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July 31, 2003

Can Nasdaq Make a Comeback? Layoffs and a new corporate culture are a sign of the hard times at Nas

By Desmond MacRae

Still, order handling hasn't been the only problem. The regulatory playing field is now uneven, Nasdaq officials have bitterly complained. For example, it said that the Arca ECN can sell securities in a short sale arrangement. That's despite the fact other Nasdaq participants are not permitted to do this because of the short sale, up-tick rule.

However, Arca officials say Nasdaq's comments are wrong. ArcaEx went through a public comment process and its rules were approved. Nasdaq had its chance to object then, they say.

Greifeld says Arca's regulatory short-sale rule advantage could disappear.

"Not many people have noticed that exchange status for Arca ruins the Arca exemption because our securities become listed," he said. "Arca will then all be

under same regulatory umbrella."

But Greifeld admits there are more pressing challenges. He says of SuperMontage, and of Nasdaq's critical Transaction Services Group, that "there is room for improvement." Indeed, Transaction Services, the first quarter of this year compared to the first quarter of 2002, had a 13.8 percent decline in revenues. Market Information and the Corporate Client Group both had revenue declines in the same period.

Disciplined Manager

A disciplined manager often described as intense by people familiar with his style, Greifeld headed Automated Securities Clearance, Inc. for about eight years until 1999. That's where he led a team that helped make BRASS the industry standard for trade order management systems.

When SunGard bought ASC in 1999, Greifeld became head of its brokerage systems business, an area that he expanded successfully. He accomplished this, in part, by 10 acquisitions in less than four years.

Greifeld seemed to downplay the exchange application, of which previous Nasdaq management had invested so much time and effort. He also tried to reassure market makers that they will remain a core constituency for a revamped Nasdaq.

"We want to help the Nasdaq market makers to grow and develop capabilities that match the current business climate," said Greifeld, asked about the possibility of Nasdaq becoming a giant ECN. And that means more participants, competing in new ways, he said.

"Nasdaq is now coming out with a second market maker ID that will allow the market makers to compete more effectively for agency order flow. We know the world is changing, and we are here to change with it, and will, I hope, assist the market markers' progress as we do that. We need and want a lot of competitors in the Nasdaq big tent. That's what we're about."

But to get into that big tent, most Nasdaq observers have usually assumed, would mean SEC formal approval of Nasdaq as a for-profit exchange, an exchange with the ability to raise capital through an IPO.

The exchange application is also important for those who want to re-orient Nasdaq to a for-profit organization that can finally, and formally, cut its ties with its nominal parent, the National Association of Securities Dealers.

Independence

Even though both organizations now have separate boards, Greifeld believes it is a top priority for him to ensure that Nasdaq is completely independent and that an incongruous relationship with the NASD ends.