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September 17, 2008

Nasdaq Beats NYSE to the Punch

Trading Information Takes Center Stage in Exchange Battle

By Peter Chapman

Also in this article

Last November, two New York Stock Exchange specialist firms, citing poor economics, gave up their rights to trade their assigned stocks. For investor relations executives, charged with keeping up with the trading in those stocks, the moves were not helpful. Under the NYSE's Hybrid marketplace, the specialists had become less valuable sources of information anyway, but they were all they had.

That's when Nasdaq stepped into the breach. A short week after Van der Moolen Specialists and SIG Specialists, part of Susquehanna International Group, announced they would relinquish their stocks, Nasdaq offered up the services of its own market makers to help executives of the orphaned companies keep on top of the trading.

To investor relations officials and others at the approximately 400 abandoned companies, Nasdaq offered contacts on the trading desks of those dealers who made the best markets in the companies' shares.

The dealers were part of Nasdaq's Select Market Maker Program, which seeks to foster closer ties between listed company and brokerage officials. The program allows issuers to gain some insights into the fluctuations of their stocks' prices. At the same time, it helps trading houses with investment banking operations build stronger relationships with existing and potential banking clients. It may also help traders run down any rumors about a stock by giving them a point of contact within the firm.

At the time, Nasdaq's executive vice president in charge of the corporate client group, Bruce Aust, said of the issuers left dangling that it was "becoming clear that there is a lack of information and resources on their trading."

Making Hay

Chris Concannon, executive vice president of Nasdaq Transaction Services, also weighed in, noting that "given the closing of certain NYSE specialist firms on the floor and other recent market developments, NYSE-listed companies are in need of additional liquidity and access to market information."

Nasdaq was making hay while the sun was shining, as both books of stocks very quickly found homes with other specialists. But its offer did highlight the extent to which Nasdaq surpasses the NYSE when it comes to keeping its issuers informed about the trading in their stocks.

In the old days, due to the Big Board's virtual monopoly, NYSE specialists provided issuers with all the trading information they needed. Nasdaq, on the other hand, is a collection of competing market makers, most with no more than single-digit market shares. It long ago decided it had to aggregate and supply the information itself.

Now, with the fragmentation of trading in NYSE-listed shares and the disintegration of the specialist model, NYSE-issuers have lost their main conduit of trading information. The NYSE is scrambling to catch up to Nasdaq and its Market Intelligence Desk offering and says it intends to launch something big very shortly (see related article of July 23, 2008 at tradersmagazine.com.).

"We would be the first to admit that we probably counted and relied on the information that came off the floor," NYSE Euronext chief executive Duncan Niederauer told analysts recently. "That made it somewhat unique in terms of the value proposition for the issuers."