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
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
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
The NASD responded by suggesting that Davidson's campaign was
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