Not much, if anything, has been written about NASDAQâ€™s conversion from a â€œnational securities associationâ€? to a â€œnational securities exchange.â€? (Press release here). Perhaps itâ€™s because few people care, few people were aware that NASDAQ was not already a national securities exchange, and/or it doesnâ€™t really matter. That all may be true, but it raises the question of why NASDAQ bothered (note that it had been pursuing the change in status since 2001). This FAQ put out by NASDAQ explains why it bothered:
â€¢ Exchange registration allows NASDAQ to operate independently without being controlled by the NASD . . . .
â€¢ NASDAQâ€™s new status as an exchange will eliminate any appearance of conflicts of interest stemming from the NASDâ€™s control of NASDAQ and its role as regulator of NASDAQâ€™s market participants.
â€¢ Becoming an exchange will eliminate some disparate treatment of securities liste on NASDAQ because they are not considered â€œexchange-listedâ€? . . . .
As for what exactly changes by NASDAQ becoming an exchange, the FAQ states â€œ[v]ery little.â€? I thought perhaps that the conversion results in securities listed on the NASDAQ Capital Market (f/k/a NASDAQ SmallCap Market) falling within the definition of â€œcovered securityâ€? under â€™33 Act Â§ 18. This would mean preemption of state blue sky registration requirements for these securities. A close reading of Â§ 18, however, reveals this is not the case.
From my perspective (law professor who writes in the securities regulation area), one big positive of the change is that now both the NYSE and NASDAQ can correctly be referred to collectively as â€œexchanges.â€? In past scholarship, Iâ€™ve struggled with the right collective termâ€””exchanges” was not technically correct and neither was “markets.” Again, most people probably donâ€™t care.
They converted because they make more money by converting. Professional market participants get charged various fees for real-time market data. That revenue gets divided up based on where trades that generate that data happen. By becoming an exchange NASDAQ gets significantly more tape-revenue than if they were not an exchange. This is the same reason that Archipelago (before they were bought by the NYSE) converted to an exchange.
I actually found the distinction to be a useful starting-off point for purposes of discussing whether there was a physical floor on which the securities were traded. On the positive side, however, this change may perhaps allow identification of someone cribbing from a student outline from a prior year.
I had, however, understood that NASDAQ formerly was formally an “automated inter-dealer quotation system”, not a “national securities association”.
I am chuckling because I had exactly the same reaction. “Finally, I can just say ‘exchanges’!”
So, at least one other person cared.