THE Nasdaq Stock Market has provoked an unprecedented uproar among its listed companies over a proposal to raise its listing fees and force them to pay for investor relations services from firms the exchange owns.
In a major embarrassment for the exchange, dozens of investor relations officers, CFOs and other executives have written to the US Securities and Exchange Commission to register their objections to the proposal on the grounds that it is anti-competitive and forces them to pay for services that they don’t want and may never use.
Even billionaire investor Warren Buffett, whose company owns the Business Wire press release service, has taken up the issue with Nasdaq CEO Bob Greifeld. He told Greifeld that the exchange’s move is anti-competitive.
However, thus far the exchange has stubornly refused to back down. It even backed out of a scheduled meeting with Buffett’s Business Wire managers who wanted to further discuss the issue with the exchange.
For companies listed on the London Stock Exchange, which the Nasdaq hopes to acquire, the debacle provides sobering insight into what to expect in terms of customer relations from the LSE’s potential new owners.
By far the majority of Nasdaq companies commenting to the SEC are incensed at what they see as the exchange trying to strong-arm them into buying investor relations services such as news releases, websites and webcasts from two companies that the exchange acquired earlier this year for undisclosed sums.
“This hardly seems like a fair business practice and is a clear abuse of monopolistic power,” wrote Terry D Frandsen, CPA, CFO of Escalade Inc. in a letter to the SEC.
Earlier this year, Nasdaq purchased private firms Shareholder.com, a hosted website service provider, and PrimeZone, a news release distributor. Neither firm is a market leader and both faced the prospect of losing business from companies listed on competitor exchanges after Nasdaq acquired them.
But in October the exchange announced that it was raising its listing fees and bundling a package of Shareholder.com and PrimeZone services into the fees. Issuers would have to pay the higher fees even if they did not use the exchange’s new investor relations services.
The SEC posted the proposal for public comment on Nov. 14. Comments, which can be submitted using an online form, are due by Tuesday, Dec. 12.
The principal objection to the proposal is not so much that the fees are rising, but that Nasdaq is abusing its unique position for self-serving ends.
“It appears that Nasdaq is using what is close to a monopoly position to force listing companies to pay for services from businesses that Nasdaq has acquired to expand its business model. If Nasdaq wishes to enter other businesses, it should compete on a level playing field. It should not have the ability to force small companies to pay for services they do not want or use providers they do not prefer because of Nasdaq’s essential monopoly,” says Shannon H. Burns, CFA, Director of Investor Relations at Gander Mountain Company.
Dozens of Nasdaq-listed companies have also submitted letters to the SEC. Here is a collection of some of them:
“I have a problem with this on several levels. First and foremost, I find it bordering on the unethical that NASDAQ, through a substantial increase in its listing fees, is not promoting an open market and freedom of choice for its members to select which wire service best serves a listed company’s needs. K-Tron has enjoyed a long-standing relationship with a competitor of PrimeNewswire, and K-Tron has no desire to abandon a company that knows our business and has served it well. Given our decision, it means that K-Tron would be paying twice for wire services while it only utilizes one. This leads me to a second concern. For years, our current wire service has not only supplied excellent service, but also has taken steps to ensure that our company is well represented in specifically targeted markets. I am concerned that PrimeNewswire, tied so closely to NASDAQ, will not be independent enough to adequately ensure wide and full disclosure of relevant company news to our distribution points in the marketplace. To K-Tron, PrimeNewswire is an untried organization, and I personally am not comfortable with entrusting K-Tron’s reputation to an unknown entity. In conclusion, I am disturbed that this decision to enforce the use of PrimeNewswire was made without any consultation with the listed NASDAQ companies. It was presented as a fait accompli, with no opportunity for NASDAQ-listed companies to have a voice as to whether or not PrimeNewswire is an acceptable alternative to current wire services. For NASDAQ to raise fees so exorbitantly, and then force us to accept their own wire service without complaint, is doubly insulting and should not be tolerated in the business world.” — Ronald R. Remick, Senior Vice President & Chief Financial Officer, K-Tron International, Inc.
“Bundling undesired services with desired services, without the ability to segregate the fees for such services, has a significant stifling impact on competition and the free market. Businesses offering such services will be unable to compete effectively. NASDAQ, unlike their competitors, will have little incentive to improve the quality of the bundled services or the quality of their customer service. Further, requiring NASDAQ customers to pay for the bundled services which will not or cannot be used unfairly benefits those NASDAQ customers that will use those services by subsidizing their cost.” — Mark E. Reese, Senior Vice President and CFO, EMC Insurance Group Inc.
“…We view this as an improvement in the competitive environment and not detrimental in anyway. We use a variety of services from many providers (PR Newswire, Thomson Financial for example) and see no reason from what the NASDAQ is offering to change our relationship with those providers. We at ARM evaluate all services on an individual basis and each must provide superior value for ARM to engage. If anything, this will increase the competitive landscape and overcome complacency in offerings.” — Bruce N. Beckloff, VP of IR, ARM Holdings.
“In summary, we believe this proposal forces us to pay for services we may not want, limits our ability to freely choose or change vendors, reduces our leverage when negotiating with potential vendors, unfairly penalizes us if we believe another vendor is superior and eviscerates the goodwill we have built with our existing vendors and service providers.” — Christine Cassiano, Director, Corporate Communications & Investor Relations, Abraxis BioScience, Inc.
“As a Nasdaq-listed company and a customer of PrimeNewswire, I was very happy to see the new bundle of services being offered to my company. Even with an increased listing fee, I will still pay less for all IR-related services in 2007 than I paid using multiple vendors to meet all all regulatory requirements in 2006.” – Rich Jeffers, Director, Investor Relations, NetBank, Inc., Alpharetta, Georgia
“As a company looking to price in 2007, we are looking forward to taking advantage of the services offered through your NASDAQ Listing. We will enjoy significant cost savings. We believe that the new NASDAQ listing fee structure provides better value.” – Scott Poirier, NewStar Financial, Inc., Boston, Massachusetts
“The fees should only represent the core functions NASDAQ performs. Their proposal is particularly unfair to smaller companies that do not have a reasonable alternative to NASDAQ. Shenandoah does not object to NASDAQ offering these services, but they should be optional and the 2006 fee should exclude these additional services. For example, Shenandoah does not use webcasting to communicate to our shareholders and therefore we do not think it is fair to be required to pay for a service that we do not intend to use.” – Earle A. MacKenzie, EVP, Shenandoah Telecommunication Company.
“It will be impossible for us to compare the cost of NASDAQ’s bundled service against the prices charged by our current providers of these services. Further, since this is not an optional program, but rather a mandatory directive by NASDAQ, there would be no benefit in such a comparison. If we do not use NASDAQ’s bundled service, we will in essence pay twice to use the wire service, webcasting vendor and Edgar disseminator of our choice. We want to retain the freedom to choose our service providers without added cost. We have made a conscious effort to periodically review our vendor relationships in which we take into consideration not only price, but reputation, dependability, flexibility, and expertise. We do not want that choice to be taken from us.” – Diane Helland, Director Investor Relations and Corporate Communication, Quality Distribution, Inc.
“We find the proposed structure and pricing of the “bundled” NASDAQ services to be convenient and in our view competetively priced. We continue to be impressed by the support we receive from NASDAQ both from the range of their services and in their delivery.” – Andrew J. Simmons, CFO STEALTHGAS INC
“Our company is totally against bundling the cost of various newswire and other services in its Nasdaq fee. Since we believe that the services of our existing provider are superior to those offered by Nasdaq’s captive provider and we will continue to use our existing provider, we will be paying unnecessary costs through our Nasdaq membership. The practical alternative to replacing Nasdaq as our listing exchange is nil, so the new Nasdaq pricing scheme includes an unnecessary and unjustifiable charge, reflects an aspect of monopoly pricing, and can be considered inflationary.” – David G. Wallace, Investor Relations Officer, Bancshares of Florida, Inc.
“We already have excellent providers for these services and we currently have no reason to change services. Therefore, an increase in listing fees would result in us paying twice for the same service. Further, we do not want to be bound to any one provider since fair competition is more likely to help us maintain or reduce our costs.” – Michael Frank, Director of Investor Relations, EDGAR Online, Inc.
“American Physicians Capital, Inc. (“APCapital”) (NASDAQ: ACAP) is a listed company on the NASDAQ Global Market and has been a NASDAQ customer since going public six years ago. We have enjoyed selecting and using services provided by the NASDAQ, but strongly oppose NASDAQ’s proposal to bundle news distribution and other services into its listing fees. APCapital currently engages certain service providers that meet the needs of the Company and believes the NASDAQ should continue to allow listed companies the pleasure of choosing their service providers. The bundling of services and forcing listed companies to pay for these services is unfair. In addition, this action will eliminate fair competition between service providers, which is critical in our market place as it promotes a higher caliber of services.” – Ann M. Storberg, Vice President – Investor Relations, American Physicians Capital, Inc.
“We are very satisfied with our current news wire service and do not see any benefit to having news wire services bundled with our NASDAQ listing. In fact, we will be paying double for news wire services with the proposed changes because we have no intention of switching news wire providers from our current provider. Please reject any component of NASDAQ’s listing fee increase that is in any way related to news wire services and/or NASDAQ’s acquisition of PrimeZone.” – Geoffrey M. Boyd, Chief Financial Officer, Eschelon Telecom, Inc.
“I have recently had a conversation with a representative from NASDAQ and was informed that even if they are not allowed to offer this bundled service that their fee structure was going to increase (for our company from $24,500 to $30,000). If that is the case, then at least the bundled service allows us to get something in return for the rate increase. I understand that this will negatively affect other wire services, but it will at least help offset increased costs to our company.” – Ken Maples, Chief Financial Officer, Hiland Partners, LP
“We believe it is vital that all companies have a choice of wire services without having to pay twice and that fair competition is necessary to ensure wide and full disclosure of relevant company news to all relevant distribution points in the marketplace. In our view, those elements are critical not only for individual listed companies to achieve the news impact and reputation they deserve, but also for the health and integrity of the capital markets overall. By forcing listed companies to use its captive press release service, NASDAQ won’t have incentive to make those same investments to retain a company’s business having very real implications for a company’s message, reputation and value.” – Robert J. Caso, CFO, Cellegy Pharmaceuticals.
“The bundling of ancillary services with listing fees is unfair to NASDAQ customers and is anti-competitive by its very nature. NASDAQ customers that choose not to use such ancillary services will be effectively subsidizing the service for NASDAQ customers that choose to use the ancillary services. Furthermore, third-party organizations that currently provide these ancillary services in direct competition to NASDAQ will be placed at a competitive disadvantage. Finally, given the non-negotiable nature of NASDAQ listing fees, NASDAQ will have little incentive to improve the quality of the ancillary services it provides. NASDAQ should not be permitted to bundle ancillary services with their listing fees.” — Michael W. Dosland, President and CEO, First Federal Bankshares, Inc.
“The acquisitions of PrimeZone and Shareholder.com by Nasdaq and the associated bundling of services and related Nasdaq fee increase is beneficial for our company. Nasdaq’s colaboration of valued services will ultimately reduce our company’s overall expense associated with these services and the alternative of seprately contracting for similar services with individual providers.” – Robert C. Weiner, V.P., Investor Relations – PSS World Medical, Inc.
“With all due respect and in all candor, I find it disappointing that this note is even necessary. SR-NASDAQ-2006-040 is something I’d expect to be mandated by the Chinese government, not in our free-market economy. I am greatly comforted by the response of my colleagues on this post. The outcry from the business community is unanimously and obviously opposed to the centralized approach. If PrimeZone’s services and technology are superior, let them earn our business the way all Nasdaq- and NYSE-listed companies must: through reputation and communication. That it takes this kind of national input to turn the tide of such an irrational, but perhaps well-intended, suggestion reflects poorly on the Nasdaq leaderships ability to act in the best interest of its members.” – Darin Sahler, Global Public Relations Manager, FARO Technologies
“It is somewhat ironic to see this proposal from Nasdaq–an entity that represents the best of American capitalism, perhaps the worlds best illustration of the power and potential of the small-cap market. Nasdaq exists as a near monopoly today, and even in a capitalist economy, monopolies must be tolerated where competition cannot survive. However, Nasdaq’s proposal would monopolize sub-industries that already exist healthily and competitively. I see this as a disservice to both Nasdaq members and to the spirit on which capital markets are based. We hope Nasdaq will withdraw their proposal.” – Don Jennings, President, Kentucky First Federal Bancorp.
“I’m against NASDAQ’s proposed rule change. I urge the SEC to disapprove (or amend) the rule in question, so Nasdaq-listed companies do not have to pay twice to distribute news releases via wire services. If the rule stands as is, my company will pay once for news distribution services via NASDAQ’s relationship with PrimeZone. And we’ll pay again to distribute our news via services such as PRNewswire and BusinessWire, which most media outlets recognize.” – Bill Perry, Director, Public & Investor Relations, SumTotal Systems.
“Specifically, we have two concerns. First, that in past years NASDAQ has arbitrarily raised their listing fees and appears to have no incentive to reduce their costs like the companies listed on NASDAQ. Second, that their recent acquisition of PrimeZone, a press release company, allows NASDAQ to now bundle this service and other services into their annual listing fees. This bundling of services will not allow NASDAQ listed companies to choose between competing service providers and could cause our company to pay double for press release and webcasting services if do not wish to change from our current service providers. The new bundled NASDAQ fee structure inhibits competition and places undue pressure on NASDAQ listed companies to use NASDAQ services instead of having free choice in the marketplace of services. It appears that NASDAQ is taking unfair advantage of NASDAQ listed companies to make their recent acquisition of PrimeZone appear successful. Therefore, we object strongly to the proposed NASDAQ listing fee increases and the bundled service structure proposed for implementation in 2007.” – Jim Bauer, VP-Investor Relations, ARRIS Group, Inc.
“I am writing to express concern with the proposed changes to the Nasdaq pricing structure. We recently received notice of fee increases that strongly suggested these increases are linked to new services offered by the exchange. By raising fees in part or wholly as a result of added features, Nasdaq is implicitly pressuring listed companies to use products and services that they may not want or need. For example, if a company opts for a vendor of press releases other than PrimeZone then it is essentially double-paying for a service. The bundling of services is unfair and reduces our ability to select the providers who offer products that best fit our needs. Additionally, by pressuring companies to use the exchange’s services the proposed rule change will effectively stifle competition.” – Nadine Padilla, VP, Investor Relations, Biosite Incorporated
“I have a high regard for the Nasdaq but I am strongly opposed to their proposal to increase annual listing fees and the fees for listing of additional shares. I have had long standing relationships with several of our service providers that compete directly with the Nasdaq providers and I am happy with my investor relations vendors and want to continue to use them as I choose, without having to pay higher Nasdaq fees, a portion of which may go to their preferred vendors. The bundling of ancillary services with listing fees is simply unfair and eliminates our right to choose a provider for news releases. I request that Nasdaq only charge me for the listing services they provide and not add charges for investor relations services I already satisfactorily receive from other providers.” – Mitchell A. Derenzo, CFO, American River Bankshares, Rancho Cordova, California
“There is no doubt that if this occurs, our two publicly traded partnerships listed on the NASDAQ (Hiland Partners, LP “HLND” and Hiland Holdings GP, LP “HPGP”) will stop using PRNewswire for our news releases & earnings releases and will use the NASDAQ affiliate. I do not know why any other company would continue to use a different vendor if they are going to be paying for this service as part of the proposed bundled service. This definetly appears to give the NASDAQ affiliate an advantage over other wire service companies. If NASDAQ is allowed to bundle this service, what would keep them from increasing these fees in future years?” – Ken Maples, Chief Financial Officer, Hiland Partners, LP & Hiland Holdings GP, LP
“Nasdaq plans to offer 4 audio webcasts, 4 press releases and 4 Form 8-K filings to its listed companies. These services will be paid for through a portion of the proposed fee increases which are mandatory payments regardless of whether such services are used. All of these services are presently widely available to all Nasdaq companies on a commercial and competitive basis. There is no objection to Nasdaq offering these or similar services, but it should do so on a competitive basis with a separate fee schedule to maintain the freedom of choice that companies enjoy today.” – David W. Dunlap, CFO, Socket Communications, Inc.
“International Speedway Corporation (“ISC”) strongly opposes NASDAQ’s proposal to bundle news distribution and other services into its listing fees. ISC does not have a problem with NASDAQ raising its listing fee when it is appropriate, but we take serious issue with masking the increase by including service fees and forcing us to use specific providers. Fair competition for these types of services is critical and results in a better quality of product for all NASDAQ listed companies.” – Wes Harris, Senior Director – Corporate and Investor Communications, ISC
“As a Nasdaq listed company, I oppose the recently proposed fee increase by Nasdaq that is associated with the suggested use of their owned vendors, including wire services provider PrimeZone. For several years we have reviewed the capabilities and costs associated with various investor relations vendors and we have chosen those vendors that are best suited for our company’s needs.” – Kevin Rhodes Chief Financial Officer Edgewater Technology, Inc.
“To be held captive by NASDAQ and have them basically force us to use their services is “nuts” — just because they want to grow their business shouldn’t mean we have to pay for their growth. They should compete on competencies – just as all of us do.” – Pamela Murphy, VP Investor Relations & Corporate Communications, Incyte Corporation
“I think the proposal by NASDAQ to bundle news distribution and other services into its 2007 listing fees is unfair and restricts a NASDAQ-listed company’s ability to pick and choose its own provider – for both cost and quality control purposes – for these vital news release distribution and webcast services. I feel we are being coerced. Our choices are to use the services they own (PrimeZone) or use our own provider, in which case we would have the undesirable choice of paying twice for the same function (though not necessarily at the same level of service).” – Bill Newbould, Vice President, Corporate Communications, Endo Pharmaceuticals Inc.
“As the CEO of a Nasdaq listed company I am opposed to the proposed rule which will increase fees to my company, as well as influence the decision of which firm is used to submit press releases. Each company should be making it’s own decision for the firm which will process the information to the media. There is already too much expense forced upon stock companies without the Nasdaq changing the rules also. This rule will only help Nasdaq, not the listed companies.” – Thomas J. Linneman, CEO, Cheviot Financial Corp.
“Independent Bank Corporation is listed on the NASDAQ NMS and has been a NASDAQ customer for over 20 years. As the largest electronic stock market in the United States, NASDAQ has a unique role. We believe the bundling of ancillary services with their listing fees is simply unfair and eliminates our right to choose a provider for news releases.” – Robert Shuster, Chief Financial Officer, Independent Bank Corporation.
“We believe that it is bad policy to force companies who are listed with a particular exchange to be captive to information services provided by that exchange. Each public company should be able to disseminate information regarding their company in a manner that is in compliance with SEC regulations, yet is open to competitive forces that encourage enhancement, flexibility, and pricing that meet the needs of each user.” – Scott C. Harvard, President/CEO, Shore Financial Corporation.
“Very simply, the proposed increase in our fees to Nasdaq are estimated to be 40% more than my old fees plus what I paid for the proposed bundled services. While I am not opposed to Nasdaq using the connections with issuers to provide additional services, I am totally opposed to being forced to use the bundled services.” – Frank Cinatl, VP, Abatix Corp.
“I believe this proposal is not in the best interest of public companies, including Utah Medical Products, Inc. because:
1) Higher overall costs. The proposed increase is more than 3x higher than we currently pay for the services we would get for “free” under the proposal.
2) Lower perceived quality. PrimeZone’s reputation with news organizations is not on par with PRN or BW.
3) Less Competition. The proposal can only decrease competition – which inevitably leads to lower wealth for everyone.
4) Less Accountability. What incentive will Nasdaq have to provide exceptional service at the lowest price on the bundled services? No listed company will be able to demand high performance for a “free” service, particularly when it can’t afford to get on the wrong side of Nasdaq.
5) Self Determination. Each company, not Nasdaq, can best decide how to meet its disclosure obligations.” – Paul Richins, VP of IR, Utah Medical Products, Inc.
“I am happy with my current investor relations vendors and want to continue to use them as I choose, without having to pay higher Nasdaq fees, a portion of which go to their preferred vendors. I request that Nasdaq only charge me for the listing services they provide and not add charges for investor relations services I already satisfactorily receive from other providers.” – David Humphrey, Director of Investor Relations, Arkansas Best Corporation
“I am against The NASDAQ proposal, published yesterday in the Federal Register, that seeks to increase annual listing fees anywhere from $6,500 to $20,000 for each issuer. I am already buying services from Business Wire that NASDAQ is bundling into its fee increase. I do not need the four news releases per year of up to 500 words each, provided by PrimeZone, the press release disseminator that NASDAQ acquired earlier this year, as well as limited webcasting and EDGAR services. This proposal requires me to pay for services that I do not need. Please stop this proposal from going into effect.” – Mark Borman, Vice President – Investor Relations and Treasurer, ADC
“… NASDAQ’s proposed rule is anticompetitive and it creates an inherent conflict of interest. Xilinx would like to maintain the services providers we currently employ but not be charged twice for similar services. We never asked for these services so why should we pay additional fees. We have long standing relationships with several service providers that compete with NASDAQ’s and don’t have any intention of switching. As a result, we strongly oppose the bundling of services into the annual listing fee.” – Jon Olson, Chief Financial Officer, Xilinx, Inc.
Related article 1: Nasdaq should get out of press release, website business
Related article 2: More ballot stuffing on Nasdaq bundling plan?
Update: Subsequent to posting this, there has been a flood of comment letters to the SEC expressing support for the proposal. While it seems that many of these comments are based on a narrow understanding and are the product of Nasdaq lobbying international issuers and IR firms to chime in with their support, you might want to check out the comments yourself. There are also some interesting lawyers’ letters on behalf of PR Newswire, Thomson and Nasdaq.