A half-dozen centuries ago, a competitor who “entered the lists” was riding onto a mock battleground — the site of jousting and other deeds of arms. Today, a “listings” battle is being contested not merely between corporate worthies, but between the venues themselves.
The decisions by Charles Schwab Corp. and Cadence Design Systems Inc. to drop themselves from the New York Stock Exchange and list solely on the Nasdaq Stock Market are just two recent maneuvers in a long-running rivalry — one that promises good news for corporate issuers.
“The competition for the attention of CFOs and management should be a big winner” for companies, says Jamie Selway, founder and managing director of brokerage White Cap Trading. Selway believes that the NYSE and Nasdaq — which derive roughly one-third of their revenues from listing fees — will continue to introduce trading-technology enhancements and value-added services.
Both the NYSE and Nasdaq maintain that companies should regularly review their listing decision. “To the extent that Corporate America chooses not to do that, it leads to an unhealthy situation,” says Robert Greifeld, president and chief executive officer of Nasdaq. “The implicit cost to investors of markets that do not take advantage of developing technology affects every trade.” A spokesman for the NYSE stated that every company “has that duty to the shareholders to make sure they’re listed on the right marketplace” and should evaluate it “in a way that benefits their shareholders the best.”
Complicating that evaluation: Listing and trading are not necessarily linked. That’s been more true than ever since last April, when the Securities and Exchange Commission passed an amendment to the “trade-through rule,” part of Regulation National Market Structure. In simplest form, the amended rule requires that all investor trades be executed at the best price, even if stock markets must fill the order through a competitor.
Not long after the passage of the trade-through rule, Nasdaq revealed that it intended to purchase the electronic trading network of Instinet Group Inc., a deal that was completed in December. Likewise, in April the NYSE announced the proposed acquisition of Chicago-based electronic market Archipelago; Big Board members and Archipelago shareholders gave their approval last month.
Schwab and Cadence were early participants in Nasdaq’s dual-listing program, launched in January 2004. The program now includes Apache Corp., Hewlett-Packard Co., Walgreen Co., American Financial Group, Chicago Mercantile Exchange Holdings Inc., and the Nuveen Equity Premium Advantage Fund of Nuveen Investments Inc. (though not the company itself).
Bill Porter, the chief financial officer at Cadence, says it was difficult to compare the merits of the NYSE and Nasdaq while his company was dual-listed. One reason for the difficulty, suggests White Cap’s Selway, is a provision under Reg NMS known as “unlisted trading privileges.” UTPs enable other markets to trade NYSE stocks whether they are dual-listed or not — and indeed, for that reason the Big Board maintains that Nasdaq’s dual-listing program has not improved effective spreads, investor choice, or other aspects of market quality for the participating companies.
(At present the NYSE, which maintains a specialist-based floor-trading system, traffics only in its own stocks, as well as the AMEX exchange-traded fund known as Spiders. When the NYSE’s purchase of Archipelago is complete, however, the new company will be able to trade any stocks, including those of Nasdaq.)
Nonetheless, Cadence sorted through the myriad of statistics provided by each market while the company was dual-listed, and it noticed one definitive pattern: Large blocks of its shares traded outside the purview of the NYSE. Says Porter, “That confirmed for us that we were doing something our shareholders liked.”
Likewise, according to Schwab spokesman Greg Gable, trading in the brokerage’s shares increased on Nasdaq during the its time in the dual-listing program. Gable expects that listing solely on Nasdaq — the company made the move on December 20 — will offer shareholder benefits including greater liquidity, lower volatility, and better execution quality.
“We considered where each exchange was in terms of their electronic trading platforms,” says Cadence’s Porter. “For us, electronic trading was good, we could get it done less expensively, and there were some questions about why we would pay more” to list on the NYSE.
That cost can be a big consideration; Schwab will now spend $400,000 per year less in annual fees. On Nasdaq, listing fees range from about $25,000 to $75,000 per year, based on total shares outstanding, according to spokeswoman Bethany Sherman. The fee for an initial public offering or for a company moving its listing to Nasdaq, Sherman adds, averages a little over $100,000.
According to the NYSE, which also determines its fees by total shares outstanding, the minimum fee is $38,000 per year; the initial fee ranges from $150,000 to $250,000; and the maximum, including any initial fee, is $500,000.
And, of course, there’s the matter of branding. Schwab’s Gable says that “we like the association with the forward-thinking, innovative companies you find on Nasdaq,” which won perhaps the most notable recent IPO when it secured the listing of Google Inc. Perhaps with a nod to the Big Board, White Cap’s Selway observes that CFOs must also realize that “they are buying a branding service that says you met a standard, and you are part of a group of companies that fits this ethos — like joining a country club.”
Though it sounds more genteel than a joust, the competition between the NYSE and Nasdaq is in many ways just as fierce — and for finance executives and their companies, much more promising.