Nasdaq Chief Executive Officer Robert Greifeld has been where no exchange chief has yet trod, but where many of his peers could soon find themselves as 10 U.S. stock exchanges and a slew of alternative trading venues vie for critical order flow.
Competition from electronic communications networks had eroded Nasdaq’s market share in its own listings from about 90% to a reading in the teens when Mr. Greifeld took over in May 2003. He tackled the difficult situation with a program of staff cuts, cost slashing, strategic acquisitions — including former rival Island ECN — and a focus on technology. Nasdaq, which became an exchange under Mr. Greifeld, is now moving into the other side of securities trading, the options market, with big hopes of increasing value for shareholders.
Nasdaq had lost a lot of market share in its own listings when you took over as CEO four years ago. What made you think you could attract liquidity and rebuild volume? Four years ago, I was very conscious of the challenges we faced in all aspects of our business operations. But I felt in my comfort zone because I had a clear set of thoughts on how to get to a better place.
On the transaction process side, I wanted to make our systems more functional. The Nasdaq system had no post-trade anonymity, which was clearly a product deficiency; one of many. We were missing a variety of order types, like discretionary or hidden orders, and we immediately moved to a FIX (financial information exchange) compatible protocol.
Overall, the challenge was to increase functionality while decreasing cost, and doing both at the same time. This has been a key contributor to our success so far.
We also improved our ability to communicate the value of Nasdaq’s market structure to listed companies, what it meant for them and to the investors in those companies. Today, we enjoy a high rate of initial public offerings, which shows how effective we are at communicating our market advantages.
Did you ever doubt you could succeed? You have to have a clear view of where you want your organization to go. It’s your guiding light through all your activities. You cannot consciously or subconsciously deviate from that direction. It’s the best safeguard to move the organization to its new place.
You have to always be on the alert and understand all the different factors that come into play. Each and every circumstance, while they may have a great degree of similarity, is different.
What is the single most important factor behind Nasdaq’s comeback? Technology is fundamental to our company. It’s our competitive advantage in the marketplace. What is important to our customers is speed and certainty of access. We have the fastest technology in the marketplace. We are proud of the fact that we can provide that certainty at that speed due to our experience in high transaction speed.
That certainty is incredibly important to investors on high-volume days because nothing is more important to their substantial liquidity exposed in the market than an experienced system that will respond in one millisecond while others respond in 20 milliseconds.
We are more prepared today than we have been at any time in our history to deal with truly stressed markets. Our capacity and through-put have expanded just really beyond comprehension in the last 18 months.
Why is it so important to get that combination of speed and certainty of access and execution? Our job is to make sure our market is as deep and liquid as possible, which is what institutional investors want. Those investors have spoken loudly with their preference for the model Nasdaq has built.
Nasdaq trades over 2 billion shares a day. Our customer base represents all walks of life in the capital market arena: institutions, hedge funds that are very active, the active community of broker-dealers and active retail investors. We are meeting the needs of a wide variety of view points expressed in the marketplace, from each given liquidity source.
Also, we are launching a web-based “portal” market, something whose time has come. It will allow qualified institutional buyers — whose role goes hand in hand with capital raising — to buy unregistered securities directly from the issuer, without any public offering.
You have announced a pretty ambitious plan to enter the options market. How are you going to achieve this? The options market is a significant part of our future growth. Our progress in (New York Stock Exchange) listings can be replicated in the options market as it goes to penny increment. It’s a wonderful opportunity for a new player to come in.
At Nasdaq, we run an electronic matching service and have the ability to leverage our technology and relationships, leverage the fact that there is going to be a fundamental change in the nature of trading in the options market.
You have already conducted strategic acquisitions such as Inet. You already own about 30% of the London Stock Exchange. Now you want to diversify into options. Do you have more acquisitions in mind? Yes. But it’s very important to understand that we are here to meet the objectives of our shareholders who have supported Nasdaq under the explicit understanding that we do transactions that will be strategic and significant and increase value for our shareholders over a specific period of time. To do otherwise would be in fundamental violation of our understanding with shareholders.
We continue to explore strategic opportunities. In some cases, we have opened up a dialogue with potential partners. We believe we have many exciting opportunities afforded to us.
Crossing networks are gaining traction among institutional investors concerned about market impact. Can an open-book model tackle that problem effectively as well? Crossing networks are just another way to describe internalization, and we were proponents of internalization.
One way to trade institutional block orders is with the many algorithmic solutions that brokers offer their clients. Nasdaq has developed many technology capabilities that have allowed market participants to slice these large orders in small pieces, with little or no market impact. The pegged order, which tracks the inside of the national best bid-offer, is one example of that.
Markets always evolve and can improve, mainly with technology. Ten, 20 years ago, it was very difficult to move 100,000 shares without market impact. Today, we do 1 million-share blocks, and soon, we are going to see 5 million-share blocks.
The NYSE has seen its market share in its own listings eroded by increased competition, chiefly from Nasdaq. Do you see that trend continuing? There has been a broad trend in the U.S. and around the globe to copy the market model that Nasdaq introduced in 1971. The basic premise is that the market should provide fair access to all investors, which is what an open-access electronic platform does provide. Investors greatly benefit from a central liquidity pool with different competitive forces.
A trend has developed; Nasdaq led it, and there is no turning back. We are witnessing a historic shift in trading of NYSE-listed stock. We see the deconstruction of the floor board by board due to increased competition and efficiency in our market.
The NYSE has seen its market share in its own listings eroded by increased competition, chiefly from Nasdaq. Do you see that trend continuing? There has been a broad trend in the U.S. and around the globe to copy the market model that Nasdaq introduced in 1971. The basic premise is that the market should provide fair access to all investors, which is what an open-access electronic platform does provide. Investors greatly benefit from a central liquidity pool with different competitive forces.
A trend has developed; Nasdaq led it, and there is no turning back. We are witnessing a historic shift in trading of NYSE-listed stock. We see the deconstruction of the floor board by board due to increased competition and efficiency in our market.
