NASDAQ proposes $169,000-a-year gift basket for new listings

Sep 15, 2011
<p>Psst! Wanna switch? Have we got an offer for you!&nbsp;</p>

NASDAQ has lobbied a rule that would give hundreds of thousands of dollars worth of IR-related services to new IPOs and companies switching from the NYSE.

Though it has blocked NASDAQ in the past, the SEC may find it hard to turn it down this time. Last month the commission gave the go-ahead to a controversial NYSE rule change giving free IR services to listed companies. That would seem to open the door to NASDAQ’s package of free services aimed at newly listed companies, particularly any that might pass up the NYSE’s cushy deal and switch over.

NASDAQ has been stymied several times in trying to offer free services since it acquired Shareholder.com and PrimeNewswire in 2006 and Directors Desk in 2007. Its efforts to bundle IR services were checked by the SEC amid protests from third-party service providers as well as issuers worried about paying extra in listing fees.

But as competition has heightened, the SEC seems to have turned more sympathetic to exchanges fighting for an edge.

In contrast to the NYSE, which has tiers of services for all its issuers, NASDAQ is aiming its perks squarely at new listings and companies switching from the NYSE (and only the NYSE; switching from a different exchange or OTC markets doesn’t count).

New listings and switchers with up to $500 mn market cap will get two years of services adding up to around $94,000 a year, including Directors Desk (approximately $20,000), a whistleblower hotline (around $3,500), an IR website ($16,000 or so), press releases ($15,000-worth) and market analysis tools (tack on $39,000).

Companies with more than $500 mn in market cap would get all that – and more – for four years instead of two. Their package would add up to about $169,000 a year with the addition of extra board tools, more press releases and a full-blown stock surveillance service, which alone is worth around $60,000 a year.

The reason bigger companies get such special treatment, NASDAQ says in its filing, is that ‘these companies receive comparable services from the NYSE, which they would forgo by switching their listing.’

Apparently anticipating complaints of being anticompetitive, NASDAQ pointedly says new companies aren’t obliged to use its free services. And it says it’s fitting to offer freebies to companies switching from the NYSE because the NYSE gives them comparable services that they would have to give up to make the switch.

So far, so good – at least for IPOs and switchers. But how will existing NASDAQ companies feel about paying the same listing fees as the new guys while shelling out for services the new guys get for free? NASDAQ says it’s appropriate because the free services will help ‘ease the transition of becoming a public company’ and help the new company ‘fulfill its new responsibilities’.

Third-party service providers worried about losing business from companies getting free stuff from NASDAQ may not be quite as bothered over this proposal as they were about the NYSE rule change, which introduced free services for all Big Board issuers. NASDAQ points out that the number of companies eligible for its free package is tiny compared with the total. Out of 23,000 public companies in the US, 5,800 are listed on an exchange, and just 34 in 2009, 77 in 2010 and 62 in the first half of 2011 were IPOs or spin-offs that would have been eligible for free NASDAQ services. As for switches, there were 10 in 2009, three in 2010 and none in the first half of 2011. So there’s no cause for concern about competing service providers taking a hit, the exchange says.

When contacted today, NASDAQ declined to comment further than what it said in its filing, the full text of which can be found here

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