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April 21, 2005

Back in the Big Leagues?

By Editorial Staff

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Nasdaq now hopes it has figured it out. Bob Greifeld, the hands-on

Nasdaq president and CEO, in a wide-ranging interview with Traders Magazine editor John A. Byrne, says he is "cautiously optimistic" about its exchange application finally winning approval. Greifeld also discussed how Nasdaq has undergone a signal change over the last decade. Excerpts follow. (For the complete Q&A, go to

Traders: How did Nasdaq get here? Tell me the biggest changes of the past decade.

Greifeld: Ten years ago, Nasdaq was predominantly a dealer market. One event made a big difference. It was decimalization. The narrowing of the spread removed the dealers' participation in a large number of trades. We've seen dramatic growth in the agency side of the Nasdaq marketplace. Our most actively traded stocks have very narrow spreads and continuous buying/selling interest, trading primarily in an agency format. However, the market maker function is still a very important and valuable function in the trading of our stocks.

Traders: This market maker participation is evident today in the trading of OTC Bulletin Board stocks. What will you do with the OTCBB?

Greifeld: What you are referring to is our decision to terminate activities to establish a Nasdaq Bulletin Board Exchange (BBX). That was going to attempt to bring a high level of electronic trading to the Nasdaq marketplace, which would basically require all bids and offers to be electronically accessible. We thought that did not work for several reasons: We didn't feel that structure was Nasdaq market maker friendly; and we felt the order delivery mechanism is a better mechanism. Now what exists today is the OTC Bulletin Board, which is an order delivery mechanism. The companies that trade in the OTCBB are not listed on the Nasdaq Stock Market but we provide that electronic trading facility for that purpose.

Traders: Are you going to get rid of the OTCBB eventually?

Greifeld: No, we haven't made any such decision. We currently operate the OTCBB. Part of our job at Nasdaq is to constantly review what we do and make sure we are providing the proper level of service. So, we look at and evaluate the OTC Bulletin Board. But at this point in time, we are running it and we are running it very successfully.

Traders: Do you see it as part of Nasdaq's future a year or so from now?

Greifeld: I think what you are getting at is when Nasdaq has its exchange application approved, we would have to come up with a different structure than we have today, in order for us to be able to run the OTCBB.

Traders: OK, what is holding up the application?

Greifeld: The fundamental issue is that the Nasdaq marketplace allows market makers to provide internalization services to their customers. We are a strong believer that this internalization customer provides additional benefits to investors, most notably to retail investors.

Traders: Doesn't that violate the legal parameters of the traditional stock exchange model?