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Big Board and Nasdaq Vie for Companies

Last fall, when Continental and United Airlines were merging and deciding where to list the new company’s shares, the New York Stock Exchange offered to sponsor ceremonies for airline executives at the open and close of trading in Paris and New York. It also agreed to buy advertisements in the airline’s magazine to herald the listing.

The airline chose the New York Stock Exchange over Nasdaq.

NASDAQ
NASDAQ

In 2009, when DreamWorks Animation, which already listed its shares on the Big Board, was introducing “Shrek the Musical” on Broadway, Nasdaq promoted the show on its big screen on Broadway in Manhattan and handed out Shrek ears in Times Square.

DreamWorks transferred its listing to Nasdaq.

Even as the two dominant New York exchanges are widening their horizons — with the Big Board agreeing to merge with Deutsche Börse of Germany and with Nasdaq thought to be seeking its own merger partner— at home, their decades-long rivalry is intensifying.

As revenue from stock trading declines because of increasing competition from smaller electronic exchanges, the Big Board and Nasdaq are taking advantage of regulatory changes that make it easier for them to poach listings from each other. In many prominent cases, the seductions are working.

New competition is not the only threat to their businesses. The number of listings on the exchanges has also declined, because of mergers, fewer initial public offerings and the deaths of so many technology companies that went public a decade ago.

The number of companies listed in the United States on Nasdaq peaked at 5,556 in 1996 but declined to about 2,852 by the end of 2009, according to the World Federation of Exchanges. On the Big Board, domestic listings fell to 2,327 by 2009 after peaking at 3,025 in 1999.

So the traditional American exchanges have been diversifying into businesses beyond stocks, like trading in derivatives and supplying technology to other exchanges.

In fact, trading of stocks, including revenue from trading, listings and providing data on the equity markets, accounted for 56 percent of the Big Board’s revenue in the third quarter of 2010, compared with 71 percent just five years ago, according to the Tabb Group, a market advisory group.

In addition to their push overseas, the Big Board and Nasdaq are trying aggressively to steal listings from each other, in hopes of making up listing and trading fees lost to their upstart competitors. They are rolling out a range of nontrading services for the first time — and offering lucrative inducements for companies willing to switch.

“Several years ago, you listed here because of the patina that this was simply the place where the biggest companies went,” said Scott Cutler, head of the Big Board’s listings. “It was like a utility. The NYSE didn’t actually pitch as intensively. Today, that is just not sufficient. We are head to head on several deals.”

Nasdaq made gains from 2005 to 2009, persuading companies like the News Corporation , Vodafone and Mattel to transfer to its exchange — bringing with them their roughly $200 billion in combined market value.

That compares with $64 billion in market capitalization that went the other way, in the Big Board’s favor, during the same period, according to figures from the Issuer Advisory Group, which advises companies on where to list their shares.

Last year, however, the Big Board fought back, winning $37 billion in market value to Nasdaq’s $10 billion, its biggest yearly gain since 2002. It did so by offering new clients like Charles Schwab and Knight Capital services such as Washington lobbying and public relations. It also won the first switch of 2011, persuading IMAX to move from Nasdaq.

“The New York Stock Exchange is working harder than ever before, and is clearly coming up with some imaginative solutions,” said Patrick J. Healy, chief executive of the Issuer Advisory Group. “Nasdaq cleaned New York’s clock for a few years, but 2010 was a strong win for New York,” he said.

During the 1990s and early 2000s, almost all switches went from Nasdaq to the Big Board, in what was seen as a sign of maturity for technology companies and others that initially went public on the Nasdaq. That changed in the middle of the last decade, when a new regulatory rule meant that companies wanting to leave the Big Board no longer had to win approval from two-thirds of their shareholders.

Another rule change in 2007 meant that companies leaving the Big Board could take their prized trading symbols with them, just as cellphone customers can take their telephone number to another carrier. The Big Board had resisted that change.

Why the Nasdaq has become more attractive...

Bruce Aust, who has run Nasdaq’s listing business since 2003, said Nasdaq became attractive to companies as they realized that its faster electronic systems were handling more and more trading volume for shares listed on the Big Board, where trading was traditionally done by traders on the floor.

That led some companies to view Nasdaq as a more liquid market, and a more lucrative one, though it has also lost some of its own volume to younger electronic exchanges trying to beat Nasdaq at its own game.

As computers have taken over trading of stocks in the last few years, they have given rise to new electronic exchanges in places as diverse as Kansas City, Mo., and Jersey City, N.J. Today, stock trading has become so fragmented that neither the Big Board nor Nasdaq dominates the trading of the shares they list.

Even so, where a public company is listed still matters, because the bulk of the trading for a particular company’s stock occurs on its home exchange.

As part of its offensive to steal listings from others, Nasdaq began helping its clients with investor relations. It hosts webcasts for company reports and provides a newswire that companies can use to send out announcements. Another service helps companies learn more about who is buying and selling their shares.

The most visible support services are focused on marketing, including publicity on Nasdaq’s big screen in Times Square. When Tesla Motors introduced its shares on Nasdaq last year, for example, it promoted its fleet of cars in front of Nasdaq’s headquarters there.

“We give companies tower time when they ring the opening bell,” Mr. Aust said. He said Nasdaq was now in the business of helping companies with their branding, providing “great visibility for a public company.”

For the biggest companies, the cost of listing remains higher on the Big Board than on the Nasdaq. The fee, determined by the size of the company, is capped at $500,000 annually on the Big Board and $100,000 a year on the Nasdaq, although the Big Board says about 80 percent of its listed companies pay less than $200,000.

Mr. Cutler of the Big Board said his exchange’s recent turnaround had been due in part to a new focus on attracting top technology firms, a traditional stronghold of the Nasdaq. This year, for example, the exchange won the initial public offering of Demand Media, which runs Web sites like eHow and Answerbag; in 2009, it lured Juniper Networks, the network equipment maker, from the Nasdaq.

Several industry analysts say it is no coincidence that before Juniper’s switch was announced, the Big Board signed a multimillion-dollar contract with Juniper for an upgrade to the exchange’s data centers, as part of its own modernization to more electronic trading.

Both the Big Board and Juniper declined to comment directly, although Juniper said in a statement that the Big Board’s “brand and global presence make it a natural place for Juniper to be listed.”

The Big Board is still the world’s largest stock exchange by market capitalization, with more than 2,000 listed companies in the United States alone that employ 30 million people. At the end of 2009, it had a further 1,160 in its Euronext operations in Europe. Nasdaq, by contrast, has 3,600 company listings globally that employ 12.3 million people.

The Big Board is learning to exploit its size advantage. When , a provider of language-learning software, listed its shares in 2009, the Big Board sent a direct mail on the company’s behalf to all chief executives of companies it listed, extending a special offer on business software, a market that Rosetta Stone was trying to break into.

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