NASDAQ Fostering Competition

February 28, 2005
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GRAND RAPIDS — NASDAQ is often perceived as being tech heavy and that’s a perception Demetrios Skalkotos would like to dispel.

“We have best in class and best in breed entrepreneurs, innovators and leaders in all different categories. We’re not all about tech,” said Skalkotos, regional vice president of the NASDAQ stock market’s central U.S. region.

NASDAQ-listed companies represent the health care, industrial, financial services, consumer discretionary and information technology sectors.

Technology companies actually make up 30 percent of the NASDAQ stock market. More than 85 percent of regional and super regional banks are listed on NASDAQ. In fact, 99 percent of all U.S. trucking companies are NASDAQ listed, and “that’s about as low tech as you can get,” he told members of the Western Michigan Chapter of Financial Executives International (FEI) at their February meeting at the University Club.

The FEI advocates the views of financial executives, promotes ethical conduct, and provides its members with forums for networking and discussion. Its membership includes CFOs, VPs of finance, controllers, treasurers, tax executives, audit committee members and other senior financial executives.

Skalkotos is responsible for growing NASDAQ’s market position for the region, which includes more than 800 NASDAQ-listed companies in 20 states.

Why do companies list on NASDAQ? According to Skalkotos, it’s because of NASDAQ’s market structure, and the greater visibility, better service and support, and “superior value” companies get for the listing dollar.

NASDAQ is the largest U.S. electronic stock market, with about 3,300 listed companies. On average, it trades more shares per day than any other U.S. market, and it’s also the world’s largest equity trading network, he pointed out. There are 54 NASDAQ-listed companies in Michigan.

More than 2,500 shareholders — including brokerage firms, NASDAQ member firms and insurance companies — own NASDAQ. The market generates $600 million in annual revenues, and its share volume was 455 billion last year.

“We really thrive on very open, competitive and a transparent electronic market structure,” he said. “We feel that offering a very competitive market allows everybody that’s participating in the market to get the best price when they want it and in the timeframe they need it in. NASDAQ companies are more likely to get the prices they are quoted — or better — and pay lower transaction costs.”

Concerning visibility, Skalkotos said it’s proven that for all the market capitalization sizes that are on NASDAQ, there’s more analyst coverage on NASDAQ-listed stocks than those on the New York Stock Exchange (NYSE).

Each NASDAQ company has an assigned field director that provides services and support and serves as the company’s first point of contact with the market, he explained. NASDAQ also provides listed companies with analytical tools and access to a market intelligence desk where they can tap the expertise of trading specialists in New York for information about what’s going on with a particular company stock, as well as within its particular sector.

“So we’re geographically aligned, and our market intelligence desk is industry aligned,” he noted.

The fact that NASDAQ is a completely electronic exchange drives cost out of the system, Skalkotos said, so it can offer companies “very good cost value” for their listing. Microsoft, for instance, spends $75,000 a year to list on NASDAQ. Walgreen’s spends about $500,000 a year to list on NYSE.

“Add that up over multiple years and that becomes real money.”

NASDAQ transaction services are the market’s engine, representing 43 percent of its total business, Skalkotos said, noting that it does more than 5,000 transactions per second.

Company listings represent 27 percent of its business, while market data products and financial products represent 22 percent and 8 percent, respectively.

NASDAQ introduced a dual listing initiative last year, a trial program that gave NYSE-listed companies the opportunity to list on NASDAQ in addition to NYSE. Seven companies exercised the option, among them Walgreen’s, he said.

“It was a very successful trial. It fostered competition, and competition wins for everybody. We’re continuing the strategy, which, hopefully, increases their speed of transactions, increases their spreads and increases the number of shares traded.”

Companies can get the dual listing for the first year at no cost. If they want to continue dual listing after that, the fee is a minimum of $15,000, he said.

In January 2004, he pointed out, the dual-listed companies were averaging 17-second transactions on NASDAQ, compared to 18.5 seconds on NYSE. By November 2004 they were averaging 9 seconds to execute a trade on NASDAQ and 12.7 seconds to execute one on NYSE.

“Everybody performed at a higher level. Spreads went from 2 cents to 1.5 cents. The percentage of execution everybody is quoting — and meeting what they’re quoting — is 90 percent of the time for NASDAQ and 86 percent of the time for NYSE. Everybody wins.”

Skalkotos said the IPO market is now picking up, but is nowhere near its pre-Internet bubble level of 400- to 500-plus new IPOs per year. There were 260 IPOs in U.S. markets in 2004, and that’s being taken as a sign that the economy is recovering and business is creating jobs, he added.    

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