Wick Simmons, the former CEO of Prudential Securities and current chairman of Nasdaq, said today at the Security Trader Association annual meeting in Boca Raton, FL, that he is “very worried about the future of research,” according to some conference attendees.
“I’m not worried simply because it’s taken such a black eye in last six months,” Simmons, said. “If indeed we do separate the investment bank totally from the research function -- and those of us who ran major firms generally found that about 60 percent of our research budget [was paid by] the investment bank -- it would seem to me that firms will have to cut back significantly on their research expenditures. If that’s the case, and most of those analysts decide they’re going to spend most of their time on the large cap stocks, what happens to 2,000 of the 3,800 companies in the Nasdaq universe? It worries me.”
The number of Nasdaq dealers who buy and sell stocks are dwindling dramatically, and this too scares Simmons, he says. “It has been just too hard for some of our smaller market makers, to make a dime for the last year and a half,” he said. “If indeed we don’t have research for 2,000 of the 3,800 Nasdaq companies, and if they don’t have a market maker as well, where does that leave these companies? What does that do for the capital formation process in the U.S.?”
To illustrate how badly Nasdaq has sunk, the total market capitalization of it in 1999 was $6.5 trillion, according to Simmons. Today, he says, it’s about $2.5 trillion.
“Not since the early ‘70s can I remember a time that approaches the current one for this atmosphere of gloom,” he said.
Sixty percent of the 3,800 companies whose shares are listed on Nasdaq sell for less than $5, and 500 sell for less than $1, he pointed out.
“That’s putting us to the test of whether we want to change our old rules about delisting stocks trading under dollar. Some of these are real companies with real balance sheets.”