Brett Cenkus
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Trump Won't Kill America, Bitcoin Will

In this shared piece, author Brett Cenkus argues that nation-states will cease to exist not because of a who, but a what - and it's already here.

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January 1, 2000

Nasdaq Restructuring Moves Forward

By William Hoffman

The way Strum sees it, the NASD is now watching to see how a contemplated NYSE IPO proceeds. Electronic trading has finally begun to revolutionize investing, Strum reasoned, opening tantalizing vistas of new profit opportunities for the exchanges. The exchanges responded to these developments by proposing to go public, he continued, in a move that would infuse large sums of new capital for restructuring and expansion, while shifting the financial responsibility for exchange operations from exchange members to the stock investing public.

Close Examination

NASD visiting academic fellow, Prof. Jim Angel of Georgetown University in Washington, who is studying the exchange from the inside, said he believes the SEC will examine any proposed demutualization "with a fine toothed comb" before letting it proceed. "I certainly don't think the regulators are going to rush into anything, much less something as important as demutualization," the associate professor of finance said.

Angel emphasized that he does not speak for the NASD. Nevertheless, he observed, "This is an exciting time. Everyone knows that the equity markets are changing rapidly." Mutual exchanges worked well for centuries in an environment where the pace of change was modest, he noted. As technology and globalization speed that pace, he said, exchanges need to become more flexible. Demutualization may better serve that need, he said.

Spreading the financial risk of exchange funding and ownership is a good idea, Angel said. Shareholders are good at managing risk, he said, because it's in their own interest to do a good job of it. Further, he said, the experience of European and other exchanges that have demutualized suggests that investors with a vested interest in healthy operations - generally, large brokerages and investment banks - will end up holding the majority of exchange stock.

Finally, Angel said, the SEC opened the door to demutualization when it began allowing new for-profit automated trading systems (ATS) to become exchanges. Now, he said, the SEC must find a way to allow exchanges to become for-profit entities.

Angel and Strum's expectations fall upon the SEC. Strum said that, Levitt's apparent low-key, light-touch approach to lingering regulatory issues notwithstanding, the SEC has made its concerns and priorities clear to the exchange managers. "I never lifted a hand toward my children," Strum mused. "I never raised my voice. Levitt isn't given to threats or arm-waving. I think he's doing the functional equivalent of looking over his eyeglasses. He doesn't have to threaten. They know what he means: you better have a plan."