|Thursday, July 29, 1999
NASD Board Approves Steps Toward a Broader Stock-Based Restructuring of The Nasdaq Stock Market
New York, NY—The National Association of Securities Dealers, Inc. (NASD®), today announced that its Board of Governors continued its consideration of restructuring The Nasdaq Stock Market® into a more broad stock-based ownership structure. NASD Chairman and Chief Executive Officer Frank G. Zarb said, "The overriding reason for considering this move is to better serve investors and to protect the interests of investors, NASD members, and issuers by fostering the continued growth and strength of The Nasdaq Stock Market."
Zarb explained, "Our equity markets are one of America’s crown jewels. Investors’ expectations of what markets should do and be are changing as new technologies make more things possible. Our vision is a market that gives investors extraordinary visibility into what is available to be bought and sold, the ability to set the inside price in the market, and the ability to execute their own orders instantaneously. We will continue to change our market to reach these goals. We need to change our order display window to give more investors more visibility into the market. We need to change our governance to make decisions more quickly in an increasing competitive environment that values speed. We need to change our ownership structure to align the interests of the market with the interests of the market participants who bring it their business."
Today’s Board Action
The NASD Board today authorized the staff to proceed with steps that move closer to a broad stock-based structure for The Nasdaq Stock Market. The Board approved, in concept, a stand-alone Nasdaq Stock Market, and authorized the staff to:
Also, the Board appointed an ad hoc committee of the Board to provide an independent assessment of the fairness of any proposed restructuring ("Fairness Committee"). The Fairness Committee will be composed of a cross section of NASD Board members who have not been part of the Baxter Committee (see below) process to develop the restructuring.
The Baxter Committee
The discussion at today’s Board meeting was part of a ten-month evaluation by a special committee of the Board headed by NASD Board Member Frank E. Baxter. The Baxter Committee was charged with the task of studying governance and restructuring options for The Nasdaq Stock Market in the face of the challenging, dynamic, and increasingly competitive environment. Zarb commented, "The process was set up to be deliberate and thoughtful. We’re clearly moving in a new direction, and we’re making progress on the details." The committee has been working with outside investment bankers and is composed of NASD Board members representing a cross section of interests. The Baxter Committee consists of the following members:
Frank E. Baxter
Chairman and Chief Executive Officer
Jefferies Group, Inc
M. LaRae Bakerink
First Vice President and
Chief Compliance Officer
Pacific American Securities, LLC
Michael W. Brown
Retired Chief Financial Officer
E. David Coolidge, III
Chief Executive Officer
William Blair & Company, LLC
Herbert M. Allison
Merrill Lynch & Co., Inc.
Former President of Citigroup Inc.
Former Chairman and Co-Chief
Executive Officer of
Salomon Smith Barney
Phillip Frost, M.D.
Chairman and CEO
Vice President and Treasurer
Commenting on the rationale for a possible stock-based structure, Baxter said, "The stock-based structure will allow Nasdaq to compete successfully in today’s highly competitive market environment for three fundamental reasons: First, it better aligns the interests of the Market with the interests of its key participants. Second, it provides both an initial infusion of capital and easier ongoing access to capital. Third, as a for-profit stock-based company governed by the Market’s leading participants, Nasdaq should be more agile, flexible, and effective in responding to industry and market conditions."
Benefits to Members
Nasdaq, today, is owned by the NASD, a nonprofit membership corporation, with over 5,500 members. About 500 of NASD’s members act as Market-Makers in Nasdaq stocks. Recapitalization will strengthen The Nasdaq Stock Market financially without burdening the existing members with the required cost. In summary, the benefits of recapitalization to existing members are as follows:
Michael W. Brown, retired CFO of Microsoft, a NASD Board member, a Baxter Committee member, and chairman of the Nasdaq Board of Directors explained, "Beyond the direct benefits of the restructuring, the idea improves Nasdaq’s focus on its value proposition significantly. Improved price discovery is the real goal here. Pulling together the key market participants as we are doing, results in more than just a stock-based market. It gives us a consensus to do the following:
New Organizational Structure for NASD
By the end of the process, NASD’s ownership of Nasdaq could shift from 100% to a minority stake. The majority portion of the Market could be owned by current NASD members, securities firms, issuers, buy-side firms, technology partners, and the public as illustrated in the diagram below:
A remaining minority NASD ownership stake should provide a continuing voice for the NASD membership in the operations of The Nasdaq Stock Market.
Benefits to NASD Regulation
One goal of a recapitalization would be that NASD/NASDRSM become the best funded financial industry self-regulatory organization (SRO) in the world. In summary, the benefits of restructuring for NASD would be as follows:
Today’s Board action was not a final GO/NO-GO decision but a continuation of the process toward a new for-profit broader stock based Nasdaq Stock Market. The next steps will include:
The National Association of Securities Dealers, Inc. (NASD®), is the largest securities-industry, self-regulatory organization in the United States. It is the parent organization of NASD Regulation, Inc., and The Nasdaq-Amex Market Group, Inc. Through its regulatory subsidiary, the NASD develops rules and regulations, provides a dispute resolution forum, and conducts regulatory reviews of member activities for the protection and benefit of investors. Through the Nasdaq-Amex Market GroupSM, the NASD operates The Nasdaq Stock Market® and the American Stock Exchange (Amex®). The NASD oversees the nation’s over 5,500 brokerage firms and more than half a million registered brokers. For more information about the NASD and its subsidiaries, please visit the following Web sites: www.nasd.com; www.nasdaq-amex.com; or the Nasdaq-Amex NewsroomSM at www.nasdaq-amexnews.com.