NYSE, Nasdaq joust for tech companies

"It's a much less volatile place to do business," said Pieter Van der Vorst, chief financial officer for Sybase, a maker of databases and other software for large corporations. "Trading is crisper than on the Nasdaq."

It's a comment being echoed by a host of technology companies. The turbulent Nasdaq index has become decidedly unpopular for tech companies looking to hit it big. The companies making the move aren't quite household names, but are hoping the New York Stock Exchange's clout can get them there. These companies are also lured by the way the NYSE operates, which curbs the volatility of a stock.

The past 11 years saw 591 companies move to the NYSE from the Nasdaq, but the annual number fell each year from 1997. In 2000, two dozen companies moved, or only about a quarter of the Nasdaq-to-NYSE moves four years earlier.

But at least 15 companies, such as E*Trade, have shifted to the NYSE in the first five months of this year. If that pace continues, 2001 will see at least 12 more Nasdaq-to-NYSE moves than last year.

NYSE executives believe it's a sign of things to come, especially with the protracted downturn experienced by the stock market in general and the Nasdaq in particular through the last several months of 2000 and early part of this year. In fact, the NYSE has an entire team of people focused on luring tech companies.

"By the end of the year, we expect to have a lot more companies sign than the number last year," said Noreen Culhane, executive vice president for the New York Stock Exchange.

Clichéd images of stock trading include the shouts and clatter of traders screaming bids (buy offers) and asks (sell offers) on the floor of the New York Stock Exchange. A stock's spread is the difference between the bid and ask prices. The Big Board, as the NYSE is also known, relies on a group of specialists working for "market makers"--usually brokerage firms. These market makers oversee a central auction that, proponents argue, creates the biggest pool of buyers and sellers--and thus the most efficient prices for both sides.

Much of the NYSE's status stems from its claim that it offers the fairest stock prices. Big Board backers say that using trained specialists ensures the narrowest spreads, thus lowering market makers' profit margins, but also guaranteeing the best price available for both sides in a stock trade. Specialists are trained to maintain order in trading and smooth out large swings in a stock prices.

Most technology stocks trade on the Nasdaq, which uses an electronic system to directly link buyers and sellers. Although the Nasdaq also relies on market makers to ensure that trades occur, there are no people regulating each trade. This means stocks can swing wildly. Nasdaq boosters say their system is faster and better suited for a technological age. Most tech bellwethers, such as Microsoft, Cisco Systems, Dell Computer and Intel, trade on the Nasdaq.

Image and stability count
Image was one of Sybase's reasons for moving. An NYSE ticker symbol can be considered a status symbol, especially for a company like Sybase, which has been trying to get back into the spotlight after being dismissed as a casualty of the database wars several years ago.

"For Sybase the move is more symbolic," said Steve Berg, an analyst with Punk, Ziegel & Co. "It shows that they have made it back after struggling for a few years. The move is an effort to get the word out that Sybase is a big company."

The Nasdaq touts itself as the "Stock Market for the Next 100 Years," but what some consider the staid, boring, old-fashioned Big Board represents reliability in some circles. When a company makes it to the Big Board, it's reached the big time, in the minds of many people.

The NYSE is sure to pitch that image to ambitious companies such as software maker BEA Systems, which it is wooing.

"BEA's rumored move would be more about perception," said Jason Maynard, analyst with First Union Securities. "The company is trying to become the next Oracle or Microsoft. It's looking to raise its profile for Fortune 500 companies. It's a nice way to raise exposure with key customers."

Added Van der Vorst: "The Nasdaq is a good place to do business. But the NYSE is viewed as being a more stable market. It's good if people are looking for stability, or the perception of stability."

The NYSE has a quartet of marketing directors courting companies, but the Big Board doesn't want every Nasdaq stock, Culhane said. Only about 10 percent of companies on the Nasdaq would be better off trading on the New York Stock Exchange, she said.

"Others are better served where they are. A small, thinly traded stock would be helped by a dealer's market" such as the Nasdaq, she said.

But with a few exceptions, such as Qwest Communications International and E*Trade, most of the companies moving from the Nasdaq in recent years haven't been the biggest stocks. For instance, software giant Microsoft says it is content being on the Nasdaq.

Companies like Oracle, Microsoft and Intel don't feel compelled to leave the Nasdaq because they are already established as blue-chip bellwethers, First Union's Maynard said.

That hasn't stopped the NYSE from trying to lure Nasdaq tech giants. Lately, Big Board executives trying to attract companies point to a study released in January by the U.S. Securities and Exchange Commission, which concluded that for all but the largest stocks, spreads are generally wider on the Nasdaq than on its chief rival.

The Nasdaq fires back
Nasdaq executives say their system is just as efficient as the NYSE's. For the 20 largest stocks, Nasdaq spreads were actually 1.2 cents narrower, according to the SEC study, which compared the spreads over a one-week period in June of last year.

A Nasdaq study of 100-day periods before and after companies jump to the NYSE shows that stocks underperformed on price and volume after the move, said Andrew MacMillan, senior vice president of the Nasdaq.

MacMillan contested the idea that the NYSE has a loftier reputation on Wall Street and around the world. Half of the 32 companies that spun off divisions in public offerings last year did so on the Nasdaq, even though most of them met the more stringent NYSE listing requirements, MacMillan noted.

"It was a beauty contest and we won," he said. "Image is on our side."

MacMillan pointed to a study of the growth rates of the largest 50 companies on both exchanges. The report concluded that the higher the growth rate of the company, the higher the volatility of the stock, no matter what the exchange.

Nasdaq stocks have more volatile prices because the technology industry in general is more volatile, MacMillan said. "Volatility is a function of what industry a company is in, not where they trade," he said. "I see no evidence that the market structure affects that. It's the characteristics of the company."