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  •   Transcript of Live Discussion With Alfred R. Berkeley III

    ALT TAG GOES HERE Hosted by WashTech
    Tuesday, June 23, 1998 at 9:45 a.m.

    Alfred R. Berkeley III, president of the Nasdaq Stock Market, moderated a June 22 session at the World Congress on Information Technology at George Mason University.

    Tuesday morning, he checked in with us at the WorldWatch booth at the conference to participate in an online Q&A with you.

    Herndon, VA: Don't you think it is time for Nasdaq to convert from the "fraction" system to the "decimal" system? In today's modern computer age, I don't see any reason to keep the "fraction" system other than to artificially maintain some dealer "spread".

    Alfred R. Berkeley III: We absolutely agree that it time to move to decimals and we will do it just as soon as we finish the software changes required by the year 2000.

    Washington, D.C.: Is it true that Intel, Microsoft and Cisco are one third of the value of Nasdaq?

    Alfred R. Berkeley III: No. It's not true. The top 1 percent of our companies account for 13 percent of our business. Top 20 percent of our companies account for 83 percent of our business.

    Rockville, MD: Do you think Nasdaq's online service has the ability to draw companies to Nasdaq, since NYSE doesn't really have a service that can compare?

    Alfred R. Berkeley III: We believe that Nasdaq Online is an important part of our communications with companies and is unique at this time. By itself, it would not cause any company to change markets.

    Washington, D.C.: Why is there a need for more than one 'de facto' stock exchange? In the U.S., there's the NYSE, in the U.K. there's the London exchange ... Why does the Nasdaq even exist?

    Alfred R. Berkeley III: The Nasdaq exists because people have elected to do business with it. We believe that competition is the best impetus to improvement for investors. The monopolistic exchanges in other countries are going through traumatic times as they begin to compete internationally.

    Fairfax, VA: What will NASD do if the AMEX doesn't vote to merge on Thursday?

    Alfred R. Berkeley III: We will continue to pursue our strategy of reducing costs and improving the technology in our market.

    Charlottesville, VA: Last year you announced that you were one of the culprits in the 'cow on the Rotunda' prank while at the University of Virginia. How did you get it up there and why did you choose to come forward?

    Alfred R. Berkeley III: I would rather keep this conversation focused on equity markets. But we took the cow to the Rotunda because the Rotunda needed a cow, and [the story] came out at our 30th reunion.

    Washington, D.C.: Mr. Berkeley, setting aside for a moment the current restrictions on insider trading, could you support in theory the following scenario?

    "Insider trading shall be legalized only when the use of funds from publicly traded companies (ie. from a publicly traded brokerage) could be used to purchase 'insider' shares."

    In this way the public benefit would be doubled – the ideal market price would be achieved more rapidly and the investor's shares would be presumably reflect well upon the corporate earnings and worth of the buyer entity, which in turn would increase the dollar value of investors's shares. Could you support such a system?

    Alfred R. Berkeley III: No I would not support such a system. I believe the public policy concerns about insiders not being able to take advantage of the public are more important than the theoretical economic underpinnings of this proposal.

    Gaithersburg, MD: Most small tech companies list on the Nasdaq, but some of the more high-profile firms have opted to trade on the NYSE, like AOL. Why do you think that is?

    Alfred R. Berkeley III: Nasdaq seems to attract a very large number of bright entrepreneurs. It does not always meet the needs of every company. We believe solid competition keeps us on our toes and leads us to improve our market. As for the specifics of any one company, you would have to ask them.

    St. Louis, MO: Do you want [Nasdaq] to be bigger than the New York Stock Exchange?

    Alfred R. Berkeley III: Of course, and we will be, if our relative growth rates continue.

    Clarendon, VA: Doesn't the Nasdaq have too many eggs in the high-tech basket, with so many of its top stocks being tech companies?

    Alfred R. Berkeley III: We are particularly attractive to tech companies and I believe that tech is driving the [economic] growth of our country and are pleased that these companies have chosen Nasdaq. A tremendous percentage of our companies come from the West Coast and they like the wide open free competition we bring to markets. We believe that the energy and growth that the high-tech companies bring to our market will make it increasingly attractive to other industries as they incorporate technology into their business.

    Baltimore, MD: How has the advancement of information on the internet affected the plans of the exchange as far as automation and delivery of services?

    Alfred R. Berkeley III: Nasdaq is the most agressive market in the world in terms of the Internet. is the 24th largest Web site in the world. We have a three-part strategy for moving our market to the Web. Step one is to disseminate quotes; Step two is to gather orders. Seventeen percent of all U.S. retail orders are coming into the market electronically. Our third step, which would involve actually moving the trading engine to the Web, may never happen because we need no delay in processing orders and worry about the Web speeding up and slowing down. The Nasdaq communications network is structured as an extranet, running TCP/IP over 250,000 miles of leased telephone lines. Some broker dealers permit you to trade on the Nasdaq through our SOES and Selectnet systems from home.

    Fairfax, VA: For start-up companies, could you please [describe] the Nasdaq Small-Cap market, and advantages that new and emerging companies may have by being listed here if their market value is relatively modest?

    Alfred R. Berkeley III: Most small and emerging companies should not be public. Companies should only go public when the risk that they offer investors is appropriate to the costs of being public. The Nasdaq small-cap market does offer market services to smaller companies, but these are typically much higher risk companies than on the Nasdaq national market. Most small firms should be financed privately rather than publicly.

    Arlington, VA: Do you have any predictions about how the recent flurry of business mergers will affect Nasdaq?

    Alfred R. Berkeley III: Nasdaq benefits from formation of new business more than it is hurt by the consolidation of older businesses. We have not spent much time worrying about losing companies to mergers.

    WashTech: And that concludes our discussion today. Thank you, Mr. Berkeley, for joining us.

    © Copyright 1998 The Washington Post Company

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