NASDAQ Totally Explained

Everything about The Nasdaq totally explained

The NASDAQ (acronym of National Association of Securities Dealers Automated Quotation System) is an American stock exchange. It is the largest electronic screen-based equity securities trading market in the United States. With approximately 3,200 companies, it lists more companies and has more trades per day than any other U.S. market.
It was founded in 1971 by the National Association of Securities Dealers (NASD), who divested themselves of it in a series of sales in 2000 and 2001. It is owned and operated by the NASDAQ OMX Group, the stock of which was listed on its own stock exchange in 2002, and is monitored by the Securities and Exchange Commission (SEC).
With the completed purchase of the Nordic-based operated exchange OMX, following its agreement with Borse Dubai, NASDAQ is poised to capture 67% of the controlling stake in the aforementioned exchange, thereby inching ever closer to taking over the company and creating a trans-atlantic powerhouse. Nasdaq-OMX group as it's now known now controls and operates the NASDAQ stock market in NYC, which is the second largest in the US; in addition, it now operates eight stock exchanges in Europe and also holds 33.3% of the Dubai Stock Exchange. It has a double-listing agreement with OMX, which will render it more effective than the NYSE-Euronext group in attracting new listings.

History

When the NASDAQ stock exchange began trading on February 8, 1971, the NASDAQ was the world's first electronic stock market. At first, it was merely a computer bulletin board system and didn't actually connect buyers and sellers. The NASDAQ helped lower the spread (the difference between the bid price and the ask price of the stock) but somewhat paradoxically was unpopular among brokerages because they made much of their money on the spread.
   NASDAQ was the successor to the over-the-counter (OTC) and the "Curb Exchange" systems of trading. As late as 1987, the NASDAQ exchange was still commonly referred to as the OTC in media and also in the monthly Stock Guides issued by Standard & Poor's Corporation.
   Over the years, NASDAQ became more of a stock market by adding trade and volume reporting and automated trading systems. NASDAQ was also the first stock market in the United States to advertise to the general public, highlighting NASDAQ-traded companies (usually in technology) and closing with the declaration that NASDAQ is "the stock market for the next hundred years." Its main index is the NASDAQ Composite, which has been published since its inception. However, its exchange-traded fund tracks the large-cap NASDAQ 100 index, which was introduced in 1985 alongside the NASDAQ 100 Financial Index.
   Until 1987, most trading occurred via the telephone, but during the October 1987 stock market crash, market makers often didn't answer their phones. To counteract this, the Small Order Execution System (SOES) was established, which provides an electronic method for dealers to enter their trades. NASDAQ requires market makers to honor trades over SOES.
   In 1992, it joined with the London Stock Exchange to form the first intercontinental linkage of securities markets. NASDAQ's 1998 merger with the American Stock Exchange formed the NASDAQ-Amex Market Group, and by the beginning of the 21st century it had become the largest electronic stock market (in terms of both dollar value and share volume) in the United States. NASD spun off NASDAQ in 2000 to form a publicly traded company, the NASDAQ Stock Market, Inc. On November 8, 2007, NASDAQ bought the Philadelphia Stock Exchange(PHLX) for US$652,000,000. PHLX is the oldest stock exchange in America, having been in operation since 1790. NASDAQ lists approximately 3,200 securities, of which 335 are non-U.S. companies from 35 countries representing all industry sectors. To qualify for listing on the exchange, a company must be registered with the SEC, have at least three market makers (financial firms that act as brokers or dealers for specific securities), and meet minimum requirements for assets, capital, public shares, and shareholders. NasdaqOMX now has a dual listing agreement with the Tel Aviv Stock Exchange.

Business

NASDAQ allows multiple market participants to trade through its Electronic Communication Networks (ECNs) structure, increasing competition. The Small Order Execution System (SOES) is another NASDAQ feature, introduced in 1987, to ensure that in 'turbulent' market conditions small market orders are not forgotten but are automatically processed. With approximately 3,200 companies, it lists more companies and, on average, its systems trade more shares per day than any other stock exchange in the world. NASDAQ will follow the New York Stock Exchange in halting domestic trading in the event of a sharp and sudden decline of the Dow Jones Industrial Average.
The Nasdaq Group is close to acquiring the Philadelphia Stock Exchange, which will give it an access to the futures market as well as the acquisition of the Boston SE, with its corresponding derivative platform. Nasdaq already owns a 20% stake in Agora X which is a high tech company supplying platform for derivatives and futures. Pending approval from the SEC, it plans to launch a Pan-European top 100 stocks, in the first international venture from cross-border platform.
Nasdaq's Options Market is up and running, its competitors are making plans to copy one of the market center's signature--and controversial--order types. In doing so, they may be pushing the industry into full-fledged penny quoting.

Market share

As of March 1, 2007, accounts for about 14-15% of the shares traded. For Tape C securities, it accounts for approximately 45-98% of the trading volume.

Fees

NASDAQ has a maker taker pricing system that offers lower liquidity removal fees and more favorable added-liquidity rebates based on how much trading volume the market participant executes on the NASDAQ system.
Exchange Pricing wars have taken place since the demutualization of the Equities exchanges in the US. Nasdaq uses several maker-taker pricing models depending on Tape and customers. The spring 2008 pricing war between NYSE Arca and Nasdaq is raging as both markets battle for market share in New York Stock Exchange-listed and Nasdaq-listed securities.

Quote availability

NASDAQ quotes are available at three levels:

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

Trading Schedule

The NASDAQ Stock Market Trading Sessions (Eastern Time)

Pre-Market Trading Hours from 7:00 a.m. to 9:30 a.m.

Market Hours from 9:30 a.m. to 4:00 p.m.

After-Market Hours from 4:00 p.m. to 8:00 p.m.

Indexes

NASDAQ Composite

NASDAQ-100

NASDAQ Biotechnology Index

Markets

NASDAQ Global Select Market

NASDAQ Global Market

NASDAQ Capital Market

NASDAQ PORTAL MarketFurther Information

Get more info on 'Nasdaq'.

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