Finance

BIO

Bob McCooey is NASDAQ’s Senior Vice President of Global Capital Markets. He spoke with Forum Link’s Peter Zak from his office in New York.

Interview

Peter Zak: Can you tell us a bit about NASDAQ and the variety of services you offer to companies seeking and utilizing the public capital markets?

Bob McCooey: We are trying to support companies to be as successful as they can be. To that end we have developed support services in three critical areas, namely: security, investor relations, and corporate governance.

For instance, one of NASDAQ’s companies, called shareholder.com builds and operates investor relations websites for companies, something that’s required by the SEC. It provides all of the data that a company would want to display to their investors, potential investors and the world. They also couple that service with hosting [a company’s] conference calls and doing their webcasts and a number of other services that a company would need in the investor relations space.

The other important piece in terms of investor relations is making sure that you can distribute the news about what is going on within your corporation. We bought a company called Prime Newswire. Prime Newswire offers efficient, widespread distribution of press releases for companies and does it at a very effective price point, especially for NASDAQ-listed companies.

The third area is corporate governance and certainly in the past five or six years corporate governance has been among the most important topics that companies and investors speak about. It is one area that issuers grapple with as they move from being a private company to being in the public markets. So in the same way that we answered the corporate concerns about the investor relations and the risk management, we are now helping our issuers with the challenges in their corporate governance area. We have discovered the two areas where we could really provide the most help. These concern finding good, high-quality board members and filling out the roster of independent board members, which are required under the new regulations. We have consequently incubated a company called Boardrecruiting.com in the middle of 2007. Boardrecruiting.com connects companies who need board members together with a large pool of high-quality, potential board members. It’s a very user-friendly, searchable database that you can access and find potential board members, who fit a certain criteria the company would require. It’s done electronically and, to a certain extent, anonymously, because the company sees only the people from that pool who meet their criteria. We are able to offer the service at a price point, which is lower than if you engaged a typical executive search firm to find a board member.

We have coupled this corporate governance offering with a company called Director’s Desk. Director’s Desk provides online, secure board books. It’s a board tool, and so corporate secretaries are no longer rushing down documents to FedEx seven days prior to a board meeting. The board members can now go online, in a secure fashion, and get all of the updated and uploaded documents whether it’s the typical agenda or minutes. They also have access to all of the financials and supporting documents that are necessary. They can conduct online voting, online polling, and provide a lot of valuable real-time information for their boards. As more and more board members are busy on several boards, by using Director’s Desk they can have access to all of the information across all of their boards, using just one screen and password. They can access it via the internet anywhere in the world.

These tools use technology the same way that NASDAQ revolutionized trading seven years ago by utilizing electronics to make trading transparent and competitive, and creating the level playing field for issuers and investors. We are using technology to enhance the experience and lower the cost for our issuer community, especially in the three areas we’ve discussed here.

Peter Zak: It seems that technology is integral to what you do from the ground up. NASDAQ itself is a technology company, in a sense that the trades do not occur in a physical place, on the trading floor, but over a telecommunications network.

Bob McCooey: Well that’s the way we’ve always built the business. We are focused how we can use technology on behalf of the issuers as well as the investors. Our trades are done in sub-one millisecond. Actually, internally we talk about the trades being done in microseconds. We conduct over 120,000 trades per second. What we are able to do on the technology side is important, because we are trying to give everyone an equal, fair access to the market. Whether you’re a long term investor or a trader who is trading in equity and doing an option against that, it’s important to get that confirmation back instantaneously, to know that your trade is done. As the Russell 2000 rebounds happened last June, we traded 678 million shares, which represented about $15 billion worth of stock in 1.8 seconds. The physical trading floors, and there are two still left in the United States, took well over 15 minutes to close their trading floors. From a trader’s standpoint, those who may have had an arbitrage on, between an equity and an option, or an equity and a future, during that 15 minute time frame, they had no idea what the value was of the equity, because the stock hadn’t closed. In trader terms, they were “naked” in the trading during that whole period of time. The investors and the traders who were trading on NASDAQ’s platform knew instantaneously, during those 1.8 seconds that their trade of those 678 million shares had been executed.

Peter Zak: NASDAQ has been known as the exchange for high tech and growth oriented stocks. Is this still the case?

Bob McCooey: Absolutely. Last year we listed 65% of the newest offerings in the United States, and most of those companies were high tech, high-gross companies, who were coming to NASDAQ to access the capital markets and continue on the growth trajectory that they’ve been on for many years. We spend a lot of time with these companies to make sure that they are accessing the markets at the appropriate time in their growth cycle.

The fact of the matter is that NASDAQ is about technology companies. NASDAQ is about making sure that we can help companies to grow and be the most successful they can be. I think a lot of them come to NASDAQ because they feel very much at home with the way we operate our market. Our philosophy is to spur the growth of both NASDAQ and all of the companies trading here. Companies listed on NASDAQ really share our mindset. We think about the companies on NASDAQ as the ones moving life forward. We believe that technology will continue to be a major driver of success for the NASDAQ-listed companies.

Peter Zak: You have just announced partnership agreements with Borse Dubai and OMX, which will lead to the creation of a unique Global Exchange Platform. What is the long term vision for the NASDAQ brand globally?

Bob McCooey: I would use an analogy of an airline to describe the global capital markets. Everyone around the world had their own version, even though sometimes they weren’t very efficient. Now as we come into this decade, people have realized that efficiency and the use of technology to bring those efficiencies are important. We have combined our expertise with a company called OMX, which runs not only exchanges, but is also a successful technology company, providing infrastructure and trading technology to exchanges around the world. By working together, we can bring our brand and our experience to a greater number of exchanges on a much wider platform. OMX today owns or operates 60 exchanges in 50 countries.

The third leg of that strategy is our deal with Borsa Dubai. Borsa Dubai runs a very successful and fairly new exchange within the Middle East called the DIFX. Our long term strategy will be to offer more product, more seamless trading, better technology. All of this will allow us to take the experience we have in the United States, with investors trading sometimes at very high velocity and very inexpensively, and to take that same model to other exchanges around the world. We want to allow traders and investors to access the markets affordably, efficiently and quickly. We have a very highly developed corporate client group here at NASDAQ; it’s actually the area that I work in, and we have relationship managers who keep in touch with our companies on a regular basis. We have electronic products that allow our companies to understand the trading of their stock within the market. We have a market intelligence desk of professionals that allow our companies to better understand why their stock is acting in a particular way on a particular day. We can provide access to tremendous data in order to accomplish that. We know that these services are not being provided, and when you couple that with all of the other services that I have already spoken about, we know that there is no other market in the U.S. that can provide those services today. We know that there is no other service around the world that can provide that. To take this model and be able to bring it on behalf of issuers to the four corners of the globe is a tremendous opportunity and tremendously exciting challenge, too.

Peter Zak: With your access to emerging markets and global markets, what do you think are some of the most promising global capital markets that you can see right now?

Bob McCooey: I can only speak from my own experience, but I believe that the Middle East is the most promising market. That’s why we’re so excited about our partnership with the DIFX in Dubai. The number one IPO of 2007 was DP World. It raised 3.5 billion dollars and that was done on the DIFX and Borsa Dubai. We think there is going to continue to be tremendous growth and tremendous opportunity in the Middle East.

Moving just south and southwest, we think that the African continent presents some great opportunities as well, but the greatest opportunity that we’ve seen in the past few years has come out of China. We have listed a large number of companies from China here. Our number of companies listed on NASDAQ between China and Hong Kong is approaching 100. We recently opened an office in Beijing. We also have individuals who work for NASDAQ on the ground in Hong Kong. We’re very excited about the developing world, but China is already very developed now and it will continue to develop. The companies doing business in China will continue to want to access the capital markets, and what better capital market then to come to America and to NASDAQ.

Peter Zak: The costs of listing on NASDAQ are more approachable for smaller, growing businesses. What kind of company is the best candidate to trade on NASDAQ?

Bob McCooey: Companies go through different phases of their life cycle and some need capital earlier on than others. We’re dealing with a company right now who has been owned by venture capitalists for about 12 years. They will be going public on their twelfth year. We will be dealing with companies who, 18 months ago didn’t exist and who are talking about a 2008 IPO event. It’s really company-specific, client-specific, issuer-specific. We spend a lot of time with those companies trying to understand how we can best help them to access the capital markets, how we can help them to understand what their goals are as they come closer to being an issuer on NASDAQ. We tailor our products and services to them.

I think there’s no ideal candidate. There is never a case where we like a certain company better than others. As you referenced earlier, NASDAQ is known as a technology and growth exchange; we certainly are that. About 23% of our companies are technology companies and about 20% are health care and biotech and biopharma companies. But there is also another 23-24% that are financial companies and 16% that are consumer companies. So, we have a wide variety of companies that are listed on NASDAQ, many of whom are in different phases of their growth cycle.

Good companies can become public at any time. I was talking to someone the other day about great companies that came public at a bottom of the market in late 2002 and early 2003, and are still billion dollar-plus publicly traded companies today. With the help of their advisors, their investment bankers, their lawyers, their accounting firms, and then engaging NASDAQ to help them evaluate the process, companies can successfully access the public market any time. It’s important for them to spend a lot of time thinking about what they are trying to achieve through a public offering, and work with those advisors to make sure that they can attain that in the most efficient way

Peter Zak: What about some of the companies not quite ready for the public capital markets?

Bob McCooey: Being a publicly traded company allows you to have visibility, but there are many ways for a company to raise money. A number of [companies] that we’re speaking with are venture capital backed or possibly even private equity before coming to the public markets. Some of them might want to not make a full [offering] and may want to raise money through, for example, a 144A market, which allows a company to sell shares to institutional holders, institutions that have more than $100 million worth of investable assets. Those are the big boys of the investing world. This form of financing allows the companies not to be forced to register with the SEC, because there are no gap requirements. So, a number of the issues that might make some companies reticent to go public disappear with a 144A market. It’s also a stepping stone to the public markets, where they get some visibility with their owners or potential owners through the institutional marketplace.

Everyone has to remember that probably 85% of every average issuer stock is owned by institutions: pension funds, mutual funds, investment managers, hedge funds. Just 15% or so are owned by individuals and maybe by management. So, with a 144A offering you’re able to access those institutions that are probably going to be your primary owners if you did become a publicly traded company down the road. There are a lot of options and it’s very important for issuers to evaluate every funding scenario as they move through the life cycle of being a private-to-public company. We have embraced the idea of a 144A market. Even though it’s not a public market, we run the market for 144A called the Portal. We’ve embraced it to try to help companies along their trajectory of being private-to-public companies. Our services, that I spoke about earlier, are not exclusive to just public companies. Some of the things such as press release distribution or DNO insurance, recruiting board members, online board books are applicable to private companies, too. We try to make sure that we can provide these tools to private companies that are on the road to being public. It’s a complete package, that helps us make sure that companies working with NASDAQ will be the most successful they can be. That’s why we dedicate a lot of time and thought and effort to our offerings for these issuers.

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