Nasdaq Explained

Nasdaq Stock Market
Type:	Stock exchange
City:	New York City
Country:	U.S.
Coordinates:	40.7565°N -73.9858°W
Owner:	Nasdaq, Inc.
Listings:	4,061 (Feb 2024)^[1]
Mcap:	23.414 trillion (Feb 2024)^[2]

NASDAQ:

The Nasdaq Stock Market (; National Association of Securities Dealers Automated Quotations) is an American stock exchange based in New York City. It is the most active stock trading venue in the U.S. by volume,^[3] and ranked second on the list of stock exchanges by market capitalization of shares traded, behind the New York Stock Exchange.^[4] The exchange platform is owned by Nasdaq, Inc.,^[5] which also owns the Nasdaq Nordic stock market network and several U.S.-based stock and options exchanges. Although it trades stock of healthcare, financial, entertainment, retail, and food businesses, it focuses more on technology stocks. The exchange is made up of both American and foreign firms, with China and Israel being the largest foreign sources.^[6]

History

1971–2000

"Nasdaq" was initially an acronym for the National Association of Securities Dealers Automated Quotations.^[7] It was founded in 1971 by the National Association of Securities Dealers (NASD), now known as the Financial Industry Regulatory Authority.^[8] On February 8, 1971, the Nasdaq stock market began operations as the world's first electronic stock market. At first, it was merely a "quotation system" and did not provide a way to perform electronic trades.^[9]

The NASDAQ Stock Market eventually assumed the majority of major trades that had been executed by the over-the-counter (OTC) system of trading, but there are still many securities traded in this fashion. As late as 1987, the Nasdaq exchange was still commonly referred to as "OTC" in media reports^[10] and also in the monthly Stock Guides (stock guides and procedures) issued by Standard & Poor's Corporation.^[11] Over the years, it became more of a stock market by adding trade and volume reporting and automated trading systems. In 1981, Nasdaq traded 37% of the U.S. securities markets' total of 21 billion shares. By 1991, Nasdaq's share had grown to 46%.^[12] In 1992, the Nasdaq Stock Market joined with the London Stock Exchange to form the first intercontinental linkage of capital markets.^[13]

In 1996, the SEC issued a report alleging that Nasdaq market makers fixed prices by avoiding "odd-eighths" quotes (at the time, stock prices were quoted in increments of an eighth of a dollar) to artificially widen spreads. The report was followed by a new set of rules for how Nasdaq handled orders.^[14]

In 1998, it became the first stock market in the United States to trade online, using the slogan "the stock market for the next hundred years".^[15] The Nasdaq Stock Market attracted many companies during the dot-com bubble.

Its main index is the NASDAQ Composite, which has been published since its inception. The QQQ exchange-traded fund tracks the large-cap NASDAQ-100 index, which was introduced in 1985 alongside the NASDAQ Financial-100 Index, which tracks the largest 100 companies in terms of market capitalization.

2000–present

On March 10, 2000, the NASDAQ Composite stock market index peaked at 5,132.52, but fell to 3,227 by April 17,^[16] and, in the following 30 months, fell 78% from its peak.^[17]

In a series of sales in 2000 and 2001, FINRA sold its stake in the Nasdaq. On July 2, 2002, Nasdaq Inc. became a public company via an initial public offering.^[18] In 2006, the status of the Nasdaq Stock Market was changed from a stock market to a licensed national securities exchange.^[19] In 2007, it merged with OMX, a leading exchange operator in the Nordic countries, expanded its global footprint, and changed its name to the NASDAQ OMX Group.^[20]

To qualify for listing on the exchange, a company must be registered with the United States Securities and Exchange Commission (SEC), must have at least three market makers (financial firms that act as brokers or dealers for specific securities) and must meet minimum requirements for assets, capital, public shares, and shareholders.

In February 2011, in the wake of an announced merger of NYSE Euronext with, speculation developed that NASDAQ OMX and Intercontinental Exchange (ICE) could mount a counter-bid of their own for NYSE. NASDAQ OMX could be looking to acquire the American exchange's cash equities business, ICE the derivatives business. At the time, "NYSE Euronext's market value was $9.75 billion. Nasdaq was valued at $5.78 billion, while ICE was valued at $9.45 billion."^[21] Late in the month, Nasdaq was reported to be considering asking either ICE or the Chicago Mercantile Exchange to join in what would probably have to be, if it proceeded, an $11–12 billion counterbid.^[22]

In December 2005, NASDAQ acquired Instinet for $1.9 billion, retaining the Inet ECN and subsequently selling the agency brokerage business to Silver Lake Partners and Instinet management.^[23] ^[24] ^[25]

The European Association of Securities Dealers Automatic Quotation System (EASDAQ) was founded as a European equivalent to the Nasdaq Stock Market. It was purchased by NASDAQ in 2001 and became NASDAQ Europe. In 2003, operations were shut down as a result of the burst of the dot-com bubble.^[26] In 2007, NASDAQ Europe was revived first as Equiduct and was acquired by Börse Berlin later that year.^[27]

On June 18, 2012, Nasdaq OMX became a founding member of the United Nations Sustainable Stock Exchanges Initiative on the eve of the United Nations Conference on Sustainable Development (Rio+20).^[28] ^[29]

In November 2016, chief operating officer Adena Friedman was promoted to chief executive officer, becoming the first woman to run a major exchange in the U.S.^[30]

In 2016, Nasdaq earned $272 million in listings-related revenues.^[31]

In October 2018, the SEC ruled that the New York Stock Exchange and Nasdaq did not justify the continued price increases when selling market data.^[32] ^[33] ^[34]

In December 2020, NASDAQ announced that it would strip its indexes of four Chinese companies in response to Executive Order 13959.^[35]

Contract specifications

Nasdaq 100 futures are traded on the CME (Chicago Mercantile Exchange) while its derivatives, E-Mini Nasdaq 100 and Micro E-Mini Nasdaq 100 futures are traded on the EMiniCME. Below are the contract specifications for the Nasdaq 100 and derivatives.

Contract Specifications!!Nasdaq 100 (NDA)^[36] !E-Mini Nasdaq 100 (NQ/ENQ)^[37] !Micro E-Mini Nasdaq (MNQ)^[38]
Contract Size:	$100 X Nasdaq 100 Index	$20 X Nasdaq 100 Index	$2 X Nasdaq 100 Index
Exchange:	CME	EMiniCME	EMiniCME
Sector:	Index	Index	Index
Tick Size	0.25	0.25	0.25
Tick Value:	25 USD	5 USD	0.5 USD
BPV	100	20	2
Denomination:	USD	USD	USD
Decimal Place:	2	2	2

Quote availability

Nasdaq quotes are available at three levels:

Level 1 shows the highest bid and lowest ask—inside quote.
Level 2 shows all public quotes of market makers together with information of market dealers wishing to buy or sell stock and recently executed orders.^[39]
Level 3 is used by the market makers and allows them to enter their quotes and execute orders.^[40]

Trading schedule

The Nasdaq Stock Market sessions, with times in the Eastern Time Zone are:

7:00 a.m. to 9:30 a.m.: extended-hours trading session (premarket)

9:30 a.m. to 4:00 p.m.: normal trading session

4:00 p.m. to 8:00 p.m.: extended-hours trading session (postmarket)^[41]

The Nasdaq Stock Market averages about 253 trading days per year.^[42]

Market tiers

The Nasdaq Stock Market has three different market tiers:

Capital Market (NASDAQ-CM small cap) is an equity market for companies that have relatively small levels of market capitalization. Listing requirements for such "small cap" companies are less stringent than for other Nasdaq markets that list larger companies with significantly higher market capitalization.^[43]
Global Market (NASDAQ-GM mid cap) is made up of stocks that represent the Nasdaq Global Market. The Global Market consists of 1,450 stocks that meet Nasdaq's strict financial and liquidity requirements, and corporate governance standards. The Global Market is less exclusive than the Global Select Market.^[44]
Global Select Market (NASDAQ-GS large cap) is a market capitalization-weighted index made up of US-based and international stocks that represent the NASDAQ Global Select Market Composite (NQGS). The Global Select Market consists of 1,200 stocks that meet Nasdaq's strict financial and liquidity requirements and corporate governance standards. The Global Select Market is more exclusive than the Global Market. Every October, the Nasdaq Listing Qualifications Department reviews the Global Market Composite to determine if any of its stocks have become eligible for listing on the Global Select Market.^[45] ^[46]

Difference between NYSE and Nasdaq

After the NYSE, Nasdaq is the second largest stock exchange in the United States with a market capitalization of $19 trillion, which is about $5.5 trillion less than the NYSE.^[47] ^[48] ^[49] Nasdaq is a much younger organization than the NYSE, having been founded in just 1971.^[50] ^[51] In addition to age and market capitalization, there are other key differences between the two exchanges:

Exchange systems. Before the COVID-19 pandemic, the NYSE maintained both an electronic trading system and a trading floor system staffed by live professionals who help conduct auctions.^[52] ^[53] Nasdaq has been an all-electronic exchange since its inception.
Market Types. The NYSE uses an auction market to set prices, while Nasdaq uses a dealer market.^[54] ^[55] In the NYSE auction market, buyers and sellers submit competitive bids simultaneously. When the buyer's bid and the seller's request match, a transaction occurs. In the Nasdaq dealer market model, all prices are set by dealers. Dealers continually update bid (sell) and ask (buy) prices throughout the trading day.
Listing fees. There is a big difference in listing fees on the major stock exchanges. Listing fees on the Nasdaq range from $55,000 to $80,000 for the lowest tier of the capital market.^[56] ^[57] The NYSE is significantly more expensive, with the lowest listing fee of $150,000.
Sectors. Investors typically view the NYSE as an exchange for older, more established companies.^[58] Nasdaq tends to be home to newer companies focused on technology and innovation, so some investors consider Nasdaq listings to be riskier.^[59]

External links