NASDAQ – National Association of Securities Dealers Automated Quotation

NASDAQ (abbr. from eng. National Association of Securities Dealers Automated Quotation — Automated quotes the National Association of securities dealers) American OTC market, specializing in high-tech stocks (electronics manufacturing, software and t. p.). One of the three major U.S. stock exchanges (along with NYSE and AMEX), is a subsidiary of the NASD, monitored SEC. The owner of stock — American company NASDAQ OMX Group. In addition to the NASDAQ, owns more 8 European exchanges.

Based 5 Feb 1971 year. The name comes from an automatic system for getting quotes, marked the beginning of the exchange. At the moment on the NASDAQ stock trading more 3 200 companies, including Russian.

The history of stock market

The background. NASD

In 1938 year, the U.S. Congress approved a document, dubbed "the Maloney Act" (Maloney Act). This act required all brokers, not members of any exchange (which is much more, than brokers, members of stock exchanges), to join SRO, which will be responsible for the regulation of the OTC market. Next year this SRO (Self-Regulatory Organization) was formed. She was named the National Association of Securities Dealers, or abbreviated as NASD — national Association securities dealers.

NASD required:

  • to adopt rules and procedures to prevent fraudulent and manipulative actions
  • to do everything possible to prevent violations by its members of the securities laws of, norms or rules of the NASD itself
  • to be fair and equitable principles of trade
  • to protect the interests of investors and the public.

The emergence of NASDAQ

In 1968 year at the initiative of Congress, the Commission on securities and stock exchanges conducted a special study about the "unsatisfactory state of the OTC securities market". The fact, the financial statements for companies often were absent or were published irregularly, and he OTC market, despite the relatively high profit, had low liquidity.

The results of the investigation, the Board, The national Association of securities dealers, (NASD) was entrusted with the systematization and automation of the entire retail market securities.

In the late 60-ies started active development of computer technology, which allowed to solve this problem. In the end, was created off-exchange electronic trading system securities the NASD Automated Quotations (NASDAQ). The first transaction on the NASDAQ were concluded 8 Feb 1971 year.

Initially, the NASDAQ was only an information base, the "Bulletin Board", which was broadcast averaged, and then the best dealer quotes OTC market.

The development of stock exchanges

In 1982 year us stocks, corresponding to a higher requirements of the listing, were allocated in the NASDAQ National Market (NNM). First of all, this was done to screen out small companies, seeking to become listing system (and there were a lot). To achieve this, the requirements for participation of companies in activities on the National Market was tightened. Only 1990 year formed the second group shares, presenting companies with a small capitalization (about 40 % of the total number of companies), — Nasdaq Small Cap Market (SCM).

In 1984 year on the exchange, a system of performance small order — Small Order Execution System (SOES). This system gave the possibility to execute orders of a small volume against the best quotations of market makers, seriously expanded trade opportunities.

In 1990 year launched trading system SelectNet, which increased opportunities for finding and executing transactions at the best price and more, than is possible with SOES.

The functioning of the exchange

While working

Regular Nasdaq trading session begins at 9:30 in the morning and ends in 16:00 PM (East coast time USA). The trading is conducted on platforms of SuperMontage and Primex. After finishing the regular session, it is possible to conduct trades to 20:00 after the trading session through the platform SelectNet.

The trading scheme

Scheme, which are traded on the NASDAQ, different from the traditional exchange. Multiple market makers compete for order execution client. At the moment on the stock exchange there are about six hundred. The main function of the market maker in NASDAQ (as well, as in the NYSE) — continuous display of quotations and the liquidity on a specific group of stocks while trading. That is, the market maker must execute an order at the expense of own reserves in case of absence on the market of the relevant opposite orders. Some market makers support hundreds of shares, other — a few thousand. In the end, on average, one type of stock liquidity support fourteen market makers, and others up to fifty. Quotation system of NASDAQ under this action is the result of quotation correlation, provided by market makers and alternative trading systems.

Markets NASDAQ

NASDAQ National Market (NNM)

NASDAQ National Market (NNM) — the market for the most actively traded on the NASDAQ securities of the largest companies-issuers. The market has been allocated in 1982 year. Now it turns more 4 000 securities. For listing on the NASDAQ National Market the company must meet the strict criteria of the financial situation, capitalization and corporate governance.

NASDAQ Nasdaq Small Cap Market (SCM)

The Nasdaq Small Cap Market, the NASDAQ market for shares of small cap. In listing the SCM includes more than 1000 securities.

A computer trading system

SOES

SOES (Small Order Execution System) is a system of performance small orders. SOES was designed for day traders, trading on the NASDAQ market packages to 1000 stock. It allows small investors to access the Nasdaq and its market makers. The system was launched after the stock market crash 1987 year. Its main task was to ensure the liquidity of the market for ordinary investors. SOES allowed individual investors to make trades in shares on the NASDAQ with institutional investors, constantly put on those stock their quotes for buying/selling.

The participation of market makers in SOES for all the shares on Nasdaq became effective in 1988 year. The reason for this was that, during the stock market crisis 1987 year, many small investors are unable to access market-makers ' quotations. Up to this point brokers for the execution of client orders had to call the market makers on the phone, and since during the market crisis to get through to market makers, it was almost impossible, many client orders remained without execution. The system of SOES was to provide individual customers access to the Nasdaq market, and means to strengthen its credibility.

At the moment the system of SOES on the stock exchange is not being used.

SelectNet

In 1988 year on the NASDAQ exchange was put into operation the system of confirmation of transactions (Order Confirmation Transaction service — OCT). The system allowed to get rid of the problems of transfer orders via phone and placing orders in minutes quick market movement. Now orders are transmitted electronically via OCT, and in the presence of counter orders are executed automatically. In 1990 year OCT was renamed SelectNet. During this period, there are more options for negotiation between the seller and the buyer, but it is also possible to route the order to all market makers at the same time.

ECN

SuperSOES

SuperMontage

SuperMontage is a new display system kotirovki movement orders. She was officially launched in action 7 Oct 2003 year and in Europe, and 14 Oct 2003 in the US. System SuperMontage replaced SuperSoes platform is outdated and is currently used for stock trading NASDAQ National Market and Nasdaq Small Cap Market. In addition, SuperMontage provides access to trading stocks, traded on other exchanges USA.

The website

In 1999 year at the exchange website was hacked by a hacker group called the United Loan Gunmen. Hackers left on the website note, where reported, what the hack was carried out in order, to "stocks rebounded sharply upwards, making all investors happy, and then, we hope, all investors will hang on the bumpers of the Mercedes sticker "Thank you ULG!"". In addition, hackers have created a e-mail account on the server NASDAQ. During this incident, no violation of the financial transaction has not occurred.

The transaction

The first attempt to buy the LSE

In March 2006 the year, the NASDAQ made a first attempt to acquire the LSE (London stock exchange). However, the deal did not materialize. According to the guidelines of the London stock exchange, NASDAQ has offered a much lower price from the calculation $17,42 per share. After the negative response from LSE, NASDAQ has been buying its shares and in less than two months became the largest shareholder of the LSE, after collecting the package from 25,1 % stock.

The second attempt to buy the LSE

20 Nov 2007 year Nasdaq acquired an additional stake in the LSE and have increased their share in it until 28,75 %. After that, NASDAQ announced the intention to buy the LSE, offering 2,7 billion pounds, ($5,1 billion), that is the price 12,43 pound per share. But after 7 hours Nasdaq got rejected from LSE. Executive CEO of LSE, Clara Fers explained, that Nasdaq "has failed to appreciate the significant growth performance and prospects of the group as an independent company".

NASDAQ and OMX

25 may 2007 year Nasdaq agreed to acquire its Swedish rival OMX for 25,1 billion SEK (3,7 billion dollars). Thus, she finally goes to the European market after two failed attempts to acquire London stock exchange (LSE). After the merger, she will be the third stock exchange International Exchange St. Petersburg (IXSP) in Saint-Petersburg, which was created with the participation of OMX.

The combined company will be called NASDAQ OMX Group. NASDAQ shareholders will receive 72 % stock new exchange, and the Swedes will get 28 %. Listing on the exchange will have a more 4 000 companies, including Volvo, Nokia and Microsoft. Their total capitalization will reach 5,5 trillion dollars.

The NASDAQ indexes

General information

Like any other trading system, the NASDAQ has a number of indexes of business activity. Currently listed on the NASDAQ stocks not just tech companies, therefore, there is a whole system of indices, each of them reflects the situation in relevant sectors of the economy. There are now thirteen of these indices, based on the quotation of securities, traded in the electronic system NASDAQ.

The Nasdaq Composite Index

The index of technology companies NASDAQ Composite peaked in March 2000 year, then there was a collapse

The Nasdaq Composite Index is the NASDAQ composite index. It includes more than five thousand companies (as an American, and foreign), which are listed on the NASDAQ. Shares of any of them influence the index in proportion to its market value. The market value is calculated is very simple: the total number of shares of the company multiplied by the current market value of one share. The calculation of this index began 5 Feb 1971 year level 100, in 2000 year he even reached five-thousand mark, but after the General decline in the market computer and information technology is now in the district up to two thousand points.

Nasdaq National Market Composite index

The Nasdaq National Market Composite are essentially similar to the Nasdaq Composite index with the difference, what compiled on the basis of the shares from listing on the National market (National Market).

Nasdaq-100 Index

NASDAQ-100 index, which is calculated based on market capitalization 100 the largest non-financial companies, listed on the NASDAQ.

Other indexes NASDAQ

In addition to the above there are other indexes, for example:

  • The Nasdaq Bank Index for the banking sector
  • NASDAQ Biotechnology Index for medical and pharmaceutical companies
  • The Nasdaq Computer Index for companies, developing software and hardware for computers
  • The Nasdaq Financial Index for the financial sector, in addition to banks and insurance companies
  • Nasdaq Industrial Index — for industrial companies
  • Nasdaq Insurance Index — for insurance companies
  • The Nasdaq Telecommunications Index for telecommunication companies

And so on.

Market makers on the NASDAQ

Market makers are called independent dealers, competing for the right to service requests of investors to buy or sell shares. The client is plenty to choose on the NASDAQ market your order is ready to perform about 530 registered market makers and about the same number of firms for entering applications into the system (these firms, unlike market makers, no obligation to simultaneously expose quotations on purchase and sale of shares). It is worth noting, what do market-makers receive orders from investors, and from brokerage firms (order entry firms). Investors send orders to the brokerage firms, which for this service charge a Commission . As regards market-makers, they are brokerage firms do not charge a Commission, and earn exclusively due to exchange rate difference between purchase price and sale. However, large institutional investors do not use the services of brokerage companies, and trade directly with market makers, saving, these, considerable amount of money on commissions.

Market makers on the electronic NASDAQ market have several responsibilities:

  1. Engaged in the execution of orders, received from clients for their brokerage company (in the process of fulfilling a customer order the market maker needs to remember, what the execution price should be the best at the time of the transaction).
  2. Doing most of the work, they do not forget about their own interests and the interests of the firm (in addition to customer service, they have a vested interest in generating revenue). Inside spread, from the market-maker the opportunity to move stocks in one direction or another.
  3. To ensure liquidity and continuity exhibited bilateral quotes, thereby forming a bilateral market. In contrast to the auction market NYSE, on the NASDAQ market, the market maker permanently include their names in the lists of buyers and sellers of stock, moreover, the number of shares shall be not less than 1000 (100 or 500 for small-cap stocks). In accordance with the rules of the exchange, each market-maker, exposing the bilateral EUR / USD, must not forget that, the prices of supply and demand should vary within reasonable limits, thereby ensuring the liquidity of the market.

Thus, NASDAQ is essentially a dealer market, which is based on the principle of moving quotes (quote-driven system). There may appear a reasonable question: and who are the market makers on the exchange? The largest market makers on the NASDAQ represent mainly large financial company on securities, occupying leading positions on the main Playground USA – NYSE. Among the most famous we can mention: Knight Securities, Merrill Lynch, Salomon Smith Barney Inc, Pierce, Morgan Stanley, Schwab Capital Markets, Goldman Sachs&Co., Spear, Leeds&Kellogg, Lehman Brothers Inc., Credit Suisse First Boston Corp., Fenner etc.

Electronic platform NASDAQ

NASDAQ offers three levels of service:

Level 1 NASDAQ reflects mainly the domestic market, namely, we offer the highest purchase price and lowest sale prices, which form the best current market price.

Level 2 NASDAQ shows detailed quotes, includes a list of real market makers or firms, as well as the price of buying and selling ECN, that form this domestic market. It also allows you to enter orders in the system SOES (Small Order Execution System) and SuperMontage (the combined SOES and SelectNet).

Level 3 NASDAQ provides all the above operations and, in addition, through it the market-makers can set their prices to buy and sell.

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