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September 30, 2000

Pushing Around The Big Board: Is Nasdaq Going to Eat The Big Guy's Lunch?

By Sanford Wexler & Gregory Bresiger

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  • Pushing Around The Big Board: Is Nasdaq Going to Eat The Big Guy's Lunch?
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After about three decades of remarkable growth by the stock exchange "for a digital age," the stage is set for a brutal battle between Nasdaq and the Big Board. Nasdaq is now far too big and far too noisy to be ignored. The battle will be waged on many fronts--in the fight for listings, on the web and in many places outside of the United States.

The acquisitions of market making firms by significant Wall Street players - market makers that include starlets such as Herzog, Heine Geduld; Spear, Leeds & Kellogg; PaineWebber Inc. - is one indication that Nasdaq is no longer the obscure exchange for OTC stocks.

"Today, everybody wants to buy these [market-making] franchises," said Bernard Madoff, chairman of Bernard L. Madoff Investment Securities, a Nasdaq dealer and third market firm.

Although the market capitalization of its firms, $16 trillion last year, makes it larger than the Nasdaq (where the market capitalization of its firms was about $5 trillion in 1999), Nasdaq has become much better known with the general public in the U.S. and the U.K. than the 200-year old Big Board.

That's according to a survey conducted for Nasdaq by Response Analysis Corporation, a market research company in Princeton, N.J.

In a relatively short time, Nasdaq has greatly benefited from America's dizzying shift to an information economy. All of a sudden, the once dinky little exchange has some 5,100 companies.

But, more importantly, are the kinds of the companies it has - Microsoft, Cisco Systems, Intel, Starbucks - companies few investors or traders had ever heard of a decade or two ago.

The NYSE, for its part, dismisses Nasdaq's bragging as childish and unfounded. A spokesman noted that a survey conducted by Opinion Research Corporation in Princeton, N. J., shows "exactly the opposite by a wide margin" - that the Big Board is actually better known among investors.

Nasdaq's success is no accident, says a former regulator, who explains how Nasdaq raised fees on listed companies, then plowed much of the added revenues into retention programs.

"Nasdaq smartly put this money into people and programs that gave special attention to their top 100 companies," according to Patrick Healy, former director of financial policy and strategy at the National Association of Securities Dealers.

"That caused these companies to stay with Nasdaq," added Healy, who now runs the Issuer Network a company based in Chevy Chase, Md., that advises companies on what exchange to list.

But although Nasdaq and the NYSE are not going to use the pages to detail this trading civil war, both exchanges are doing their best to outdo each other. For instance, although AOL, Gateway, Nordstrom and Coors were originally with Nasdaq, the NYSE persuaded them to move.

But Nasdaq, which mainly was concerned with playing offense in its first few years as a David, has also learned to protect its gains, persuading Microsoft, Cisco Systems and Intel to stay.