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NASD Members Overwhelmingly
Approve Nasdaq Spin Off

By Dunstan Prial   Associated Press
NEW YORK — The National Association of Securities Dealers said today that its members overwhelmingly approved a plan to spin off part of the NASD's computerized Nasdaq Stock Market as a for-profit company.

An NASD spokesman said 3,423 members, or 84 percent of those who cast ballots, voted in favor of the plan, while 652 voted against it. A number of firms abstained.

Members have been casting ballots for over a month, and the results were tallied during a special meeting in Washington, D.C.

The announcement came a day after the leader of a group of small brokerage firms filed a lawsuit in New York, claiming the proposal is unfair to small NASD members.

A judge rejected on Thursday the request to block today's announcement. But another hearing is scheduled for Monday to resolve the larger issues raised in the suit, including the request for a preliminary injunction to block the sale.

Edward Knight, an NASD vice president and chief legal officer, called the suit "baseless" in a statement released Thursday after the judge's ruling.

"This eleventh-hour delay tactic sought to use the court to prohibit the membership from speaking and is counter to the democratic process," Knight said.

Nevertheless, the increasingly vocal opposition by small brokerages may complicate matters for the NASD, whose board voted unanimously in December to move ahead with plans to sell shares in the Nasdaq to NASD members.

The NASD intends to sell about a 78 percent stake in the Nasdaq to a group of Nasdaq market participants that includes NASD member broker-dealer firms, large institutional investors such as pension and mutual fund companies, and a handful of large Nasdaq listed companies. The sale is expected to raise about $1 billion.

A group called the Independent Broker-Dealer Association has become increasingly vocal with charges that the plan favors large Wall Street members, however.

The suit seeking to block the plan was filed by IBDA president Alan Davidson, an NASD board member and owner of Zeus Securities in Smithtown, N.Y.

Davidson voted with other board members to approve the plan in December, but has since changed his mind. On Monday, he took his campaign a step further, demanding that NASD Chairman Frank Zarb resign.

The NASD responded by suggesting that Davidson's campaign was self-serving.

Davidson declined to be interviewed Thursday by The Associated Press. But in a series of press releases issued recently, Davidson has charged that the spinoff proposal is flawed because small NASD firms weren't given enough information to cast informed votes.

In addition, Davidson has charged that large member firms received "preferential treatment" by the NASD in terms of the Nasdaq shares that will be divided among all the member firms as part of the spinoff.

People familiar with the situation said Davidson is giving voice to long-held concerns by small firms.

"There's a very strong undercurrent of opposition to this proposal. There's the perception by smaller firms that this was a backdoor deal," said Bill Singer, a New York securities lawyer who represented the IBDA until last month, when he resigned in protest of Davidson's leadership methods.

NASD officials have said the restructuring is necessary to help keep the computerized Nasdaq stock market competitive with upstart electronic trading exchanges, known as electronic communications networks, or ECNs.

The New York Stock Exchange is also weighing a reorganization through the sale of shares to the public, which could happen later this year.

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