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April 1, 2000

Don't Sell Nasdaq, Says Small Long Island Broker

By William Hoffman

The Independent Broker Dealers Association is getting a boost out of the proposed sale of Nasdaq, according to the president of the Long Island, N.Y. based group. "People are joining IBDA because of this [proposed sale]," Alan Davidson said.

IBDA, which represents small broker dealers, is receiving 10 to 12 checks a day by mail from National Association of Securities Dealer firms concerned about the sale of the Nasdaq exchange, according to Davidson.

Davidson urged NASD member firms to vote against the proposed sale of Nasdaq.

Notifying Members

An NASD board member, Davidson made his comment after NASD chairman Frank G. Zarb's March 12 media teleconference on the proposed sale. The teleconference informed reporters that private placement and proxy letters had been sent notifying the NASD's roughly 5,500 member firms of the proposed sale.

Zarb said the current arrangements require NASD regulatory services to be financed out of members' dues. The sale of Nasdaq provides funds to modernize and to reduce dues.

Nonetheless, other small broker dealers may not share Davidson's view. Nicholas C. Cochran, chairman of the NASD's National Adjudicatory Committee and a director of the California Independent Broker Dealers Association, said the sale would benefit smaller broker dealers.

"Frankly, in my view, they have been neglected for quite some time," he said. The sale would allow the NASD to concentrate on its proper role as a trade association, he added.

Single Regulator

Davidson also argued that a February proposal, by five large broker dealers recommending a single market regulator for all U.S. exchanges, would eviscerate the self-regulatory aspect of Nasdaq. The proposal is pending before the Securities and Exchange Commission.

Combined with the transformation under private placement of exchange governance from "one firm, one vote" to "one share, one vote," Davidson argued that smaller NASD member firms would thus be placed at a serious disadvantage.

Zarb Counters

But Zarb said during the teleconference that, "No one appears to be disadvantaged," by the proposed sale. "Not to do this would be a major, major downer for the future of both the Nasdaq and the NASD."

The NASD chairman said developments in the debate over central regulation would clarify the NASD's position. He noted that the regulatory structure could not be changed without the organization's approval.

"I believe that when that becomes clear, that we will all see that there's not likely to be any connection between what's happening here and the debate over a central regulator, which is probably going to go on for years, because it's gone on for years," Zarb said. "If there is a serious debate about a central regulator, [it will] accrue to the benefit of the NASD going forward," he added.

Lone Dissident

Davidson was cited by name during the March 12 teleconference as the lone dissident on the NASD Board of Governors in opposition to the proposed sale of the exchange. Davidson emphasized he could speak for the record only as president of his Jericho, N.Y. company, Zeus Securities, and of IBDA, which he said represents about 250 NASD members firms. "There's very substantial support for our position," he said.

During the teleconference, Zarb lauded Davidson's "time and effort helping to ensure that the small broker dealer interests were cranked into the final model" for private placement.

Davidson said he was, until recently, receiving two calls a day from NASD members soliciting his support. "Lately they've stopped calling," he noted. "I think they're starting to get the message." He said comments by SEC Chairman Arthur Levitt support his contention that the single regulator debate is on hold now only because the commission has more pressing matters on its agenda.