CurrentOfferings.com Story:

Nasdaq and NYSE: Dual or Duel?

By Eric Hellweg, January 14, 2004, Business2.0

Any way you parse it, it's been a great week for the Nasdaq. It recently hit a 30-month high, and with a slew of tech companies reporting earnings this week on what was widely viewed as a strong quarter, the exchange should see its march continue northward.

But the event that has most people talking is the newly announced "dual-listing arrangement" between the Nasdaq and the New York Stock Exchange, whereby six companies that had previously been listed solely on the NYSE are now listed on both exchanges. The six companies are Apache, Cadence Design Systems (CDN), Charles Schwab (SCH), Countrywide Financial, Hewlett-Packard (HPQ), and Walgreens. "We expect dual listing on the Nasdaq will benefit our shareholders by giving them more liquidity through the ability to trade on an alternative exchange," said HP CFO Bob Wayman in a statement on Monday.

"As ardent believers in the power of market competition, we strongly support the idea of a dual listing, and are proud to be among this initial group of market innovators," Schwab CEO David S. Pottruck said in a statement.

While this week has been good for the Nasdaq, it's been a rough stretch for the Big Board. CalPers sued the exchange recently for alleged abuses of its specialist trading system, and the board's former chairman, Dick Grasso, is embroiled in a firestorm of controversy over his pay package. Even though the official statements from the six participating companies all commend the NYSE and speak of symbiotic relationships between the two exchanges, the dual-listing arrangements are seen by many as a thinly veiled vote of no confidence in the NYSE. Any evolution begins with a transition, and I think in 30 years or so, when people look back at the way companies are traded in the United States, this dual-listing arrangement will be regarded as the first salvo in the eradication of the specialist model on the NYSE.

"It's historic," says Jeff Hirschkorn, a senior analyst at Current Offerings, a New York-based data-research firm. "There are a lot of problems right now at the [NYSE]. I think you'll start to see an exodus of companies doing this."

If such an exodus were to occur, in a rapid-fire or even a more mannered fashion, it wouldn't be good news for the publicly traded specialist firms that handle the trading on the floor of the NYSE. Already, those companies (including Goldman Sachs (GS), which owns specialist firm Speer Leeds & Kellogg; LaBranche & Co.; and Van der Moolen) have seen their stock prices fall since the announcement on Monday.

But it would be good for companies that choose dual listing. First, the Nasdaq is waiving its fees for a year for companies that opt to dual list. That alone may be reason enough for companies to at least test out dual listing. Second, listing on the Nasdaq gives companies more access to individual investors and a more efficient market. Third, there's more price volatility on the Nasdaq, so companies can see a bigger upside.

This seems to point to brighter days ahead for the Nasdaq. In the late 1990s, 75 percent of IPOs went to the Nasdaq, according to Current Offerings. In the last two years, that figure has essentially reversed to favor the NYSE. But with expected IPOs from Google and Salesforce.com and the rebound of the tech industry in general, look for more companies to choose the Nasdaq over the NYSE when going public.