- Here's a strange thing for the boss of a stock market
to say: you won't have it so good again. Wick Simmons (pictured), chairman
and chief executive of Nasdaq, is not given to hyperbole. But he is ready
to predict that investors will probably not see again in their lifetimes
a stock market like the one Nasdaq gave them in the second half of the
1990s.
-
- Perhaps it is a flippant observation. Yet it is not difficult
to catch the note of relief in Mr Simmons's comment - and a message to
Nasdaq's army of unhappy investors. His words are a way of drawing a line
under Nasdaq's brash past. They also signal that some serious growing up
is being attempted at the number two US stock market as it struggles to
survive the ferocious bear market that has followed the most spectacular
bull market in the history of Wall Street.
-
- The affable Mr Simmons can speak with authority. Unlike
many of the bankers and traders who are losing their jobs in New York and
London, he knows what a bear market feels like. The 2002 version most resembles
that of the early 1970s, he says during an interview at Nasdaq's temporary
home, across the street from its famous "market site" in Times
Square: "I was in my 30s at that time and didn't have the institutional
wisdom I hope I have now. That was the only time I can remember when we
had this kind of gloom settle over the Street."
-
- Nasdaq has become a particular victim of the vertiginous
fall in share prices but it has been hurt badly in other areas too. It
has some 3,800 listed companies, the lowest number since 1982. The combined
market value has fallen from about $6,700bn on March 10 2000, when the
market peaked, to $2,000bn (£1,300bn) today, a decline of 70 per
cent. (The New York Stock Exchange lists about 2,800 companies valued at
$14,000bn.) More than 500 Nasdaq companies could be delisted in the next
few months because their share prices have fallen below the minimum $1
level.
-
- In its core business of attracting new companies to list,
the decline is equally graphic. Nasdaq has attracted 33 initial public
offerings so far this year, compared with its record of 680 in 1996. It
lists 219 foreign companies, the lowest number for a decade. Some of the
most egregious cases of 1990s corporate excess - WorldCom, Qwest Communications
- were Nasdaq companies. The current difficulties at the US Securities
and Exchange Commission, which regulates the market, have not helped confidence
in the sector.
-
- Then there is Nasdaq's awful sense of timing. It has
been forced to write off a $20m investment in a venture in Japan that was
launched at the peak of the market. An equally expensive foray into Europe
has raised eyebrows. A flirtation with the London Stock Exchange went nowhere.
Last, there is its new electronic market system, SuperMontage - a bull
market idea launched in the depths of a bear market and a system that its
critics say should have been built years ago.
-
- That is a lot to be gloomy about. Not surprisingly, some
observers question whether Nasdaq can survive. In particular, there is
growing concern that the brand has been devalued beyond redemption by the
decline in stock prices and the excesses of the boom years with which it
is so closely identified.
-
- Whether the boom in initial public offerings will return,
whether ordinary Americans will trust the stock market again for a generation,
whether SuperMontage will be Nasdaq's saving grace: these are issues that
Wall Street is only just beginning to tackle.
-
- Leo Guzman, chief executive of Guzman & Co, a Miami
brokerage firm and a Nasdaq shareholder, believes the question of the market's
survival is a legitimate one. He argues that there are so many controversies
surrounding Nasdaq - the structure of its marketplace, the role of rival
trading platforms, the success or otherwise of SuperMontage and the continued
weakness of the stock market - that there is "an imminent risk"
that it could lose its leading listed companies to the New York Stock Exchange.
-
- Richard Grasso, Mr Simmons's counterpart at the NYSE,
covets the capture of the top US technology companies, which have traditionally
listed on Nasdaq. Indeed, so certain is it that Microsoft and Intel will
one day migrate to its famed trading floor that the NYSE has reserved the
ticker symbols "M" and "I" for the eventuality.
-
- Mr Guzman says a more likely immediate scenario is that
internet companies such as the auction house eBay, which have survived
the crash and want to be compared with more conventional retail stocks,
will be the first to move. "The ones that have survived [the internet
crash] have become respected enterprises and they would want to move out
of the old neighbourhood." He says the migration could be sparked
by what he calls "the continued market malaise" at Nasdaq.
-
- Mr Simmons and his top executives dismiss such views.
In fact, they say, the rate of migration from their marketplace to the
NYSE has been low. Mr Simmons also insists that there is no threat to Nasdaq
as a business. It remains, for example, quite profitable despite the downturn.
In the third quarter, it reported net income of $12.7m and revenues of
$199m; in addition, average daily trading volume rose to 1.7bn shares,
more than 5 per cent higher than in the same period last year.
-
- "I don't think we should even concern ourselves
with Nasdaq itself getting into trouble," he insists. "What you
do at a time like this is go back and focus on the things you do best.
We are introducing the fastest, fairest, deepest, most liquid trading system
on the planet. It's exciting to be doing it at a time like this when I
think we can expect markets to pick up again and Nasdaq will reap the benefits."
-
- Nasdaq and its defenders have always liked to point out
that, unlike the NYSE, it has always faced competition for control of the
secondary market in the shares of its listed companies. Rival marketplaces
such as Archipelago, Instinet and Island - known as ECNs and offering fast
electronic trading in Nasdaq-listed stocks - blossomed in the bull market.
Others, such as Ameritrade and Charles Schwab, also plunged in to take
advantage of the rise of the day trader, a species of investor now almost
extinct.
-
- These rivals, too, are suffering in the bear market,
which is a rare piece of good news for Nasdaq and explains why its senior
executives are confident that SuperMontage will succeed (although they
deny that its purpose is to put competitors out of business). Rick Ketchum,
Nasdaq's president and deputy chairman, says: "SuperMontage is the
new Nasdaq stock market. It is not a bull market platform. It works just
as well for selling shares as for buying shares."
-
- Still, SuperMontage has not yet been seriously tested.
All Nasdaq's stocks will be tradable there only in early December and,
in any case, only a quarter of such trading is likely to be done on the
system, Mr Ketchum concedes: "A lot of activity will never get done
on Nasdaq systems. SuperMontage is not intended to achieve this."
-
- Mike Cormack, president of Archipelago, says there is
a danger that SuperMontage could become an expensive white elephant by
trying to be too many things to too many people. "It looks [as if]
it was developed in 1997, so it has older technology and older functionality,"
he says. "The challenge for Nasdaq is whether it can control its cost
structure and overheads, because it is competing with rivals [such as Archipelago]
who can."
-
- There is little doubt that SuperMontage must succeed
if Nasdaq is going to recapture the role it played so well during the technology
boom of the 1990s. Frank Zarb, Mr Simmons's predecessor, who led its expansion
into Japan and Europe, used to like to compare its ambitions to those of
Starbucks, the coffee-shop empire founded by Howard Schultz.
-
- Those days of expansion are over. Now, Nasdaq has turned
to Mr Schultz, Michael Dell, Steve Ballmer and other high-profile executives
of Nasdaq-listed companies to front an advertising campaign to try to re-establish
its brand among Americans. Mr Simmons, however, says the notion that Nasdaq
is responsible for most of the wealth destruction that has devastated pension
plans and portfolios in the past three years is simply wrong.
-
- Nasdaq, he says, never positioned itself as a "widows
and orphans" market. "Look at [the decline in] General Electric's
share price: that has done more damage to pensions and port- folios than
anything that happened on Nasdaq," he argues. (GE is listed on the
NYSE.) "The Nasdaq brand today is as widely known around the world
as it's ever been. Has it been impaired somewhat by the fact that it got
carried away? Yes, it has, but at the same time it's still the strongest
capital formation brand in the world."
-
- That may be so. Yet it is unlikely that the capital markets
will see for a long time the type of activity that made Nasdaq such a magnet
for money in the 1990s. In that event, it will take more than an advertising
campaign to convince Americans that it is safe to get back in the market.
-
- http://news.ft.com/servlet/ContentServer?pagename=FT.com/St
|
