News Release

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:

  1. Continue consultation with the membership on all aspects of the restructuring.
  2. Further develop the business model for the Nasdaq market to assure its future competitiveness as the market of choice.
  3. Reach preliminary agreements on possible equity investments with key participants.
  4. Take necessary steps to modify existing by-laws and governance to accommodate any potential new structure.
  5. Begin work required to file with the SEC for exchange registration.

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
Microsoft Corporation

E. David Coolidge, III
Chief Executive Officer
William Blair & Company, LLC

Herbert M. Allison
Former President
Merrill Lynch & Co., Inc.

James Dimon
Former President of Citigroup Inc.
Former Chairman and Co-Chief
Executive Officer of
Salomon Smith Barney

Phillip Frost, M.D.
Chairman and CEO
IVAX Corporation

Arvind Sodhani
Vice President and Treasurer
Intel Corporation

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:

  • Responds to the major market challenges facing us in a new, electronic, highly competitive environment;
  • Strengthens our self-regulation model and protects the existing regulatory funding support for small broker/dealers;
  • Creates a strong financial base for Nasdaq, the NASD and NASD Regulation;
  • Ensures NASD members are treated fairly and appropriately in return for helping to build Nasdaq;
  • Preserves and grows our asset value in Nasdaq;
  • Allows the NASD leadership to concentrate on its membership to build upon the self-regulatory model unimpeded by market concerns.

Strategic Considerations

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:

  1. Electronic price discovery. We expect to build a consensus for offering, in one place, the transparent price discovery needed by the market to address the tendency toward market fragmentation.
  2. Improved market technology. The opportunity to partner with key technology companies should enable The Nasdaq Stock Market to move more quickly to a low-cost, internet-based technology platform.
  3. Improved regulation. Regulation that is both better funded and independent of the operations of the marketplace.

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:

  • A better capitalized, more independent NASD Regulation would extend the vision of the Rudman Commission to its logical end and provide better-funded self-regulation over all NASD members for the protection of all investors.
  • This action should strengthen the NASD regulatory capabilities without economically over-burdening the membership.
  • In fact, a substantial portion from the initial private placement raised by NASD is expected to be used specifically to support NASD
  • Regulation and hold down the costs of regulation for all members.

Next Steps

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:

  • Proceed with preliminary agreements on equity investments with key participants.
  • Proceed with necessary governance changes.
  • Begin the process of registering as an exchange.
  • Continue to consult with NASD membership and determine member equity participation.
  • Continue Baxter Committee work on deal structure.
  • Continue formal NASD Board consideration.
  • Continue consultation with the SEC.
  • Move toward a possible private placement to key participants (members, key broker/dealers, issuers, buy-side firms, and technology partners).
  • Consider a possible IPO.

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; www‌; or the Nasdaq-Amex NewsroomSM at www‌