the stock market for the next 100 years" become an anachronism?
While stocks rocketed higher in the late 1990s, carrying the Nasdaq composite index past 5,000, few people knew that the Nasdaq stock market was falling behind its competitors. Now, market watchers wonder whether Wall Street even needs Nasdaq.
"The fact of the matter is, in today's world there is less need for a centralized marketplace" like Nasdaq, said Richard Rogalski, the George J. Records professor of investments at the Tuck School of Business at Dartmouth College. "All you need is access to the Web."
Since the technology bubble burst three years ago, Nasdaq has suffered declining profits and revenues, lost trading volume and shelved plans to go public.
Wall Street's overall malaise has contributed to those woes, but the bigger problem has been competition from other electronic networks that route trades on their own computer platforms, eroding Nasdaq's market share of trad- ing volume and its revenue from trading fees.
Electronic communications networks - called ECNs - such as Instinet and Archipelago have become as serious rivals to Nasdaq as the New York Stock Exchange. While Nasdaq must fight NYSE for stock listings, it has to fend off ECNs' attempts to steal trading volume share.
Because the NYSE has an auction-style trading floor where stock specialists match buyers and sellers, it does not compete with Nasdaq, which relies on electronic networks to handle transactions.
Technology, what Nasdaq has long boasted as its biggest asset, is what market experts say enabled ECNs to take market share during the bull market.
"The ECNs that entered the fray a few years ago had much more advanced technology than the Nasdaq. . . . Because traders were able to access ECNs with much more speed in the boom years, that attracted much of the order flow over to ECNs, because the markets were moving so fast," said Rob Hegarty, a securities markets specialist at the Tower Group.
ECNs claim about 45 percent of trades involving Nasdaq stocks, up from 12 percent in 1988, Hegarty said. Nasdaq thought it had the answer to lost market share when it introduced a new trading platform, SuperMontage, in November, but so far, it has not brought volume back.
Just a few years ago, it seemed Nasdaq could do no wrong. Its high-profile composite index hit a stunning all-time high of 5,048.62 in March 2000. It was known as a hothouse for young companies.
Today, the index is trading about 72 percent below its high. And in a depressed stock market, few companies are going public, including Nasdaq itself.
The market value of Nasdaq stocks has fallen to $1.88 trillion on March 10, the three-year anniversary of its peak, from $6.71 trillion when the Nasdaq composite reached its high.
Greifeld, who this month was named CEO and president, is faced with helping Nasdaq get its momentum back. If his career, steeped in electronic trading systems, is any indication, Nasdaq's focus is likely to be on technology and stepping up its fight against ECNs.
"Volume is the name of the game," said Rogalski, the investments professor. "That has to be the focus of whoever next heads the Nasdaq."
Greifeld said he'd like to boost Nasdaq's share of trading volume to 90 percent, up from 70 percent by Nasdaq's own counting but up from about 55 percent according to Hegarty.
He replaces Hardwick "Wick" Simmons, who announced in December he would leave before his contract expired at the end of this year. |
