NASD Board OKs Restructuring

Members of the National Association of Securities Dealers and issuers of stock on Nasdaq will be able to own equity in the exchange by as early as the middle of this year, if all goes according to the NASD's restructuring plan.

The association's board members unanimously approved a major restructuring of the nation's second-largest stock market on Tuesday. Under the restructuring plan, a two-phase private placement will be completed by mid-2000, at which point the NASD will own just a minority stake of Nasdaq. The Nasdaq, meanwhile, will apply with the Securities and Exchange Commission to become an exchange independent of the association, which is its current parent and regulator.

The plan includes the divvying up of Nasdaq's ownership into groups according to the revenue each group contributed to the association's revenue during the last ten years. In the first phase of the private placement, 47 percent to 49 percent of the Nasdaq will be sold. Major market participants, the largest market-makers in the Nasdaq Stock Market, will be allocated between 30 percent to 32 percent. Issuers of stock on the Nasdaq, about 130 in total, will split up a 16.5 percent equity interest. The first phase is expected to be complete by May.

In the second phase of the placement, an additional 25 percent of the exchange will be distributed among the association's remaining members, mostly smaller broker-dealers. Another 14 percent will go to other outside investors. At this placement's completion, the association will hold a minority stake of approximately 22 percent, down from its total ownership today. The second phase is expected to be complete by mid-2000.

"Investors and issuers [will] get a more agile, better-capitalized Nasdaq - one that can be quicker to put technology to use and better able to create the digital global stock market," said NASD chairman and CEO Frank Zarb in a statement.

The NASD initially announced plans to pursue this restructuring last year.

Officials have announced that an initial public offering of the exchange could follow the completion of the ownership restructuring.

The restructuring comes in part as a response to the growing market share of electronic communications networks (ECNs). ECNs such as Instinet, Island and Archipelago gained momentum during 1999 as Wall Street participants note their efficient, electronic trading platforms. Instead of using human traders to execute equity trades, ECNs electronically match buy and sell orders, allowing for faster and cheaper execution.

The money raised from private placements will likely be invested in technological developments that will better position the exchange against the ECNs and the NYSE. Additionally, the NASD has earmarked up to $500 million for the NASD's regulatory operations and up to $215 million for the American Stock Exchange, which the NASD purchased in 1998.

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