Nasdaq Targets NYSE’s Tight Grip

The Nasdaq Stock Market on Tuesday asked regulators to repeal a New York Stock Exchange rule that impedes NYSE-listed companies from moving to another exchange.

Rival exchanges have long complained about the NYSE’s Rule 500 -- dubbed the “Roach Motel” rule by critics because they say it lets companies in but never lets them out, a reference to an insect trap.

Nasdaq has lost more than 75 companies this year and added 23, while the NYSE has delisted 31 companies that either merged or no longer met listing requirements and added 16.

Rule 500 prohibits NYSE companies from voluntarily leaving for another market until their boards and audit committees authorize the change, notify their 35 largest shareholders and wait at least 20 days. One company, Aeroflex Inc., has left the NYSE for Nasdaq since the SEC last reviewed the rule in 1999, while 167 have joined the Big Board from Nasdaq in the same period.

In a petition sent to the Securities and Exchange Commission, Nasdaq asked the regulator to repeal Rule 500 because it “gives the NYSE a grip on its listed companies that companies cannot break free of.”

The NYSE “knows that [its listed companies] cannot leave without an onerous process that requires extensive delay and communication with their shareholders,” said Edward S. Knight, Nasdaq’s general counsel.

Announcement of the petition comes one day after Nasdaq installed a new chief executive. The market is trying to boost its business after its roster of listed companies has fallen to about a 20-year low.

It also comes as the NYSE is investigating the trading practices of some of its specialists, who manage the buying and selling of shares on its floor. The investigation highlights the importance of making it easier for companies to move their shares from the NYSE, Nasdaq said.

The NYSE said Nasdaq’s assertions “do not reflect the reality of Rule 500 or properly represent the business of the NYSE.”