NASD Board OKs Plan to Make Nasdaq a Public Company

As expected, the National Assn. of Securities Dealers’ board on Tuesday unanimously approved a $1-billion plan to change the Nasdaq Stock Market into a private, for-profit company that will sell stock in itself to raise money.

“This gives Nasdaq more flexibility in a highly competitive and fast-moving environment,” NASD Chairman Frank Zarb said at a news conference.

Zarb said Nasdaq would be able to more easily raise money to fund its growing technology needs, and be able to more swiftly make organizational decisions.

Still undecided, however, is whether the public will be offered any stock in Nasdaq.

The spinoff plan, which Zarb has said he wants to put into effect by July, would make Nasdaq the first securities market in the U.S. to be owned by shareholders rather than by member brokerages. Several other U.S. exchanges, including the largest, the New York Stock Exchange, also are moving to become corporations to try to meet growing competition from low-cost electronic trading networks.

NASD, an industry group that owns Nasdaq, the second-largest U.S. stock market, plans to sell its control of the market through two private placements to member brokerages, big investors and 130 large listed companies such as Microsoft Corp. and Intel Corp.

The private placements, to be underwritten by Citigroup’s Salomon Smith Barney, would sell as much as 79% of the new company’s stock, Zarb said. NASD plans to keep a minority stake in Nasdaq.

Any Nasdaq stock offering to the public at large would have to be decided later by Nasdaq’s new board, Zarb said.

The first step in the process calls for NASD to submit the plan to a vote by its 5,500 member brokerage firms, probably by March, Zarb said.

The NASD plan calls for major Nasdaq dealers to get up to 32% of Nasdaq stock. Other brokerages would be offered 25%. The largest Nasdaq-listed companies would receive 16.5% and institutional investors about 5%.

Nasdaq’s move may spur the NYSE to accelerate its own preparations for an IPO, which chairman Richard Grasso has said could take place by the end of 2000. Grasso, who has been encountering resistance from some member firms, will use Tuesday’s vote as ammunition in trying to prod his constituents, a securities-market expert said.

“Grasso will tell some of the lukewarm firms that the Big Board can’t afford to be far behind,” said William Freund, a former NYSE chief economist, now a Pace University economics professor.