NASDAQ

NASDAQ or National Association of Securities Dealers Automated Quotations is an American stock exchange. NASDAQ has the distinction of being the world’s second largest stock exchange on the basis of market capitalization. New York Stock Exchange is the largest stock exchange in the world. On the basis of trading volume, NASDAQ is the biggest electronic stock exchange in the world. It is also known as NASDAQ Stock Market. As on January 25, 2011, NASDAQ lists 2,711 companies and has a total market capitalization of $4.5 trillion.  NASDAQ OMX Group owns NASDAQ, in addition to OMX stock exchange network.

National Association of Securities or NASD formed NASDAQ in 1971. NASDAQ OMX Group operates the exchange. The exchange is now regulated by NASD’s successor, Financial Industry Regulatory Authority or FINRA.  NASDAQ commenced formal trading in 1971 and was the only electronic stock market in the world at that time. Initially, NASDAQ merely acted as a bulletin board. Though, the exchange did not facilitate interaction between sellers and buyers of the securities, it helped to reduce the gap in price spread. Consequently, the exchange was ostracized by broking houses as they made their profit from the price spread.

NASDAQ happened to be the first stock exchange in the United States to offer online trading. NASDAQ has increased manifold in its importance over the previous years. It has added various new features such as automatic trading platform and robust volume and trade report system. Initially, the exchange carried out major portion of its trading through telephone system. In 1987, it implemented SOES or Small Order Execution System. The system was put in place in response to October 1987 market crash. During the crash, market makers did not respond to the phone calls and deepened the crisis. Market makers are now obligated to honor their trades carried over SOES.

NASDAQ advertises itself as “the stock market for the next hundred years”. The exchange has several indices, NASDAQ Composite being the most prominent one. This index is the original index which was published since the exchange’s beginning. NASDAQ also has other indices such as NASDAQ-100 and NASDAQ 100 Financial Index. Both these indices were launched in 1985. Apart from these, the exchange also has NASDAQ Bank, NASDAQ Transportation Index and NASDAQ Biotechnology Index. NASDAQ collaborated with the London Stock Exchange in 1992to form the first intercontinental security market linkage.

In 2000, NASDAQ was spun off to become the NASDAQ Stock Market Inc., a public listed company. The exchange further changed its status and become a licensed national exchange. NASDAQ earlier had the status of stock market. The exchange has also made some acquisition along the way. In 2007, it acquired the Philadelphia Stock Exchange. The transaction was priced at $652 million. Philadelphia Stock Exchange is the oldest stock market in the United States. The exchange had been operational since 1790.

In 2001, NASDAQ acquired EASDAQ or European Association of Securities Dealers Automatic Quotation System to form NASDAQEur03. However, NASDAQEur03 was shut down in the wake of dot com bubble. The exchange resurrected NASDAQ Europe in 2007 and it is currently operational under the name of Equiduct.

In 2011, it was speculated that NASDAQ could join hands with IntercontinentalExchange to bid for NYSE Euronext. At that time, NYSE Euronext was contemplating merger with Deutsche Borse. It was also speculated that NASDAQ may acquire NYSE Euronext’s cash equity divison, while ICE may takeover Euronext’s derivative business. NYSE Euronext was valued at $9.75 billion, while NASDAQ and ICE commanded the market value of $5.78 billion and $9.45 billion respectively. NASDAQ was also reported to be in talks with Chicago Merc for joint bid for NYSE Euronext.

NASDAQ requires the companies to fulfill certain criterions for getting listed on the exchange. The company needs to fulfill minimum requirements with regard to its capital, shareholders, publicly traded shares and assets. The company also needs to be registered with SEC or United States Securities and Exchange Commission. NASDAQ also requires the applicant company to have minimum three market makers. Market makers are the financial institutes that work as dealers or brokers for securities.

NASDAQ offers three level quotes. At level 1 it shows the lowest offer price and the highest bid price. This level is also known as the inside quote. At Level 2, it shows recently fulfilled orders along with the information about the prospective buyer and seller market dealers. It also shows all the public quotes made by market makers. Level 3 is meant to be employed by the market makers. This level lets them input their quotes. It also lets them execute their orders.

NASDAQ conducts its pre market session at 7:00 AM. This session ends at 9:30 AM. Its regular trading session starts at 9:30 AM and ends at 4:00AM. The exchange’s post market session extends between 4:00PM and 8:00 PM. The exchange is divided into three different tiers. NASDAQ Capital Market caters to small cap companies, whereas NASDAQ Global Market serves mid cap company. Large cap companies are served by NASDAQ Global Select Market.