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May 31, 2000

Nasdaq World Domination

By John A. Byrne & Sanford Wexler

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  • Nasdaq World Domination
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Nasdaq's earliest effort at becoming a global stock market was a failure.

The Nasdaq International System (NIS), launched in 1992, guaranteed overseas traders two-sided continuous markets posted by some of the largest dealers in the U.S. But that flurry of support was soon whittled down to one reluctant player, Cantor Fitzgerald in New York. The basic premise of NIS was flawed.

Traders in London, for example, were put off by the lack of liquidity on Nasdaq during the regular trading day in the U.K. And in New York and other U.S. market centers, bleary-eyed traders soon became a rare sight in the wee hours.

In the end, overseas investors preferred trading in the primary market during its regular session when prices and executions were superior.

Global Relaunch

Today, Nasdaq is in the throes of a global relaunch. Some remarkable technological changes since 1992 could result in success.

"Market makers will be connected globally, 24 hours a day. Stock markets will be linked with new platforms, ventures and alliances on a 24-hours basis," NASD Chairman Frank Zarb told the U.S. Senate banking committee earlier this year.

"Competition for stock listings will give way to global listings," Zarb added. "Cross-border stock trading barriers will be reduced. Trade rules and accounting standards will help accommodate this as investors' needs influence the political process."

The driving force is Web-based technological innovation. That has brought down transactions costs, and enhanced stock price and research delivery services for individual investors. It is making low-cost communications links for exchanges possible.

Nasdaq's vision of itself as a global stock market, accessible by investors everywhere, is also driven by the oldest passions on Wall Street: fear and greed.

The signs of activity: alliances among big stock exchanges overseas, foreign competitors eyeing listings of U.S. companies, domestic electronic trading systems offering access to global markets, and nimble competitors threatening Nasdaq's franchise. What's more, Nasdaq's archrival, the New York Stock Exchange, wants to become a major player in the global markets.

Large War Chest

Nasdaq will spend hundreds of millions of dollars building a global technological backbone in the coming 24 months. The proceeds of a successful privatization should help. The new Nasdaq will operate an Order Display Facility, or supermontage, showing aggregated dealer price quotations. These participants could either identify themselves, or remain anonymous. That could subdue the encroaching ECNs in the global and domestic arena but propel Nasdaq's alliances in Europe, Japan, Hong Kong and elsewhere.

Nasdaq's territorial expansion is the Millennium version of a historic period. Now the New World discovers the Old.

Nasdaq is a partner in iX, a joint venture between the London Stock Exchange and Germany's Deutsche Borse. Nasdaq has co-listings arrangements with the Stock Exchange of Hong Kong. Trading was slated to commence soon in Japan in a deal with the Osaka Securities Exchange and the Nasdaq Planning Co. (a joint venture between the NASD and Softbank). Japanese growth companies would have the ability to raise capital in both the Japanese and U.S. markets. Japanese investors, meanwhile, would have access to these markets and to Nasdaq stocks. In Canada, a co-listings package was struck between Nasdaq and the Quebec government.