What is the Nasdaq Stock Exchange?
The term Nasdaq is an acronym that refers to the National Association of Securities Dealers Automated Quotations (NASDAQ). It is the second-largest stock exchange in the world, measured by market capitalization and trading volume, and it is the home for the equity instruments of many of the world’s largest companies.
The Nasdaq started operating in February 1971. It provides data on stock prices and facilitates a venue for broker-dealers to exchange securities. Over time, this exchange became a go-to institution for thousands of companies that have found a way to raise capital cheaply and easily, regardless of their size.
Same as other exchanges, the Nasdaq imposes some minimum listing requirements that need to be met for companies to offer shares to the public. All of the trading within the Nasdaq occurs electronically.
This makes it different from other exchanges like the New York Stock Exchange (NYSE), where a hybrid model prevails with human traders still having a presence on the trading floor to oversee the exchange’s operations and execute transactions on behalf of the institutions they represent.
The word Nasdaq in financial jargon can refer either to the exchange or the well-known Nasdaq Composite or Nasdaq 100 indexes, both of which track the performance of the largest companies listed in the exchange.
More than 3,000 companies list their shares on the Nasdaq. In part because of the way the Nasdaq has embraced technological innovation in its trading platform, the stock exchange has attracted many of the world’s leading companies in the tech sector, as well as businesses in other cutting-edge industries like biotechnology and renewables.
How Does the Nasdaq Stock Exchange Work?
The Nasdaq stock exchange works through a network of computers and technological infrastructure that allows stock trading to happen electronically. This fully automated system links various market participants, including individual investors, brokerage firms, and market makers.
Companies that want to have their stocks listed on the Nasdaq must meet certain financial, governance, and liquidity standards before their stocks can start trading on the exchange.
Some of the minimum requirements to be listed in the Nasdaq Global Select Market include the following:
- Aggregate pre-tax earnings exceeding $11 million in the past three fiscal years.
- Positive cash flows exceeding $27.5 million in the past three years combined.
- Minimum revenues of $110 million in the most recent fiscal year.
- The minimum bid price of $4 per share.
- Market capitalization above $550 million in the past 12 months.
Once a stock is trading on the Nasdaq, interested buyers place bids indicating the highest price they’re willing to pay for shares of that stock while interested sellers place asks indicating the lowest price they’ll accept to sell their shares.
The Nasdaq’s electronic systems match up buyers and sellers directly whenever bids and asks overlap. If there’s more interest in buying rather than selling a particular stock, bids may have to move higher to match up with asks before trades can occur.
Having an automated system has allowed the Nasdaq to shorten the time it takes for buyers and sellers to connect, as they no longer have to search manually for counterparties.
Electronic systems have also reduced the bid-ask spreads for most Nasdaq-listed stocks, benefiting investors by reducing a key component of trading costs.
Major Sections of the Nasdaq
The Nasdaq exchange is divided into three different tiers. This is a summary of the differences between those tiers in terms of their listing requirements:
|Nasdaq Global Select Market
|The Global Select Market sets the bar high for companies seeking listing, and it is reserved for the largest companies with excellent liquidity and strong corporate governance.
Some of these requirements were already mentioned above.
|Nasdaq Global Market
|The Global Market has lower standards for listing, enabling many mid-sized growth companies to have their stocks traded.
For example, the minimum income required for companies to be eligible is $1 million in the past year or two of the three prior fiscal years. Meanwhile, the minimum stockholder equity is $30 million for this segment compared to $55 million for the Global Select segment.
|Nasdaq Capital Market
|Companies with market caps below $50 million can be more easily listed in this segment, which has the least stringent listing requirements of the three tiers.
The minimum bid price for shares listed in the Nasdaq Capital Markets segment is $2 as long as the company’s total market value for listed securities exceeds $50 million and its stockholder’s equity is above $4 million.
Nasdaq Trading Hours and Holidays
The Nasdaq stock exchange’s regular trading hours go from 9:30 AM to 4:00 PM Eastern Time, Monday through Friday. Outside of those hours, the exchange also offers pre-market trading from 4:00 AM to 9:30 AM as well as after-hours trading from 4:00 PM to 8:00 PM.
The Nasdaq is closed for official market holidays, including:
- New Year’s Day
- Martin Luther King, Jr. Day
- Washington’s Birthday
- Good Friday
- Memorial Day
- Independence Day
- Labor Day
- Thanksgiving Day
- Christmas Day
If Christmas Eve or the Friday after Thanksgiving falls on a weekday, the Nasdaq will also close early at 1:00 PM Eastern Time on those days.
In addition to official holidays, the Nasdaq may also declare a trading halt when necessary to maintain fair and orderly market operations.
These halts give the exchange time to disseminate important news and information that could impact stock valuations. Trading halts are typically short, lasting just a few minutes, but can occasionally be in place for an hour or more.
So, in summary – the Nasdaq offers pre-market and after-hours trading to complement its 6.5-hour regular session on weekdays, and it closes for 9 major US holidays as well as occasional special closures that are needed to protect the market’s integrity – i.e., the 9/11 terrorist attacks.
Top Companies Listed on Nasdaq
Many of the world’s most innovative companies trade on the Nasdaq stock exchange. For instance, some prominent technology companies listed on the Nasdaq include Apple, Microsoft, Amazon, Facebook, and Alphabet.
Top biotech companies like Amgen, Gilead Sciences, and Vertex Pharmaceuticals have also listed their equity instruments in the exchange.
In addition, some financial services giants have chosen to list on the Nasdaq as well, including TD Ameritrade and E*Trade Financial Corporation. Even some prominent consumer products companies like Starbucks, Costco, and Kraft Heinz trade on the tech-heavy Nasdaq rather than the more traditional New York Stock Exchange (NYSE).
Who Owns Nasdaq Exchange?
The Nasdaq Stock Exchange is owned and operated by Nasdaq Inc. A US-based, publicly traded company that also owns the Nasdaq Nordic and Nasdaq Baltic Exchanges.
This company provides access to its marketplace to companies from across the world, sells its market data to financial institutions and investors, and manages the popular Nasdaq 100 and Nasdaq Composite stock indexes.
How the Nasdaq Makes Money?
Nasdaq Inc. generated total revenues of $6.22 billion during the 2022 fiscal year. The largest share of that revenue came from market platforms. This segment includes the revenue generated by the firm’s exchanges and marketplace facilities.
The second largest revenue stream for the business is the Capital Access Platform, which generated $1.68 billion in revenue during this same year. This segment accounts for all revenue generated for providing access to the exchange’s data in real-time to financial companies across the globe.
It also includes the revenues generated via the collection of listing fees and commissions to companies that wish to list their financial instruments on the many exchanges operated by Nasdaq Inc.
New York Stock Exchange vs. Nasdaq
The Nasdaq and New York Stock Exchange (NYSE) are the two largest stock exchanges in the world.
Here is how they compare to one another in various aspects:
New York Stock Exchange (NYSE)
The Nasdaq opened in 1971 as the world’s first electronic stock market.
The NYSE was founded in 1792 under the Buttonwood Agreement and pioneered floor trading. Later, it embraced electronic trading as well.
As of July 2023, its market cap stood at nearly $25 trillion.
As of the same date, the Nasdaq’s total market cap was approximately $22 trillion.
Number of Listed Companies:
Over 2,300 companies have listed their securities on the NYSE.
By March 2022, more than 3,700 companies were listed on the Nasdaq exchange.
The NYSE lists some of the world’s largest non-tech companies like Walmart, Coca-Cola, and Boeing.
The Nasdaq is best known for its tech listings, including Apple, Amazon, and Microsoft.
NYSE uses a hybrid model that includes advanced electronic trading systems and floor brokers.
Nasdaq relies solely on electronic trading systems.
The Nasdaq Exchange is owned by Nasdaq Inc. (NDAQ)
The NYSE is owned by Intercontinental Exchange (ICE).
Nasdaq Inc. is headquartered in New York. The Nasdaq exchange does not have a physical location as it is an electronic marketplace. However, the company does own a venue called the MarketSite, located in Times Square, New York for marketing purposes primarily.
The NYSE’s floor operations take place in its Iconic building located on Wall Street in New York City.
With thousands of companies listed and trading via its electronic systems, the Nasdaq plays a key role in incorporating technology into financial markets.
Its fully automated trading platforms allowed electronic trading to expand greatly, while its data and transaction execution capabilities are continually improved to offer a robust infrastructure to both broker-dealers and investors.
Is Nasdaq a US exchange?
What are the three Nasdaq markets?
- Comparison of the number of listed companies on the New York Stock Exchange (NYSE) and Nasdaq from 2018 to 1st quarter 2023, by domicile (Statista)
- Initial Listing Guide (NASDAQ)
- Trading Hours for the Nasdaq Stock Markets (NASDAQ)
- TD Ameritrade Official Website (TD Ameritrade)
- Nasdaq, Inc. (NDAQ) Stock Price, Quote, News & History (NASDAQ)
- SEC Filing – Nasdaq, Inc. (NASDAQ)
- Comparison of the New York Stock Exchange (NYSE) and Nasdaq from January 2018 to July 2023, by market capitalization of listed companies (Statista)
- Number of Listed Companies (The World Federation of Exchanges)