The NASDAQ Stock Market: Here For The Long Haul?

October 21, 2003

Abstract

New York, NY, USA October 21, 2003

Celent Communications predicts that claims of Nasdaq痴 dissolution are premature. Nasdaq market share will double from 17% in 2003 to 35% in 2005, or will become a different market entity.

When Nasdaq launched its SuperMontage trading platform in late 2002, the common prediction was that the system would cause the death of ECN competitors. When the trading system failed to meet wildly optimistic market share forecasts in 2003, the common prediction became the death of Nasdaq. Nasdaq痴 depressing market share, the departure of several important ECN customers, the delay of exchange registration, and the fight to share tape revenue have worked to form a serious threat to Nasdaq痴 business.

In a new report, " ?," Celent examines recent changes to Nasdaq痴 market structure and its competitive position within the U.S. equities market. The report reviews the existing Nasdaq business model and examines the underlying causes of the company痴 recent troubles. Historical background provides context to the strategic choices Nasdaq has made. It evaluates Nasdaq痴 recent actions to increase market share and improve its financials. The final conclusion is that Nasdaq will survive its current crisis.

Celent predicts that Nasdaq will achieve 35% market share in 2005. This forecast assumes that Instinet and Island will consolidate trading activity into one ECN and will return to Nasdaq痴 fold; that ArcaEx market share will level off as its new business matures; and that some (but not all) of Nasdaq痴 attempts to attract more order flow, such as post-trade anonymity and bi-lateral linkages, will succeed in reversing the current market share decline. Should these assumptions fail to hold, Nasdaq market share will drop below 10% and the market will be forced to re-evaluate its transactions business.

According to Jodi Burns, the report痴 author, "The public has overeacted to the negative news coming from Nasdaq recently. Its 2Q03 loss of US$49 million is not that dramatic when compared with recent results from the NYSE and Instinet. Nasdaq is actively working to remove certain obstacles that prevent it from pursuing different strategic models. In addition, the company retains many options for improving its market share, and could pursue several new business opportunities that are based on entirely different success factors."

The 58-page report contains 19 figures and 5 tables.

A is available online.

of Celent Communications' Institutional Securities & Investments and Retail Securities & Investments research services can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.

        

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Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

 

New York, NY, USA October 21, 2003

Nasdaq Stock Market

Return to report Abstract

 

EXECUTIVE SUMMARY 3
INTRODUCTION 5
NASDAQ GLOSSARY 7
NASDAQ OVERVIEW 15
NASDAQ CHALLENGES 23
  SuperMontage 23
  Declining Market Share 24
  Financial Situation 26
  Exchange Registration 34
  Tape Revenue Sharing 36
NASDAQ'S RESPONSE 38
  Recent Initiatives 38
  Discontinued Operations 42
  Upcoming Initiatives 44
WILL NASDAQ SURVIVE? 46
FUTURE OPPORTUNITIES 50
  Develop More ETF Products 50
  Take Back The QQQ Listing 50
  Diversified Revenue Streams 51
  Pure Listings Market 52
  Potential Acquisitions 54
CONCLUSION 56
OBJECTIVITY & METHODOLOGY 57

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