Updated from 4:09 p.m. EST
National Association of Securities Dealers
said Tuesday its board of governors unanimously approved a plan for a major restructuring of the NASD, including the selling of up to 79% of the
stock exchange in a two-part private offering to its members, market participants, and major issuers.
Frank Zarb, chief executive and chairman of the NASD, said he expected the offerings to generate about $1 billion, which would be used to upgrade the exchange's technology, expand activities overseas and split off its regulatory arm, the
The spinoff is also aimed at converting the Nasdaq, the No. 2 U.S. stock market, into a for-profit operation, which would help it to compete better as the number of trading outlets grows with the development of electronic communications networks.
Zarb announced the spinoff plan as the Nasdaq was suffering its biggest one-day point drop and eighth-biggest percent drop since it began operating in 1971. The market, which rose a meteoric 86% in 1999, plunged 229.84 points, or 5.6% to 3,901.31 on Tuesday.
In the first stage of the private placement, Zarb said 47% to 49% of the Nasdaq would be sold to the NASD's membership at large, some market participants and companies that trade on the Nasdaq.
In the second stage, an additional 30% of the exchange will be offered to the same groups so that at the end of both stages NASD members will own 25% of the Nasdaq, major market participants, including market makers, will own 32% and companies that trade on the Nasdaq will own 16.5% of the exchange.
The breakdown is designed to reflect the amount of revenue each group of participants in the offering contributes to the exchange.
Zarb said the largest companies to trade on the Nasdaq, namely
, as well as those that have "other relationships" with the organization, would be offered a stake in the exchange. There are 130 companies that trade on the Nasdaq.
If Nasdaq equity is issued to the public at a later date, NASD members, including small broker/dealers will also be offered an additional 8%, bringing the NASD members' stake in the exchange up to 33%.
Zarb said the NASD is not currently considering a plan to offer shares of the Nasdaq to the public, although it has not ruled out the possibility at a later stage.
The NASD's 5,500 outstanding members will vote on the plan in March. It must win majority support. The first phase of the plan will go into effect in April or May and phase two would be implemented in mid-2000.
Of the $1 billion in proceeds expected from the offerings, $114 million will be earmarked for reducing membership fees over the next seven years, $500 million will go towards the NASD's regulatory arm and $215 million will be designated for the
American Stock Exchange
, another NASD subsidiary.