Posted on: Thursday, May 17, 2001
Big Board takes painful bite out of Nasdaq
USA Today
NEW YORK — Krispy Kreme Doughnuts wowed investors last year with a piping-hot initial public offering on the Nasdaq Stock Market. Today, shares of the doughnut maker, which soared 295 percent in 2000, will begin trading on the New York Stock Exchange.
Investors spooked by the crash in tech stocks aren't the only ones distancing themselves from the Nasdaq. Companies that once listed their stocks on the tech-dominated exchange are fleeing, too. Many are switching to the rival NYSE.
Krispy Kreme is the 12th Nasdaq company to defect to NYSE this year. Yesterday, Coventry Health Care made the jump. Other high-profile names that have switched include E-Trade and BMC Software. Next week, Sybase, a software company, will leave Nasdaq for the Big Board.
This by no means signals a full-fledged exodus. More than 4,500 companies trade on the Nasdaq, so losing a dozen is far from a catastrophe. The number of companies departing the Nasdaq for NYSE has actually declined from 96 in 1996 to 24 last year.
Still, the departures have been painful for the Nasdaq, which promotes itself as the stock market of the future and is home to tech titans such as Microsoft and Intel.
"We don't like to lose anyone," says David Weild, Nasdaq's executive vice president for corporate clients.
Nasdaq contends that more companies would break ties with the NYSE and join Nasdaq if it were not for Rule 500, which Weild calls the "Roach Motel" rule. The rule makes it tough for NYSE firms to leave because it requires them to notify their 35 largest shareholders and get approval from their board of directors.
"We would win the war" if there were a level playing field, says Weild, who says Nasdaq is now actively trying to poach NYSE companies. Only one stock — Aeroflex — has moved from the NYSE to the Nasdaq.
Companies cite various reasons for jumping ship. Scott Livengood, Krispy Kreme's president, says he switched because the NYSE is home to the "most prestigious consumer brands in the world."
Statements from other companies, however, suggest other motives. Chico's FAS said its move to NYSE "should result in reduced volatility for shareholders."
BMC Software said its move would benefit its investors by "reducing transaction costs."
NYSE recruiters say more companies are listening to their sales pitch in the aftermath of the Nasdaq downdraft. "We are getting a lot more calls now," says Catherine Kinney, an executive vice president at NYSE.
Kinney readily admits going after Nasdaq companies.
In her sales pitch, Kinney uses buzzwords such as stability, tradition, credibility and lower volatility to separate the venerable NYSE from the more youthful Nasdaq. She also points to lower trading costs, citing a January Securities and Exchange Commission study.
Not so, says Nasdaq's Weild, citing academic research showing that stock prices, trading volume and liquidity decline after firms switch to the Big Board.
