Difference btw nyse & nasdaq


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Difference btw nyse & nasdaq

  1. 1. In the name of Allah,The Most Gracious, The Most merciful 1
  2. 2. COURSEFinancial Institutions and Markets BBA-4 2
  4. 4. Group Members 8SaifUllah MalikIbraheem AnsarBilal AhmadRaheem Ansar Muhammad Hussain Khalid Razzaq Abdul Basit Arslan Pervaiz 4
  5. 5. ACKNOWLEDGEMENT We at first bow our head before Allah Almighty who bestowed his countless blessingsupon us, guided us towards the way of success, and blessed us with courage of facingproblems and obstacles. We have no words at our command to express our deepest sense ofgratitude 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 tocomplete this project in its true sense. His valuable experience and knowledge of the fieldremoved the difficulties at all crucial junctures. We acknowledge untiring efforts of ourteacher who has been a beacon of light for us. He broadened our horizon by allowing us toresearch at our own and gave us free will to right whatever we wanted to. 5
  6. 6. EXECUTIVE SUMMARYWhenever someone talks about the stock market as a placewhere equities are exchanged between buyers and sellers, thefirst thing that comes to mind is either the NYSE or Nasdaq,and theres no debate over why. These two exchanges accountfor the trading of a major portion of equities in NorthAmerica and the world. At the same time, however, the NYSEand Nasdaq are very different in the way they operate and inthe types of equities that trade upon them. Knowing thesedifferences will help you better understand the function of astock exchange and the mechanics behind the buying andselling of stocks 6
  7. 7. Stock 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 locationscalled trading floors, where buyers and sellers physically meet. The tradingMechanism on exchanges is the auction system, which results from the presenceof many competing buyers and sellers assembled in one place.2.The second type is via over-the-counter (otc) trading, which results fromgeographically dispersed traders or market-makers linked to one another viatelecommunication systems. That is, there is no trading floor. This tradingmechanism is a negotiated system whereby individual buyers negotiate withindividual sellers 7
  8. 8. National Stock ExchangesIn the United States, there are two national stock exchanges(1) The New York Stock Exchange (NYSE), commonly called the Big Bang(2) the American Stock Exchange (AMEX or ASE), also called the curb.National stock exchange trade stocks of not only U.S corporations but alsonon-Corporations. In addition to the national exchanges, there are regionalstock exchanges in Boston, Chicago (called the Midwest Exchange),Cincinnati, San Francisco (called the Pacific Coast Exchange) andPhiladelphia. Regional exchanges primarily trade stocks from thecorporation based with in their region 8
  9. 9. 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).The NASD 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 formthe 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 stock exchangein the United States, with more than 750 issues listed for trading. Nasdaq has agreater number of listed stocks but with much less market capitalization than theNYSE 9
  10. 10. Securities Act of 1934 According to the Securities Act of 1934. There are two categories of traded stockso Listed Stocks The first is exchange-traded stocks, which are also called listed stocks.o Nonlisted stocks The second is OTC stocks, which are also non-exchange traded stocks and are,thereby, by interference, Nonlisted 10
  11. 11. Listing RequirementsNasdaq has listing requirements (the Nasdaq National Market and theNasdaq Small Capitalization Market). Thus the more practicalcategorization of these categories is as follows:•Nasdaq listed OTC stocks•Exchange listed stocks (national and regional exchange)Non-Nasdaq OTC stocks 11
  12. 12. Type Of Markets he four Major type of markets on which stocks are traded are referred to as follows: First Market- Trading on exchanges of stocks listed on an exchange. Second Market- Trading in the OTC market of stocks not listed on an exchange. Third Market- Trading in the OTC market of stocks listed on an exchange. Fourth Market- Private transactions between the institutional investors who deal directly with each other without utilizing the services of a broker-dealer intermediary 12
  13. 13. EXCHANGESExchange markets are called central auction specialist systems and OTC marketsare called multiple market-maker systems. Recently however, a new method oftrading common stocks via independently owned and operated ElectronicCommunications Networks (ECNs) has developed and is growing quickly.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. To belisted, a company must apply and satisfy requirements established by the exchangefor minimum capitalization shareholder equity, average closing share price, andother criteria.The number of seats is fixed by the exchange and the cost of a seat isdetermined by supply and demand of those who want to sell or buyseats. In early 2001, there were 1,366 seats on the NYSE, and thecost of a seat was $2 million 13
  14. 14. HISTORY New York Stock Exchange Type Stock Exchange Location New York city, New York,United States Key people *Marsh Carter is Chairman of the (NYSE) Currency United States Dollar No. Of listings 2,773 Market Cap US$25 trillion (2006) Volume US$ 22 trillion (2006) Indexes Nyse Composite Built/Founded 1903Governing body Private 14
  15. 15. New York Stock Exchange 1792 - The NYSE acquires its first traded securities Equity Stock Exchange Located At 11 Wall Street Lower Manhattan,New York,USA Largest Stock Exchange Physical Place Where Traders Trade OperationsOperated by NYSE Euro nextNYSE is an auction-based market
  16. 16. Trading A specialist is a dealer representing a NYSE specialist firm The New York Stock Exchange (sometimes referred to as "the Big Board") NYSE is open for trading Monday through Friday between 9:30–16:00 ET NYSE trades in a continuous auction format open outcry auction market January 24, 2007, all NYSE stocks can be traded via its electronic Hybrid Market Customers can now send orders for immediate electronic execution
  17. 17. PostTrading in stock listed on the NYSE is conducted as a centralized continuousauction market at a designated location on the trading floor, called a post with brokers representing their customers buy or sell ordersA single specialist is the market maker for each stockA member may be designated as a specialist for the common stock of morethan one company But only one specialist is designated for the common stock of each listedcompanyseveral stocks can trade at the same postEach post is essentially an auction site where an order, bids, offers, arrive
  18. 18. Super Dot Most orders arrive from floor brokers and via an electronic deliverysystem called the Super Dot Super dot is an electronic order routing and reporting system It links members firms electronically worldwide directly to thespecialist‘s post on the trading floor of the NYSE The majority of NYSE orders are processed electronically through superdot.
  19. 19. Single Specialist Market-MakerIn addition to the single specialist market maker on an exchange, otherfirms that are the members of an exchange can trade for themselves or onbehalf of their customers. NYSE members firms, which are broker-dealerorganization that serve the investing public, are represented on the tradingfloor by brokers who serve as fiduciaries in the execution of customersorders 19
  20. 20. Commission BrokerThe largest category on the NYSE is that of the Commission Broker. Acommission broker is an employee of one of the nearly 500 securitieshouses (stockbrokers) or wire houses) devoted to handling business on theexchange. Commission brokers execute orders for their firm on behalf oftheir customers at agreed commission rates. The houses may deal for theirown account as well as on behalf of their clients 20
  21. 21. Other Transactors on the Exchange Floor Include the FollowingCategoriesIndependent floor brokers work on the exchange floor and execute ordersfor other exchange members who have more orders than they can handlealone or who require assistance in carrying out large orders. Floor brokerstake a share in the commission received by the firm they are assisting.Registered traders are individual members who buy and sell for their ownaccount. Alternatively, they may be trustees who maintain membership for theconvenience of dealing and to save fees 21
  22. 22. NYSE SpecialistSpecialists are dealers or market makers assigned by the NYSE toconduct the auction process and maintain an orderly marketing one ormore designated stocks. Specialists may act as both a broker (agent) and adealer (principal).Broker (Agent). The NYSE has seven specialist firms In their role as a broker or agent, specialists represent customer orders intheir assigned stocks, which arrive at their post electronically or entrustedto them by a floor broker to be exected if and when a stock reaches a pricespecified by a customer (limit or stop orders).Dealer (principal)As a dealer or a principle, specialists buy and sell shares in their assignedstocks for their own accounts as necessary to maintain an orderly market.Specialists must always give preference to public orders over trading fortheir own accounts. 22
  23. 23. Public OrdersIn general, Public Orders for stocks traded on the NYSE, if they arenot sent to the specialist’s post via Super Dot, are sent from themember firm’s office to its representative on its exchange floor, whoattempts to execute the orders in the trading in the crowd. 23
  24. 24. Types 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. Ifthe order is at a limit order or a stop order and the member firm’s floorbrokers cannot transact the order immediately, the floor broker can wait inthe trading crowd or give the order to the specialist in the stock, who willenter the order in that specialist’s limit order book (or simply book) forlater execution based on the relationship between the market price and theprice specified in the limit or stop order. The book is the list on whichspecialist keep the limit and stop orders that 24
  25. 25. Actual Physical Paper Book 25
  26. 26. Perception and Cost 26
  27. 27. Major rolesSpecialists working on the NYSE have four roles to fulfill in order to ensurea fair and orderly market:Auctioneer - because the NYSE is an Auction Market, bids and asks arecompetitively forwarded by investors. 27
  28. 28. Major rolesAgent - the specialist can also accept limit orders relayed by investorsthrough brokers or electronic trading.Catalyst - as the specialists are in direct contact with the bidders and sellersof particular securities, it is their responsibility that enough interest exists fora particular stock.Principle - in the instance where theres a demand-supply imbalance of aparticular security. 28
  29. 29. History NasdaqType Stock exchangeLocation New York City, United StatesOwner The NASDAQ OMX GroupKey people *Robert Greifeld (CEO) *H. Furlong Baldwin (Chairman)Currency USDNo. Of listings 3,800Indexes (1)NASDAQ Composite (3) (2)NASDAQ-100 (3)NASDAQ Biotechnology IndexWebsite www.nasdaq.com 29
  30. 30. Nasdaq  NASDAQ was founded in 1971, and provided 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 other hand, is strictly an electronic exchange. . Nasdaq is essentially a telecommunication network that links thousands of geographically dispersed, market-making participants. Nasdaq is an electronic quotation system that 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 the Nasdaq system with a total market value of over $3.5 trillion. 30
  31. 31. Dealer’s MarketThe Nasdaq is a dealer’s market, wherein market participants are notbuying from and selling to one another but to and from a dealer,which, in the case of the Nasdaq, is a market maker The Nasdaq isa computer-based stock exchange where buyers and sellers meetelectronically . 31
  32. 32. Over-the-counter(OTC)marketThe Nasdaq is an Over-the-counter(OTC)market and it relies onmarket makers rather than specialists to facilitate tradingand liquidity in stocks. For each stock, there is at least onemarket makerIf you wish to buy a stock that trades on the Nasdaq, your brokerwill either call up a market maker with the information of yourtrade or enter your order into a Nasdaq-sponsored onlineexecution system 32
  33. 33. Trading scheduleNASDAQ has a pre-market session from 07:00am to 09:30am, a normaltrading session from 09:30am to 04:00pm and a post-market sessionfrom 04:00pm to 08:00pm (all times in EST) 33
  34. 34. Quotes 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 34
  35. 35. The Market MakerThe market maker is an investment company that registers withthe SEC to buy and sell a particular stock on the Nasdaq. Amarket maker is a broker-dealer who facilitates the tradingof shares by posting bid and ask prices along with maintainingan inventory of sharesNasdaq has nearly 300 market makersUnlike their counterparts at the NYSE, the market makers workthrough a computer network rather than on the floor of aphysical exchange.Their job is, literally, to make a market in a particular security.Here is what they do: •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-sidedquote” in the securities they cover. 35
  36. 36. Buy and SellThis means they must post a price they will buy at and a pricethey will sell at (a bid and ask price –These prices along withcustomer orders go into the Nasdaq computer system and thesystem ranks the orders.The best prices to buy and the best prices to sell automaticallygo to the top of the queue and the computer fills them first. Thedifference is the computer moves orders and prices through thesystem faster than any human ever couldUnless you have access to an information provider that offersLevel II Nasdaq screens, you will never see this process at work.Level II screens reveal the process of ranking prices and atremendous amount of information about orders.Level II ScreensYou can buy access to Level II screens from a number ofvendors; however, it could cost up to $300 per month or moredepending on what options you choose.Day traders, swing traders and others who trade on very tightmargins need this type of information. Most other investors36 donot.
  37. 37. Perception and CostThe Nasdaq is typically known as a high-tech market, attractingmany of the firms dealing with the Internet or electronics.Accordingly, the stocks on this exchange are considered to be morevolatile and growth oriented 37
  38. 38. Nasdaq Markets•NASDAQ Global Select Market•NASDAQ Global Market•NASDAQ Capital Market•NASDAQ PORTAL Market 38
  39. 39. NASDAQ OperationNot all securities trade through the NASDAQ system.NASDAQ operates the Nasdaq National Market list, wherethe larger NASDAQ largest stocks are listed (Intel, Microsoftetc), and the Nasdaq Small Cap Market list, where smallcompanies with high growth potential are listed. NASDAQalso operates the OTC Bulletin Board, which lists quotes forstocks registered only at the Securities Exchange Commission(SEC) and not on any exchange. Also, NASDAQ operates theNasdaq Pink Sheets, for stocks not registered with the SEC.In order to become more competitive with the NYSE and theinternational markets, NASDAQ has merged with theAmerican Stock Exchange (AMEX) in 1998 to form anorganized investment network. Although this network is stillreferred to as NASDAQ, securities are traded separately onthe two markets 39
  40. 40. Nasdaq Market TiersThe Nasdaq stock market has two board tiers of securities: (1) theNasdaq National Market (NNM) and (2) the small CapitalizationMarket. Newspapers contain separate security for these two tiersof stocks (labelled the Nasdaq National Market” and the “NasdaqSmall Capitalization Market”). The Nasdaq NMS is the dominantOTC market in the United States there were approximately 3,800stocks on the Nasdaq NNM system and 900 on the Small CapMarket 40
  41. 41. Some features of the two tiers of Nasdaq•Securities are actually listed on both tiers of Nasdaq; that is,must meet fairly stringent listing requirements for size, issuerprofitability, trading volume, governance, public disclosureand other factors.•Securities traded on these Nasdaq tiers must meet specifiedminimum standards for both initial listing and continuedlisting.•The financial criteria for listing in the Small Cap Market arenot as strict as in the NNM system, although the corporategovernance standards for the two are the same.•Small Cap companies often grow and move up to the NNMmarket. The NNM issues are more widely known, have moretrading volume, and have more market makers. 41
  42. 42. THANKS … !!! Dear’s Class Mates BBA-4 42