NYSE Poses A Serious Threat To NASDAQ As It Grabs More Tech Listings

by Trefis Team
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A cursory look at the NASDAQ-100 index is enough to surmise that NASDAQ OMX (NASDAQ:NDAQ) lists some of the biggest names in the technology industry and hence dominates this segment. The composite “includes 100 of the largest domestic and international non-financial securities listed on The Nasdaq Stock Market based on market capitalization” and comprises of biggest tech giants like Apple, Cisco, Dell, EBay, Facebook, Google, Intel and Microsoft. (See complete list of NASDAQ 100 components here)

This is a great advantage for the exchange operator because the tech sector is one of the most traded segments in the country and generates significant revenue for the exchange in terms of trading fees. Microsoft, Apple and Google were the top three most traded stocks in the U.S. in 2012, according to GuruFocus. [1] These stocks must have contributed significantly to NASDAQ’s U.S. Cash trading business, which accounts for over 40% of the company’s total revenue.

The company’s arch-rival, NYSE Euronext (NYSE:NYX), knows this fact and has been trying for several years to make inroads into this segment. While until now NYSE’s major achievements were limited to stealing away tech IPOs from NASDAQ, it now seems that the challenger is finally succeeding in luring the big tech firms also. Last week, Oracle Corp (NASDAQ:ORCL) became the first major U.S. tech firm to transfer its stock listing from NASDAQ to NYSE. [2]

We believe that from now on, it is now upon NASDAQ to save its dominance in the tech listings category.

See our full analysis for NYSE Euronext | NASDAQ OMX

NASDAQ Has A Serious Threat From NYSE

NYSE eased its rules in 2008 to the listing of companies that are losing money, a key characteristic that a lot of tech start-ups have. [3] Since then the exchange has been slowly gaining ground in the race for technology listings. Over the past few years, the company has attracted several high profile tech IPOs such as Tableau, Yelp, LinkedIn, Pandora and RenRen to its markets by beating NASDAQ.

The success has been getting sweeter over time for NYSE as it keeps snatching more and more tech IPOs from NASDAQ. According to Venture Beat’s analysis, the exchange attracted 16 of the top 20 most highly valued venture capital backed tech IPOs of 2012. [4] This means NASDAQ was able to attract only a small fraction of the tech firms that went public last year.

The only saving grace for NASDAQ until now was the fact that large tech firms still prefer to stick with it. This also played in its favor last year when Facebook chose it over NYSE as its IPO destination. (Related article: Why did Facebook choose NASDAQ?)

However, with the news of Oracle defecting to NYSE, all this could change. Oracle is one of the largest tech firms in the U.S. and going forward NYSE will definitely sight it as an example to counter NASDAQ’s pitch to tech companies. NASDAQ’s argument that it is home to all the large tech giants in the country now suddenly seems diluted.

And Recent Mistakes Are Not Helping

Adding to the pressure on NASDAQ is its recent stumble during Facebook’s IPO. The exchange’s computer systems developed technical problems during the first few hours of Facebook’s IPO last year and trading had to be halted for about half an hour because of this. Technical glitches continued throughout the first day of trading and caused millions of dollars of losses by either preventing orders from going through or by creating confusion among investors as to whether or not their orders were successful. The exchange was recently slapped with a record $10 million fine for its mishandling of the IPO.

As evident in this article from Financial News, NYSE has been using the Facebook IPO as a talking point to lure prospective clients away from NASDAQ. This is likely to continue to happen as long as there is even a single client paying attention.

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Notes:
  1. Top 10 Most Traded Stocks in 2012, NASDAQ, December 12, 2012 []
  2. Oracle to move listing to Big Board from Nasdaq in coup for NYSE, Reuters, June 20, 2013 []
  3. Tableau’s listing on NYSE today heightens the intense race for tech IPOS with Nasdaq, Yahoo Finance, May 17, 2013 []
  4. Look out, Nasdaq: NYSE proclaims itself the new king of tech IPOs, Venture Beat, May 31, 2013 []
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