The NASD board unanimously approved a radical overhaul that will lead to the private sale of up to 79 percent of the No. 2. U.S. stock market to NASD member firms, the biggest Nasdaq-listed companies and some major institutional investors, NASD officials said.

The move on the part of the NASD, a nonprofit organization for stockbrokers whose roots date back to the 1930s, marks the first time a U.S. stock market is being offered to investors and spun off from its parent body.

The idea is that the private placement would disentangle the for-profit Nasdaq from the NASD, and its regulatory arm, NASD Regulation Inc., or NASDR. Free from its status as a subsidiary of the NASD, the Nasdaq would be more nimble and better able to raise money and to compete in a fast-changing U.S. securities industry, NASD executives said.

"Today's board actions are a win-win-win for investors, issuers and NASD members," NASD Chairman Frank Zarb said. "Investors and issuers get a more agile, better capitalized Nasdaq, one that can be quicker to put technology to use and better able to create the digital stock market."

Also, as part of the deal, the largest 130 companies whose shares trade on the Nasdaq such as Microsoft Corp. and Dell Computer Corp. will be able to buy stakes in the stock market.

By the end of the private placement's second phase, the NASD would only be left with about 22-percent of the Nasdaq. Whether the private placement is a precursor to a public offering is still uncertain with that decision left up to the new Nasdaq board, Zarb said.

Stock exchanges are traditionally the property of individuals or brokerage firms that own their seats and, consequently, the right to do business in that market.

But with the advent of Internet-based stock trading technology and upstart private trading networks, the Nasdaq and the New York Stock Exchange are being forced to reinvent themselves. The Nasdaq especially faces stiff competition from private trading networks, known as electronic communication networks, or ECNs, such as Reuters Group Plc's Instinet unit.

ECNs, computer systems that match share orders placed by a network of brokers, now account for close to 30 percent of the daily share volume in Nasdaq stocks.

"This is a competitive response to our presence," said Cameron Smith, general counsel of Island, the No. 2 U.S. ECN. "They are finding that their corporate governance can't act quickly enough to react to the competition."

The NASD's roughly 5,600 members will be able to vote on the private placement in February. The board needs a thumbs-up from the majority of NASD's members.

Without that approval, the NASD's management may have to hold a second vote and revisit its plan, an NASD official said. It is unclear whether a rejection from the membership would derail the board's plan.

NASD members range from Merrill Lynch & Co., the No. 1 U.S., brokerage firm to small local brokerage firms and individuals who trade their own accounts. They, along with the bigger Nasdaq-listed companies, would be offered 47 to 49 percent of the Nasdaq during the first phase of the private placement. The NASD will sell off an additional 30 percent in the second stage.

Investment bank J.P. Morgan, who have been hired as NASD's financial adviser, will put a value on the Nasdaq shares, the NASD said. A second adviser Salomon Smith Barney, the brokerage unit of Citigroup, will review J.P. Morgan's analysis.

The Nasdaq's top so-called market participants — brokerage or stock trading firms that generate the highest percent of trading fees — will be offered 30 to 32 percent of the stock market, the plan stipulates.

The NASD's remaining members can buy up to 25 percent, while some 16.5 percent will be proffered to Nasdaq-listed companies and 5.5 percent will be offered to major institutional investors.

"We have come up with a plan that covers a much broader constituency than we had originally planned, said Frank Baxter, the chief executive of brokerage firm Jeffries Group who headed the NASD committee assigned to explore the idea of a spin-off. "We are now including everyone."

The NASD's preliminary plan, which the board approved on Dec. 10, met with opposition from the Independent Broker-Dealer Association, a group that represents the smaller NASD members. Alan Davidson, the association's president on Tuesday, however, said the latest proposal treated all NASD members fairly.

"No one gets 100 percent of what they want," said Davidson, also a NASD board member, "what I did get was fair treatment and reasonableness. This is a document I can enthusiastically support."

Out of the $1 billion generated from the private placement, the NASD said it would earmark $500 million to support NASDR, the NASD's regulatory arm. Some $215 million would go toward maintaining the American Stock Exchange, an NASD subsidiary, while $114 million would be set aside to cut Nasdaq's membership fees.

The U.S. Securities and Exchange Commission would need to sanction the NASD's restructuring when the Nasdaq applies to the agency to become a full-fledged stock exchange. The NASD plans to apply for such a ruling in the next month.

Though second only in size to the New York Stock Exchange, the Nasdaq has never enjoyed exchange status. It has, however, mushroomed in size, since its creation in 1971 and overshadows the nation's regional exchanges. The Nasdaq also became the market of choice for leading U.S. technology companies to list their shares.