Making sense of tech market mayhem
By Sandeep Junnarkar
Staff Writer, CNET NEWS.COM
NEW YORK--Conjure the image of a market, from the New York Stock Exchange
to a local flea market, and you think of people hawking their wares or
jumping on the best deals.
But at the Nasdaq Stock Market, where
most of the United States' biggest and hottest technology stocks
trade--from Microsoft to Intel and Amazon.com to Yahoo--there is only a
hushed silence bathed in an electric blue light.
"What we wanted was something that couldn't be a more stark contrast to the
traders on the floor at the [ New York
Stock Exchange]," said the Nasdaq's president, Alfred Berkeley. "We
wanted absolutely no people and all electronics."
But the silence is deceptive. Nasdaq trading, carried out over computer
networks crisscrossing the country and driven by a surge in technology
stocks, has quietly become the country's largest market in terms of both
dollar and share volume in the last couple of months. And as the Internet
extends its influence as a medium for information gathering, commerce,
online trading, and entertainment, Berkeley hopes to prepare the Nasdaq to
survive and even thrive as it faces the challenges and opportunities of the
Just last week, the Nasdaq jumped on an opportunity presented by the
Internet's influence on trading habits and announced it had given preliminary approval
to extending trading hours. Starting sometime later this summer, individual
and retail investors will be able to trade securities in the Nasdaq-100
Index after they return home from work. The decision was primarily
motivated by the need to accommodate the growing number of retail investors
jumping online and pursuing Nasdaq stocks.
But the challenges also are mounting. The NYSE is publicly trying to woo some of the larger
bellwether technology firms away from the Nasdaq, which was founded in 1971
as the world's first electronic stock market. Individual investors and day
traders--who have been jumping online in droves to trade--are a volatile
mix, sending stocks surging or plunging on the slightest rumor or news. And
the growing number of electronic-communications networks could break away
to form their own trading exchanges, fragmenting the market and grabbing a
piece of the Nasdaq pie.
Berkeley joined the Nasdaq in 1996 after about 20 years with Alex Brown's (now BT Alex Brown) High
Technology Group, which he helped found in the 1970s. Berkeley was brought
into the market to help push it to the next level of its electronic nature,
befitting its corporate logo of a globe encased with circuits.
News.com's Sandeep Junnarkar sat down with Berkeley to talk about how the
trading landscape is evolving and what the exploding valuations for
Internet companies is likely to wrought.
News.com: What have been the biggest changes since you joined the
Berkeley: Of the biggest things that have occurred, some of [them have
been] inside the Nasdaq, some of [them] outside the Nasdaq. The
important thing that has happened outside the Nasdaq is you have had this
tremendous democratization of access to American markets, because the World
Wide Web has become an order-gathering mechanism and an information
You've got millions of people who weren't even interested in the market ten
years ago who are now participating. A big piece of those are baby boomers
who can count on their fingers and toes the number of working years they
have left, and they are in save, save, save mode.
A number of other ones--and this is actually more interesting
demographically--comprise the 25- to 35-year-old age group that is
genuinely interested in the market in a way that people who are 20 years
older than them were not when they were 20 years younger.
The Dow Jones Industrial Average is, of course, still important, with
everyone breathlessly watching the benchmark break the historic 10,000
mark. But even within that index, the emphasis is no longer on the old
industrial stocks but on the technology stocks. What does this mean for the
What happens is that money follows growth. That is what equity investing is
all about: following growth. So the growth in the American economy and
indeed most of world economy is coming in more technological forms. So you
have a shift in investor interest from the older, less technical companies
to the faster-growing, more technical companies. And that is the big macro
thing happening there--we happen to be the beneficiary of that because we
are uniquely attractive to technology companies.
Why is the Nasdaq "uniquely attractive" to technology firms?
They get what we are doing; they understand all the basic philosophical
concepts here. This is a market that is actually merit-based. We have
relatively low listing standards with several different options for entry.
You can be an entrepreneurial company with a great idea and get listed on
the Nasdaq. Then we provide a link for investors to participate in your
You also have a very significant instinct in the technology community for
distributive processing. There is no queuing up to go through a central
mainframe processor. There's distributed processing capability in which
multiple, similar processes occur simultaneously. It's a capability that
the technology community appreciates.
But I don't want you to get hung up on those technical aspects. What I
think is really much more important is that the technology community
recognizes and remembers [pounding tabletop] and believes in a
market that was there for them when no one else was. We don't believe we
should interpose ourselves between the investors and the entrepreneur. That
is why we have the vast majority of IPOs. And we have a history of
fostering the various technology industries.
And that is what is so attractive, especially in the Western part of the
United States, about the Nasdaq. We have distinctively different cultures
in this country: East Coast vs. West Coast. The Nasdaq is a West Coast
phenomenon that just happens to be in the vapor--it's just a big network.
Why are small companies so loyal to the Nasdaq?
These are large companies that used to be small companies. Why would they
move? The question is, what do they want? What do we sell? Look at the
difference in the way we market ourselves. We sell on the basis of
performance, and what we are trying to do is change performance
consistently through investments in two dimensions.
First we are trying to make it cheaper and cheaper to trade, and for our
top 25 stocks we are much less expensive than the top 25 stocks on the New
York. Take Dell and Compaq. You can buy Dell. I looked at
some statistics recently, and the spread on Dell is 0.07 percent of
principle value traded on Nasdaq, and the spread on Compaq is 0.21 percent,
3 times as expensive to trade Compaq on the New
York as it is to trade Dell on the Nasdaq. Why in the world would Dell want
to go to a different market?
Now, when you add the second dimension, which is making investments to
provide genuinely significant information to investors through our Web
site, we think those are the things that smart, sophisticated,
self-confident CEOs know is the right way for us to be spending money on
What we are not doing is selling prestige. We think that prestige comes
from performance, not from saying how prestigious you are. And we will take
our performance over time; we have now passed [the NYSE] in terms
of dollar volume, we are the largest market in the United States, and over
time, if our relative growth rates continue ten years from now, you won't
have questions like this. We will have grounded out, slowly compounding our
growth a little bit faster than they do. This is why [the NYSE]
needs to come trade Nasdaq stock--they don't have any growth in their
market, and their percentage of the available trades being done is
decreasing and decreasing.
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