NYSE Asks to Delay Nasdaq’s Bid to Become a Stock Exchange
The Nasdaq Stock Market’s application to officially become a stock exchange should be set aside for now because the filing is incomplete, confusing and misleading, the rival New York Stock Exchange has told regulators.
The Big Board’s objection could spell trouble for Nasdaq’s plan to sell stock to the public, an offering that Nasdaq hoped to make next year.
Going public would bring Nasdaq fresh capital with which to compete with the NYSE for stock listings and trading volume.
Under federal rules, Nasdaq, which is classified as a trading facility, must become a self-policing exchange before it can separate from its owner, National Assn. of Securities Dealers, and become a publicly traded company.
Nasdaq’s application to become a stock exchange was filed with the Securities and Exchange Commission this year. The NYSE filed its letter just before the public comment period on the application ended Wednesday.
“The NYSE carries an enormous amount of political weight, and it wouldn’t surprise me to see the Nasdaq application postponed,” said Benn Steil, a stock-exchange expert at the nonprofit Council on Foreign Relations. “While the SEC will probably want to be cooperative with the Nasdaq proposal, it will have to take the NYSE’s objections seriously and shore up its own legal position.”
The NYSE contended that Nasdaq and parent NASD must better define the rules under which they will operate independently.
“The public is being asked to comment on the proposed Nasdaq exchange rules without knowing what rules NASD will propose for amendment or adoption after it divests the Nasdaq exchange,” the NYSE said.
NASD, a self-policing brokers’ group that also owns the American Stock Exchange, has said it will continue as a not-for-profit organization after selling Nasdaq. It hopes to file its rule proposals with the SEC in about a month, NASD spokesman Howard Schloss said.
Spokesmen for Nasdaq and the SEC declined to comment.
The NYSE said Nasdaq’s stock-exchange proposal calls for it to receive revenue for trades that are executed internally by brokerages from their own inventory, even though these trades aren’t completed on Nasdaq’s trading platforms.
This provision “promotes confusion and is misleading to investors because it contradicts accepted rules of contract law,” the NYSE’s letter said.
Currently, any stock exchange is restricted to receiving revenue for trades “effected through its facilities,” the letter said.
About two-thirds of Nasdaq volume is handled internally by firms, according to estimates by Bernard Madoff, a New York broker-dealer who heads the Securities Industry Assn.’s trading committee.
