TCS Daily

Dual Benefits

By John E. Tamny - January 12, 2004 12:00 AM

Nasdaq took out a two-page ad in today's Wall Street Journal to announce that six NYSE listed companies, including Hewlett-Packard (HWP) and Charles Schwab (SCH), have entered into an agreement to simultaneously list their shares on the Nasdaq Stock Market. Investors shouldn't underrate this pro-investor announcement.

When last Thursday's Wall Street Journal first reported that HWP had agreed to dual list its shares, the sentiment seemed to be that if it were the beginning of a trend, investors would be better off. The assumption was a logical one, as all stocks benefit from added liquidity, not to mention the increased competition that has and will result from the NYSE and Nasdaq battling for trading volume.

Still, there is a logical counterweight to the above assumptions, and it's already been alluded to. Indeed, the Nasdaq already competes with the NYSE for trading volume, and according to the Journal, the former handles 13.2% of the volume of NYSE-listed stocks. Given the 13.2% figure, it's perhaps understandable why some would shrug off the latest developments as much ado about nothing.

They shouldn't, and to understand why, it's important to look back to the awful events of September 11, 2001, events that led to the closing of all the major U.S. stock markets for four market days, including the NYSE and Nasdaq.

For those in New York at the time, it was no mystery why the New York Stock Exchange closed. It was chaotic around Ground Zero, and in addition to massive relief efforts that kept all but essential persons away from Wall Street, there existed the understandable fear that terrorists could strike again, with the home of the NYSE presumably an inviting target.

9/11 was a tragic reminder not so much of the NYSE's looming obsolescence, but instead a brutal example of how the capitalist system could be held hostage to terrorist acts. NYSE trading occurs among human beings in an open-outcry format on 20 Broad Street in downtown Manhattan. Conversely, Nasdaq trading is for the most part electronic, connected by a massive network of computer systems that match buyers and sellers.

Importantly, there is no Nasdaq trading floor, or for that matter, any one physical location essential to the trading of shares on the Nasdaq market. Had it chosen to stay open on September 11th, the Nasdaq could have with minimal disruption.

Investors should cheer the decisions of companies like Hewlett-Packard and Charles Schwab, because if they set a trend, a substantial risk that has been priced into all stocks will have been removed. While dual listings won't eradicate terrorism or the economic uncertainty it can create, they will insure for investors that if the United States falls victim to another 9/11, their ability to buy or sell shares will not be disrupted.

Don Luskin, Chief Investment Officer for economics consulting firm Trend Macrolytics, wrote in a recent report that despite the S&P 500's 28.7% rally in 2003, stocks are still cheap when the pro-growth tax cuts passed in 2003 are factored in. Furthermore, Boston-based forecasting firm H.C. Wainwright Economics has put out numerous studies over the years that have shown how yields on 10-year U.S. Treasuries tend to rise when the dollar weakens versus commodities and other currencies.

I mention the findings of both firms because perhaps one reason investment dollars have not shifted as much from risk-free bonds to stocks could very well be rooted in the fear that stocks are but one dirty-bomb disaster away from a significant correction. Assuming investors occasionally forget this reality, "Orange" terror alerts put out by the Department of Homeland Security are a persistent reminder.

This is not to say that stocks and the overall economy wouldn't react negatively to a terrorist incident, both would. What dual listing implies for stocks is that one element of their risk, the inability of investors to trade in and out of positions without disruption, will be greatly reduced given the knowledge that if terrorists strike the U.S. again, the backbone of the United States' capitalist system will not be compromised.

NYSE member John Jakobson was quoted in a January 8 Reuters report as saying that the, "specialist was great in the Cuban missile crisis, the Kennedy assassination, and 9/11. That's when the specialist is really needed." Implicit in his comments is the assertion that the NYSE is uniquely suited to handle large trades in markets affected by major world events.

History will be the judge of whether or not what he said continues to be true. On the other hand, what Jakobson left out was that while the NYSE performed admirably in the aftermath of 9/11, the impressive response occurred six days after the tragedy.

If the Nasdaq succeeds in convincing more companies to dual list, investors will surely benefit from the market competition that improves every other industry and sector in which it's allowed to take place. More important, dual listing will be a strong signal to investors around the world that U.S. stock markets will never again be victimized by the vicious and cowardly acts of terrorists.

John Tamny lives in Washington, DC, and can be reached at


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