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July 31, 2001

The Nasdaq Exchange Is a Few Steps Closer: Everyone Looks to SEC to Make Next Move

By Gregory Bresiger

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  • The Nasdaq Exchange Is a Few Steps Closer: Everyone Looks to SEC to Make Next Move
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Little by little the child is moving away from the tutelage of the parent.

The National Association of Securities Dealers, the parent of Nasdaq, has sold off some three quarters of its equity stake in "the stock market for the next century." And both organizations are changing their leadership, planning for the breakup of the two groups and the NASD demutalization.

However, Nasdaq's transition to a for-profit stock exchange status still needs various regulatory approvals as well as more investors who want to take a stake in this vehicle.

"We will continue to operate together as the NASD and Nasdaq certainly until we get approval for our exchange application," said Frank Zarb, who is in the process of leaving his posts as chairman of both organizations. Zarb - who assumed the chairmanship of Nasdaq in the middle of the order handling rules scandal in 1996 - is expected to continue as chairman of Nasdaq Europe.

Orderly Separation

Hardwick Simmons, chief executive officer of Nasdaq, will succeed Zarb as Nasdaq chairman, while Robert Glauber, the president and chief executive of NASD, will become chairman of the group. These changes, announced at a press conference late in July, are "another step in the orderly separation of two groups," Glauber added. Still, the final breakup requires some more steps.

"We can't become truly independent until we are designated by the Securities and Exchange Commission to become an exchange," according to Andy MacMillan, a senior vice president with Nasdaq. After that approval, the two boards will formally separate. This would complete a separation process that has been going on since last year.

There have been two Nasdaq private placements since last summer. NASD's equity in the Nasdaq stock market has declined to 27 percent, MacMillan said. He said that the process of Nasdaq's complete independence is scheduled to be finished within six months.

"Nasdaq will eventually be an investor owned, for profit stock market," MacMillan said. "This is an application to be recognized for what we essentially already are," according to Richard Ketchum, who is president of Nasdaq.

The American Stock Exchange, which is also owned by the NASD, is also considering becoming a for-profit exchange that would be sold to its members. "We're looking at opportunities that would be in the best interests of the American Stock Exchange and its members," Zarb said.

And what happens to the parent? "The NASD will continue in its historical mission to support its membership as well as provide regulatory oversight," according to a spokesman for the NASD.

New Nasdaq

What will Nasdaq look like, after the SEC approves it application for exchange status? What will Nasdaq be as an organization after its wins access to capital markets to fund the technology changes it wants such as its SuperMontage project?

"Those are good questions," said Patrick Healy, the president of the Issuer Network, which is a capital markets advisory network in Washington, D.C. NASD will continue to be an important regulator, Healy predicts.