Posted on 04/25/2003 9:29:16 AM PDT by hripka
NEW YORK -- When Robert Greifeld becomes Nasdaq's CEO next month, he must answer a question that a few years ago hardly anyone on Wall Street would have asked: Has the institution that once touted itself as "the stock market for the next 100 years" become an anachronism?
While stocks rocketed higher in the late 1990s, carrying Nasdaq past 5,000, few people knew that the Nasdaq Stock Market was falling behind its competitors. Now, market watchers wonder whether Wall Street even needs Nasdaq.
"The fact of the matter is, in today's world there is less need for a centralized marketplace" such as Nasdaq, said Richard Rogalski, the George J. Records professor of investments at the Tuck School of Business at Dartmouth College. "All you need is access to the Web."
Since the technology bubble burst three years ago, Nasdaq has suffered declining profits and revenues, lost trading volume and shelved plans to go public.
Wall Street's overall malaise has contributed to those woes, but the bigger problem has been competition from other electronic networks that route trades on their own computer platforms, eroding Nasdaq's market share of trading volume and its revenue from trading fees.
Electronic communications networks, called ECNs for short, such as Instinet and Archipelago, have become as serious rivals to Nasdaq as the New York Stock Exchange. While Nasdaq must fight the NYSE for stock listings, it has to fend off ECNs' attempts to steal trading volume share.
Because the NYSE has an auction-style trading floor where stock specialists match buyers and sellers, it doesn't compete with Nasdaq, which relies on electronic networks to handle transactions, when it comes to trading volume.
Technology, what Nasdaq has long boasted as its biggest asset, is what market experts say enabled ECNs to take market share during the bull market.
"The ECNs that entered the fray a few years ago had much more advanced technology than the Nasdaq. ... Because traders were able to access ECNs with much more speed in the boom years, that attracted much of the order flow over to ECNs, because the markets were moving so fast," said Rob Hegarty, a securities markets specialist at the Tower Group, of Nasdaq.
ECNs claim about 45 percent of trades involving Nasdaq stocks, up from 12 percent in 1988, Hegarty said. Nasdaq thought it had the answer to lost market share when it launched a new trading platform, SuperMontage, in November, but so far, it hasn't brought volume back.
Just a few years ago, it seemed Nasdaq could do no wrong. Its high-profile composite index hit a stunning all-time high of 5,048.62 in March 2000.
Today, the index is trading about 72 percent below its high. And in a depressed stock market, few companies are going public, including Nasdaq itself.
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