Nasdaq

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File:NASDAQ logo.png
NASDAQ in Times Square, New York City.

NASDAQ (originally an acronym for National Association of Securities Dealers Automated Quotations system) is an American electronic stock exchange. It was founded in 1971 by the National Association of Securities Dealers (NASD), who divested it in a series of sales in 2000 and 2001. It is owned and operated by The Nasdaq Stock Market, Inc. (Nasdaq: NDAQ) which was listed on its own stock exchange in 2002, under NDAQ. NASDAQ is the largest electronic screen-based equity securities market in the United States. With approximately 3,300 companies, it lists more companies and, on average, trades more shares per day than any other U.S. market. The current chief executive officer is Robert Greifeld.

History

See also: Economy of New York City

When it began trading on February 8, 1971, it was the world's first electronic stock market. At first, it was merely a computer bulletin board system and did not actually connect buyers and sellers. The NASDAQ helped lower the "spread", but paradoxically was unpopular among brokerages because they made much of their money on the spread. Over the years, NASDAQ became more of a stock market by adding trade and volume reporting and automated trading systems. NASDAQ was also the first stock market to advertise to the general public, highlighting NASDAQ-traded companies (usually in technology) and closing with the declaration that NASDAQ was "the stock market for the next hundred years".

Until 1987, most trading occurred via the telephone, but during the 1987 market crash, market makers often didn't answer their phones. To counteract this, the Small Order Execution System (SOES) was established, which provides an electronic method for dealers to enter their trades. NASDAQ requires market makers to honor trades over SOES.[1]

On July 17, 1995 the NASDAQ Composite index closed above the 1000 mark for the first time. The index peaked at 5132.52 on March 10, 2000, which signaled the beginning of the end of the dot-com stock market bubble. The index declined to half its value within a year, hit a low of 1108.49 on October 10, 2002, and is still valued at less than half its peak.

Merger attempt with London Stock Exchange

In December of 2005, the London Stock Exchange rejected a £1.5 billion takeover offer from Macquarie Bank. The LSE described the offer as "derisory." It then received a bid in March of 2006 for £2.4 billion from NASDAQ, which was also rejected by the LSE. NASDAQ later pulled its bid, and less than two weeks later on April 11, 2006, struck a deal with LSE's largest shareholder, Ameriprise Financial's Threadneedle Asset Management unit, to acquire all of that firm's stake, consisting of 35.4 million shares, at £11.75 per share.[2] NASDAQ also purchased 2.69 million additional shares, resulting in a total stake of 15%. While the seller of those share was undisclosed, it occurred simultaneously with a sale by Scottish Widows of 2.69 million shares.[3] The move was seen as an effort to force LSE to negotiate either a partnership or eventual merger, as well as to block other suitors such as NYSE.[4] Subsequent purchases have increased NASDAQ's stake to 25.1%, making competing bids very difficult.[5][6][7]

Business

NASDAQ allows multiple market participants to trade through its electronic communications networks (ECNs) structure, increasing competition. The Small Order Execution System (SOES) is another NASDAQ feature, introduced in 1987, to ensure that in 'turbulent' market conditions small market orders are not forgotten but are automatically processed. With approximately 3,200 companies, it lists more companies and, on average, trades more shares per day than any other stock exchange in the world. It is home to companies that are leaders across all areas of business including technology, retail, communications, financial services, transportation, media and biotechnology. NASDAQ is the primary market for trading NASDAQ-listed stocks.

Recent Close

On October 6, 2006, the NASDAQ Composite index lost 6.35 points to close at 2,299.99, just shy of the 2300 level. While this index remains 55% below its all-time high, the Dow Jones Industrial Average has completely erased its nominal bear market losses and the broader S&P 500 sits just 12% below its all-time highs. This discrepancy is an artifact of the dotcom boom, during which NASDAQ stocks gained disproportionately and from which the prices and valuations of NASDAQ stocks have consequently fallen much further than those of "old-economy" stocks.

Quote availability

NASDAQ quotes are available at three levels. Level I shows the highest bid and lowest offer -- the inside quote. Level II shows all public quotes of market makers together with information of market makers wishing to sell or buy stock and recently executed orders. Level III is used by the market makers and allows them to enter their quotes and execute orders.[8]

Trivia

Despite the high tech image of NASDAQ, squirrels have brought down the electronic exchange twice. A squirrel knocked out the power in 1994, and the NASDAQ system failed to roll over to its battery backup, causing an interruption in trading of one half hour. [9] In 1987, a squirrel entered a transformer and caused a power surge, halting trading for 82 minutes.[10] Other instances of downtime have occurred when computer systems have unexpectedly rebooted or software upgrades have gone awry. [11]

See also

Companies

Markets

References

  1. ^ Wells, Rob. "'Market for Next 100 Years' is 25". Associated Press.
  2. ^ Patrick, M. (2006-04-11). "Nasdaq Acquires 15% of LSE". The Wall Street Journal. {{cite news}}: Check date values in: |date= (help); Unknown parameter |coauthors= ignored (|author= suggested) (help)
  3. ^ "Scottish Widows says has sold 2.7 mln LSE shares at 1,175 pence". Forbes. 2006-04-12. {{cite news}}: Check date values in: |date= (help)
  4. ^ Ortega, E. (2006-04-11). "Nasdaq Buys 15 Percent Stake in LSE for $782 Million". Bloomberg News. {{cite news}}: Check date values in: |date= (help)
  5. ^ MacDonald, A. (2006-05-04). "In LSE Stakes, Nasdaq Advances, Euronext Falls". The Wall Street Journal. {{cite news}}: Check date values in: |date= (help); Unknown parameter |coauthors= ignored (|author= suggested) (help)
  6. ^ Lucchetti, A. (2006-05-11). "Nasdaq Lifts Its LSE Stake to 24%". The Wall Street Journal. {{cite news}}: Check date values in: |date= (help); Unknown parameter |coauthors= ignored (|author= suggested) (help)
  7. ^ "Nasdaq raises LSE stake, making rival bids harder." Goldsmith, B. and Elliott, M. Reuters. May 19, 2006.
  8. ^ "Nasdaq Level I, Level II , Level III Quotes".
  9. ^ "Squirrels again bring down Nasdaq".
  10. ^ "Risks to the Rodent Public in the Use of Computers".
  11. ^ "Analyst, Heal Thyself".
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