Nasdaq's Pursuit of Exchange Status and an Initial Public Offering
Publication Date: March 2005
Publisher(s): Library of Congress. Congressional Research Service
Until recently, the Nasdaq stock market was a for-profit, but wholly-owned subsidiary of the nonprofit National Association of Securities Dealers, Inc. (NASD), the largest self-regulatory organization (SRO) for the securities industry. In 2000, in a strategic response to an increasingly competitive securities trading market, the NASD membership approved spinning off the for-profit NASD-owned Nasdaq and converting it into a for-profit shareholder-owned market that later planned to issue publicly traded stock.
The process has three broad stages: (1) issuing privately placed stock; (2) converting to technical exchange status; and (3) issuing publicly-held stock. Stage one, the private placement stage has been completed. In March 2001, Nasdaq submitted an application for exchange status to the Securities and Exchange Commission (SEC). Obtaining exchange status is necessary for Nasdaq to proceed to stage three of Introduction, its conversion to an independent shareholder owned market -- a public stock offering.
A major reason that the SEC continues to hold up Nasdaq's exchange application is that exchanges must comply with a trading protocol in which they provide execution priority to the best priced offers to trade known as price priority. As an association and not an exchange, Nasdaq is not beholden to such a rule. And SEC officials have been reluctant to grant it exchange status without a price priority trading protocol, which Nasdaq officials say is an intrinsic and beneficial part of its business model.