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July 31, 2003

Is Nasdaq Application in Trouble?

By Gregory Bresiger

The Nasdaq application to become a for-profit exchange is in trouble and is not likely to be approved by the Securities and Exchange Commission, several industry sources privately told Traders Magazine.

"It's not going to happen," said one trading industry executive. "The SEC is not going to approve it, but that isn't nearly so important to Nasdaq as other things," said another.

These sources, some of whom have recently worked for Nasdaq, said finding the proper business model is "far more important" to Nasdaq than whether the SEC gives formal approval to what has become a de facto exchange.

"They are cutting people left and right. They need to shore up revenues from transaction services, which have been going down by leaps and bounds," said one former Nasdaq official. An example of the latter, he said, was the recent departure of Denise Benou Stires, who had been serving as executive vice president of Worldwide Marketing. A Nasdaq source said her group had not been run profitably. "The new leadership is just not going to tolerate red ink," the source said.

An industry analyst, who isn't sure if the Nasdaq application is in trouble, nevertheless agrees that it is secondary. "They can do almost all the things of a for-profit exchange so this isn't really the big story," said Richard Repetto, a securities industry analyst at Putnam Lovell NBF. He added that improving the trading volumes and platform are more important.

"If they don't get an approval so what?" he asked. "They could become an ECN," Repetto said. He added that Nasdaq, which has had recent discussions with Instinet and Archipelago, could end up merging with one of the two. Nasdaq didn't respond to repeated requests for comment. The SEC said the application is under review.