Nasdaq Provides Many Benefits to Investors, Companies
As the chief executive of a company that could easily list on the New York Stock Exchange but chooses to remain on the Nasdaq Stock Market, I believe the benefits provided by the Nasdaq to companies and investors are many and compelling.
The Times’ series of articles (Oct. 20-25) comparing Nasdaq and the traditional exchanges overlooked crucial benefits of Nasdaq as well as fundamental differences in the way stocks are traded in these markets.
A great deal of weight was given to quotation spreads as a measure of market quality in comparing Nasdaq and the exchanges. This is like comparing the size of icebergs by measuring the tips above the surface--without regard to the mass underneath.
Nasdaq’s growth speaks for itself: from 2 billion shares traded in 1971 to 66.5 billion annually today, from 54% NYSE annual volume to trading volume that now exceeds that on the NYSE. We believe that part of our company’s growth is attributable to the Nasdaq growth environment: In the seven years Octel has been a publicly traded company on Nasdaq, our revenues have gone from $40 million to $400 million and our market capitalization from $100 million to $500 million.
In my opinion, Nasdaq succeeds because it offers companies and investors the benefits of a totally different trading system. On an exchange, each stock, regardless of the company’s revenue or market capitalization, has one market maker, the specialist. Exchange specialist firms, by and large, do no business with the public, conduct no research, underwrite no securities. As the name denotes, they are specialists who make markets in stocks on an exclusive, assigned basis. Period.
On Nasdaq, each stock has several market makers. Octel has 28, of which 13 trade more than 100,000 shares each in a single month. This provides competition for order flow in our stock which, we believe, gives our stock better overall liquidity and pricing to stockholders. Nasdaq market makers are the same 510 firms that do virtually all of the public securities business in this country. They provide most of the capital in the securities business, issue most of the reports on companies, and underwrite most of the public offerings. Most of our market makers have an interest in the stock and our industry and help their customers (stockholders) better understand when to buy and sell the stock. A specialist doesn’t.
There is another reason my company--and I suspect many others--continues to favor Nasdaq. Call it a cultural affinity, if you will. Nasdaq is a market in a constant state of self-examination and improvement, adapting and combining the best features of its own system and that of the exchanges. As many of us have discovered, finding new ways of doing things is not only how we got where we are, it’s how we continue to grow. Nasdaq is a huge electronic network designed to allow a freer, more competitive market in trading stocks. It is probably the structure an exchange would have if it could start over and not lose face. It is certainly the structure that many exchanges outside the United States are moving to. If the NYSE didn’t have a rule that makes it very difficult for a listed company to switch from New York to Nasdaq (or any other market), which by all rights would probably be held invalid if anyone challenged it in a court, many NYSE companies would likely switch to Nasdaq.
ROBERT COHN
Chairman and CEO
Octel Corp.
Milpitas, Calif.
