Group to Fight Nasdaq Profit Plan

A group of small brokerages said Monday it will campaign against the Nasdaq Stock Market’s $1-billion proposal to become a for-profit company, and likely will file a lawsuit seeking to halt the plan.

“The conversion is not in member firms’ best interests,” said Alan Davidson, an NASD board member who heads the 200-firm Independent Broker-Dealer Assn.

NASD Chairman Frank Zarb said Monday the industry group’s 5,500 member brokerages will vote on the Nasdaq plan on April 14, and that they would receive proxy materials in the next few days.

Davidson’s opposition to the plan sets up a clash with Zarb and the rest of the NASD board--including executives with three small brokerages--for the pivotal votes of the NASD’s small member firms. About 59% of these firms employ fewer than 10 brokers.

The small-firm group headed by Davidson will use letters, e-mail and phone calls to urge firms to vote against the Nasdaq plan, said the association’s outside lawyer, Howard Sirota of New York.

It also is likely to sue the NASD this week on allegations that the plan is a breach of fiduciary duty, and it may seek a restraining order to stop both the vote and the conversion, Sirota said.

Zarb and Davidson both predicted their points of view would prevail in the membership vote.

The NASD plan calls for the second-largest U.S. stock market to sell shares in itself through two private placements to member firms, to listed companies such as Microsoft Corp., and to institutional investors--though not to individual investors, at least initially.

The suit being contemplated by IBDA would argue that member firms should receive double the amount of stock allotted under the plan. These firms now are slated to receive 33% of Nasdaq shares.