Update: Nasdaq Lines Up Investment From Equity Firm

Updated from 11:31 a.m. ET

The Nasdaq Stock Market said an equity investment firm has agreed to invest $240 million in the exchange as it attempts to restructure into a private, for-profit securities market.

Hellman & Friedman, which is based in San Francisco, agreed to buy $240 million of debentures that will be convertible into Nasdaq common stock at any time in the next five years. The exchange plans to use most of the investment to buy back Nasdaq shares from the National Association of Securities Dealers, reducing the NASD's ownership to about 27% on a fully diluted basis.

"It satisfies what the NASD wants to do," NASD Chairman Frank Zarb said in an afternoon teleconference on the deal. "The size speaks for itself. It's an important step."

Following the deal, if it converts all of the debentures, Hellman will hold a 9.8% stake in the Nasdaq. Warren Hellman, the firm's chairman, will become a member of the Nasdaq board.

"It fits our investment philosophy to a 'T'," Hellman said during the conference call. "It already is a profitable company. There's every possibility that Nasdaq will become more profitable."

In the last year, the exchange and the NASD have raised more than $516 million through a two-part private offering. Yesterday, Nasdaq disclosed plans to buy a majority stake in the Easdaq, which is based in Brussels, and rename the exchange the Nasdaq Europe.

Nasdaq is also studying whether to go public with an initial public offering, as some overseas exchanges have done. Zarb refused to say Wednesday what he felt the exchange's value was, even in light of the Hellman & Friedman investment.

"We're not going to give you guidance on that," he said. "The market's the market's the market."