As a “Self-Regulatory Organization,” NASDAQ is proving to be a poor role model in terms of policing its own policies.
The key difference between the SEC’s newly approved Section 907.00 in the Big Board rule book and NASDAQ’s rule change request is that the NYSE is recommending independent vendors to its listed companies. Conversely, NASDAQ’s proposal is entirely predicated on its sibling subsidiary’s wholly-owned service offerings, which collectively operate under the “Corporate Solutions” banner. Once the complimentary period expires, all future profits will go straight to NASDAQ’s parent company’s bottom line.
This systemic vertical integration provides NASDAQ with the pricing flexibility to artificially manipulate the pricing structure of its offering to the detriment of the entire IR services industry. It makes a mockery of the principle of fair competition, which is especially troubling given NASDAQ’s perceived Olympian stature in the free enterprise system.
Does the SEC really want to be seen as sanctioning NASDAQ’s “stacked deck?” We certainly hope not, as Americans’ confidence in the nation’s financial system is already seriously challenged.
NASDAQ’s opportunistic overture strains credibility on several levels.
NASDAQ trumpets that issuers are not obligated to take advantage of its complimentary services; the clear implication is that competition won’t be compromised.
Yet, NASDAQ itself says it is compelled to offer NYSE-listed companies complimentary services because the Big Board offers comparable services.
This is a tacit acknowledgment that companies are reluctant to forfeit these free services; instead, these “no-cost” services are a powerful incentive for issuers to remain with their current providers.
In other words, NASDAQ’s claim of open competition exists in name only. Budget-conscious issuers are extremely unlikely to pay for services that are freely available. And that means that rival IR service providers are unfairly elbowed out of the process. NASDAQ’s strategy seeks to divert the IPO pipeline to its sister service providers, effectively stanching the future lifeblood — and growth potential — of the IR service industry at large.
Furthermore, NASDAQ attempts to rationalize its rule change request by saying that a comparatively small number of issuers will be eligible to participate in the program. This is a vacuous argument that is indicative of NASDAQ’s cynicism in raising the bundling issue in yet another guise.
NASDAQ’S rule change request is its latest ploy to “tie” its corporate services to listings. The SEC has repeatedly rebuffed NASDAQ’s past efforts at bundling its services. NASDAQ’s recycled proposal seeks to provide a cloak of legitimacy to an anti-competitive practice that has failed to survive previous SEC scrutiny.
The SEC’s decision should not be influenced by NASDAQ’s understanding of the number of affected companies; rather, its decision should be solely based on the merits of NASDAQ’s proposal. And if market fairness is the one of the ultimate criteria, then the evidence clearly dictates that NASDAQ’s rule change should be rejected.