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Difference btw nyse & nasdaq

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  • 1. 1 (Project) BBA-4 Foundation University Institute Of Engineering and Management Sciences Course: Financial Institutions and Markets Programme: BBA (Hons)Submitted By: SaifUllah Malik Ibraheem Ansar Bilal Ahmad Raheem Ansar Muhammad Hussain Khalid Razzaq Abdul Basit Arslan PervaizSubmitted To: Mr Naveed Anjum
  • 2. 2In the name of AllahThe Most Gracious, The Most merciful
  • 3. 3 Surah AL-Baqarah“Ho sakta ha ka aik cheez tumhe nagawar ho aur wahi tumhareliye behtar ho. Aur ho sakta ha ka aik cheez tumhe pasand ho aur wohi tumhare liye buri ho. Allah janta ha tum nahi jante” Verse # 216
  • 4. 4 MOTTO (GROUP) *YOU WERE BORN WITH WINGS, WHYPREFER TO CRAWL THROUGH LIFE – (RUMI) *TO WHAT HEIGHT CAN I NOT RISE * LIVE EVERYDAY LIKE THERE’S NO TOMMOROW * TAKE EVERYTHING I CAN & MORE QUOTE *OF ALL THE THINGS I HAVE LOST MISS MY MIND THE MOST
  • 5. 5 ACKNOWLEDGEMENT We at first bow our head before Allah Almighty who bestowed his countless blessings upon us, guided us towards the way of success, and blessed us with courage of facing problems and obstacles. We have no words at our command to express our deepest sense of gratitude of All Mighty Allah who enabled us to complete our project against all odds. We wish to place our deep sense of thanks to Mr. Naveed Anjum who guided us to complete this project in its true sense. His valuable experience and knowledge of the field removed the difficulties at all crucial junctures. We acknowledge untiring efforts of our teacher who has been a beacon of light for us. He broadened our horizon by allowing us to research at our own and gave us free will to right whatever we wanted to.
  • 6. 6Project
  • 7. 7 TABLE OF CONTENTSTOPICS PAGE NO’SExecutive Summary………………………………………………………….1Stock Trading Occurs………………………………………………………...2National Stock Exchanges……………………………………………………2Securities Act of 1934…………………………………………………………3Type of Markets …………………………………………………………… 4EXCHANGES. ……………………………………………………………… 4-5HISTORY (NYSE)……………………………………………………………...6Operation………………………………………………………………………7Trading…………………………………………………………………………8Post……………………………………………………………………………..9Super Dot………………………………………………………………………9Single Specialist Market Maker………………………………………………9Commission Broker…………………………………………………………..10Other transactors on the exchangeFloor include the following categories……………………………………..10NYSE Specialist………………………………………………………………..10Types of orders………………………………………………………………...11Actual Physical Paper Book…………………………………………………..12Perception and Cost…………………………………………………………...12Major roles……………………………………………………………………...12HISTORY (NASDAQ)………………………………………………………… 14Dealer’s market…………………………………………………………………16Over-the-counter (OTC) market………………………………………………16Trading schedule……………………………………………………………….17
  • 8. 8Quotes Availability…………………………………………………………….17The Market Maker……………………………………………………………...17Buy and Sell…………………………………………………………………….18Level II Screens………………………………………………………………....19Perception and Cost……………………………………………………………19Nasdaq Markets………………………………………………………………..19NASDAQ Operation…………………………………………………………...19Nasdaq Market Tiers…………………………………………………………..20Some features of the two tiers of Nasdaq……………………………………20
  • 9. 9 EXECUTIVE SUMMARY Whenever someone talks about the stock market as a place where equities areexchanged between buyers and sellers, the first thing that comes to mind is either the NYSE or Nasdaq, and theres no debate over why. These two exchanges account for the trading of a major portion of equities in North America and the world. At the same time, however, the NYSE and Nasdaq are very different inthe way they operate and in the types of equities that trade upon them. Knowing these differences will help you better understand the function of a stock exchange and the mechanics behind the buying and selling of stocks
  • 10. 10Stock Trading OccursIn the United States, secondary market trading in common stock has occurred intwo different ways. 1. The first is an organized exchange, which are specific geographical locations called trading floors, where buyers and sellers physically meet. The trading Mechanism on exchanges is the auction system, which results from the presence of many competing buyers and sellers assembled in one place. 2. The second type is via over-the-counter (otc) trading, which results from geographically dispersed traders or market-makers linked to one another via telecommunication systems. That is, there is no trading floor. This trading mechanism is a negotiated system whereby individual buyers negotiate with individual sellersNational Stock ExchangesIn the United States, there are two national stock exchanges(1) The New York Stock Exchange (NYSE), commonly called the Big Bang and(2) the American Stock Exchange (AMEX or ASE), also called the Curb. Nationalstock exchange trade stocks of not only U.S corporations but also non-Corporations. In addition to the national exchanges, there are regional stockexchanges in Boston, Chicago (called the Midwest Exchange), Cincinnati, San
  • 11. 11Francisco 9called the Pacific Coast Exchange) and Philadelphia. Regionalexchanges primarily trade stocks from the corporation based with in their region.Major OTC MarketThe major OTC market in the United States is Nasdaq (the National Associationof Securities Dealers Automated Quotation System), which is owned andoperated by the NASD (the National Association of Securities Dealers). TheNASD is a securities industry self-regulatory organization (SRO) that operatessubject to the oversight of the SEC. NASDAQ is a national market. During 1998,Nasdaq and AMEX merged to form the Nasdaq-AMEX Market Group, Inc.The NYSE is the largest exchange in the United States, with approximately 3,000companies ‘ shares listed. The AMEX is the second largest national stockexchange in the United States, with more than 750 issues listed for trading.Nasdaq has a greater number of listed stocks but with much less marketcapitalization than the NYSE.Securities Act of 1934According to the Securities Act of 1934. There are two categories of traded stocksListed StocksThe first is exchange-traded stocks, which are also called listed stocks.Nonlisted stocksThe second is OTC stocks, which are also non-exchange traded stocks and are,thereby, by interference, Nonlisted.
  • 12. 12Listing requirementsNasdaq has listing requirements (the Nasdaq National Market and the NasdaqSmall Capitalization Market). Thus the more practical categorization of thesecategories is as follows: 1. Exchange listed stocks (national and regional exchange) 2. Nasdaq listed OTC stocks 3. Non-Nasdaq OTC stocksType of Markets The four Major type of markets on which stocks are traded are referred to as follows: 1. First Market- Trading on exchanges of stocks listed on an exchange. 2. Second Market- Trading in the OTC market of stocks not listed on an exchange. 3. Third Market- Trading in the OTC market of stocks listed on an exchange. 4. Fourth Market- Private transactions between the institutional investors who deal directly with each other without utilizing the services of a broker-dealer intermediary
  • 13. 13EXCHANGESExchange markets are called central auction specialist systems and OTCmarkets are called multiple market-maker systems. Recently however, a newmethod of trading common stocks via independently owned and operatedElectronic Communications Networks (ECNs) has developed and is growingquickly.Stock exchange is formal organization, approved and regulated by the Securitiesand Exchange Commission (SEC). They are made up of members who use theexchange facilities and systems to exchange or trade listed stocks.These exchanges are physical locations where members assemble to trade. Stocksthat are traded on an exchange are said to be listed stocks. That is, these stocksare individually approved for trading on the exchange by the exchange. To belisted, a company must apply and satisfy requirements established by theexchange for minimum capitalization shareholder equity, average closing shareprice, and other criteria. Even after being listed, exchanges may delist acompany’s stock if it no longer meets the exchange requirements.To have the right to trade securities or make markets on an exchange floor firmsor individuals must become a member of the exchange, which is accomplishedby buying a seat on the exchange. The number of seats is fixed by the exchangeand the cost of a seat is determined by supply and demand of those who want tosell or buy seats. In early 2001, there were 1,366 seats on the NYSE, and the costof a seat was $2 million.
  • 14. 14 HISTORY New York Stock Exchange Type Stock exchange Location New York City, New York, United StatesCoordinates 40°42′24″N 74°00′41″WOwner NYSE Euro nextKey people *Marsh Carter is Chairman of the (NYSE) *Duncan Niederauer (CEO)Currency United States dollarNo. Of listings 2,773Market Cap US$25 trillion (2006)Volume US$22 trillion (2006)
  • 15. 15 Indexes (1) NYSE Composite (2) Dow Jones Industrial Average Website www.nyse.com Built/Founded: 1903 Architect: Trowbridge & Livingston; George B. Post Architectural style(s): Classical Revival Governing body: Private 1792 - The NYSE acquires its first traded securitiesNew York Stock Exchange is an equity (stock) exchange located at 11 Wall Streetin lower Manhattan, New York, USA). It is the largest stock exchange in theworld by dollar value of its listed companies securities. As of October 2008, thecombined capitalization of all domestic New York Stock Exchange listedcompanies was US$10.1 trillion. The NYSE is a physical place where traderstrade stocksOperationThe NYSE is operated by NYSE Euro next, which was formed by the NYSEs2007 merger with the fully electronic stock exchange Euro next.The NYSE is an auction-based market where traders meet on the floor of theexchange, using person-to-person, telephone orders or electronic ordersIn the mid-1960s, the NYSE Composite Index (NYSE: NYA) was created
  • 16. 16TradingA specialist is a dealer representing a NYSE specialist firm - one of themain facilitators of trade on the exchangeThe New York Stock Exchange (sometimes referred to as "the Big Board")provides a means for buyers and sellers to trade shares of stock in companiesregistered for public trading.The NYSE is open for trading Monday through Friday between 9:30–16:00 ETOn the trading floor, the NYSE trades in a continuous auction format, wheretraders can perform stock transactions on behalf of investors.They will gather around the appropriate post where a specialist broker, who isemployed by an NYSE member firm (that is, he/she is not an employee of theNew York Stock Exchange), acts as an auctioneer in an open outcry auctionmarket environment to bring buyers and sellers together and to manage theactual auction. They do on occasion (approximately 10% of the time) facilitate thetrades by committing their own capital and as a matter of course distributeinformation to the crowd that helps to bring buyers and sellers together.As of January 24, 2007, all NYSE stocks can be traded via its electronic HybridMarket (except for a small group of very high-priced stocks). Customers can nowsend orders for immediate electronic execution, or route orders to the floor for
  • 17. 17trade in the auction market. In the first three months of 2007, in excess of 82% ofall order volume was delivered to the floor electronicallyPostTrading in stock listed on the NYSE is conducted as a centralized continuousauction market at a designated location on the trading floor, called a post, withbrokers representing their customers buy or sell orders. A single specialist is themarket maker for each stock. A member may be designated as a specialist for thecommon stock of more than one company: that is, several stocks can trade at thesame post. But only one specialist is designated for the common stock of eachlisted company. A specialist for each stock stands at a trading position aroundone of the17 NYSE Posts. Each post is essentially an auction site where an order,bids, offers, arrive.Super DotMost orders arrive from floor brokers and via an electronic delivery systemcalled the Super Dot. Super dot is an electronic order routing and reportingsystem, which links members firms electronically worldwide directly to thespecialist‘s post on the trading floor of the NYSE. The majority of NYSE ordersare processed electronically through super dot.Single Specialist Market-MakerIn addition to the single specialist market maker on an exchange, other firms thatare the members of an exchange can trade for themselves or on behalf of theircustomers. NYSE members firms, which are broker-dealer organization that
  • 18. 18serve the investing public, are represented on the trading floor by brokers whoserve as fiduciaries in the execution of customers orders.Commission BrokerThe largest category on the NYSE is that of the commission broker. Acommission broker is an employee of one of the nearly 500 securities houses(stockbrokers) or wire houses) devoted to handling business on the exchange.Commission brokers execute orders for their firm on behalf of their customers atagreed commission rates. The houses may deal for their own account as well ason behalf of their clientsOther transactors on the exchange floor include the followingcategoriesIndependent floor brokers work on the exchange floor and execute orders forother exchange members who have more orders than they can handle alone orwho require assistance in carrying out large orders. Floor brokers take a share inthe commission received by the firm they are assisting.Registered traders are individual members who buy and sell for their own account.Alternatively, they may be trustees who maintain membership for the convenience ofdealing and to save fees.
  • 19. 19NYSE SpecialistSpecialists are dealers or market makers assigned by the NYSE to conduct theauction process and maintain an orderly marketing one or more designatedstocks. Specialists may act as both a broker (agent) and a dealer (principal). 1. Broker (Agent). The NYSE has seven specialist firmsIn their role as a broker or agent, specialists represent customer orders in theirassigned stocks, which arrive at their post electronically or entrusted to them bya floor broker to be exected if and when a stock reaches a price specified by acustomer (limit or stop orders). 2. Dealer (principal)As a dealer or a principle, specialists buy and sell shares in their assigned stocksfor their own accounts as necessary to maintain an orderly market. Specialistsmust always give preference to public orders over trading for their ownaccounts.Public OrdersIn general, public orders for stocks traded on the NYSE, if they are not sent to thespecialist’s post via Super Dot, are sent from the member firm’s office to itsrepresentative on its exchange floor, who attempts to execute the orders in thetrading in the crowd.
  • 20. 20Types of ordersThere are certain types of orders where the order will not be performimmediately on the trading floors. These are limit orders and stops orders. If theorder is at a limit order or a stop order and the member firm’s floor brokerscannot transact the order immediately, the floor broker can wait in the tradingcrowd or give the order to the specialist in the stock, who will enter the order inthat specialist’s limit order book (or simply book) for later execution based on therelationship between the market price and the price specified in the limit or stoporder. The book is the list on which specialist keep the limit and stop orders thatare given to them, arranged with size, from near the current market price furtheraway from it.Actual Physical Paper BookWhereas the book used to be an actual physical paper book, it is now electronic.Only the specialist can see the orders in the book for their stocks. This totallywith respect to the specialists, which to some degree offsets their obligation tomake fair and orderly markets.Perception and Cost
  • 21. 21The companies on NYSE are perceived to be better established. Its listingsinclude many of the blue chip firms and industrials that were around before ourparents, and its stocks are considered to be more stable and established.Major rolesSpecialists working on the NYSE have four roles to fulfill in order to ensure a fair andorderly market: 1. Auctioneer - because the NYSE is an auction market, bids and asks are competitively forwarded by investors. These bids and asks must be posted for the entire market to see to make certain that the best price is always maintained. It is the job of the specialist to ensure that all bids and asks are reported in an accurate and timely manner, that all marketable trades are executed and that order is maintained on the floor. Along with posting the daily bid and ask prices, the specialist must also set the opening price for the stock every morning. This price can greatly differ from the previous days closing price based on after-hours news and events. The role of the specialist is to find the correct market price based on supply and demand. 2. Agent - the specialist can also accept limit orders relayed by investors through brokers or electronic trading. It is the responsibility of the specialist to ensure the order is transacted appropriately on behalf of others, using the same fiduciary care
  • 22. 22 as the brokers themselves once the price of the stock has reached the limit criteria.3. Catalyst - as the specialists are in direct contact with the bidders and sellers of particular securities, it is their responsibility that enough interest exists for a particular stock. This is carried out by specialists seeking out recently active investors in cases where the bids and asks cant be matched. This aspect of the specialists job helps to induce trades that may not of happened if the specialist had not been there to bring buyers and sellers together.4. Principal - in the instance where theres a demand-supply imbalance of a particular security, the market maker must make adjustments by purchasing and selling out of his/her own inventory to equalize the market. If the market is in a buying frenzy the specialist will provide shares from their inventory until the price is stabilized. Theyll also buy shares for their inventory in the event of a large sell off.
  • 23. 23 HISTORY NASDAQ Type Stock exchange Location New York City, United States Owner The NASDAQ OMX Group Key people *Robert Greifeld (CEO) *H. Furlong Baldwin (Chairman) Currency USDNo. Of listings 3,800 Indexes (1)NASDAQ Composite (2)NASDAQ-100 (3)NASDAQ Biotechnology Index Website www.nasdaq.com
  • 24. 24NASDAQNASDAQ originally was the acronym for the National Association of SecuritiesDealer Automated Quotation system, NASDAQ was founded in 1971, andprovided quotes for Over-the-Counter (OTC) stocks not listed on other markets.For that reason, it became associated in peoples minds with technology stocks.The Nasdaq, on the other hand, is not a physical entity. The Nasdaq, on the otherhand, is strictly an electronic exchange.The Nasdaq stock market was developed as a wholly owned subsidiary of theNASD. The Nasdaq is a national securities association, an SRO subject tooversight by the SEC. NASD, a private organization, represents and regulates thedealers in the OTC market. Nasdaq is a flagship market of the NASD. Nasdaq isessentially a telecommunication network that links thousands of geographicallydispersed, market-making participants. Nasdaq is an electronic quotation systemthat provides price quotations to market participants on Nasdaq listed stocks.Although there is no critical trading floor, Nasdaq has become an electronic“virtual trading floor”. There are more than 4700 common stocks included in theNasdaq system with a total market value of over $3.5 trillion. Some 535 dealers,known as market-makers, representing some of the world’s largest securities
  • 25. 25firms provide competing bids to buy and offers to sell Nasdaq stocks toinvestors.Dealer’s marketThe Nasdaq is a dealers market, wherein market participants are not buyingfrom and selling to one another but to and from a dealer, which, in the case of theNasdaq, is a market maker The Nasdaq is a computer-based stock exchangewhere buyers and sellers meet electronically .The Nasdaq might be known for itsfancy Market Site Tower and broadcast studio in Times Square, but very little isdone there.Over-the-counter (OTC) marketThe Nasdaq is an over-the-counter (OTC) market and it relies on market makersrather than specialists to facilitate trading and liquidity in stocks. For each stock,there is at least one market makerRather than being an auction market, the Nasdaq is a communications networkbetween thousands of computers. Instead of brokers calling out orders, marketmakers place their names on a list of buyers and sellers, which is then distributedby the Nasdaq in a split second to thousands of other computers. If you wish tobuy a stock that trades on the Nasdaq, your broker will either call up a marketmaker with the information of your trade or enter your order into a Nasdaq-sponsored online execution system
  • 26. 26Trading scheduleNASDAQ has a pre-market session from 07:00am to 09:30am, a normal trading sessionfrom 09:30am to 04:00pm and a post-market session from 04:00pm to 08:00pm (all timesin EST)The National Association of Securities Dealers Automated Quotation System(NASDAQ) is the largest stock exchange in the world in terms of daily traded volumewith 3,200 listed securities. NASDAQ is a self-regulatory body that licences brokers andoversees trading practices. It is not a physical location exchange, but a computerizednetwork, with no members and no governing bodyQuotes AvailabilityNASDAQ quotes are available at three levels: • Level 1 shows the highest bid and lowest offer — the inside quote. • Level 2 shows all public quotes of market makers together with information of market makers wishing to sell or buy stock and recently executed orders. • Level 3 is used by the market makers and allows them to enter their quotes and execute orders.The Market MakerThe market maker is an investment company that registers with the SEC to buyand sell a particular stock on the Nasdaq. A market maker is a broker-dealer whofacilitates the trading of shares by posting bid and ask prices alongwith maintaining an inventory of shares
  • 27. 27Nasdaq has nearly 300 market makersUnlike their counterparts at the NYSE, the market makers work through acomputer network rather than on the floor of a physical exchange.Their job is, literally, to make a market in a particular security. Here is what theydo: • They fill orders for their company’s customers and for their own account • They also act as dealers to profit from the difference between the bid and ask price for the stockThe Nasdaq requires market markers to provide a “two-sided quote” in thesecurities they cover.Buy and SellThis means they must post a price they will buy at and a price they will sell at (abid and ask price –These prices along with customer orders go into the Nasdaqcomputer system and the system ranks the orders.The best prices to buy and the best prices to sell automatically go to the top of thequeue and the computer fills them first. The difference is the computer movesorders and prices through the system faster than any human ever couldUnless you have access to an information provider that offers Level II Nasdaqscreens, you will never see this process at work. Level II screens reveal theprocess of ranking prices and a tremendous amount of information about orders.
  • 28. 28Level II ScreensYou can buy access to Level II screens from a number of vendors; however, itcould cost up to $300 per month or more depending on what options you choose.Day traders, swing traders and others who trade on very tight margins need thistype of information. Most other investors do not.Perception and CostThe Nasdaq is typically known as a high-tech market, attracting many of thefirms dealing with the Internet or electronics. Accordingly, the stocks on thisexchange are considered to be more volatile and growth oriented.Nasdaq Markets • NASDAQ Global Select Market • NASDAQ Global Market • NASDAQ Capital Market • NASDAQ PORTAL MarketNASDAQ OperationNot all securities trade through the NASDAQ system. NASDAQ operates theNasdaq National Market list, where the larger NASDAQ largest stocks are listed(Intel, Microsoft etc), and the Nasdaq Small Cap Market list, where smallcompanies with high growth potential are listed. NASDAQ also operates theOTC Bulletin Board, which lists quotes for stocks registered only at theSecurities Exchange Commission (SEC) and not on any exchange. Also,
  • 29. 29NASDAQ operates the Nasdaq Pink Sheets, for stocks not registered with theSEC.In order to become more competitive with the NYSE and the internationalmarkets, NASDAQ has merged with the American Stock Exchange (AMEX) in1998 to form an organized investment network. Although this network is stillreferred to as NASDAQ, securities are traded separately on the two markets.Nasdaq Market TiersThe NASDAQ stock market has two board tiers of securities: (1) the NasdaqNational Market (NNM) and (2) the small Capitalization Market. Newspaperscontain separate security for these two tiers of stocks (labelledthe NasdaqNational Market” and the “Nasdaq Small Capitalization Market”). The NasdaqNMS is the dominant OTC market in the United States there were approximately3,800 stocks on the Nasdaq NNM system and 900 on the Small Cap Market.Some features of the two tiers of NASDAQ. 1. Securities are actually listed on both tiers of Nasdaq; that is, must meet fairly stringent listing requirements for size, issuer profitability, trading volume, governance, public disclosure and other factors. 2. Securities traded on these Nasdaq tiers must meet specified minimum standards for both initial listing and continued listing.
  • 30. 303. The financial criteria for listing in the Small Cap Market are not as strict as in the NNM system, although the corporate governance standards for the two are the same.4. Small Cap companies often grow and move up to the NNM market. The NNM issues are more widely known, have more trading volume, and have more market makers.
  • 31. 31REFERENCES• www.wikipedia.com• www.google.com• Book ch: 18

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