The New York Stock Exchange (NYSE), the oldest stock exchange in the United States located in New York, is the world's largest equities-based exchange. Nasdaq, a global electronic marketplace, lists technology giants such as Apple and Google. NYSE uses specialists, while Nasdaq has multiple market makers. Currently, NYSE is under the ownership of Intercontinental Exchange (ICE), while Nasdaq is a division of Nasdaq, Inc. Both exchanges became publicly traded companies in the 2000s.
Basics
The New York Stock Exchange and Nasdaq are the primary focus when it comes to discussing the stock market. Together, they handle the majority of stock trading, both in North America and worldwide. These exchanges, NYSE and Nasdaq, have unique operations and lists of equities, which are essential to grasp when understanding stock exchange functions and stock trading mechanics.
Historical Overview
NYSE
The New York Stock Exchange in New York City is the world's oldest and largest equities-based exchange. Founded in 1792 under the Buttonwood Agreement, it initially had just five securities, with the Bank of New York being the first listed company. In 2006, it became a publicly traded entity (NYSE: NYX) after merging with Archipelago Holdings. ICE, the current parent company of the NYSE, acquired NYSE Euronext in 2013 after the merger between NYSE and Euronext in 2007.
NASDAQ
Nasdaq, headquartered in New York, is the world's first global electronic marketplace for securities trading. It operates 18 markets, including equities, options, fixed income, derivatives, and commodities, alongside one clearinghouse and five central securities depositories. Over 130 organizations in more than 50 countries use its advanced trading technology.
Established in 1971 as a subsidiary of FINRA (formerly NASD), Nasdaq underwent restructuring in 2000, with shares sold to its members. In 2005, it began trading on the Nasdaq Stock Market after a secondary offering. In 2006, NASD fully divested its Nasdaq ownership, making Nasdaq an independent registered national securities exchange. Concurrently, NASD and NYSE Regulation merged to form FINRA, overseen by the SEC.
Digital Age Trading
With the advent of online trading, the physical address of a stock exchange has become less important in determining its location and more focused on where its orders are executed. The NYSE maintains a physical trading floor on Wall Street in New York City but also processes a significant portion of trades through its data center in Mahwah, N.J. In contrast, Nasdaq operates entirely electronically, without a physical trading floor. Investors engage directly with market makers, connecting to a centralized exchange infrastructure for trading.
Trading Mechanisms
The NYSE and Nasdaq differ in how they facilitate trades. At the NYSE, stock prices are determined through auctions at market open and close, with direct transactions between participants. In contrast, the Nasdaq relies on dealer-mediated trades.
The NYSE allows continuous trading from 9:30 a.m. ET with orders accepted starting at 6:30 a.m. ET. Orders are matched, pairing the highest bid with the lowest ask. For the closing auction, orders are accepted until 3:50 p.m. ET, and cancellations are permitted until 3:58 p.m. ET.
Listing Tiers and Fees
- Nasdaq offers different listing tiers. The Nasdaq Capital Market has the lowest entry requirements, with an initial fee of $50,000 and subsequent annual fees ranging from $47,000 to $84,000.
- NYSE charges a flat fee of $295,000 for listing, with an additional $5,000 for an extra class of common shares. Annual fees are calculated per share, requiring $0.001215 per share or a minimum of $80,000 annually, whichever is higher.
Market Makers in NYSE and Nasdaq
Both the Nasdaq and NYSE employ market makers to bolster liquidity and maintain fair trading environments, albeit with distinct approaches. At Nasdaq, market makers hold inventories of stocks, facilitating transactions with individual customers and other dealers. They provide bid and ask prices, promoting competitive pricing with the active involvement of over 500 firms. This competition ensures that buyers and sellers receive optimal prices.
To ensure market stability, the NYSE employs designated market makers (DMMs), formerly referred to as specialists. DMMs have broader responsibilities, acting as the primary human point of contact on the NYSE trading floor for listed companies. They play a crucial role in maintaining equilibrium, trading against imbalances, overseeing opening and closing auctions, and using both human input and algorithms to facilitate price discovery during peak trading times. In 2019, DMMs contributed 17% of liquidity in NYSE trading, underlining their significance in the exchange's operations.
Company Reputations
The NYSE and Nasdaq hold different reputations among companies. While a stock exchange doesn't sway investors, it matters for a company's image.
Nasdaq is known for tech and innovation, housing digital and biotech firms, making its stocks appear growth-focused and volatile. In contrast, the NYSE attracts stable, established companies, including blue chips and industrials with multi-generational legacies.
Today, Nasdaq hosts giants like Apple, Google, Microsoft, Meta (formerly Facebook), Amazon, and Intel. NYSE also caters to younger or smaller firms through cost-effective direct listings, a less-expensive IPO alternative.
Conclusion
The NYSE and Nasdaq, both major global equities markets, have distinct operational differences. While these differences may not directly impact your stock choices, understanding how these exchanges operate provides insights into trade execution and market functioning.