NEW YORK (CNNfn) - The National Association of Securities Dealers said Friday an overwhelming majority of its member firms approved a plan to spin-off the Nasdaq stock market, a move aimed at providing Nasdaq with funds to compete against upstart electronic trading systems.|
In total, 3,423 NASD member firms, or about 84 percent of the firms that voted, endorsed the idea of a sale that will take place through a two-step private placement. Members voting against the plan totaled 652 firms, or 16 percent of those casting ballots, while 110 member firms abstained.
"The numbers are very impressive," NASD Chairman Frank Zarb said. "It's a mandate. And remember that the majority of our firms are broker-dealers." Zarb and the NASD have worked for the last 18 months to persuade the group's members to endorse the spin-off of its crown jewel.
The deal, which is expected to generate more than $1 billion, could clear the way for an eventual initial public offering, though an IPO isn't part of the current plan.
In the first phase of the spin-off plan, the NASD would sell some 49 percent of the Nasdaq to a group of Nasdaq market participants that includes NASD member broker-dealer firms, large institutional investors such as pension and mutual fund companies, and a handful of large Nasdaq listed companies
After a second private placement, the NASD's ownership of Nasdaq will be reduced to a minority stake of about 22 percent.
Despite the vote, the plan is not without its contentions. A group of small brokerage firms, led by Zeus Securities, Inc. of Jericho, N.Y., and the Independent Broker-Dealer Association, filed a lawsuit in New York State Supreme Court in Manhattan Thursday claiming the proposal is unfair to small NASD members.
They argue that the private placement will put smaller firms at a disadvantage in that they will lose what influence they now have with the NASD.
A judge Thursday rejected a request to block announcement of the results of the vote by the NASD's 5,500 member firms. Another hearing is scheduled Monday to resolve the larger issues raised in the suit, including the request for a preliminary injunction to block the sale.
The NASD, a nonprofit organization of stock brokers that dates back to the 1930s, built the Nasdaq in 1971 as an electronic stock quotation system. It since has mushroomed in size to become the No. 2 U.S. stock market and a formidable rival to the 208-year-old New York Stock Exchange.
Spin-off expected to generate over $1B
The spin-off would disentangle the for-profit Nasdaq from its parent, the NASD, which is essentially a non-profit industry group that regulates its own members. The transaction would give the Nasdaq and the NASD a cash infusion, and is expected to generate more than $1 billion.
Money raised in the private placement will go to fund the regulatory arm, Nasdaq Regulation Inc. (NASDR), and give the Nasdaq funds to upgrade its technology and remain competitive.
"The Nasdaq will be a more flexible, nimble company with an ability to enter into agreements with counterparts all over the world, which is not so easy to do now," Zarb said, referring to the freedom the Nasdaq will gain as a result of the spin-off.
The NASD is building sibling markets in London and Tokyo, with the idea of linking them to its U.S. market. That way, heavily traded stocks, such as Microsoft or Intel Corp., could trade 24 hours a day across the globe.
"A Death Warrant"
Alan Davidson, president of Zeus Securities and an NASD board member, said the NASD members voted favorably because they fear retaliation from the NASD's regulatory arm. He added that they became confused by the offering materials that explained the Nasdaq spin-off deal.
After the results of the NASD vote were released on Friday, Davidson responded in a statement entitled "A Death Warrant," calling the vote "disappointing."
Davidson also took aim at the NASD chairman personally.
"Immediately following the vote count, Frank Zarb, Nasdaq CEO, could hardly wait to announce that Microsoft could now trade 24 hours a day," Davidson said in his statement. "How will NASD members, who have no presence overseas, compete?"
-- from staff and wire reports.