Law Office
TELEPHONE/FAX (954) 704-9050

October 4, 2002

Att: Jonathan G. Katz, Secretary
Securities and Exchange commission
450 Fifth Street, N.W.
Washington, D.C. 20549 - 0609

Re: File No. 10-131; The Nasdaq Stock Market, Inc. -
Application for Registration as an Exchange


Ladies and Gentlemen:


The undersigned is an attorney in private practice and appreciates the opportunity to comment on a vital issue pertaining to the Application to be registered as an exchange of The Nasdaq Stock Market, Inc., a corporation organized For Profit under the laws of the State of Delaware (hereinafter "The For Profit"),

Essentially all published comments to date address the issue of competition among the various exchanges - - rather than the ultimate issue of investor protection. This comment addresses the direct and irrefutable conflict between protection of the investing public and the Application for registration of The For Profit. The geneses of this conflict is the decision of the National Association of Securities Dealers, Inc., a corporation organized as a not-for-profit membership organization under the laws of the State of Delaware (the "NASD"), to transfer the Nasdaq Stock Market to The For Profit. At the time of this action, Harvey L. Pitt, the current chairman of the SEC, was a member of the NASD's Legal Advisory Board and he must therefore be disqualified from acting on the Application.

The members and directors of the NASD and the officers and directors of The For Profit, generously endowed themselves with stock and stock options, anticipating a public offering of its shares upon approval of the present Application. Ironically, at the peak of the bull market, they sought to emulate the misguided leadership of Enron, Global Crossing and WorldCom. Rather than investor protection and market integrity, this self regulatory organization changed its ideals to profitability and creation of its own "shareholder value".

As hereinafter shown, Approval of the Application would be wholly inconsistent with the goals of investor protection and market integrity.


Pursuant to Delaware law governing not-for-profit corporations, the Certificate of Incorporation of the NASD states:

"The NASD is not organized and shall not be conducted for profit, and no part of its net revenues or earnings shall inure to the benefit of any individual, subscriber, contributor, or member."

The Exchange Act of 1934, 15 USC §78 ("Act"), began an era of extensive federal involvement in the securities industry. It established the Securities and Exchange Commission ("SEC") and recites the necessity for regulation "to insure the maintenance of fair and honest markets . . ." 15 USC §78b. In 1938, Congress amended the Act to authorize "national securities associations" to enforce securities laws under the SEC's supervision. 15 U.S.C. § 78o-3. This legislation became known as the Maloney Act and gave rise to the establishment of the NASD.

Pursuant to section 15A of the Act, an association of brokers and dealers may be registered as a "national securities association." See 15 U.S.C. § 78o-3(a) (1994). The NASD has been a registered national securities association since 1939. The NASD has been the only registered securities association and all brokers and dealers are required to be members thereof.

As a registered national securities association, the NASD is required to adopt and enforce rules covering virtually every aspect of the securities business. See id. § 78(o)-3(b).

Section 15A(b)(6) of the Act states that a national securities association's rules must be: [D]esigned to prevent fraudulent and manipulative acts and practices . . . and, in general, to protect investors and the public interest. . ." 15 U.S.C. § 78o-3(b)(6). The NASD's motto/slogan as stated on its stationary and prominently headlining its web-site ( is: "Investor protection. Market integrity." Investors generally relied on the NASD's advertised slogan as confirming their understanding that the NASD existed to pursue these public goals rather than to generate profit for its management and members.

The NASD is a Self Regulatory Organization ("SRO"), subject to oversight by the SEC. The use of self-regulation was employed by the framers of the 1934 Act by virtue of the fact that the federal government did not have the immediate resources or the expertise to carry out the task. See H.R. Rep. No. 75-2307, at 4-5 (1938) stating that congressional preference for regulating the over the counter markets is a program based on cooperative regulation "in which the task will be largely performed by representative organizations of investment bankers, dealers and brokers, with the Government exercising appropriate supervision in the public interest, and exercising supplementary powers of direct regulation."


The Nasdaq Stock Market ("Nasdaq") is in essence a telecommunications/computer network which links thousands of geographically dispersed market participants. The network provides, inter alia, real-time last-sale trade information, computerized order routing and execution systems, and the ability to use generic desktop computers running appropriate software as Nasdaq workstations. There is no central trading floor like, for example, The New York Stock Exchange.

The NASD owned and operated the Nasdaq Stock Market from inception of that market through about July 9, 2000 and was responsible under the Act for establishing and enforcing listing standards for stocks traded on the Nasdaq. Pursuant to an agreement entitled Plan of Allocation and Delegation of Functions By NASD To Subsidiaries, effective July 9, 2000, the NASD transferred to The For Profit, the following responsibilities for operation of The Nasdaq Stock Market:


  1. To operate the Nasdaq Stock Market, automated systems supporting The Nasdaq Stock Market, and other markets or systems for non-Nasdaq securities.

  2. To provide and maintain a telecommunications network infrastructure linking market participants for the efficient processing and handling of quotations, orders, transaction reports, and comparisons of transactions.

  3. To collect, process, consolidate, and provide to NASD Regulation the information requisite to operation of the surveillance audit trail.

  4. To develop and adopt rule changes (i) applicable to the collection, processing, and dissemination of quotation and transaction information for securities traded on The Nasdaq Stock Market, on other markets operated by The Nasdaq Stock Market, in the third market for securities listed on a registered exchange, and in the over the counter market, (ii) for Nasdaq-operated trading systems for these securities, and (iii) establishing trading practices with respect to these securities.

  5. To develop and adopt rules, interpretations, policies, and procedures and provide exemptions to maintain and enhance the integrity, fairness, efficiency, and competitiveness of The Nasdaq Stock Market and other markets operated by The Nasdaq Stock Market.

  6. To act as a Securities Information Processor for quotations and transaction information related to securities traded on The Nasdaq Stock Market and other markets operated by The Nasdaq Stock Market.

  7. To act as processor under the Nasdaq/Unlisted Trading Privileges Plan to collect, consolidate, and disseminate quotation and transaction reports in eligible securities from all Plan Participants in a fair and non-discriminatory manner.

  8. To administer the Association's involvement in National Market System Plans related to Nasdaq/Unlisted Trading Privileges or trading in the third market for securities listed on a registered exchange.

  9. To develop, adopt, and administer rules governing listing standards applicable to securities traded on the Nasdaq Stock Market and the issuers of those securities.

  10. To establish standards for participation in the Nasdaq Stock Market and other markets or systems operated by Nasdaq, and determine in accordance with Association and Nasdaq procedures if (i) persons seeking to participate in any of such markets and systems have met the standards established for participants; and (ii) persons participating in any of the markets or systems continue to meet the standards established for participants.

  11. To establish and assess listing fees upon issuers and fees for the products and services offered by Nasdaq.

  12. To establish the annual budget and business plan for Nasdaq.

  13. To determine allocation of Nasdaq resources.

  14. To manage external relations on matters related to trading on and the operation and functions of The Nasdaq Stock Market, other markets operated by The Nasdaq Stock Market and systems operated by the Nasdaq Stock Market with Congress, the Commission, state regulators, other self-regulatory organizations, business groups, and the public.

  15. To operate Stockwatch in conjunction with NASD Regulation.

At least since July 9, 2000, The For Profit has been operating The Nasdaq Stock Market, subject to its agreement with the NASD. To avoid violation of the Act, the July 9, 2000 Plan of Allocation and Delegation Agreement states that actions taken by The For Profit are subject to review and ratification by the NASD, which is the duly "registered securities association":

"Actions taken pursuant to delegated authority, however, remain subject to review, ratification or rejection by the NASD Board in accordance with procedures established by the Board. Any function or responsibility as a registered securities association under the Securities Exchange Act of 1934 ("Act"), or as set forth in the Certificate of Incorporation or the by-laws is hereby reserved, except as expressly delegated to the subsidiaries."

Because the Nasdaq was theoretically "operated by" the NASD, the SEC found The For Profit exempt from the obligation to register as an exchange but ruled that it must do so before the NASD relinquishes control.1


Near the peak of the bull market, in 1999, the directors of the NASD devised a scheme to evade the letter and spirit of the strictures contained within its Certificate of Incorporation (i.e. "no part of its net revenues or earnings shall inure to the benefit of any individual, subscriber, contributor, supra), so that they could participate like the executives of many Nasdaq listed companies who had become billionaires. As part of the scheme, the directors of the NASD transferred the responsibility for operation of the Nasdaq Stock Market to The For Profit and embarked on a program to make it a publicly traded company.

The initial step in this scheme was to issue stock to NASD insiders, prior to and in anticipation of taking The For Profit public. The plan was unanimously approved by the NASD board members at a time when Harvey L. Pitt served on the NASD's Legal Advisory Board. In his May 17, 2000 letter accompanying the NASD's 1999 annual report, Frank G. Zarb, NASD Chairman and Chief Executive Officer states: "As I write this letter, the sale of up to 49 percent of Nasdaq to members of NASD and major market participants is going forward." The notes to the NASD's 1999 annual report describe the initial plan to sell share to insiders before going public: "sell ownership interests . . . to key stakeholders such as key market makers, Nasdaq-listed companies, institutional investors and NASD members."

In June of 2000, the NASD sold shares of The For Profit, in a private placement, reducing NASD's ownership interest from 100% to 60%. A second private placement of stock in The For Profit was completed January 18, 2001, reducing the NASD's ownership in The For Profit to 40%. During 2002, the NASD reduced its ownership of The For Profit to zero by, inter alia, selling 43.2 million shares of The For Profit back to The For Profit for $440 million of cash and preferred stock. Subject to approval of the presently pending Application for registration as a national securities exchange, the public sale of its stock is being held in abeyance and the NASD retains control of The For Profit through a voting trust arrangement.

The NASD has caused The For Profit to issue shares of its stock privately to NASD members, companies listed on the Nasdaq Stock Market and other insiders at pre-public trading prices, including 535,000 shares of Common Stock to members of The For Profit's and NASD'S Boards of Directors on November 12, 2001. As of the May 2002, the NASD and The For Profit had a number of common officers and directors. Hardwick Simmons was both chairman of The For Profit and a member of the NASD board. In addition, Messrs. Sodhani, H. Furlong Baldwin, John D. Markese, and Richard Romano were members of both boards. Further, the NASD and The For Profit board meetings are generally held back to back in the same location to facilitate attendance by the interlocking directors.

As part of a plan and scheme by the NASD to enrich its officers and directors, in May of 2001, the NASD directors, exercising voting control of The For Profit's shares, ratified an equity incentive plan which allows grants of stock options of up to 1,000,000 shares per officer/director in a calendar year (2,000,000 in the first year of the plan). The plan provides for the discretionary award of stock options and other equity incentives to any " . . . officer, director, employee, consultant or advisor of the [For Profit] or of any affiliate."

As of April 25, 2001, The For Profit had awarded options to purchase 9,659,290 shares of Common Stock to its officers and directors and others. As an example of the type and nature of the enrichment of the directors and officers of the NASD as a result of them transferring The Nasdaq Stock Market to The For Profit: Frank G. Zarb, Chairman of the Board of NASD in 2000, had been granted 1,014,000 stock options by The For Profit as of September 26, 2001; and, Richard G. Ketchum, the President of the NASD in 2000, was awarded 360,000 stock options and 40,000 shares of restricted stock in 2001.

The directors of the NASD who voted to transfer The Nasdaq Stock Market to The For Profit, have assumed positions on the board which allow them to further enrich themselves by controlling, in their own discretion, the award of stock options. For example, as of the present year, all three members of The For Profit's Employee Equity Plan Committee (Messrs. Baldwin, Romano and Sodhani) were directors of the NASD in the year 2000 when they voted to transfer the operation of The Nasdaq Stock Market to The For Profit.2

The For Profit's policy is to make bonus payments and option awards based on its performance. As set forth in The For Profit's Report of its Management Compensation Committee on Executive Compensation (2002):

". . .the Committee believes that the most important measure of Nasdaq performance is the increase in long-term stockholder value, attained through operating income, revenue growth and market share."

As expressly acknowledged in The For Profit's filings with the SEC: "Nasdaq's growth and operating results are directly affected by the trading volume of Nasdaq-listed securities and the number of companies listed on the Nasdaq Stock Market." The For Profit also disclosed in its 2001 SEC registration statement, that a loss of even one of its major stock issuers "would result in a significant decrease in revenues" (April 30,2001 registration statement):

"Nasdaq faces competition for listings from other primary exchanges, especially from the NYSE. In addition to competition for initial listings, Nasdaq also competes with the NYSE to maintain listings. In the past, a number of issuers listed on Nasdaq have left Nasdaq for NYSE each year. The largest 50 Nasdaq-listed issuers . . . accounted for approximately 51% of total dollar volume traded on Nasdaq for the year ended December 31, 2000. The loss of one or more of these issuers would result in a significant decrease in revenues. . .

* * *

Every year, a number of Nasdaq-listed companies leave Nasdaq for the NYSE. For the year ended December 31, 2000, 25 companies moved from Nasdaq to the NYSE while one switched from the NYSE to Nasdaq."

Having tied the earnings of the management of The For Profit to "operating income, revenue growth and market share", supra, the NASD has created an ownership and management structure for The Nasdaq Stock Market which is inimical to the duties of a registered securities association. Since the bulk of The For Profit's income is derived from the listing and volume of Nasdaq traded securities, its officers and directors have a strong personal dis-incentive to ferret out violations of listing requirements, lest a major Nasdaq listed company move to the competition - - the NYSE. Thus, the directors of the NASD, purely for personal gain, have created an institutionalized irreconcilable conflict of interest between the duty to protect the investing public and their stated goal of maximizing The For Profit's revenue.

NASD Working Paper 98-01, drafted at a time when the Nasdaq was owned by the NASD and prior to the re-structuring which gave its management equity incentives to maximize profit, presciently recognized the conflict between listing more companies to maximize revenue and protecting the public from undesirable companies:

"As a business matter, establishing listing standards therefore requires balancing the desire for more listed companies with the potential deterioration of the "brand image" of the market caused from the listing of undesirable companies."


Independent Audit Committee Certification Rule

The NASD adopted new requirements regarding audit committees of companies listed on the Nasdaq which were approved by the SEC on December 14, 1999. Under the new audit committee rules, companies listed on the Nasdaq as of December 14, 1999 were provided until June 14, 2000 to adopt a formal written audit committee charter and until June 14, 2001 to meet the new audit committee structure and membership requirements.

As of July 9, 2000, The For Profit assumed primary responsibility (see par 22 (i), page 4, supra):

"(i) To develop, adopt, and administer rules governing listing standards applicable to securities traded on the Nasdaq Stock Market and the issuers of those securities."

As the NASD set forth in its Statement of Statutory Basis (Federal Register Vol. 64, No. 197, October 13, 1999, pg. 55513), the purpose of the new rules is to prevent fraudulent practices:

"Nasdaq believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act which requires, among other things, that the Association's rules to be designed to prevent fraudulent and manipulative acts and practices and, in general, to protect investors and the public interest. As noted above, Nasdaq's proposed rule change is aimed at improving the effectiveness of audit committees of Nasdaq Issuers, which is consistent with these goals.

Accordingly, this proposal is properly within the discretion of the Association."

The new audit committee rules required that to continue Nasdaq listing, companies certify they had an audit committee comprised of three financially literate, independent directors. Each company was required to certify to The For Profit by June 14, 2001, that (Nasdaq Rule 4350):

". . . it has, and will continue to have, at least one member of the audit committee that has past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual's financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities."

In order to qualify as "independent directors", each member of the audit committee is required to satisfy the following (Nasdaq Rule 4200):

" 'Independent director' means a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which, in the opinion of the company's board of directors, would interfere with the exercise of independent judgement in carrying out the responsibilities of a director. The following persons shall not be considered independent.

    (A) a director who is employed by the corporation or any of its affiliated for the current year or any of the past three years;

    (B) a director who accepts any compensation from the corporation or any of its affiliates in excess of $60,000 during the previous fiscal year, other than compensation for board service, benefits under a tax-qualified retirement plan, or non-discretionary compensation;

    (C) a director who is a member of the immediate family of an individual who is, or has been in any of the past three years, employed by the corporation or any of its affiliates as an executive officer. Immediate family includes a person's spouse, parents children, siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, and anyone who resides in such person's home;

    (D) a director who is a partner in, or a controlling shareholder or an executive officer of, any for-profit business organization to which the corporation made, or from which the corporation received, payments (other than those arising solely from investments in the corporation's securities) that exceed 5% of the corporation's or business organization's consolidated gross revenues for that year, or $200,000, whichever is more, in any of the past three years;

    (E) a director who is employed as an executive of another entity where any of the company's executives serve on that entity's compensation committee."

While the new audit committee rules were promulgated by the non-profit NASD, The For Profit was responsible when the new rules became effective. The new rules were effective in boosting public confidence in the "Nasdaq brand". However, in actuality (or at least in appearance), due to the irreconcilable conflict of interest of The For Profit's management, The For Profit placed supreme emphasis on maintaining good relations with listed companies and trading revenue; and, no emphasis on investor protection. The For Profit had a substantial dis-incentive to verify compliance with its new rules by major listed companies lest they leave the Nasdaq and move to the competition (i.e. the NYSE). This relationship clearly and justifiably undermines public confidence in the markets.

Consider the recent example of WorldCom, where the accounting fraud was so massive yet unsophisticated, there is little doubt it would have been detected by a qualified independent audit committee in compliance with this Nasdaq listing requirement. Based on publicly available information, there is ample reason to question whether the largest fraud in U.S. history is due to the fact that The For Profit failed to verify WorldCom had a qualified, independent audit committee. The For Profit's front line responsibility to protect investors from such violations, while operating with a direct conflict of interest, vividly demonstrates a massive systemic weakness in the self regulatory system.

The For Profit's Madcap Advertising Campaign

During 2000 and 2001, The For Profit expended $74 million dollars on advertising. Significant additional advertising expenditures were made throughout 2002. As set forth in its April 30, 2001 registration statement:

"Nasdaq's branding strategy is designed to convey to the public that the world's innovative, successful growth companies are listed on Nasdaq."

The For Profit is misleading the investing public which is generally unaware that the non-profit NASD has transferred primary control over the "Nasdaq brand" to a for profit company subject to a plan for the management of that company to be compensated based on its profitability in lieu of investor protection.

With respect to the "Nasdaq's branding strategy", id., The For Profit is misleading the investing public to believe through its massive multimedia advertising campaign, that it acts as "an independent verification service for investors" that Nasdaq listed companies satisfy the exchanges listing requirements. Reliance by the investing public on satisfaction of Nasdaq listing standards is acknowledged in NASD Working Paper 98-01:

The existence of listing standards indicate that the company behind any given security meets certain minimum standards regarding size, governance, and public disclosure. In this regard, the Nasdaq provides an independent verification service for investors."

The For Profit's advertising campaign touts shares of Nasdaq stocks (including WorldCom) and, as stated in its registration statement, is designed to position shares of Nasdaq stocks as highly attractive. The For Profit is structured and functions more as a sales organization than as a regulator. The For Profit trades the public perception that it is operating under the purview of a registered national securities association; and, therefore, possessing the power and authority to investigate and regulate listed companies, its public statements and representations may be relied upon as accurate and complete.

Meanwhile, during the period July 9, 2000 through the present, The For Profit and its major listed companies, operated pursuant to a cooperative joint venture or partnership to promote the sale of Nasdaq stocks in general and the major companies shares in particular. The joint venture included numerous television and print media ads portraying the Nasdaq and the Nasdaq 100 index as containing the worlds leading or great companies and portrayed WorldCom as one of the great Nasdaq stocks. The ads were intended to boost volume on the Nasdaq by placing the imprimatur of a registered securities association under the Securities Exchange Act of 1934, upon those shares.

The For Profit encourages listed companies to link their corporate web sites (including financial statements) to the Nasdaq site. The For Profit expressly recognizes this promotional activity as a "partnership" with the listed companies for the purpose of helping them "generate visibility", "build investor awareness" and take advantage of the strength of the Nasdaq brand " a brand associated with growth, innovation and all the possibility of the American dream-to help them build additional visibility." The For Profit's 2001 Annual Report expressly acknowledges this "partnership" stating:

Key to the Nasdaq culture is the cultivation of a strong and highly effective partnership with our listed companies. Not only do we give them access to capital, visibility and an exceptional portfolio of services, we also share their commitment to moving the world forward. . . Regardless of companies' economic sectors, Nasdaq can open the door to the capital needed to implement their strategies and fulfill their visions. Beyond that, we lend the strength of our brand-a brand associated with growth, innovation and all the possibility of the American dream-to help them build additional visibility. And as an integral part of our partnership with our listed companies, we offer a wide range of educational and informational products and services. . .

* * *


Our consumer Web site,, was built to help listed companies generate visibility with both existing and potential investors. Averaging 7.5 million page views each weekday, the site offers comprehensive data for securities listed on all major global exchanges, as well as for U.S. equity options and mutual funds. We strongly


encourage listed companies to establish direct links between and their corporate Web sites. Doing so can help them build further investor awareness and add value to their own investor relations efforts."

The For Profit's numerous ads touting listed companies and linking its Nasdaq web-site to company financial statements (without adequate disclaimer),3 were in gross violation of the NASD's own rules which govern communications by all members of the securities industry with the public. NASD Rule 2200, which governs communications with the public and advertising, specifically prohibits: "Exaggerated or unwarranted claims or unwarranted superlatives". NASD members are also prohibited from making any reference to the NASD which "could imply endorsement or approval by the association." In the case of WorldCom, The For Profit linked to its fraudulent financial statements, without adequate disclaimer, thereby providing an endorsement of WorldCom and its accounting reports.

The For Profit's advertisements, portraying WorldCom and other Nasdaq listed companies as great appear in major prime time programming such as West Wing and MSNBC News with Brian Williams. The For Profit ran TV spots for its 100 Index Trust, better known as the QQQ. These TV ads began running the week of September 24, 2001. The ads feature a group of companies included in the trust. The key message is that the world's most sought after companies can be found on the world's most sought after security. The For Profit runs many other ads touting Nasdaq listed companies. In fact, as of the date hereof, The For Profit's website contains a front page story about its new "Listed On Nasdaq" campaign.

As a further example of The For Profit's inappropriate advertisements, on April 11, 2002, it took out a two full page spread advertisement in the Wall Street Journal discussing its belief in the need for Nasdaq listed companies to provide accurate financial reporting in accordance with Generally Accepted Accounting Principals, "supported by a Knowledgeable Audit Committee". On one page is a picture of the Nasdaq ticker with the slogan "The Responsibilities We All Share". On the opposite page under the headline "Keeping Our Markets True - It Is All About Character" is a list of the chief executives of the "good" Nasdaq listed companies under the sub-heading "Our Beliefs Stand In Good Company". Listed thereunder as an endorser of these Nasdaq goals is "Bernard J. Ebbers, President and Chief Executive Officer WorldCom, Inc." The message conveyed by the ad is that WorldCom and its CEO are endorsed by The For Profit as, inter alia, having good character, accounting done in accordance with GAAP, and a viable audit committee in accordance with Nasdaq requirements. Within 20 days after the ad featuring Ebbers/WorldCom, Ebbers resigned and he reportedly may be indicted for his role in the massive WorldCom fraud. In order to increase the credibility and impact of the April 11, 2002 ad, 18 prominent members of the board of directors of The For Profit allowed their names to appear in the advertisement, without ever revealing the direct interest The For Profit maintains in promoting the listed companies.

Though not purporting to offer stock for sale, The For Profit undertook the endorsements and advertising described above for a consideration received or to be received directly or indirectly from the listed companies without disclosing the receipt, whether past or prospective, of such consideration and the amount of the consideration. The said failure to reveal that it would be compensated, directly or indirectly by the listed companies for the advertisements and endorsements, violates Florida Statute Section 517.301(1)(b), which provides:

(1)  It is unlawful and a violation of the provisions of this chapter for a person:

* * *

(b)  To publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, communication, or broadcast which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received directly or indirectly from an issuer, underwriter, or dealer, or from an agent or employee of an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount of the consideration.

If an issuer paid an analyst to recommend a stock and the analyst then took out television and newspaper ads praising and recommending it, without revealing these were paid advertisements, then the analyst would violate this Florida statute (and others). Here, The For Profit has implemented a massive advertising campaign (ostensibly to "build the Nasdaq brand"), and actually recommends and endorses stocks, including WorldCom. The For Profit has even lent its prestige to a full page Wall Street Journal ad touting, inter alia, WorldCom and its "belief" in GAAP accounting. Meanwhile, The For Profit, in the words of the Florida statute, "directly or indirectly" and either "in the past or in the future" is to be compensated by the advertised companies or Nasdaq dealers for those advertisements and endorsements. The compensation may be direct in the form of reimbursement or an advertising assessment; or, indirect, as part of a listing fee or income generated by increased trading volume. Regardless, The For Profit's Nasdaq ads are far more credible and therefore harmful than those of any dishonest analyst because they carry the imprimatur of a registered securities association; which the public erroneously believes has a primary mission of: "Investor protection. Market integrity."


The For Profit has an irreconcilable conflict of interest with its duty to protect the investing public. It would be inappropriate to approve the Application to register this entity as an exchange. The NASD breached its fiduciary duty to the investing public by transferring the Nasdaq stock market to The For Profit and arranging its incentive compensation plan, all for the purpose of enriching NASD insiders through the anticipated public offering of The For Profit's shares. Moreover, since Harvey L. Pitt, the current chairman of the SEC, was a member of the NASD's Legal Advisory Board at the time of the transfer to The For Profit, he should be disqualified from acting on the Application.

Respectfully submitted,

Steven I. Weissman, Esq.

Rebekah Liu, Esq. (

1 SEC Release No. 34-44396, June 7, 2001.
2 It is again noted that at that time, Harvey L. Pitt, the current chairman of the SEC, was a member of the NASD's Legal Advisory Board.
3 In order to avoid misleading the investing public, the Nasdaq site through which The For Profit provided, inter alia, WorldCom's fraudulent financial statements, should have contained a clear disclaimer similar to that provided by other information providers such as Yahoo, which states at its financial site:

Data and information is provided for informational purposes only, and is not intended for trading purposes. Neither Yahoo! nor any of its data or content providers (such as Reuters, CSI and exchanges) shall be liable for any errors or delays in the content, or for any actions taken in reliance thereon. By accessing the Yahoo! site, a user agrees not to redistribute the information found therein. All data provided by Thomson Financial Network is based solely upon research information provided by third party analysts. Yahoo! has not reviewed, and in no way endorses the validity of such data. [Emphasis added]

Contrary to the Yahoo site, which clearly states that it serves merely as a conveyor of third party information, The For Profit has a financial stake in promoting shares of listed companies and intentionally conveys the impression that the financial information provided on the official Nasdaq site is reviewed or endorsed by The For Profit in its official capacity.