Market man

The Star-Ledger, June 27th, 2004

The Star-Ledger Archive COPYRIGHT © The Star-Ledger 2004

Date: 2004/06/27 Sunday Page: 001 Section: BUSINESS Edition: FINAL Size: 1601 words

Greifield quickly makes big changes at the Nasdaq

By SAM ALI STAR-LEDGER STAFF

At first glance, collecting turtles would seem an unlikely hobby for Robert Greifeld, the 46-year-old chief executive of the Nasdaq Stock Market.

Greifeld is, after all, an avid runner. And Nasdaq's entire image is predicated on speed, speed, speed - in stark contrast to the plodding pace of the common turtle.

Yet, in his backyard in Westfield, Greifeld has built a makeshift bog that is home to 10 turtles and a tortoise. When asked, "Why turtles?" Greifeld paused to collect his thoughts. "I must identify with them in some strange way," he said.

And why shouldn't he? Turtles have been around for 250 million years, and with life spans of more than 100 years, they outlive most humans. Clearly, they have a survival strategy that works.

In that sense, perhaps they are a source of inspiration.

Since taking control as CEO a little more than a year ago, Greifeld's mission has been to develop a survival strategy for Nasdaq. The exchange has been struggling with declining market share following the slump in demand for technology stocks four years ago and an onslaught of competition from other market centers.

"We have accomplished a lot this first year," Greifeld said during a wide-ranging interview in his Manhattan office. "We built the proper management team. We narrowed and focused our mission, and we are executing our game plan to be the premier equity market in the U.S. and around the world."

Greifeld has been aggressive in cutting costs, scaling back peripheral ventures and scrapping a previous plan to convert Nasdaq to a publicly traded company. For that, he has earned praise.

"Bob Greifeld has made a lot of tough decisions, and he has been willing to undo decisions that seemed impossible for Nasdaq to undo before," said Jodi Burns, an analyst with Celent Communications, a financial research firm in New York.

COST-CUTTING AHEAD But some of Greifeld's toughest challenges are still in front of him.

"He has cut a lot of costs and it doesn't appear there is more fat to cut, so he needs to turn his attention on growing revenues," Burns said.

The problems Greifeld inherited would have seemed unimaginable March 10, 2000. The Nasdaq, still home to many of the world's best-known tech companies, closed at a record 5,048 that day - up nearly 1,100 percent in 10 years.

Nasdaq, an acronym for the no-longer-used National Association of Securities Dealers Automated Quotation System, was created in 1971 as a virtual market electronically connecting brokers, traders and investors through a vast computer network. As more and more investors embraced the dream of a New Economy powered by the Internet, Nasdaq positioned itself in television ads as "the market for the next 100 years."

It all came crashing down when stocks took a dive not long thereafter.

During the brutal three-year-long bear market that followed, nearly $2 trillion in wealth was wiped out. Of the nearly 4,900 companies listed on Nasdaq in 2000, just 3,400 remain, as weak tech startups folded, slumped to less than $1 a share or didn't meet listing standards.

It didn't take Nasdaq's chief long to re-shuffle the losing deck he was handed May 11, 2003.

Soon after Greifeld stepped into his office at One Liberty Plaza in Lower Manhattan, a number of top Nasdaq executives - including former President Rick Ketchum - stepped down or were let go. Nearly 359 jobs, or 26 percent of Nasdaq's payroll, were cut.

He canceled costly projects championed by his predecessors, most notably the 2-year-old Nasdaq Europe. That followed the closing of a Nasdaq market in Japan in 2002.

Greifeld also jettisoned a joint venture with a London exchange to trade single-stock futures. And he shelved plans for Nasdaq's own splashy initial public offering.

And that was just in his first few months on the job.

"When Bob came to the post, he was put in a very difficult position," said Mark Madoff, co-director of trading at Bernard L. Madoff Investment Securities, a large New York trading firm. "Nasdaq needed to reinvent itself for what was coming in the new world, and Bob was chosen to do that . . . and I think he's done a good job at ushering change to the community."

A LIFE IN THE TECH WORLD Indeed, if anyone has the credentials to set Nasdaq right again, it is Greifeld, a Queens, N.Y., native who started his career selling computers to Wall Street for Burroughs while studying nights for his MBA at New York University's Stern School of Business. Ironically, the topic the tech-savvy Greifeld chose for his 1986 thesis dealt with the effect of automation on Nasdaq trading.

But his ties to Nasdaq and the top job he would one day inherit run even deeper.

Look at any Wall Street trading desk that handles Nasdaq stocks and chances are the brokers and dealers are using an order-management system called BRASS. By all accounts, it is the industry standard, and it is Greifeld's baby, a system he developed in 1991 while working at Automated Securities Clearance, a financial technology firm based in Weehawken, later bought by SunGard.

He is also credited, while working at SunGard, with developing another system called BRUT, one of the earliest ECNs, or electronic communications networks, whose members included Knight Trading, Morgan Stanley, Goldman Sachs and Merrill Lynch. BRUT handles 7 percent to 8 percent of trading in Nasdaq stocks.

Just last month, Nasdaq announced it was buying SunGard's BRUT for $190 million in cash, in an effort to compete more aggressively against its largest competitor, the New York Stock Exchange.

The BRUT acquisition will add to Nasdaq's market share of listed stocks as it struggles to win back trading volume it has lost to ECNs. Both the NYSE and Nasdaq have had to contend with declining market share during the past few years with the onslaught of ECNs run by Instinet Group and others. About 51 percent of all Nasdaq trades are executed on Nasdaq itself, down from 100 percent in 1997, when updated order-handling rules paved the way for ECNs.

Steven Goldman, chief executive at Yamner & Co., a Saddle Brook-based trading firm, said Greifeld's decision to buy BRUT is definitely a step in the right direction.

"Nasdaq was very monopolistic and they didn't innovate the way they should have," Goldman said. "They suffered exactly what the New York Stock Exchange suffered from: They thought that just because they were Nasdaq, everyone would trade there. They didn't think anyone would eat their lunch."

GETTING AN EDGE Goldman said the BRUT acquisition puts Nasdaq back on the map as a serious contender.

"BRUT is a pretty advanced technology that will give them a competitive edge, and that's really what it is all about - fast, efficient technology," he said. "If you don't have that, you have diddly. Now, for the first time, I think they actually have something."

While many analysts feel he overpaid for BRUT, Greifeld has described the acquisition as "part of a multipronged effort from the Nasdaq to support its mission to be the No. 1 stock market."

"Other markets in time will start to look more like Nasdaq," he said. "You will not find too many markets built around the trading floor model."

Indeed, competition between the NYSE and Nasdaq has increased considerably during Greifeld's short tenure. Since January, he has been on a mission to encourage NYSE-listed companies to dual list on Nasdaq.

So far, seven companies listed on the New York Stock Exchange, including heavyweights Hewlett- Packard and Charles Schwab, decided to dual-list their stocks on Nasdaq.

The hope behind the dual-listing program is to showcase Nasdaq's strengths - especially faster trade execution - and get them to eventually list solely with Nasdaq, or at least have them see enough value in dual listing so that they would be willing to pay listing fees.

The strategy has, so far, garnered mixed reviews.

"By allowing companies to list everywhere and anywhere they want, you dilute the value of what market you are listed on . . . because it won't matter anymore where you are listed," Burns said. "It will commoditize listings."

And that, Burns said, could hurt Nasdaq in the long run, because ultimately it could drive down the fees companies pay to list on exchanges.

Listing fees are one of Nasdaq's main sources of revenue. In 2003, Nasdaq's revenue from listings was $167 million. With total revenue of $590 million, the fees generated from listings represented 28 percent of Nasdaq's total revenue.

For the most part, however, analysts give Greifeld good grades for his first year on the job. His biggest challenge this year, they say, is to rev up Nasdaq's profits.

Even though Nasdaq posted a net loss of $105 million for 2003, it managed to deliver first-quarter profit of $4.6 million. This, however, was due entirely to cost cutting, since revenue fell 7 percent from the prior quarter.

"That (increasing profits) will be his next trial by fire," Burns said. "But based on how he's handled the other trials, I think he will likely do a good job."

_____________________________________________________________________________________________ Sam Ali can be reached at (973) 392-4188 or sali@starledger.com.

PHOTO CAPTION: 1. Robert Greifeld stands on the 50th floor of One Liberty Plaza, the Nasdaq headquarters in Lower Manhattan. In his first year on the job, he has been working on a survival strategy for the stock market. CREDIT: 1. JOHN MUNSON/THE STAR-LEDGER GRAPHIC CAPTION: Biography | ROBERT GREIFELD President and chief executive, Nasdaq stock market Residence: Westfield Age: 46 Education: BA in English, Iona College, 1979; MBA, New York University's Stern School of Business Career highlights: Started at Burrough's Corp. as a sales trainee, 1979; in 1991, joined Automated Securities Clearance, where he oversaw development of an electronic trading system; became executive vice president of SunGard Data Systems after it bought Automated Securities Clearance in 1999. Family: Wife, Julia; two sons, 17 and 15, and a daughter, 11 Current reading: "The Princes of Ireland" by Edward Rutherford, and "The Road to McCarthy" by Pete McCarthy Favorite movie: "Days of Heaven" Hobby: Collecting turtles How he unwinds: Running Mantra: "You never get what you want the first time you try."

Etc. BOX: "Nasdaq needed to reinvent itself for what was coming in the new world, and Bob was chosen to do that . . . and I think he's done a good job at ushering change to the community."MARK MADOFF of Bernard L. Madoff Investment Securities

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