Chip, chip, chip … That’s the sound of Nasdaq whittling away at the foundations of the New York Stock Exchange, bit by bit.

Last week, Nuveen announced that it planned to list shares of its Nuveen Equity Premium Advantage Fund on Nasdaq. The fund is already listed on the New York Stock Exchange. It is the first closed-end fund to list itself on both exchanges, but it is unlikely to be the last.

Nasdaq has been pressing New York Stock Exchange companies of all kinds to dual list their shares. Nasdaq first launched the program last year, after the Securities and Exchange Commission forced the NYSE to rescind the infamous Rule 500 (known by some as the Roach Motel rule: “you can check in but you can’t check out”).

This regulation required companies to ask their audit committees and shareholders, in effect, for permission to change their exchange listing. No management these days likes to put issues to shareholder votes, so the rule effectively prohibited companies from moving from one exchange to another.

In January 2004, Nasdaq published the names of the first six companies to accept its invitation to dual list. The list included some high-profile names such as Hewlett-Packard and Apache. The announcement sent shock waves through the investment community.

Since then, a few more companies have decided to dual list their stocks, including, notably, the Chicago Mercantile Exchange. There are few publicly owned companies more savvy about trading than the Merc. Its decision must have sent shivers through the NYSE.

Why are companies moving in this direction? And what are the implications for the NYSE?

Simply put, Nasdaq is pitching better execution. While a NYSE-listed company has one specialist firm making a market in its stock, one on Nasdaq often has a dozen or more firms performing the same function.

An executive vice president at Nasdaq, Bruce Aust, said, “We create more visibility in the market-making community. We offer tighter spreads and greater liquidity.”

According to Nasdaq, execution of orders for companies with market capitalizations of more than $50 billion average 10.3 seconds on the NYSE, compared to 0.9 seconds on Nasdaq. For companies in the $5 billion to $50 billion market cap category, the differences are even greater – 12 seconds versus 2.7 seconds.

The spreads are wider on NYSE trades, according to Nasdaq, with large market cap companies experiencing a 1.5 cent spread, compared to 0.6 cents on Nasdaq. For the next category down, the spread is 1.8 cents versus 1.3 cents.

Perhaps, though, the appeal is broader than simply execution efficiency. An Apache spokesman, Tony Lentini, said, “We decided to try it, partly because we believe in competition.”

Apache recently agreed to renew its agreement, even though management has been unable to measure any specific change in its trading pattern. “The stock is heavily followed as it is. Also, the performance over many years has been excellent.”

Michael Pozin, a spokesman from Walgreen, one of the original six, also cites greater competition as a reason to dual list. His company also renewed their dual listing in January.

An executive vice president of Nuveen, Bill Adams, said, “We wanted spreads to be as narrow as possible. Liquidity in the secondary market is important for our shareholders. We wanted to reach more market makers and a wider audience.”

Despite the overall satisfaction companies had at their dual listed status, no one is able to pinpoint any measurable trading advantage the new status has conferred. One company, Countrywide Financial, has actually decided not to renew with Nasdaq.

Most companies are not willing to abandon the NYSE. “The New York Stock Exchange is still the oldest and largest exchange,” Mr. Adams said. “They have a lot of resources.”

On the other hand, some companies feel they have a shot at getting a bigger share of those resources if they dual list. Word has it that specialists at the NYSE become a little more animated and responsive once they hear a company has strayed.

There are also companies, which did not wish to be identified, that were not thrilled with the controversial pay package the NYSE handed to its former chairman, Richard Grasso, and wished to vote with their feet.

Another selling point is that Nasdaq’s fees are substantially lower than those charged by the NYSE. The maximum fee at the Nasdaq is $75,000, while the maximum at the NYSE is about $500,000. To attract dual listers, Nasdaq has eliminated fees altogether for the first year.

Why aren’t more companies joining in? One Fortune 500 CEO attributes the slow startup to inertia. “There are a million things a CEO has to look after. Most don’t even stop to think about exchange listing. Now that dual listing is a possibility, and Nasdaq can make a case that shareholders benefit, there will be a need to address the question.”

Overall, while Nasdaq makes a powerful case, the strong brand of the NYSE has kept most of the country’s best and biggest companies emphatically on board. Also, managements love ringing the bell that signals the opening of daily trading. Nasdaq’s Mr. Aust said, “We have the biggest billboard on Times Square. Morgan Stanley, Lehman, JPMorgan – they’re all right there. We’re in the heart of the new financial district.”

But do they have a bell?