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December 1, 1999

At Deadline

By John A. Byrne

Kearney's Move

Art Kearney, the outgoing Security Traders Association chairman, has resigned as head of the equity capital markets unit at Minneapolis' John G. Kinnard & Co. Kearney said he has not accepted a position with another brokerage. He will take a temporary consulting job with the National Association of Securities Dealers as it explores opportunities in Hong Kong. Kearney spent 31 years with Kinnard, beginning his career in the mailroom. His departure followed within days the departure of his subordinate Charlie Westling, head of corporate finance. Both men are said to have clashed with Kinnard CEO Bill Farley.

Although its revenues are sharply down from 1996, Kinnard is seeing an improvement on the income statement this year. Commissions and trading revenues have picked up, although investment banking revenue is flat. Farley has tried to chart a banking course for the firm in an effort to revive its flagging fortunes. The results have been mixed. Kinnard is actively searching for a replacement for Kearney. "We believe strongly that there is a role for an investment bank like Kinnard and that our search will yield a leader who shares this vision," Farley said.

Demutualization

How far has the National Association of Securities Dealers come with its plan to transform Nasdaq into a for-profit organization? The NASD has already drafted a proposal to issue shares among its member firms and top publicly-listed companies, according to a well-informed source at a member firm. Under this plan, the NASD itself would retain a 25 percent ownership stake with 49 percent of the shares allocated to member firms. The remaining 26 percent would go to the top Nasdaq companies.

The source said the current plan would see Nasdaq conducting a private placement, instead of an initial public stock offering. That arrangement is consistent with recent comments by NASD Chairman Frank Zarb. The source said NASD's board is in favor of the draft proposal, which would require the approval of NASD members. A spokesman for the NASD said the board has made no decision on its demutualization plan.

Instinet COO Quits

Richard Schenkman, the chief operating officer of Reuters Group's Instinet, operator of the largest electronic communications network, is stepping down. He will take a new assignment outside the company. He said he could not disclose where he would be going or what he would be doing. Schenkman hinted that he would be involved in a computerized trading operation, however. "There is a huge demand for people with my experience," Schenkman said in a telephone interview from his office in London.

Reports of Schenkman's departure caused a stir on trading desks, coming as the giant electronic agency brokerage reinvents itself under a youthful chief executive, Doug Atkin. Traders Magazine first reported rumors that Instinet was eyeing an acquisition of Lynch, Jones & Ryan, an institutional discount brokerage based in New York. That rumored deal recently became a reality. Schenkman has said that financial institutions are scrambling to redefine their positions.

SelectNet Breakdowns

Market makers are suffering huge loses as a result of computer glitches with SelectNet, according to Lee Korins, president of the Security Traders Association. The STA president, in a letter to NASD President Richard Ketchum, said the continuing temporary interruptions on SelectNet "have cost dealers thousands of dollars in position losses due to their inability to monitor inventory positions and to effectively manage risk."

SelectNet is a sore point with Nasdaq as it embarks on an ambitious program to build relationships and customer accounts across the globe. Korins, in his letter, said the "SelectNet delays cause credibility problems for dealers and firms with customers and sales personnel as reports, when finally received, reflect prices of a time passed and may not be indicative of current market levels."

Korins and STA executive committee members said the concern would be expressed on a visit with Nasdaq staffers at its Trumbull, Conn., technology hub.