Nasdaq Seeks Higher Ceiling

It wants to loosen rules that limit some owners' voting stake.
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is making room for private-equity investors.

In a filing last week, the company said that it may grant Hellman & Friedman and Silver Lake Partners an exemption from a 5% voting restriction placed on Nasdaq shareholders.

"Our board of directors may waive the application of the 5% voting limitation to persons other than brokers, dealers, their affiliates, and

other persons," the filing said. "In the event that the board of directors approves an exemption from the 5% voting limitation ... and seeks the concurrence of the SEC with respect thereto, we have agreed to grant Hellman & Friedman and Silver Lake Partners, holders of our 3.75% convertible subordinated notes, a comparable exemption from such limitation."


Securities and Exchange Commission

rules, shareholders of Nasdaq cannot have more than a 5% voting right at the company, no matter how many shares the investor may own. The SEC put the restriction on the Nasdaq in 1999, when the company first began the process of going public.

The original impetus for the rule was to ensure the company would not be purchased by industry participants, such as broker dealers, which could have caused conflict of interest issues, according to a Nasdaq spokeswoman. The company is also considered a "public institution," according to the spokeswoman, giving the SEC another reason to restrict voting power.

If the Nasdaq does loosen its restrictions on its shareholders, which is subject to SEC approval, private-equity partners Hellman & Friedman and Silver Lake would be beneficiaries. In the Nasdaq's most recent proxy, Hellman & Friedman owns 20.9% of the company's voting shares and Silver Lake owns 12%. Wellington also owns 12% of the company's stock. All of the funds, however, have only a 5% voting share each.

The Nasdaq may be carving out a path for Hellman & Friedman and Silver Lake to become private-equity partners in an acquisition of the London Stock Exchange, according to some people close to the company. Private-equity investment may be necessary if the company decides to launch a bid for all of the LSE, given the amount of debt the Nasdaq recently incurred to acquire the 25% stake. That debt was recently downgraded to junk status.

If the Nasdaq tries to acquire the LSE instead of pursuing a merger of equals, Hellman & Friedman and Silver Lake Partners are thought to be candidates for private-equity investment. The two funds were used as private-equity partners when the Nasdaq acquired Instinet in 2005.

The Nasdaq and

New York Stock Exchange


are in a consolidation race to become the first global securities exchange. The Nasdaq kicked off the competition in March, when it bought 15% of the London Stock Exchange from some of the LSE's insiders. The Nasdaq has slowly built its stake over the last two months, and now owns 25.1% of the LSE's shares.

Until last week, the Nasdaq had a leg up on its New York competitor in the race for global domination. On Monday, the NYSE unveiled a $10 billion bid for the Euronext, a competing European securities exchange. Now it seems that Nasdaq is catching up.

Although the NYSE has similar voting restrictions on its shareholders, its rules are slightly less stringent. The NYSE restricts any shareholder from owning more than 20% of the company's stock and from having more than a 10% voting right. Currently, hedge fund Atticus Capital is the largest shareholder, with 6% of the shares.

Shares in the Nasdaq were down $1.83 to $28.37 on Wednesday, after falling more than 25% in two weeks. The NYSE was down $2.45 to $57.60, adding to its 21% decline over the same period.