How Does the Nasdaq Facilitate Trading of Stocks and Securities?
Nasdaq Facilitate Trading of Stocks and Securities
The Nasdaq facilitates trading of stocks and securities, both as a stock exchange and through its network of markets and market makers. It also operates the world’s first and largest electronic marketplace for securities. The company’s exchanges, markets and clearinghouses operate globally and support trading of equities, options, fixed income, commodities and derivatives. Nasdaq also provides technology and services to market participants around the world.
In the past, the term “Nasdaq” was used to refer to two separate things: the Nasdaq Stock Market and the Nasdaq Composite Index. The former is a stock exchange where investors can buy and sell shares of publicly traded companies; the latter is an index of those companies. In the early years of the company, the NASDAQ was primarily a technology stock exchange. As the internet and related technologies rose in prominence, the NASDAQ became the default marketplace for tech stocks, leading to a massive boom and bust that impacted the economy. The NASDAQ Composite peaked in March 2000, and its share of global stock market transactions dropped nearly 40% by October 2002.
Today, the Nasdaq is a much more diverse exchange, offering a wide range of stocks and securities. Its market capitalization exceeds $22 trillion, and the majority of its listings are from technology companies. Its list of securities also includes American depositary receipts (ADRs), limited partnerships, exchange-traded funds and tracking stocks, which represent the value of a division or subsidiary.
How Does the Nasdaq Facilitate Trading of Stocks and Securities?
To be listed on the Nasdaq, a company must meet certain requirements and standards set by the Securities and Exchange Commission. These include a minimum number of public shareholders, the amount of assets, and the level of operations. If a company fails to meet these requirements, it can be delisted from the Nasdaq, which would mean that it could no longer trade its shares on the market.
While the NYSE still has a physical trading floor on Wall Street in New York City, the Nasdaq is entirely electronic. In order to trade, market participants connect to the NASDAQ exchange infrastructure through their brokers or direct market makers. These DMMs take the other side of investor orders, buying when investors are selling and vice versa, to create liquidity on the exchange. They also run opening and closing auctions to promote price discovery.
The NASDAQ is an independent registered national securities exchange, and its market makers, which are financial firms that act as brokers or dealers for specific securities, are required to have sufficient resources to cover their trades. Market makers also have to follow strict risk management practices, including setting up margin accounts with brokerages and maintaining a sufficient net worth.
The Nasdaq charges various fees to users of its system, from the large tech companies that pay various listing fees to individual investors who pay transaction fees on their trades. Its four main business lines are corporate services, information services, market services and technology services. In 2016, the company’s revenue from corporate services and market services totaled $1 billion. Its other revenue streams come from information services and from the clearing services it charges for each trade.