From time to time I believe it important to discuss controversial industry issues that are the subject of heated debate.  In publishing such editorial pieces I use a special edition of the Securities Industry Commentator™ entitled Dispatches from the Frontline™.  The following article is intended to provoke discussion concerning the future of the NASD and the emerging role of the new NASDAQ

Bill Singer   

NASD: EBBETS FIELD OR YANKEE STADIUM?

Current affairs at NASD are like a scorecard for an extra-innings baseball game: lots of substitutions, cross-outs, and double switches. Frank Zarb stepped down as NASD CEO in favor of Robert Glauber.  Although Frank will retain the titles of NASD Chairman and CEO/Chairman of NASDAQ, his contract expires in February 2001 and a search for his replacement is apparently underway. Additionally, NASD President Richard Ketchum will replace Al Berkeley as President of NASDAQ and dissident NASD Governor Alan Davidson announced his resignation.  Is NASD’s bench lacking depth? Has NASD traded its best players to NASDAQ?

One can easily envision the recently formed NASD Dispute Resolution, Inc. (NASDDR) being spun off as a competitor of the American Arbitration Association. Similarly, one can anticipate NASD Regulation, Inc. (NASDR) merging with the other self-regulatory organizations into a single, national SRO. NASD’s divestiture of NASDDR and NASDR would surely result in economies to NASD members and positively address frequently raised concerns about impartiality and bias.  

If NASD divests itself of NASDAQ, NASDDR, and NASDR, what remains is a trade organization, a mere competitor to the Securities Industry Association (SIA) - - - and NASD suffers in comparison. The major industry players have forged a powerful alliance with SIA and developed the organization into a potent lobbyist for their interests.  As a second trade organization, the NASD becomes an unnecessary redundancy.  Accordingly, given the history of mistrust between smaller members and NASD, such firms may conclude that they are better served by forming their own trade organization.

Finally, above all of the questions and concerns, remains confusion as to the future relationship between NASD and NASDAQ. For now it appears that the powers that be (especially at SEC) anticipate a continuation of the SRO’s oversight of NASDAQ.  But for how long will that be a given?  Will NASDAQ public shareholders tolerate the intrusion of NASD if such interference dampens profits, cuts dividends or restricts expansion? If NASDAQ enters the political fray through a political action committee, how long will Congress insist upon a substantive role for NASD at NASDAQ? Ultimately, is the public prepared to put its investment dollars into a publicly held NASDAQ subject to excessive outside controls and restraints? Logic dictates that NASDAQ will chafe under the unbridled attempts by the NASD and SEC to control its affairs.  It is one thing for a public company to be subject to SEC subpoenas or NASD demands; it is quite another to have the SEC and NASD as virtual members of the Board.

My educated guess is that NASD we have come to love and hate is headed for the scrap heap. It is an entity that has outlived its usefulness and has demutualized itself into irrelevancy.  As with so many once venerable institutions, it appears destined to end not with a bang, but with a whimper - - - much as a Mookie Wilson ground ball headed between the legs of Bill Buckner.