January 4, 2000
NASD Board Unanimously Approves Major Restructuring
New York, NY—The National Association of Securities Dealers, Inc. (NASD®), announced that its Board of Governors today has unanimously approved a major restructuring of the NASD.
NASD Chairman and Chief Executive Officer Frank G. Zarb said, "Today’s Board actions are a win-win-win for investors, issuers and NASD members. Investors and issuers get a more agile, better-capitalized Nasdaq®—one that can be quicker to put technology to use and better able to create the digital global stock market. Members get reduced fees through a better-funded NASD Regulation®, reduced regulatory administrative burdens through the increased use of technology, an increasingly member-focused NASD organization, and the opportunity to participate financially in each phase of the Nasdaq® recapitalization."
Today’s Board Actions
The NASD Board authorized the staff to:
* Note: Phases 1 and 2 of the restructuring are to be completed through the private placement of shares of common stock and warrants pursuant to an exemption from registration of non-public offerings under the Securities Act of 1933, as amended. The securities will not be registered with or approved or disapproved by the Securities and Exchange Commission or any state Securities Commission. This press release is neither an offer to sell nor a solicitation of an offer to sell any securities. The offer of securities will only be made through a Private Placement Memorandum to be delivered to intended offerees.
Commenting on today’s board actions were Governors Robert R. Glauber, a professor at Harvard University and head of the NASD Board’s Fairness Committee, Alan L. Davidson, President of Zeus Securities, Inc., and Frank E. Baxter, Chairman and CEO of the Jeffries Group and head of the NASD Board’s Baxter Committee.
Glauber noted, "The restructuring has many moving parts that were extensively analyzed by the Fairness Committee. The Baxter Committee provided a roadmap with these objectives: enhance the competitiveness of Nasdaq, fairly recognize the members’ contribution to building Nasdaq, strengthen NASDR and maintain its independence, reduce regulatory costs to members, and protect NASD’s commitments to the Amex. Management and the Board have worked hard to balance and meet these objectives. The plan approved today, in the view of the Fairness Committee, is fair to the NASD and is members and achieves the Baxter Committee objectives."
Davidson commented, "We have all worked hard to be sure that the interests of the small firms are well represented. Today’s plan does that. I enthusiastically support today’s board actions and encourage my colleagues in the membership to vote to approve this historic restructuring of the NASD."
Baxter explained the impact of the restructuring on Nasdaq, "The new ownership structure for Nasdaq will allow it 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 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."
The National Association of Securities Dealers, Inc., is the largest securities-industry, self-regulatory organization in the United States. It is the parent organization of The Nasdaq-Amex Market Group, Inc., and NASD Regulation, Inc. Through The Nasdaq-Amex Market GroupSM, the NASD operates The Nasdaq Stock Market and the American Stock Exchange. 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. The NASD oversees the nation’s 5,600 brokerage firms and more than 600,000 registered brokers. For more information about the NASD and its subsidiaries, please visit the following Web sites: www.nasd.com; www.nasdaq.com; www.amex.com; www.nasdr.com; or the Nasdaq NewsroomSM at www.nasdaqnews.com.
Fact Sheet on the Proposed NASD Restructuring*
A recap of the NASD proposed restructing is provided below as follows:
Goals of the Restructuring
The principal goals of the restructuring are to:
Summary of the Restructuring
In summary, a substantial stake in Nasdaq is intended to be sold at fair value in a two-part private placement to a limited number of market participants, issuers, and all NASD members. Over the course of Phase 1 and 2, Nasdaq will offer newly-issued shares and the NASD will offer warrants to purchase outstanding Nasdaq stock.
Nasdaq will offer newly-issued shares and the NASD will sell warrants to purchase outstanding Nasdaq stock, in varying amounts, to the following investors:
An important goal of the recapitalization is to achieve broad-based ownership in The Nasdaq Stock Market by the key market participants that have been most crucial to its success. A comparison of the expected investor breakdown following the two private placements in the new Nasdaq, with the revenue contribution of these investors over approximately the last 10 years, is provided below: (for informational purposes only)*
As shown in the graph, there is a strong correlation between the historical revenue contribution of the parties and the anticipated ownership participation in the new Nasdaq.
An approximate timetable for the major restructuring steps is as follows:
||January 4, 2000|
||February to March|
New Organizational Structure for NASD
By the end of Phases 1 and 2, NASD’s ownership of Nasdaq is expected to shift from 100 percent – to a minority stake of approximately 22 percent. The major portion of the Market would be owned by investors consisting of current NASD members, issuers and strategic market participants, as illustrated in the diagram below:
The Baxter Committee
The strategy behind the restructuring was developed through the efforts of a special committee of the Board chaired by NASD Board member Frank R. Baxter. The Baxter Committee was formed in August 1998 and 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 market. Frank Zarb had previously commented on the Baxter Committee, "The process was set up to be deliberate and thoughtful. We’ve intentionally not had a set time schedule—our goal has been to get this right—and I think the Baxter Committee has done a terrific job of setting a new strategic direction." The committee worked with outside investment bankers (Salomon Smith Barney) and was composed of NASD Board members representing a cross-section of interests. The Baxter Committee consisted of the following members:
Frank E. Baxter
Chairman and Chief Executive Officer
Jefferies Group, Inc.
|Herbert M. Allison
Merrill Lynch & Co. Inc
|M. LaRae Bakerink
First Vice President and Chief Compliance Officer
Pacific American Securities, LLC
James DimonFormer President of Citigroup, Inc.
Former Chairman and Co.-Chief
Executive Officer of Salomon Smith Barney
|Michael W. Brown
Retired Chief Financial Officer
Phillip Frost, MD
Chairman and CEO
|E. David Coolidge, III
Chief Executive Officer
William Blair & Company, LLC
Vice President and Treasurer
The Fairness Committee
A second committee of the board, the Fairness Committee was created on July 29, 1999, to provide an independent assessment of the restructuring proposal. The Fairness Committee was composed of a cross section of NASD Board members who had not been part of the Baxter Committee. The Fairness Committee was chaired by Professor Robert R. Glauber of Harvard University and engaged its own independent legal and financial advisors (J.P. Morgan). The Fairness Committee carefully reviewed and considered the objectives and terms and conditions of the restructuring. The restructuring plans were modified in a number of important respects based on input from the Fairness Committee. The Fairness Committee unanimously determined that the terms of the restructuring were fair and in the best interests of NASD and its members.
NASD Small Member Firms Participation and Benefits of the Restructuring
The proposed restructuring offers significant participation and benefits to all NASD members, including those small member firms that are not active participants in Nasdaq activities, as summarized below:
Note: Phases 1 and 2 of the restructuring are to be completed through the private placement of shares of common stock and warrants pursuant to an exemption from registration of non-public offerings under the Securities Act of 1933, as amended. The securities will not be registered with or approved or disapproved by the Securities and Exchange Commission or any state Securities Commission. This press release is neither an offer to sell nor a solicitation of an offer to sell any securities. The offer of securities will only be made through a Private Placement Memorandum to be delivered to intended offerees.