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What in the world
is Nasdaq?
By Laura
Bruce • Bankrate.com
When watching CNBC broadcast live from the trading
floor of the New York Stock Exchange, you can't help but notice
all those guys and gals in bad blazers running around like mad --
yelling, grabbing phones, and jotting stuff on notepads.
Cut to that same CNBC reporter at Nasdaq headquarters
and he's standing in front of a calm, colorful electronic board
featuring the names and logos of some of America's best-known tech
companies, including Intel, Microsoft, Cisco, Sun Microsystems,
and just about every "hot" IPO of the past several years. The reporter
doesn't have to shout -- in fact, the only person near is the photographer.
It's not just the frenetic pace and yelling that separates
Nasdaq from the NYSE. Last year, the technology-heavy Nasdaq Composite
Index racked up its biggest-ever yearly gain -- more than 85 percent
compared to a 24 percent return for the old school Dow Jones Industrial
Average.
Started when the SEC asked the National Association
of Securities Dealers (NASD) to better the over-the-counter (OTC)
securities market, Nasdaq has been around since 1971. It is the
fastest growing stock market in the U.S., breaking its own records
year after year.
The Nasdaq is a "competing dealer market." That means
market makers (brokers from independent brokerage houses, such as
Merrill Lynch and Goldman Sachs or Electronic Communication Networks
or, ECNs, such as Knight Trimark and Archipelago) use their own
capital, research, and resources to represent a stock. Independent
dealers compete for investor orders and the dealer who buys and
sells out of inventory determines the price the average retail investor
gets when buying or selling a stock.
Trading is done through a massive computer and telecommunications
network -- information is broadcast to more than 500,000 computer
terminals worldwide. When you place an order (whether you're buying
or selling), your broker goes to the computer and checks all the
Market Makers to get you the best price. The average Nasdaq stock
has 11 market makers risking and investing their firm's own
money.
Unlike Nasdaq, the NYSE and the American Stock Exchange
(which is owned by Nasdaq) are "auction markets." Trades are executed
in a physical place -- the floor of the exchange -- rather than
over a computer network. Each listed stock is assigned to a specialist
who manages the auction process on the floor and all orders for
that particular stock go through him. Exchange members shout their
buy and sell orders at the specialist, hence all that noise in the
background.
Nasdaq has recently been making noise of its own --
1999 marked its fifth consecutive year of record gains. The market
value of the 4,829 companies listed on Nasdaq was $5.2 trillion,
up over 100 percent from 1998. And, for the first time in its history,
Nasdaq stocks were included in the dowdy Dow Jones Industrial Average:
Microsoft and Intel made it in late last year. Now that's something
to shout about.
-- Posted: Feb. 9, 2000 |
