The New York Stock Exchange and NASDAQ
The two largest stock exchanges in the United States, as well as in the world, are the New York Stock Exchange (NYSE) and the National Association of Automated Distributor Quotes (NASDAQ) in terms of market capitalization and turnover. While NYSE is an auction market, NASDAQ is a dealer market.
In the trading sector, these two leading exchanges have gained great popularity as they provide the exclusive trading platform.
If you’re new to this, you may want to know which is the best stock exchange. These two differ in a number of ways, such as the prerequisite for a company to go public, the fee structure, the market type, the mode of trading, etc. So check out this article we’ve simplified, the comparison for you.
Introduction to NYSE
What is the New York Stock Exchange or NYSE?
The New York Stock Exchange NYSE, also known as ‘The Big Board’ is the world’s leading stock-based market, located in New York City and is considered the largest stock market in the world, based on the market capitalization of companies and the securities that are traded in it daily.
It was launched more than 200 years ago, in 1792, when a group of stockbrokers organized themselves by forming a committee called “New York Stock and Exchange Board”, with the aim of being able to control the flow of shares that in those years were freely traded without any control or supervision in the sidewalk on wall street.
It started as a private organization, which later turned its state into public Entity in 2005. It is the oldest stock exchange in the world, whose listing requirements are quite strict because only large and financially secure companies qualify to list. At NYSE, an auction is held every day on the trading floor.
In 2007, it merged with Euronext, the largest stock exchange in Europe, which led to the creation of NYSE Euronext, a company that was later acquired by Intercontinental Exchange, the current parent company of the New York Stock Exchange.
Who are the members of the NYSE?
There are four major classes of membership on the NYSE, which are:
Specialists: They function as market makers for one or more listed securities assigned to the trading point. Its objective is to keep the market fair and orderly. And their income comes from the commissions they receive from acting as brokers or also from the difference between the purchase price and the sale price when they act as dealers.
Commission intermediaries: we can also call them to commission brokers. And its function is to carry out operations in the contracting yard, as employees of the brokerage firms are in charge of executing the clients’ orders. Stock brokerages can also operate on their own account.
Hiring intermediaries: also called hiring brokers. They help other members to do their work and operate only for themselves because they are not authorized to deal with the public directly.
Authorized operators: they can carry out the operations on their own account, and by being members of the stock exchange, the brokerage commissions are saved.
What are the indices that make up the NYSE?
The stock indices that make up the NYSE are as follows:
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More On New York Stock Exchange
Located on Wall Street in New York City, the NYSE, also known as “The Big Board” – is made up of 21 rooms that are used to facilitate trading – or trading in stocks and securities –
The main building, located at 18 Broad Street, and the one at 11 Wall Street, were designated a United States Heritage Site in 1978.
The NYSE is the world’s largest exchange by market capitalization, which is estimated at $ 28.5 trillion (These figures as of July 2018).
The exchange operated for many years in-room trading only, using the open shout system.
Many traders on the New York Stock Exchange have switched to electronic systems, but room traders still operate to set prices and trade with institutions that handle high volumes of securities.
Currently, the New York Stock Exchange opens the market from Monday at 9:30 am and until 4:00 pm (New York time.
The exchange closes when there are federal holidays.
What are the requirements for a company to be listed on the New York Stock Exchange?
The New York Stock Exchange is a global market, merged with the US and foreign stock exchanges on NYSE Euronext.
About 80 percent of American securities are traded through that market.
To be listed, a company must meet minimum financial and nonfinancial standards, such as the number of shareholders, earnings, and stock prices. The Securities and Exchange Commission regulates trading in securities, but the NYSE governs listing requirements.
These are the requirements:
Have at least 400 shareholders
To qualify for listing on the New York Stock Exchange, a company must have at least 400 shareholders who own more than 100 shares, have at least 1.1 million publicly traded shares, and have a market value of public shares of at least $ 40 million.
The share price must be at least $ 4 per share. Initial public offerings, spin-offs of existing or affiliated companies need a market value of at least $ 100 million.
Meet the basic earnings standard
In order to be listed on the New York Stock Exchange, a business must also be profitable and must meet one of two basic earnings standards.
The first standard is the aggregate pretax income of $ 10 million for the previous three years, with at least $ 2 million in each of the most recent two years.
An alternative is $ 200 million in global market capitalization. In each case, the company has yet to meet the participation threshold.
The NYSE has stricter standards for world trade.
The stock price of $ 4 and the market value of $ 100 million apply, but a company must have at least 2.5 million shares outstanding and 5,000 public shareholders.
The case of a non-US company whose local market has no “registered” shareholders, the NYSE requires a member brokerage firm to attest to the depth of the market and the liquidity of the company’s shares.
Submit a request
Assuming the business meets the required standard, enrolling in the NYSE is simply a case of filing an application with an agreement to comply with the NYSE guidelines and requirements.
That should also include the articles of incorporation, the company’s bylaws and resolutions, and information about the organization, including contact details for key executives and the claim that none have a felony conviction.
The New York Stock Exchange also requires a letter from security underwriters that the company meets listing standards.
Introduction to NASDAQ
What is NASDAQ?
NASDAQ is the acronym for ( National Association of Securities Dealers Automated Quotation ) and is the second-largest electronic and automated stock exchange in the United States by market capitalization, behind the New York Stock Exchange, with more than 3,800 companies and corporations. It has a more hourly exchange volume than any other stock exchange in the world. It lists over 7,000 small and mid-cap stocks. It is characterized by understanding high-tech companies in electronics, computing, telecommunications, biotechnology, and many others. Its most representative indices are the Nasdaq 100 and the Nasdaq Composite. Its main office is in New York and its current executive director is Robert Greifeld.
It previously started out as a US-based stock exchange. The USA is an option of the leading companies worldwide due to its growth, market depth, liquidity and future-oriented technologies. It allows investors to trade securities in an automatic, transparent and electronic system.
Nasdaq is an electronic and automated stock market, in which the titles of companies related to cutting-edge technologies are traded. By extension, Nasdaq is used to refer to a stock index (NASDAQ Composite Index – ^ IXIC ) that measures the behavior of shares that are quoted in the market of the same name.
There are some financial requirements that companies must meet to be included in NASDAQ. As the trading is done electronically, the exchange is called the merchant market due to the broker buying and selling of shares through the market maker. NASDAQ is a dealer market in which dealers sell securities directly to investors through the use of telephones or the Internet. The listing cost for a company to include NASDAQ is approximately between $ 50,000 and $ 70,000, with annual fees of approximately $ 27,500.
The companies listed on this Stock Exchange are related to the technology and telecommunications sectors, in such a way, companies like Google and Apple are listed every day in this stock exchange center.
However, when we listen to Nasdaq day by day, they usually refer to the indices coming from this exchange. Let us remember that the stock market indices are units of measurement that take different companies listed on the Stock Exchange as a reference; These indices serve to show the daily behavior of the markets.
The Nasdaq is not located on a physical floor but on a telecommunications network. People are not in a place on the exchange where purchase transactions are offset by sales transactions on behalf of investors.
It was created in 1971 to provide transparency and security to OTC (Over the Counter Market) market operations, providing real-time information to thousands of investors and brokers. Its success and development have been so remarkable that it is currently the second-largest exchange in the world. In 2006, the SEC (Securities and Exchange Commission) formally recognized Nasdaq as a “listed stock market,” giving it almost the same importance and prestige as the New York Stock Exchange.
It has its own indexes :
NASDAQ-100 Index: This includes one hundred of the largest companies listed on this exchange based on the volume of sales presented by the shares of those companies. This index reflects those companies dedicated to telecommunications, hardware and software, but does not contain companies that are purely financial or investment.
NASDAQ Composite Index: is the group of shares that are listed within this electronic exchange and includes more than 3 thousand companies regardless of the line of business. This may include financial and investment companies as well as technology in general.
NASDAQ Biotechnology Index: Lists pharmaceutical and biotech companies that are listed within the NASDAQ Composite. Companies that want to join this index are required to list only within the NASDAQ and have an operation of more than 100,000 shares.
It was founded by the National Association of Securities Dealers (NASD) and was privatized in a series of sales in 2000 and 2001. It is owned and operated by the NASDAQ Stock Market company, which was listed on its own stock exchange system in 2002.
NASDAQ benefits for businesses
Nasdaq through its multi-participant market operating framework provides companies’ securities with immediate access to investors, market visibility, and conditions that promote immediate and continuous trading:
Liquidity: Liquidity is defined as the ease with which the shares can be bought and sold in the market. Nasdaq creates the environment necessary for great liquidity.
Market depth: Refers to the total amount of money that market generators have invested in a single security and is related to the number of participants trading in the security. However, even a small group of market participants can provide abundant depth, committing to buy or sell large amounts of security. Knowing that there is market depth can assure investors of the “marketability” of stocks, especially during high transaction levels.
Transparency: It is the ability of the investor to buy and sell at different price levels, it is crucial in the decision-making process. NASDAQ’S level of transparency is unmatched, as all prices are transmitted over the network; so, all market participants can see the same information.
Price efficiency: In securities trading, as in many other industries, competition is one of the most important factors. Aggressive competition promoted through
Nasdaq by market participants helps to ensure that the investor receives the best prices for the securities they trade.
How NYSE And NASDAQ Work
- Location location location
- Distributor vs. Auction market
- Traffic Control
- Perception and cost
- Public vs. Private
- The Bottom Line
When someone talks about the stock exchange as a place where stocks are traded between buyers and sellers, the first thing that comes to mind is the New York Stock Exchange (NYSE) or Nasdaq, and there’s no debate as to why. These two exchanges represent the marketing of a large part of the shares in North America and worldwide. At the same time, however, NYSE and Nasdaq are very different in the way they operate and in the types of shares traded on it. Knowing these differences will help you better understand the role of a stock exchange and the mechanics behind buying and selling stocks.
The location of an exchange does not refer so much to its address but also to the “place” where its transactions take place. On the New York Stock Exchange, all operations are conducted in a physical location, on the commercial floor of New York City. So when you see those guys waving their hand on TV or ringing the bell before opening the trade, you’re looking at the people through whom the shares are traded on the New York Stock Exchange.
The Nasdaq, on the other hand, is not located on a physical trading floor but on a telecommunications network. People are not on the floor of the exchange that matches buy and sell orders on behalf of investors. Instead, trading takes place directly between investors and their buyers or sellers, who are the market makers (whose role we will discuss below in the next section), through an elaborate system of electronically connected companies.
Distributor vs. Auction market
The fundamental difference between the NYSE and the Nasdaq is in the way that securities on the exchanges are transacted between buyers and sellers. Nasdaq is a dealer market, in which market participants do not buy or sell directly from each other, but through a dealer, which, in the case of Nasdaq, is a market maker. The NYSE is an auction market, where people generally buy and sell to each other, and an auction occurs; that is, the highest bid price will be matched by the lowest selling price.
Each bag has its own traffic control, police officer. Yes, it is correct, just as a broken traffic light needs a person to control the flow of cars, each exchange requires people who are at the “intersection” where buyers and sellers “meet” or place their orders. The traffic controllers at both exchanges deal with specific traffic problems and, in turn, enable their markets to function. On Nasdaq, the traffic controller is known as the market maker, who, as we already mentioned, conducts transactions with buyers and sellers to keep the flow of operations. On the NYSE, the exchange traffic controller is known as the specialist, who is responsible for matching buyers and sellers.
The definitions of the role of the market maker and that of the specialist are technically different; a market maker creates a market for security, while a specialist simply facilitates it. However, the duty of both the market maker and the specialist is to ensure smooth and orderly markets for clients. If too many orders are backed up, the traffic controllers on the exchanges will work to match the bidders with the applicants to ensure the completion of as many orders as possible. If no one is willing to buy or sell, Nasdaq market makers and NYSE specialists will try to see if they can find buyers and sellers and even buy and sell their own inventories.
Perception and cost
One thing that we cannot quantify but that we must recognize is the way that investors generally perceive companies in each of these exchanges. Nasdaq is generally known as a high-tech marketplace, which attracts many of the firms that deal with the Internet or electronics. Consequently, stocks in this exchange are considered more volatile and growth-oriented. On the other hand, NYSE companies are perceived as less volatile. Their listings include many of the front-line and industrial companies that existed before our parents, and their actions are considered more stable and established.
Whether a stock traded on the Nasdaq or the New York Stock Exchange is not necessarily a critical factor for investors when deciding on stocks to invest in. However, because the two exchanges are perceived differently, the decision to list on a particular exchange is important for many companies. A company’s decision to list on a particular exchange is also affected by the listing costs and requirements established by each exchange. The entry fee a company can expect to pay on the New York Stock Exchange is up to $ 500,000, while on the NASDAQ it is $ 50,000 to $ 75,000. Annual listing fees are also an important factor: on the NYSE, they were based on the number of shares of a listed security, and it is capped at $ 500,000, while NASDAQ’S fees are $ 27,500. So we can understand why growth stocks (companies with less seed capital) would be found on the Nasdaq exchange.
Public vs. Private
Prior to March 8, 2006, the final main difference between these two exchanges was their type of ownership: the Nasdaq exchange was listed as a publicly traded corporation, while the NYSE was private. All of this changed in March 2006 when the New York Stock Exchange went public after being a nonprofit exchange for almost 214 years. Most of the time, we think of Nasdaq and NYSE as markets or exchanges, but these entities are both real companies that offer a profit-making service for shareholders.
The shares of these exchanges, like those of any public company, can be bought and sold by investors in an exchange. (Incidentally, both the Nasdaq and the NYSE trade with themselves.) As publicly traded companies, the Nasdaq and the NYSE must meet the standard filing requirements established by the Securities and Exchange Commission. Now that the New York Stock Exchange has become a publicly traded corporation, the differences between these two exchanges are beginning to narrow, but the remaining differences should not affect how they function as markets for equity investors.
The Bottom Line
Both the NYSE and Nasdaq markets accommodate most of all stock trading in North America, but these exchanges are by no means the same. Although their differences may not affect your inventories, your understanding of how these exchanges work will give you an idea of how transactions are run, and how a market works.
What’s the difference between NASDAQ and NYSE?
NYSE and NASDAQ are major stock exchanges in the United States on which most of the world’s stocks are listed. As public exchanges, both NASDAQ and NYSE are required to meet the requirements established by the Securities and Exchange Commission (SEC). There are a number of differences between stock exchanges in terms of the way they operate, the cost of listing, the types of shares traded, etc. Dealer market where merchants trade directly with investors. NYSE operates both e-commerce and floor commerce, while NASDAQ is a fully computerized system. NASDAQ is home to high-tech companies that are startups (or recently publicly traded) with great growth potential, while NYSE is home to some of the oldest and most established firms; This may be due to the fact that listing costs for the NYSE are much higher than for NASDAQ.
Key differences between NASDAQ and NYSE
- NYSE is the oldest market in the world for buying and selling shares, regulated by the Securities and Exchange Commission. NASDAQ is an American exchange platform designed to help investors trade stocks on a telecommunications network.
- NYSE is the oldest stock exchange in the world, created in 1792. On the other hand, NASDAQ was established just a few decades ago, in 1971.
- Intercontinental Exchange owns the New York Stock Exchange, while NASDAQ is owned by NASDAQ Inc.
- NYSE is an auction market, where auctions are held every day on the stock exchange. Unlike NASDAQ it has substantial human participation, making it a dealer market.
- NYSE is a soil based stock market. Unlike NASDAQ, where trading is done electronically.
- There are a number of differences between NASDAQ and NYSE in terms of how they operate, the cost of the listing, the types of shares traded, etc.
- NYSE is an auction market in which the highest bid meets low demand, while the NASDAQ is a dealer market where dealers trade directly with investors.
- NYSE operates both electronic and floor operations, while NASDAQ is a fully computerized system.
- NASDAQ is home to high-tech companies that are startups (or recently publicly traded) with great growth potential, while NYSE is home to some of the oldest and most established firms; This may be due to the fact that listing costs for the NYSE are much higher than for NASDAQ.
Before the 1990s, it was NASDAQ that accounted for the largest volume of shares in the United States and the world, but since then, the NYSE has occupied that place with a total market capitalization of all the companies listed in this market and which represents triple that of NASDAQ.
In the end, we can conclude that there is a neck-to-neck competition on the two exchanges. In terms of market capitalization, NYSE is the largest stock exchange, but when it comes to billing, NASDAQ outperforms other markets. While NYSE is the oldest stock exchange, NASDAQ is the fastest-growing stock exchange in the world.