NASDAQ

What is NASDAQ?

Nasdaq stands for the National Association of Securities Dealers Automated Quotation System. Unlike the New York Stock Exchange where trades take place on an exchange, Nasdaq is an electronic stock market that uses a computerized system to provide brokers and dealers with price quotes.

The Nasdaq Stock Market comprises two separate markets: (1) the Nasdaq National Market that trades the largest and most active securities, and (2) The Nasdaq SmallCap Market that lists a smaller number of emerging growth companies. The Nasdaq Stock Market electronically lists quotes for over-the-counter securities and many New York Stock Exchange listed companies.

For a company to trade on The Nasdaq Stock Market, it must meet a number of listing requirements, such as having a minimum market capitalization and number of publicly held shares. (Source: SEC)

NASDAQ is an American electronic stock exchange. It was founded in 1971 by the National Association of Securities Dealers (NASD), who divested it in a series of sales in 2000 and 2001. It is owned and operated by The Nasdaq Stock Market, Inc. (NASDAQ: NDAQ) the stock of which was listed on its own stock exchange in 2002. NASDAQ is the largest electronic screen-based equity securities market in the United States. With approximately 3,200 companies, it lists more companies and, on average, trades more shares per day than any other U.S. market.

When it began trading on February 8, 1971, it was the world's first electronic stock market. At first, it was merely a computer bulletin board system and did not 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. 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 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."

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.

On July 17, 1995, the NASDAQ Composite index closed above the 1,000 mark for the first time. The index peaked at an intra-day high of 5,132.52 on March 10, 2000, which signaled the beginning of the end of the dot-com stock market bubble. The index declined to half its value within a year, and finally found a bear market bottom at its intra-day low of 1,108.49 on October 10, 2002. While the index has gradually recovered since then, reaching a six-year monthly closing high above the 2,400 level on November 30, 2006, it is still (as of early 2007) trading for less than half of its peak value.

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, trades more shares per day than any other stock exchange in the world. It is home to companies that are leaders across all areas of business including technology, retail, communications, financial services, digging, transportation, media and biotechnology. NASDAQ is the primary market for trading NASDAQ-listed stocks.

NASDAQ quotes are available at three levels. Level I shows the highest bid and lowest offer -- the inside quote. Level II shows all public quotes of market makers together with information of market makers wishing to sell or buy stock and recently executed orders. Level III is used by the market makers and allows them to enter their quotes and execute orders. (Source: Wikipedia)