The Nasdaq stock market is set to clash with the Securities and Exchange Commission over its handling of a change in listing rules with potential anti-competitive consequences.
Senior SEC officials said the Nasdaq has brushed off their verbal requests that it file a formal request to change rules related to the structure of its Nasdaq 100 index.
The Nasdaq earlier this year changed the rule governing the Nasdaq 100 index to say that its component companies must be "exclusively" listed on the Nasdaq. As a result, a company that would also list shares elsewhere would risk ejection from the Nasdaq 100 index and from the QQQ exchange-traded fund, which mirrors the index and is the world's most traded security.
According to senior officials, the SEC feels the move has anti-competitive implications, a position also taken by the ArcaEx stock exchange, also known as Archipelago.
People familiar with the position of the top U.S. financial regulator said: "These are the people who made such a big to-do about the importance of bringing competition to the market by dually-listing New York stocks, and the first thing that they did was to [say] that 'if anybody dual-lists our stocks, they'll pay a price'."
The Nasdaq is seeking to convince companies listed the New York Stock Exchange to list on its screens. ArcaEx is seeking to dual-list both NYSE- and Nasdaq-listed companies. Jerry Putnam, ArcaEx's chief executive, has said that no CEO of a Nasdaq 100 would authorize dual-listing shares if it leads to ejection from the Nasdaq 100 and the QQQ.
The Nasdaq has defended its move by saying the Nasdaq 100 index is a proprietary product that needs to be protected from competition with other indices from Standard & Poor's and Dow Jones. A Nasdaq spokeswoman said the move constitutes commercial activity and no precedent exists for a U.S. market filing with the SEC about its indices.
People familiar with the SEC's position said the argument is viewed as "nonsense" by the agency.
"[The SEC] will be willing to consider that argument once they file a formal request ... [until then] we'll continue to stress upon the Nasdaq our desire to see a filing that requests the right to take this position," said an SEC official.
As a self-regulatory organization, the Nasdaq can set its own standards for listing requirements and other market structure regulations. However, it must file these requests to change rules to the SEC, which can approve them or not.
Archipelago has argued the Nasdaq's move mirrors the NYSE's Rule 500, which made it hard for companies to de-list shares from the NYSE. The Nasdaq has lobbied the SEC to force the NYSE to abolish the rule. The NYSE did so last summer before the SEC could intervene.
