Robert Greifeld, chairman and CEO of the Nasdaq Stock Market Inc., has been busy. He has steered the nation’s largest electronic stock exchange through a series of ambitious growth initiatives and acquisitions, since being named to the top spot in May of 2003. He led Nasdaq’s 2004 launch of Market Center, a system capable of trading Nasdaq, NYSE, and AMEX-listed securities and exchange traded funds on a single electronic platform. He also oversaw the purchases of INET ECN and, in November, the Philadelphia Stock Exchange, which could herald a move into options. Nasdaq even launched a matchmaking service for boards and prospective directors and purchased a boardroom portal business. But Greifeld’s boldest plans involve giving the exchange a global presence. After the prestigious London Stock Exchange rebuffed his advances, even though Nasdaq owned a sizable minority stake, Greifeld turned his attention to Stockholm-based OMX, which it agreed to buy for about $4.9 billion in a deal struck jointly with Borse Dubai. “We fought the good fight,” he said, during a third-quarter conference call. Regardless, Greifeld told Directorship, Nasdaq is marching forward with its plans to carve out an international footprint.
Nasdaq recently launched some products and services aimed at board members. How is that going?
One of the most popular laments is that it’s more difficult now than ever to recruit qualified board members. Through the years, we’ve been involved in informal ways to place directors with companies. Our board recruitment tool is bringing a technology platform to make this a more efficient process. It’s a natural corollary that we have relationships with directors as part of the listing process.
We also just launched Directors’ Desk, which we acquired earlier this year. As a sitting company CEO, I personally understand how hard it is to get the board book out on a timely basis. When you’re involved in substantial M&A activity, at times it seems almost like an insurmountable task. With the Directors’ Desk product, you can update the information simultaneously and you can be reading this information in an hour or two before the board meeting. We think this is a clear step forward and a real step out of the dark ages for directors.
What is the ideal company that lists on Nasdaq?
Our fundamental value proposition is that our market structure provides a more efficient trading methodology for investors, and that efficient trading technology results in lower cost of capital and greater liquidity. As you look at the exchanges around the planet, Nasdaq has the highest liquidity per market capitalization. We’re proud of that. It’s a result of the structures we’ve put in place to have an open and fair electronic platform where we do not grant privileges to the few.
Would you say that the “where-to-list” decision is no longer a function of the size of the company?
Completely. We have some of the largest companies on the planet. Obviously, when you have a $280-billion market-cap company, one that just passed the $200-billion threshold, and a large number over $100 billion, you can see the market addresses all different levels of market caps. In a real sense, our market-structure advantage is more pronounced with larger companies because our market allows trading without intermediaries being involved.
You recently completed the separation of NASD (now renamed FINRA). Apart from the removal of some appearance of conflict, what has that meant to you?
The NASD separation allowed us to get our own license and complete the process of becoming a public company. It really set us on the proper path with respect to conflict. Now the Financial Industry Regulatory Authority is a vendor of regulator services to us. Obviously, we demand the best from them and that relationship is definitely working in a new and improved way.
With the battle for the London Stock Exchange behind you, what are your plans globally?
Regarding international expansion, we’ve clearly made a decision with regard to how we’re going to play up the European part of our strategy with the proposed transaction with OMX, which we expect to close in the first half of the first quarter. OMX will allow us to bring our particular abilities to play in the Nordic region where we think we can increase the liquidity of the marketplace, and it gives us the proper platform to launch a Pan-European effort in the competitive world that will exist after an EU regulatory change.
There’s been a contention that regulation here in the United States has hindered the listing of foreign companies. Do you agree?
We have done well getting foreign companies to list on Nasdaq, most notably in the last couple of years from China. Sometime between now and the end of the year, China will surpass Israel as our largest market outside of the United States. We currently have 72 listings from China. There are a lot of organizations that choose to avoid our regulatory structure and I would say this: the basic principals of SOX have been valid, but the implementation of those principals has been flawed. Going forward, the SEC and the PCAOB need to make that implementation for listing companies more straightforward.
We hear from private-equity firms that it’s easier to be a privately traded company. I’m going to guess that you would disagree with that?
It’s interesting to me that many private-equity portfolio companies maintain SOX compliance, so it’s not regulation that they’re trying to avoid by going private, because these private-equity firms have to think about how they are going to exit. And they know they have to be SOX-compliant to exit, so that’s not a valid reason.
And a major exit strategy of private equity is still the IPO, so I guess you have a love/hate relationship with those guys.
It’s been described as our recycling service, which may or may not be true. We work very closely with private equity and I think we have positive relationships with them. Any time you are the end goal, it tends to be a positive relationship.
New independence rules make it more difficult for public company boards to have members with significant M&A experience. Do you think that’s a problem?
Yes, I do. We at Nasdaq have two private-equity investors in our company and they both have representatives on our board. As we have gone through discussions about M&A and have done a number of deals, their input has been invaluable. Obviously, you have bankers who will give you advice and bankers will generally tell you whether it’s worthwhile, but you always have the thought in the back of your mind that they’re paid for successful transactions, rather than pure advice. Having that M&A experience on our board is very valuable, so I think boards in general have lost something there.
Give us a snapshot of some of the major trends you see happening in your corner of the capital markets.
Three years from now, there will be more exchange or exchange-type organizations, rather than fewer. In most of the markets, exchanges have operated as essential whole-market monopolies. The regulatory change is coming soon; it’s creating an environment where competition can develop very much like what we have here in the United States.
As the rules changed here, we at Nasdaq were able to gain a tremendous amount of market share in the trading of stocks that are listed on NYSE. Today, if you look at the floor of the exchange, they process under 40 percent of their volume. Nasdaq does 38-percent volume by itself on stocks listed on NYSE. We see that same opportunity in other parts of the world, and we see that we aren’t the only ones to recognize it.