A History of the NASDAQ

The NASDAQ Stock Market first started trading in 1971, and at the time, it was the first electronic stock market in the world. Initially, it was just a quotation system, with no way of performing electronic trades. The NASDAQ stock market assisted in lowering the difference between the bidding price and asking price of a stock (i.e., the spread); however, this made it unpopular with brokerage companies as they made the majority of their money on the spread. Eventually, the NASDAQ began to assume the majority of the major trades that had once been executed through the over-the-counter (OTC) trading system, although there are many securities that are still traded in this way.

Even in 1987, the NASDAQ exchange was referred to in the media and in the Standard & Poor’s Corporation monthly stock guides as OTC. Over the years, the NASDAQ has become more of a stock market through the addition of trade and volume reporting as well as automated trading systems. The NASDAQ was also the United States’ first stock market to introduce online trading, and therefore attracted several new growth companies such as Apple, Microsoft, Oracle, Cisco and Dell, which helped to modernise the IPO. The main index of the NASDAQ is the NASDAQ Composite, an index that has been published since the exchange was established, and its exchange traded funds track the NASDAQ 100. This index was created in 1985 together with the NASDAQ 100 Financial Index to track the biggest 100 companies in terms of their market capitalisation.

In 1992, NASDAQ was joined together with the London Stock Exchange, and formed the first link of securities markets to be intercontinental; and in 2000, the National Association of Securities Dealers left the NASDAQ Stock Market in order to form a publicly traded company. The status of the NASDAQ stock market changed in 2006, from a stock market into a licensed national securities exchange, and in 2007, its merger with leading Nordic operator OMX led to an expansion of NASDAQ’s global footprint and another change of name, to the NASDAQ OMX Group. With its headquarters  in New York, there are 26 markets operated by NASDAQ OMX – mainly equities, but also options, derivatives, fixed income and commodities. It also operates three clearing houses and five central securities depositories in Europe and the United States, with its state-of-the-art technology being used in 50 countries and 70 different exchanges. In order to be eligible to be listed on this exchange, the company must have a registration with the United States Securities and Exchange Commission (SEC), and it must have a minimum of three market-makers (financial companies that act as dealers or brokers for specific securities). They must also comply with minimum requirements regarding capital, assets, shareholders and public shares. Although there was speculation in 2011 that NASDAQ OMX would attempt to take over NYSE, this has not yet materialised.

Market Tiers of the NASDAQ

There are three different market tiers on the NASDAQ Stock Market:

• Capital Market (small cap) – This equity market is designed for those companies that only have a relatively small level of market capitalisation. There are much less stringent listing requirements for these small cap companies than those required for bigger companies listed on other NASDAQ markets that have a much higher market capitalisation.
• Global Market (mid cap) – This is composed of stocks representing the NASDAQ Global Market. This consists of 1,450 stocks that meet the strict liquidity and financial requirements set by NASDAQ, as well as corporate governance standards. The Global Market is much less exclusive than the Global Select Market.
• Global Select Market (large cap NASDAQ-GS) – This index is weighted by market capitalisation, and is composed of international and US-based stocks that are representative of the Global Select Market Composite. The Global Select Market is made up of 1,200 stocks that comply with the strict liquidity and financial requirements set by NASDAQ, as well as the corporate governance standards. This is a market that is distinctly more exclusive than the standard Global Market, and in October every year, the NASDAQ Listing Qualification Department is charged with reviewing the Global Market Composite in order to decide whether any of its stocks are now eligible to be listed on the Global Select Market.