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© Copyright 2005, The Nasdaq Stock Market, Inc. All rights ...



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  • Continual enhancements to NASDAQ have improved the quality of our market NASDAQ’s spreads have been on par or better than the NYSE’s for several years now.
  • Reg NMS Messaging; Since the announcement of the final Reg NMS ruling the attention has been on how the trade-through rule is going to be applied to NASDAQ, which is in the end is a minor point and does not significantly change our market model( NASDAQ has less than 2% of its trades being traded through). To truly understand Reg NMS and its implication for changes in the markets we need to remind our customers/prospects why Reg NMS came about and that this regulation is trying to address certain problems within floor-based exchanges. The timeline of events that this slide illustrates puts Reg NMS into perspective; it was the institutional community that was calling for changes to an inefficient floor-based market. NASDAQ’s dual list program and then the Reg NMS proposals created an environment where the floor-based exchanges had to begin to change and thus created a hybrid-market proposal that emulates NASDAQ’s market model. The indictments of the specialists confirm that there was a high degree of conflict of interest in floor-based exchanges and the approval of Reg NMS is an endorsement of NASDAQ’s market model. The SEC is acting on a regulation concept that’s been in place since 1975 – they (Donaldson) states that their intention is to ensure that ALL investors get the best price, particularly the retail investor. Reg NMS -Generally believed to be the most comprehensive market structure change since the SEC Act of 1975. The Reg NMS reform of equal market access is a development that may threaten to erode the floor-based exchanges’ market share. The NYSE begins plans to expand the features of Direct+, communicating their move to a “hybrid” market. Hybrid can actually mean a number of different things and we don't want to endorse its NYSE reference - they have to be electronic to comply with Reg NMS NYSE/Arca merger is a reaction to compete in a post Reg NMS environment. A move away from the manual based trading to emulate NASDAQ’s electronic model. NYSE /Arca merger for NYSE is to convert to a public entity (through a reverse merger) and as a quick entry into Arca’s electronic trading capabilities with options/derivatives. ArcaEx will be a separate platform from the NYSE’s proposed hybrid.
  • We do this by a combination of services/tools to target and attract investors, specific programs to attract institutional investors, a better marketplace for investors (as will be soon evidenced by superior market quality and testimonials from the institutional investor community). NASDAQ companies attract more research coverage. This chart looks at the average number of analyst estimates experienced by companies in like-float categories. In the most extreme category, NASDAQ companies have over 30 % more analysts. This chart shows a real and tangible benefit of listing on NASDAQ. It speaks directly to the true visibility experienced by companies on our market (vs. intangible visibility by association). EXTRA: Academic studies compiled by Thompson’s First Call show that each additional analyst a company has increases their P/E ratio. [This effect applies only to companies with 13 or fewer analysts. Academics often refer and coordinate this with the neglected firm effect. Actual studies are several years old.]
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  • 1. The NASDAQ Stock Market Jeff Singer Vice President December 7, 2005 © Copyright 2005, The Nasdaq Stock Market, Inc. All rights reserved.
  • 2. The NASDAQ Overview Four lines of Businesses: Nasdaq in presence in CT:
    • Security Listing
    • Transaction
    • Market Information
    • Financial Products
    • 43 companies; predominately in Fairfield County
    • Financial, Industrial, IT, and Health care are strongest sectors
    • People’s Bank, Silgan, and United Natural Foods are the 3 largest companies
    • ~ 300 employees in Trumbull, CT
  • 3. How did we get here?
  • 4. The Evolution of The NASDAQ Stock Market First trading day on February 8th, with quotes on 2,500 securities 1971 1985 Apple and Microsoft list on NASDAQ 2000 1991 / 1996 First market to launch television advertising campaign and WebSite Decimalization & SEC Regulation NMS 1981
  • 5. Relative quoted spread is the difference between the inside bid and ask for each trade averaged for the month. Contains all NASDAQ National Market stocks and all NYSE issues. Source: NASDAQ Economic Research. Decimalization and technology enhancements have reduced transaction costs Manning Rules Order Handling Rules (Limit Order Display, ECN Integration) 1/16 Quote Integration SelectNet Enhancements Launch of SuperSoes SuperMontage Decimalization Historic Spreads and NASDAQ Market Improvements NASDAQ Market Center
  • 6. How Decimalization Changed the Markets
    • The number of entry points to buy/sell increased 525%
    • Created incentive to “Step Ahead”
    • Required Large orders to be broken up, and
    • Order depth became less transparent
    • Use of electronic trading increased (60% of fund managers now use algorithmic trading)
    • Investors saved $$
    • Intermediaries lost money
      • 500 to 260 market makers for NASDAQ
      • 25 to 7 specialists on NYSE
      • Charging service fees and other fees to recoup lost trading margins
  • 7. Decimalization’s Impact on NASDAQ: Transaction Rates up 25-fold Average daily Volume remains unchanged
  • 8. Next Major Change: SEC’s Reg NMS Reforms
    • February 25, 2004: The SEC publishes Reg NMS (National Market System) proposal. Features of the proposal include: sub-penny trading, market access, trade-through and market data pricing.
    • February 2005: Manual markets begin to communicate their transition to an electronic model.
    • April 6, 2005: The SEC approves Reg NMS, a reform designed to interlink domestic exchanges/markets to enhance competition and provide equal market access for all market participants.
    Floor-Based Trading to Emulate NASDAQ’s Electronic Model REg NMS Clip
  • 9. Total NYSE Market Share is Declining even before Reg NMS
    • Source:
    • Reflects market share of consolidated tape volume. Off-floor Includes all volume in NYSE-listed securities not reported by the NYSE
    Market share in trading of NYSE listed stocks Source: NASDAQ Data includes NASDAQ, Brut, ARCA, INET, and other electronic venues. Does not include routing. NYSE Market Share Off-Floor Electronic Markets
  • 10.
    • $934.5mm cash acquisition announced April 22, 2005
    • Deal, cleared by DOJ and expected to close this year, will provide:
      • Superior execution opportunities for customers
      • Consolidation on to one trading platform in same timeframe as standalone
      • Efficient combined company with low cost structure to deliver returns to investors
      • Platform for future innovation and growth
      • Strong competitor in post NMS world
    • $190mm cash acquisition of Brut in September 2004
    • Brut acquisition had a significant impact :
      • Provided deeper pools of liquidity and routing to other liquidity pools
      • Direct connectivity with customers who did not historically access the NASDAQ system
      • Enhanced routing capabilities, including routing for listed securities
      • Combined order books of the NASDAQ Market Center and Brut, giving customers the benefit of one liquidity pool
      • Synergies further strengthen operating margins and profitability
    NASDAQ Consolidates Marketplaces Consolidation -- Efficiency -- Competition
  • 11. What does market structure mean to you ? Market Reaction On November 17, 2004, Kmart Holding Corporation and Sears, Roebuck and Co agreed to merge. Source: NASDAQ Economic Research Quoted Spread November 17, 2004 KMART SEARS On the day of the merger announcement, Kmart’s spread traded in a narrow band between $0.00 and $0.12, while Sears’ spread ranged from $0.01 to $0.57. (Cents) Sears Trade Halt Sears Share Volume November 17, 2004 Sears Share Volume October 2004 NASDAQ AND OTHER OFF-BOARD NYSE
  • 13. Stocks of All Sizes Trade Better on NASDAQ Investors on NASDAQ are more likely to get the prices they are quoted, or better, and pay lower transaction costs. SHARES EXECUTED AT OR INSIDE THE QUOTE 82.3% 91.4% 80.7% 91.8% 82.0% 91.8% EFFECTIVE SPREADS (Cents) 1.96 1.37 1.79 1.18 1.82 1.17 SPEED (Seconds) 20.1 6.0 17.7 4.2 18.5 5.1 NYSE NASDAQ Independent, Third-party Execution Quality Statistics as mandated by SEC Rule 11Ac1-5. Averages are share-weighted. Includes all domestic common stocks on NASDAQ National Market and NYSE. Data represent all marketable orders less than 10,000 shares traded by Primary Market only. Source: Market Systems, Inc., 01/2005.. NYSE NASDAQ NYSE NASDAQ In Summary NASDAQ’s Speeds are 3.7x Faster NASDAQ’s Spreads are 0.62¢ Cheaper NASDAQ’s Executions are 10% Better Russell 1000 Stocks Dow Jones US Large Cap Index Stocks S&P 500 Stocks
  • 14. NASDAQ IS A Market of Industry Leaders Health Care Information Technology Financials Telecom Industrials Energy & Utilities Consumer Materials NASDAQ is home to category-defining companies drawn from all sectors of the economy. By number of companies. Consumer is consumer discretionary and consumer staples. Source: FactSet Research Systems, Inc. 10/2005. NASDAQ’s 3,200 Listed Companies Health Care Consumer Industrials Financials Information Technology Telecom
  • 15. NASDAQ Continues Momentum in 2005 NASDAQ continues to dominate IPO listings, reduce switches, and build the Dual List program
    • IPO section: Includes domestic and foreign IPOs (NNM and SCM), best-efforts and bank demutualizations.
    • Excludes unit investment trusts and fully classified closed-end funds.Does not include ARCX IPOs for 2004 (1 company).
    • Source: NASDAQ, EquiDesk. Data as of 11/31/2005.
    Number of IPOs by Market
    • NASDAQ has captured 59% of the IPO market in 2005.
    • NASDAQ has successfully switched 4 companies from the NYSE in 2005 – Sears Holdings, Cadence Design Systems, Tasty Baking, and Nashua Corporation.
    • A total of 8 companies are currently dual listed on NASDAQ. In 2005, 3 additional companies; Chicago Mercantile Exchange , Nuveen , and Harmony Gold Mining Company , have joined the Dual List program.
    Number of Companies that Switched per Year Dual List Program
  • 16. And most recently… 2002 2005 BRUT Acquisition 2004 Sears Holdings lists with NASDAQ after a 100-year history with NYSE Jet Blue
  • 17. Conclusion
  • 18. Jeffrey H. Singer Regional Vice President, NASDAQ (212) 401-8980 [email_address] © Copyright 2005, The Nasdaq Stock Market, Inc. All rights reserved.