1. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Changes in Market Structure: Approaches to Securities Trading 15 April 2003 Alfred R. Berkeley, III Vice Chairman The NASDAQ Stock Market Alfred R. Berkeley, III Vice Chairman The NASDAQ Stock Market

2. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Slide 2 Creating An Efficient Consolidated Market Competitive Challenges – Fragmentation Improve Access and Lower Costs Secondary Markets National Markets Broker-Dealers Electronic Brokerage Firms (ECNs)

3. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Three Liquidity Models Bull Bear Panic Three Types of Markets AcceleratedSteadyDeclining Three Types of Growth Multiple Liquidity Providers (NASDAQ) Single Liquidity Provider (NYSE, AMEX) No Professional Liquidity Providers (ECNs)

4. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Three Liquidity Models Bull Bear Panic Three Types of Markets High VolumeMedium VolumeLow Volume Three Types of Activity Multiple Liquidity Providers (NASDAQ) Single Liquidity Provider (NYSE, AMEX) No Professional Liquidity Providers (ECNs)

5. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Slide 5 Average Daily Trades by Dollar Value of Float Category Average daily trades for all stocks within each dollar value of float category. All common stock on NASDAQ National Market and NYSE; NYSE data represent specialist trades only. Source: NASDAQ ER DataMart, FactSet Research Systems. December 2002.

6. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Slide 6 Old NASDAQ NYSEECN Dealer Intervention Continuous Support x Limit Order Book Transparency, Critical Mass x Electronic Execution Speed x Auction Price Improvement x x Competition Benefits Investors x Severe Competition in the 1990s

7. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Slide 7 Old NASDAQ NYSEECN New NASDAQ Dealer Intervention Continuous Support x Limit Order Book Transparency, Critical Mass x Electronic Execution Speed x Auction Price Improvement x x Competition Benefits Investors x Integrating Market Models Improves Liquidity

8. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Slide 8 NASDAQ Initiatives Reduce Liquidity Costs NASDAQ continues to enact a variety of initiatives to reduce liquidity costs, ultimately reducing the cost of capital and increasing shareholder value. Value = NPV(Cash Flows)(1-Cost of Capital) Direct Cost TaxesFees Market Charges Commissions Opportunity Cost Adverse Selection Bid/Ask Spread Long-term Decline in Spreads Post-Trade Market Impact Cost Depth at Quote, Reserve Size Execution Delay Pre-Trade Market Impact Cost SuperMontage SM, Primex Market Movement Before Execution Fast Execution Cost of Capital = Risk Premium + Liquidity Premium Risk Free Rate of Return Company Risk IR tools, Brand Development Source: Amihud, Yakov and Haim Mendelson, “The Liquidity Route to a Lower Cost of Capital’” Journal of Applied Corporate Finance, Volume 12, Number 4, Winter 2000, 8-25.

9. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Slide 9 SuperMontage SM Addresses Competitive Challenges TotalView SM Detail

10. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Slide 10 Greater Depth, Stronger Center of Liquidity Source: NASDAQ.

11. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Slide 11 Greater Depth, Stronger Center of Liquidity With more and more market makers submitting orders at multiple price levels, depth should continue to increase. Source: NASDAQ.

12. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Slide 12 Impact of Changes on Market Quality Data represent execution quality for S&P 500 issues listed on NASDAQ vs. those listed on the NYSE Includes time for Market Center’s proprietary systems as mandated by SEC Rule 11Ac1-5. Based on all marketable orders up to 9,999 shares. Marketable orders are represented by both true market orders and limit orders that are at or within the prevailing bid-ask quote. Source: Market Systems Inc. December 2002. NASDAQ-listed S&P 500 stocks execute faster, with lower transaction costs and better pricing than NYSE comparables. Price Improvement At the Quote Price Dis- Improvement

13. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Slide 13 Improved Liquidity as a Result of Changes The Amivest Liquidity Ratio measures the amount of dollar volume of trading associated with a one percent change in price over a twenty-day period. Includes all domestic common stock on NASDAQ National Market and NYSE. Source: FactSet Research Systems. December 2002. More stock can be bought or sold on NASDAQ without impacting the price.

14. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Slide 14 Offer Price Goldman Sachs..... 25.05 NASDAQ SIZE...... 25.05 Hong Kong....... 25.10 Schwab Capital Mkts.. 25.10 CS First Boston.... 25.10 Tokyo......... 25.10 Merrill Lynch..... 25.10 Salomon Smith Barney. 25.15. Bid Price Hong Kong....... 25.00 Morgan Stanley.... 25.00 NASDAQ SIZE...... 25.00 Merrill Lynch..... 24.95 Deutsche Börse.... 24.95 Instinet....... 24.95 Spear Leeds...... 24.95 Singapore....... 24.95. Tomorrow’s Market International Exchanges, Electronic Networks and Traditional Market Makers Compete for Every Trade.

15. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved. Slide 15 Fair Allocation of Regulatory Costs Increasing Fragmentation of the Market for Trading NASDAQ Securities Need to Rebalance the Costs of Regulating that Trading

16. ©Copyright 2003, The Nasdaq Stock Market, Inc. All rights reserved.