Clash of Wall Street's Titans

Everybody knows the biggest stock market in the world - it's the New York Stock Exchange (NYSE). Right?

Yes, but not necessarily for long. In terms of dollar-trading volume, the Nasdaq Stock Market is catching up fast.

Nasdaq has long been known as the minor league of investing - a proving ground for small young companies.

But with some of those companies - Intel, Microsoft, Cisco - turning into linchpins of the high-tech economy, Nasdaq is increasingly going head to head with the Big Board. A rule change in January may even allow it to lure away some all-star stocks now listed on the NYSE.

"It is hardball," says a Nasdaq official.

For American investors, the battle between the world's two largest stock markets has helped push down the costs of buying and selling securities. And the competition can only be good for corporations as well.

Already Nasdaq is ahead of the NYSE in terms of shares traded per day. During the shopping spree Oct. 28, investors traded a record 1.2 billion shares on the Big Board, while 1.4 billion zoomed through Nasdaq computers.

Both markets are pushing for new foreign listings - so successfully that Nasdaq's chairman, Frank Zarb, sees New York fast becoming the "center of financial services for the universe."

So Americans will have an ever-growing variety of foreign stocks available in their home markets.

Trading costs are falling, in part because of regulatory pressure. The Securities and Exchange Commission (SEC) insisted that Nasdaq reduce the gap that exists at any moment between the price at which you can buy a stock and the price at which you can sell it. The spreads between these "bid" and "ask" prices have plunged 30 percent this year.

"All that has gone into investors' pockets," Mr. Zarb says.

And cheaper trading encourages more trading, so the securities industry itself is reaping record profits.

"We have learned a valuable lesson," Zarb says. "When you do good for the investor, you do good for the industry."

Nasdaq is competing for new listings based not only on its growing prestige and lower spreads, but also on its all-electronic trading system. Transactions occur entirely on broker computer screens. The Big Board is an auction market with a noisy trading floor.

The Big Board counters that its auction market with electronic-communication attachments, has advantages of its own.

While experts debate such fine points, Nasdaq is racking up new listings.

Swelled by initial public offerings since it opened in 1971, the market has more than 5,500 companies listed, compared with nearly 3,000 at the NYSE.

But Nasdaq lags, for now, in the dollar volume of shares traded.

Only 10 percent of the major companies that make up the Standard & Poor's 500 index trade on Nasdaq.

Indeed, in terms of market capitalization - the value of all stocks listed - the Big Board remains dominant at $8.6 trillion at the end of August, versus $1.8 trillion for Nasdaq stocks.

In this decade, though, Nasdaq is growing twice as fast as the NYSE in market value and three times faster in dollar volume, Nasdaq officials claim.

It will be No. 1 in dollars traded "by the turn of the century," predicts Nasdaq vice president John Wall.

But that won't happen without a fight.

The Big Board - widely regarded as the most prominent symbol of American capitalism - has major foreign companies lined up for listing. And it is abroad where the two largest stock markets are battling hardest for new listings.

Only 700 or so US companies not now trading on the NYSE would meet its tough listing requirements. Abroad, however, 2,300 or more could do so. Mindful of the opportunity, Nasdaq has 30 salespeople trotting the globe and plans a China office.

Nasdaq expects regulators to prod the NYSE to modify its Rule 500 by the end of this year. That rule requires a two-thirds vote of shareholders for delisting from the Big Board. With that rule gone, Nasdaq will come calling.

"It is the funnest time to be in this business," says Zarb.

Dwarfed by Rivals, Amex Seeks Niche

Three years ago a brokerage house could pick up a seat on the American Stock Exchange for about $100,000. The latest price tag on the "Curb" was $405,000.

This reflects a modest comeback for a historic exchange that was long No. 2 - a kind of farm team for the New York Stock Exchange - but is now dwarfed by both the NYSE and the booming Nasdaq Stock Market.

Amex chairman Richard Syron, in an interview, notes two other signs of progress:

* The number of listed companies has grown this year for the first time in 10 years. Amex's 772 listings represent 9.5 percent of all companies listed on national exchanges.

* The Amex will rack up record profits this year - about $30 million before taxes.

But "the Amex is ... caught between a rock and a hard place," says Samuel Hayes of the Harvard Business School.

"We are really a niche market," says Mr. Syron.

One niche is "derivative" securities - such as shares based on stock indexes of individual foreign countries. Coming next year is a product based on the Dow Jones Industrial Average.

Another niche is service: sponsoring conferences where the mostly mid-size companies it lists can introduce themselves to analysts. "You have to sing and dance," jokes Syron.

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