It All Happens in the Exchanges
Back in the 1990s, it became clear that individual investors were becoming serious players in the world of Wall Street. With the advent of online investing and an aggressive play for smaller investors by the two leading stock markets in the United States (the NYSE and the NASDAQ), buying and selling investments has gotten easier and less expensive.
The markets that make up what is known in general as the stock market are the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). Other cities like Boston, Chicago, Philadelphia, Denver, San Francisco, and Los Angeles have exchanges, as do major international centers like London and Tokyo.
Competition, both domestic and global, continues to make stock transactions more transparent and more accessible to all investors. By understanding how the different stock markets work and compete for your business, you'll be better equipped to succeed in the investing world.
The NYSE (known to insiders as the Big Board”), now formally known as NYSE Euronext, is home to prominent industry players like Wal-Mart, General Electric, and McDonald's. The Big Board is not for little-league players. Among other requirements for inclusion on the NYSE, a company must have at least 1.1 million publicly traded shares of stock outstanding, with a market value of at least $100 million. It must show pre-tax income of at least $10 million over the three most recent fiscal years, and have had earnings of at least $2 million in the two most recent years. And seats on the exchange don't come cheap, either. The lowest amount paid for a seat, way back in 1871, was $2,750; the highest price paid for a single seat was $4 million paid in December 2005.
The NYSE, with the distinction of being the oldest stock exchange in the United States, is housed in a 36,000-square-foot facility in New York City's financial district. In 2007, the NYSE combined with the European stock exchange Euronext, to form NYSE Euronext, a global milestone for the trading community. This market broke a new record, trading more than 5 billion shares in a single day: on August 15, 2007, trading volume hit an unprecedented 5,799,792,281 shares.
More than 200 years ago, a group of twenty-four Wall Street merchants signed a document called the Buttonwood Agreement. The agreement laid out all the rules for buying and selling shares of public stock, including the price for a trading seat. Their rules eventually transformed into today's rules of trading and the foundation of the New York Stock Exchange.
Not content to rest on its laurels, NYSE Euronext acquired the American Stock Exchange (AMEX) in 2008, and fully integrated trading began in early 2009. Now this combined exchange offers expanded trading capabilities, including stock options, exchange-traded funds, and other specialized securities.
When it first launched in February 1971, the NASDAQ hosted only 250 companies. Its first claim to fame: the NASDAQ opened as the first electronic stock market in the world. The exchange hit a milestone in 1996, when its trading volume finally exceeded 500 million shares per day. Now it has become a full-fledged stock market, listing about 3,200 corporations, and it's destined to grow; out of all the U.S. stock markets, the NASDAQ (which is now officially known as the NASDAQ OMX Group) hosts the most initial public offerings (IPOs).
The NASDAQ is attractive to new and growing companies primarily because the listing requirements are less stringent than those of the NSYE, and the costs can be considerably lower. Not surprisingly, you'll find a lot of technology and biotech stocks listed on this exchange, as these types of companies typically fall squarely in the aggressive growth category. In fact, the NASDAQ boasts more than a $2 trillion total market value in the IT sector.
Unlike the auction style of the NYSE, the NASDAQ works with more than 600 securities dealers called market makers. These market makers compete against one another to offer the best bid/ask prices or quotes over the NAS-DAQ's complex network, joining buyers and sellers from all over the world. The NASDAQ dealers help make it easier to buy and sell stocks by helping to ensure their liquidity (making sure there's a ready market).
The NASDAQ is an OTC market, which means its securities are traded through telephone and computer networks as opposed to an exchange floor. NASDAQ is also the world's largest stock market and, on average, trades more shares in a day than any other exchange.