News Release

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:

  1. Proceed with Phases 1 and 2 of the proposed restructuring and recapitalization of The Nasdaq Stock Market® (these phases are described in the attached fact sheet.)*
  2. Conduct a vote of NASD membership prior to proceeding with Phase 1.
  3. Earmark approximately $114 million over seven years for the reduction of fees and assessments to the membership.
  4. Earmark up to $500 million of the proceeds for the benefit of NASD Regulation.
  5. Earmark up to $215 million for the benefit of the American Stock Exchange

* 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:;;;; or the Nasdaq NewsroomSM at

Fact Sheet on the Proposed NASD Restructuring*

A recap of the NASD proposed restructing is provided below as follows:

  • Goals of the Restructuring
  • Summary of the Restructuring
  • Allocation Rationale
  • Proposed Timetable
  • The Baxter Committee
  • The Fairness Committee
  • NASD Small Member Firm Participation and Benefits of the Restructuring

Goals of the Restructuring

The principal goals of the restructuring are to:

  • Streamline corporate governance;
  • Separate Nasdaq from the NASD and NASD Regulation in an attempt to minimize potential conflicts of interest;
  • Strategically re-align the ownership of Nasdaq by enlisting a broad class of investor-owners interested in Nasdaq’s long term success;
  • Create a financially stronger Nasdaq that is better able to address competitive challenges and to invest in new technologies; and
  • Generate proceeds that will support the operations of the NASD, which will continue to own NASD Regulation, and will remain the principal self-regulatory organization responsible for the securities markets.

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.

  • In Phase 1 of the private placement, approximately 47-49 percent (on a fully diluted basis) will be sold. Shares and warrants will be sold at fair market value, as determined through a valuation analysis conducted by J.P. Morgan & Co. Incorporated, financial advisors to the Fairness Committee and reviewed by Salomon Smith Barney, financial advisor to the NASD.

Nasdaq will offer newly-issued shares and the NASD will sell warrants to purchase outstanding Nasdaq stock, in varying amounts, to the following investors:

  • Approximately 130 strategic market participants will be offered a total of 30-32 percent equity interest.
  • Approximately 130 issuers will be offered an approximate total of 16.5 percent equity interest.
  • All NASD members in good standing will initially be offered an approximate total of 25 percent equity interest on a pro rata basis.
  • Prior to completion of Phase 1 the NASD will solicit approval for the restructuring from its membership. If required under applicable law, the NASD may re-solicit membership approval for Phase 2 prior to completing Phase 1. Consummation of Phase 1 is subject to receipt of a tax ruling and certain SEC approvals which are expected to be obtained in the near term.
  • Nasdaq will seek to register as an exchange. Prior to registration as an exchange, the NASD will retain majority voting control over Nasdaq. After registration, the NASD is expected to have a minority voting interest in Nasdaq.
  • If Nasdaq decided to undertake an initial public offering, equity in Nasdaq would be allocated to the NASD membership at large, subject to regulatory approval, at fair market value.

Allocation Rationale

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.

Proposed Timetable

An approximate timetable for the major restructuring steps is as follows:

NASD Board Approved Restructuring January 4, 2000
Town meetings continue with NASD membership to explain restructuring January 2000
Proxy materials forwarded to NASD membership to begin the one month voting period February to March
Begin the process of registering as an exchange Early 2000
Phase 1 private placement April-May 2000
Phase 2 private placement Mid-2000

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
Former President
Merrill Lynch & Co. Inc

M. LaRae Bakerink
First Vice President and Chief Compliance Officer
Pacific American Securities, LLC

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

Michael W. Brown
Retired Chief Financial Officer
Microsoft Corporation

Phillip Frost, MD
Chairman and CEO
IIVAX Corporation

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

Arvind Sodhani
Vice President and Treasurer
Intel Corporation

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:

  1. NASD is committed to reducing the fees and assessments of members by approximately $114 million over the next seven years.
  2. Part of the $114 million will include a $600 cash rebate to all members in year 2000.
  3. $500 million in proceeds of the transaction will be earmarked to reduce regulatory burdens and make NASD Regulation technologically more efficient.
  4. All members will be given an opportunity to purchase an equity interest in the new Nasdaq at fair prices. Following the completion of the entire private placement, it is expected that NASD members will collectively represent the largest direct and indirect ownership constituency.
  5. The recapitalized Nasdaq will be a financially stronger, technologically more advanced market that will benefit all market participants.
  6. The transaction will preserve the tax exempt status of the NASD, which benefits all members. Moreover, this proposal will avoid alternatives that would have resulted in punitive tax burdens on members.
  7. The proposed restructuring will create a more valuable Nasdaq for the membership.

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.