Wall Street's most exclusive club, the Dow Jones industrial average, yesterday let in folks from the wrong side of town, the Nasdaq Stock Market.
The admission of Nasdaq giants Intel and Microsoft--and the unceremonious booting of Sears, Union Carbide, Goodyear and Chevron--was a formal concession that the new money is overtaking the old.
Until now, only the blue-chip pedigree of the New York Stock Exchange was considered appropriate for the Dow--the old-line names such as J.P. Morgan, General Electric, General Motors, Procter & Gamble and Sears.
Stocks, however big, from the wilder and woollier Nasdaq, with its new tech, high-tech, small-cap and microcap stocks, were essentially blackballed. If they ever wanted to be admitted--and they had expressed no particular desire for membership--they would first have to meet the more stringent financial standards of the NYSE and be admitted there.
But the technology revolution has made the wealth and financial influence of Microsoft and Intel irresistible. Their continued absence, as they began to dwarf the traditional blue chips, made the Dow less and less reflective of the country's economy, and borderline irrelevant.
"Now that [Microsoft and Intel] are in the Dow, they are in the club," said Patrick Healy, president of the Issuer Network, a Chevy Chase-based firm that advises companies trying to choose between the two exchanges.
Score one for the Nasdaq. But no one expects this to be the last word from the NYSE. A Wall Street executive predicted the NYSE will double its effort to convert Microsoft and Intel to NYSE stocks. "They'll be told they've got to start acting like their peers," he said.
"One could argue that now that they are in the club, they should go all the way. Some people might say that pressure is off them to switch, but I think the pressure will be greater," Healy said.
Richard Grasso, a quick-talking New Yorker, heads the NYSE, the grande dame of U.S. equities markets. Frank Zarb, energy czar under President Gerald Ford, runs the National Association of Securities Dealers, the parent company of Nasdaq. The two have known each other for more than two decades and often engage in banter at congressional hearings or before reporters.
Grasso has a doctored photo in his office that appears to show him warmly embracing Zarb, who is toting an automatic weapon. Actually it's a photo that was taken when Grasso was in Colombia this June, meeting with rebel commandant Raul Reyes to explain the economic benefits of peace at the behest of Colombian President Andres Pastrana. Grasso's staff superimposed Zarb's head over Reyes's body as a joke.
And when Grasso got a buzz cut this summer, Zarb sent him an orange wig.
But the joking masks a deep and fierce competition between the two that has translated into an increasingly heated play for each other's customers, especially the larger companies that bring the bigger and more lucrative trading volumes. With growing competition from electronic networks and other new stock trading systems, the traditional exchanges are scrambling for every new dollar.
So far, the scale has tilted in favor of the NYSE. The only time a company left the NYSE and moved to Nasdaq was in 1939, prompting the NYSE to adopt its "Rule 500." This made it extremely difficult for companies that listed on NYSE to switch. Securities lobbyists jokingly refer to it as the "Roach Motel" or the "Hotel California" rule, because "you can check in, but you can never leave."
The Securities and Exchange Commission recently forced the NYSE to water down the requirement, unleashing another round of marketing calls and sales pitches from both sides.
Who's In, Who's Out
The Home Depot
The other companies (year added to Dow):
Wal-Mart Stores (1997)
Citigroup (1997, as Travelers)
Johnson & Johnson (1997)
J.P. Morgan & Co. (1991)
Walt Disney (1991)
Philip Morris (1985)
American Express (1982)
Merck & Co. (1979)
International Paper (1956)
United Technologies (1939, as United Aircraft)
Procter & Gamble (1932)
Eastman Kodak (1930)
Exxon (1928, as Standard Oil Co. of New Jersey)
AlliedSignal (1925, as Allied Chemical)
General Motors (1925)
General Electric (1907)
Union Carbide (1928)
*As Standard Oil Company of California
NOTE: Some companies have been in and out of the Dow more than once. Dates are when each company most recently joined the Dow.