Nasdaq Lures Companies to Switch Listings with Portable Symbols

As the battle between U.S. stock exchanges heats up, this week the Nasdaq Stock Market said that a company could retain its stock symbol if it moved over to Nasdaq from another exchange trading venue.

On Monday, Nasdaq announced that Delta Financial Corp.Corp. (DFC) will keep its three character ticker symbol "DFC" when it moves to Nasdaq from the American Stock Exchange on March 22nd.

Though trading systems have recognized OTC stocks as having four-character symbols, Nasdaq said it will now offer one-, two- and three- character symbols to companies that switch their listings as well as those going public for the first time and to existing Nasdaq issuers."We feel it's going to further our competition position," says William O'Brien, Nasdaq's SVP of new listings. O'Brien compared the listing decision to consumers weighing the pros and cons of switching cell phone carriers. Consumers were reluctant to switch carriers offering better service and cheaper prices because they would have to change their cell phone numbers, but then portability came along and they could keep their cell phone numbers. "If a customer has to retain their number, maybe they stick with what they have," says O'Brien.

To pull this off, Nasdaq had to undertake some systems development and testing with the brokerage industry. "It has a Y2Kish, daylight savings time development quality to it," says O'Brien. Nasdaq told the trading and vendor community in December of 2005 that it intended to do this and spent time in testing and development with the brokerage community, he says.

Testing began in November of 2005 and continued through February of 2007. Brokers sent Nasdaq orders with those symbols making sure that their third-party systems worked, says O'Brien. "We wanted to make sure that broker and vendor systems twhether it's execution, clearing or settlement or order routing, were not hard coded based on the length of the symbol," he says.

According to Jeromee Johnson, senior analyst at The TABB Group in New York, "The timing is right" in that this is following upon the groundwork for portable listings that was paved a few years ago when exchange marketers convinced about a dozen companies to take dual listings on Nasdaq and NYSE Arca.

"For year, many equity trading systems were coded so that if a ticker was three or less characters then it's a listed stock and if it had four characters then it was OTC," says Johnson. "At one time, many front ends from the BRASSs, LongViews, Charles Rivers, Lavas and the Instinets had this basic logic," says Johnson. Even many of the algorithms, such as VWAP, followed the old logic, he says. When the dual listings came out, brokers put in exceptions to their coding because stocks were listed on both NYSE and Nasdaq.

But with all the U.S. stock venues going electronic and trading the same listed and OTC stocks, the lines are blurring even in terms of trading rules. Under Regulation NMS, there is a move to classify securities as NMS securities or non-NMS securities and get away from the listed and OTC terms, says Johnson. "All of the regulatory differences have continued to be smoothed over. There is no need for a three or four-character listing," he says. "And that really is the new paradigm so the timing is right to make that change," suggests the analyst.

Yet from Nasdaq's point of view, the goal is to promote switches. Over the past 18 months, the three largest switches have been from the NYSE to Nasdaq by E*Trade, Liberty Media and Charles Schwab, says O' Brien. Of the group, Schwab was originally dual listed, as was Cadence Design, which also chose to become solely listed on Nasdaq last year.

"Nasdaq offers more-efficient trading," contends O'Brien, noting that Nasdaq invented electronic trading 35 years ago and other venues are copying it now. "We charge less for it and we provide a much broader array of visibility. We think the ability to keep the number is going to make it more powerful. It's going to give you one more reason to really look at where you're listed," he says.

Like portable cell phone numbers, this is going to "promote freedom of choice and competition," predicts O'Brien. "Some companies are reluctant to switch listing venues. This is another barrier that has been removed," says the Nasdaq executive who is in charge of all efforts to attract listings in the United States.

In the release, Delta Financial President and CEO Hugh Miller thanked the American Stock Exchange "for enabling the transfer of our current ticker symbol to the Nasdaq." Thirty companies have switched from the Amex to Nasdaq over the past year.

However, TABB Group's Johnson says the NYSE could offer symbol portability as well. It's quite well-known that the NYSE has been reserving single-character symbols for the premier companies, specifically M for Microsoft for years and years. Microsoft's stock has traded on Nasdaq under the symbol MSFT, but could switch to the NYSE, says Johnson, under the letter M.

"Now that Nasdaq is coming out with the offering ahead of New York, I think it's an edge over New York. But it's not something they're going to have over a long time," says Johnson. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio