Nasdaq's light dims

LONDON - Plans by the London Stock Exchange to merge with New York's Nasdaq stock market are at risk because of major threats to the once-proud technology-based exchange.

Nasdaq is losing a big portion of its business to small, rival exchanges set up across the United States to trade Nasdaq stocks on better terms.

It is also suffering from a general collapse in trading by private investors.

The raft of problems for the Nasdaq coincides with its alleged efforts to pull off a merger deal with the London exchange, which would create the world's largest equity market.

But the Nasdaq's difficulties may have caused London exchange shareholders to think twice about the logic of a deal.

The Composite Index, which tracks the performance of Nasdaq stocks, is down more than 65 per cent since its peak in March 2000, and is leading the world's big indexes in losses suffered this year.

In a further blow to its status, Nasdaq has decided to move from its Wall St offices to an address in mid-town Manhattan.

Its biggest challenge is to hang on to its domestic market, where it is fighting a losing battle. Nasdaq's revenues come from trading fees and the sale of market information, and both of these revenues are caught up in a vicious price war.

The US market is filled with a growing number of electronic share-trading systems, which allow customers to trade Nasdaq stocks but are fiercely competitive on trading fees and pricing spreads.

The electronic trading systems now account for 37 per cent of Nasdaq trading volumes. Nasdaq has long been concerned by the rapid rise of the electronic systems, and particularly by the soaring fortunes of the leading company, Island.

In an effort to rob Nasdaq of more fees, Island has started publishing its trades on the Cincinnati stock exchange.

That precedent has since persuaded Archipelago, a rival electronic system, to pull off a similar deal with the Pacific stock exchange. Others are mulling deals with America's many local exchanges.

Instinet, an information-based electronic system, could pose another threat if, as many speculate, it joins forces with Island to create a combined provider of Nasdaq information and stock trading.

- INDEPENDENT