The Nasdaq Stock Market
by MaestriThe National Association of Securities Dealers (NASD) is a self-regulatory body that licenses
brokers and oversees trading practices. The computerized network used by the NASD is known as the NASD Automated Quotation System, or Nasdaq. Nasdaq started as just a quotation system, but it has grown to become an organized securities market with its own listing requirements. Nasdaq lists about 5,000 stocks, although not all trade through the same Nasdaq system. For example, the Nasdaq National Market lists the larger Nasdaq stocks, such as Microsoft and Intel, while the Nasdaq SmallCap Market lists smaller companies with the potential for high growth. Nasdaq also operates the Nasdaq OTC Bulletin Board, which lists quotes for stock that is registered with the Securities Exchange Commission (SEC) but that is not listed on any exchange, usually because the company is too small or too unpro?table.4 Finally,Nasdaq operates the Pink Sheets, which provide quotes on companies that are not registered with the SEC.
“Liquidity” is the ability to trade quickly at a net price (i.e. after any commissions) that is very close to the security’s recent market value. In a dealer market, such as Nasdaq, a stock’s liquidity depends on the number and quality of the dealers who make amarket in the stock. Nasdaq has more than 400 dealers, most making markets in a large number of stocks. The typical stock has about 10 market makers, but some stocks have more than 50 market makers. Obviously, there are more market makers, and liquidity, for the Nasdaq National Market than for the SmallCap Market. There is very little liquidity for stocks on the OTC Bulletin Board or the Pink Sheets.
Over the past decade the competition between the NYSE and Nasdaq has been ?erce. In an effort to become more competitive with the NYSE and with international markets, the NASD and the AMEX merged in 1998 to form what might best be referred to as an organized investment network. This investment network is often referredto as Nasdaq, but stocks continue to be traded and reported separately on the two markets. Increased competition among global stock markets assuredly will result in similar alliances among other exchanges and markets in the future.
Since most of the largest c
ompanies trade on the NYSE, the market capitalization of NYSE-traded stocks is much higher than for stocks traded on Nasdaq (about $11.6 trillion compared with $2.7 trillion in late 2001). However, reported volume (number of shares traded) is often larger on Nasdaq, and more companies are listed on Nasdaq.5
Interestingly, many high-tech companies such as Microsoft and Intel have remained on Nasdaq even though they easily meet the listing requirements of the NYSE. At the same time, however, other high-tech companies such as Gateway 2000, America Online, and Iomega have left Nasdaq for the NYSE. Despite these defections, Nasdaq’s growth over the past decade has been impressive. In the years ahead, the competition will no doubt remain ?erce.
What are some major differences between the NYSE and the Nasdaq stock market?
Taken From : Five-Minute MBA – Corporate Finance
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