- The Washington Times - Wednesday, January 5, 2000

The National Association of Securities Dealers' board yesterday unanimously approved a plan to change the soaring Nasdaq Stock Market into a private, for-profit company that will sell stock in itself to raise money.
The move is expected to trigger similar changes by other U.S. markets.
The $1 billion plan, which NASD Chairman Frank Zarb has said he wants to put into effect by July, will make Nasdaq the first securities market in the United States owned by its shareholders rather than by member brokerages. Several other U.S. exchanges, including the largest, the New York Stock Exchange, also are becoming corporations to try to meet growing competition from low-cost electronic trading networks.
"This gives Nasdaq more flexibility in a highly competitive and fast-moving environment," Mr. Zarb said at a news conference yesterday. "It gives Nasdaq the ability to assemble the capital and resources necessary to take on the next generation of global transactions."
Nasdaq's move may spur the NYSE to accelerate its own preparations for an initial public offering, which Chairman Richard Grasso has said could take place by the end of 2000. Mr. Grasso, who has been encountering resistance from some member firms, will use yesterday's vote as ammunition in trying to prod his constituents, a securities-market expert said.
"Grasso will tell some of the lukewarm firms that the Big Board can't afford to be far behind," said William Freund, a former NYSE chief economist, now a Pace University economics professor.
At least three other U.S. exchanges also are moving to become for-profit companies: the Pacific Exchange, an options market; and the two largest futures markets, the Chicago Board of Trade and the Chicago Mercantile Exchange. Stock exchanges in Australia and Sweden already are for-profit companies.
Yesterday's NASD vote capped a 15-month internal review that saw the leadership's original plan yanked by Mr. Zarb last month in the face of widening opposition from small member firms. The final plan, which contains concessions to these brokerages, reflects the board's pressing desire to get ready access to funding for the market's expanding technology needs.
The vote came as the high-flying Nasdaq Composite Index tumbled 5.6 percent. Last year, the Nasdaq soared 86 percent, the biggest gain ever recorded by a major market index.
The NASD, a District-based industry group that owns Nasdaq, the second-largest stock market in the United States, will submit the plan to a vote by its 5,500 member firms, probably by March, said Mr. Zarb.
NASD board member Alan Davidson, who led a fight by small-member firms against the original NASD plan, said he expects the members to approve the proposal.
The industry group plans to sell its control of the market through two private placements that will sell as much as 79 percent of the new company's stock, Mr. Zarb said.
Nasdaq currently derives its revenue from membership, trading and listing fees, and from sale of stock-quote data to vendors and brokerages. It often has run into resistance in trying to raise revenue from any of these sources.
NASD board member Frank Baxter, who headed the NASD committee that recommended Nasdaq's conversion, said the plan would streamline the market's decision-making, which has gotten bogged down in conflict between factions with different business interests. A Nasdaq company would increase management's authority and give shareholders a common stake in the market's growth, said Mr. Baxter, chairman of the Jefferies Group Inc. brokerage.
The NASD, following the Nasdaq sale, will keep its not-for-profit regulatory arm and the American Stock Exchange, which will remain a membership organization.
The board's plan anticipates that sale of Nasdaq stock will raise at least $1 billion, with at least $500 million to be provided to NASD regulation, Mr. Zarb said. Securities and Exchange Commission Chairman Arthur Levitt has insisted that the regulatory unit maintain its vigor and independence.

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