Nasdaq to Rely On Inet for Clearing

NEW YORK—In the wake of the Nasdaq Stock Exchange's failed, hostile bid for the London Stock Exchange (LSE), Nasdaq announced last week that it would end a clearing contract with SunGard because Nasdaq's electronic Inet platform can now handle those duties, says an exchange official.

"We will exit the clearing contract we have with SunGard," says Robert Greifeld, president and CEO of Nasdaq. "Inet now has the clearing technology, allowing us to exit the contract."

The move will cost Nasdaq $11 million in a one-time exit fee, though Greifeld says using Inet for clearing will save the exchange $2 million per quarter, beginning in the second quarter.

Nasdaq was using SunGard's Phase3, a real-time order-to-settlement securities processing system for broker-dealers, ECNs and correspondent clearing firms. The service is delivered in an ASP environment and is intended to reduce manual tasks, delays and errors, according to a SunGard spokesperson.

SunGard officials decline to comment on the Nasdaq announcement.

Nasdaq acquired the Inet platform in 2005 (DWT, April 25, 2005). Nasdaq last year moved its stock from Brut to Inet and ceased to support the Brut order system feed (DWT, Nov. 20, 2006).

The announcement that Nasdaq is shelving its Phase3 contract comes after a failed battle for the LSE. After exhausting friendly negotiations in late 2006, Nasdaq entered into a hostile takeover of the LSE in December 2006. Shareholders had until 3 p.m. London time on Jan. 11 to accept the offer, but when only 0.61 percent of LSE shares were handed over to Nasdaq, that deadline was extended by several weeks, but it failed to sway further shareholders.

In January, there were rumors that Nasdaq would start its own rival exchange in London if bids for the LSE were unsuccessful (DWT, Jan. 8). But earlier this month, Greifeld said that the electronic exchange was pondering an investment in Project Turquoise, a multi-bank initiative that would create a pan-European equities-trading platform in the form of a new multi-lateral trading facility (DWT, Feb. 5).

Greifeld said at the time that Nasdaq would likely get rid of its 28.75 percent stake in the LSE should its hostile bid fail, but he seems to have changed his mind.

"Going forward, we will keep all our options open," he says. "We plan to monitor our investment. We will not be timid about expressing our opinions."

Greifeld says that many LSE shareholders were willing to hand over their shares, but at prices that Nasdaq "could not support."

Nasdaq is "disappointed by the results," Greifeld says. However, he says that Nasdaq "chose not to win this bid because it would not have been in the long-term interest of our shareholders."

If shareholders examined the potential impact of the E.U.'s Markets in Financial Instruments Directive (Mifid), they would see that Nasdaq's offer had "fair value," says Greifeld.