NASDAQ (abbr. from English. National Association of Securities Dealers Automated Quotation - Automated quotes from the National Association of Securities Dealers) - American over-the-counter market, specializing in high-tech stocks (electronics manufacturing, software, etc.. P.). One of the three major US stock exchanges (as well as NYSE and AMEX), is a division of NASD, controlled by SEC. The owner of the exchange is the American company NASDAQ OMX Group. Beyond NASDAQ, she still owns 8 European exchanges.
Founded 5 february 1971 of the year. The name comes from the automatic system for receiving quotes, which initiated the exchange. More than 3 200 companies, including Russian.
History of the NASDAQ exchange
IN 1938 year, the US Congress adopted a document, dubbed "The Maloney Act" (Maloney Act). This act obliged all brokers, non-members of any exchange (which much more, than member brokers), join SRO, which will be responsible for the regulation of the OTC market. Next year, such an SRO (Self-Regulatory Organization) was formed. She was named National Association of Securities Dealers, or NASD for short - National Association of Securities Dealers.
- adopt rules and procedures to prevent fraudulent and manipulative activities
- do everything possible to prevent violations of securities legislation by its members, the rules or regulations of the NASD itself
- maintain fair and equal trading principles for all
- protect the interests of investors and the public.
The emergence of NASDAQ
IN 1968 year, at the initiative of the US Congress, the Securities and Exchange Commission conducted a special study on the "unsatisfactory state of the over-the-counter securities market". The thing is, that financial statements for companies were often missing or published irregularly, and the OTC market itself, despite rather high profits, had low liquidity.
According to the results of the investigation, carried out by the commission, National Association of Securities Dealers (NASD) was entrusted with the systematization and automation of the entire retail securities market.
Just at the end of the 60s, the active development of computer technology began., which allowed to solve this problem. As a result, NASD Automated Quotations OTC electronic securities trading system was created. (NASDAQ). The first deals on the NASDAQ exchange were concluded 8 february 1971 of the year.
Initially, NASDAQ was only an information base, "Bulletin board", in which the averaged, and then the best OTC dealer quotes.
IN 1982 year shares of American companies, meeting higher listing requirements, have been allocated to NASDAQ National Market (NNM). Primarily, this was done to weed out small companies, seeking to enter the listing of the system (and there were a lot of them). To achieve this goal, the requirements for companies to participate in activities on the National Market have been tightened.. Only in 1990 year the second group was formed Training, representing small cap companies (about 40 % of the total number of companies), — Nasdaq Small Cap Market (SCM).
IN 1984 a year, the Small Order Execution System began operating on the exchange (SOES). This system made it possible to execute small orders against the best quotes of market makers., which significantly expanded trading opportunities.
IN 1990 the trading system SelectNet was launched, which has expanded the possibilities for finding and executing trades at a better price and higher volume, than possible with SOES.
Regular Nasdaq trading session starts at 9:30 morning and ends at 16:00 evenings (US East Coast Time). Trading operations are carried out on the basis of SuperMontage and Primex platforms. After the end of the regular session, it is possible to bid before 20:00 in the post-trading session through the SelectNet platform.
Scheme, which is traded on the NASDAQ exchange, differs from the traditional exchange. Several market makers here compete for the execution of the client's order. At the moment, there are about six hundred of them on the exchange.. The main function of a market maker at NASDAQ (same, as in NYSE) - continuous quotation and maintenance of liquidity for a specific group of shares during trading. I.e, The market maker is obliged to execute the client's received order at the expense of his own reserves in the absence of a corresponding opposite order on the market. Some market makers support several hundred stocks, others - several thousand. Eventually, average, fourteen market makers support liquidity for one type of shares, and on others - up to fifty. NASDAQ quotes for this share - the result of comparing quotes, provided by market makers and alternative trading systems.
NASDAQ National Market (NNM)
NASDAQ National Market (NNM) - a market for the most actively traded securities of the largest issuing companies on the NASDAQ exchange. The market was highlighted in 1982 year. Now more than 4 000 valuable papers. A company must meet strict financial standing criteria to be listed on the NASDAQ National Market., capitalization and corporate governance.
NASDAQ Nasdaq Small Cap Market (SCM)
The Nasdaq Small Cap Market - NASDAQ market for small cap stocks. The SCM listing includes more than 1000 valuable papers.
Computer trading systems
SOES (Small Order Execution System) Is a small order execution system. SOES was designed for day traders, trading on the NASDAQ market in packages up to 1000 shares. It allowed small investors to access the Nasdaq system and its market makers. The system was launched after the stock market crash 1987 of the year. Its main task was to provide market liquidity for ordinary investors.. SOES allowed individual investors to transact NASDAQ shares with institutional investors, who constantly expose their buy / sell quotes for these shares.
Market maker participation in SOES for all Nasdaq shares has become mandatory in 1988 year. The reason for this was, that during the stock market crisis 1987 years, many small investors were unable to access market maker quotes. Up to this point, brokers had to call market makers by phone to execute client orders, and since during the stock market crisis it was almost impossible to get through to market makers, many client orders were not executed. SOES was supposed to provide individual customers with access to the Nasdaq market, which means - to strengthen confidence in him.
At the moment, the SOES system is not used on the exchange.
IN 1988 year on the NASDAQ exchange, a transaction confirmation system was put into operation (Order Confirmation Transaction service — OCT). The system made it possible to get rid of the problems of transmitting an order by phone and placing an order in minutes of fast market movement. Orders are now transmitted electronically via OCT, and if there is a counter order, they are executed automatically. IN 1990 year OCT was renamed SelectNet. During this period, the possibilities for negotiating between the seller and the buyer expanded., and also it became possible to send an order to all market makers at the same time.
SuperMontage - a new system for displaying quotes of movement of orders. It was officially launched 7 october 2003 year in Europe, but 14 october 2003 and in the USA. SuperMontage replaces the outdated SuperSoes platform and currently serves to trade NASDAQ National Market and Nasdaq Small Cap Market shares. Moreover, SuperMontage provides access to stock trading, traded on other US exchanges
Official nasdak website
IN 1999 the year the exchange site was hacked by a group of hackers called United Loan Gunmen. Hackers left a note on the site, which reported, that the break-in was carried out in order, so that "stocks jump up sharply, making all investors happy, and then, we hope, all investors will hang on the bumpers of their Mercedes stickers “Thank you ULG!“». In addition, the hackers created an e-mail account for themselves on the exchange server.. No financial transaction disruption occurred during this incident..
First attempt to buy the LSE
In March 2006 of the year NASDAQ made its first attempt to acquire the LSE (London stock exchange). However, the deal did not take place.. According to the management of the London Stock Exchange, nasdak offered a greatly reduced price based on $17,42 per share. After a negative response from the LSE, the exchange started buying up its shares and in less than two months became the largest shareholder of the LSE, collecting a package from 25,1 % shares.
Second attempt to buy the LSE
20 November 2007 Nasdaq acquired an additional stake in the LSE and increased its stake in it to 28,75 %. After that, he again announced his intention to buy the LSE, proposing 2,7 billion pounds, ($5,1 billion), that is, for the price 12,43 pound per share. But through 7 hours Nasdaq received a rejection from the LSE. LSE CEO Clara Foers explained, that “I could not assess the significant growth indicators and prospects of her group as an independent company”.
25 May 2007 Nasdaq agreed to acquire its Swedish rival OMX for 25,1 billion Swedish kronor (3,7 billion dollars). In this way, it finally enters the European market after two unsuccessful attempts to acquire the London Stock Exchange (LSE). After the merger, it will also own a third of the International Exchange St Petersburg (IXSP) in St. Petersburg, which was created with the participation of OMX.
The combined company will be called the NASDAQ OMX Group.. Shareholders will receive 72 % shares of the new exchange, and the Swedes will get 28 %. More than 4 000 companies, including Volvo, Nokia и Microsoft. Their total capitalization will reach 5,5 trillion dollars.
NASDAQ Composite Stock Index
Like any other trading system, NASDAQ has a number of its own business activity indices. At the moment, not only high-tech companies are listed on NASDAQ, so a whole system of indexes came into being, each of which reflects the situation in the corresponding sector of the economy. There are now thirteen such indexes, based on quotations of securities, traded on the NASDAQ electronic system.
The main difference between Nasdak Composite is the purchase and sale of non-securities, but, so called, orders - requests for the purchase or sale of securities after a certain period of time. Brokers, here they are called market makers, compete for the execution of a client's order on very profitable criteria. Companies themselves do not participate in trade.
This approach has a big plus: the participant's capitalization and the value of the index are not much connected together, because, what capitalization depends, mostly, from operating income, and the index is formed from the number of profitably executed orders. Excluding the Web Bubble 2000 of the year, in the event of a market collapse, it is specifically the participants in the exchange trading that are harmed.
To become a member of the index, it is mandatory to trade on the Nasdak Stock Market and comply with one of the American stock security systems - they exist 7. No convertible bonds, preferred securities, Entry rights and derivatives to the Composite have no effect.
Nasdaq Composite Index
Nasdaq Composite Index Is the summary index . It includes more than five thousand companies (as American, and foreign), which are listed . Stocks of any of them affect the index in proportion to their market value.. The market value is calculated very simply: the total number of shares in the company is multiplied by the current market value of one share. The calculation of this index has begun 5 february 1971 years from the level 100, in 2000 year he even reached the five thousandth mark, but after the general fall of the computer and information technology market is now in the area of up to two thousand points.
- Dependencies of the Nasdak Composite Index
- Very heterogeneous composition - from IT whales to outsiders;
- Is a thing within itself, not much dependent on the global environment;
- Participants don't have much impact on the index;
- In total, about 600 exchange trading participants;
- Tracking the emergence of another web bubble is virtually impossible..
Nasdaq National Market Composite index
The Nasdaq National Market Composite is essentially similar to the Nasdaq Composite with the same difference, which is based on shares listed on the National Market (National Market).
NASDAQ-100 Index - index, which is calculated based on market capitalization 100 largest companies in the non-financial sector, listed on the NASDAQ exchange.
In addition to the above, there are other indices, eg:
- Nasdaq Bank Index - for companies in the banking sector
- NASDAQ Biotechnology Index - for medical and pharmaceutical companies
- Nasdaq Computer Index - for companies, developing software and hardware for computers
- Nasdaq Financial Index - for companies in the financial sector, except for banks and insurance companies
- Nasdaq Industrial Index - for industrial companies
- Nasdaq Insurance Index - for insurance companies
- Nasdaq Telecommunications Index - for telecommunications companies
Market makers on NASDAQ
Market makers independent dealers are called, competing with each other for the right to service investors' orders to buy or sell shares. The client has a lot to choose from - on the market, your order is ready to execute about 530 registered market makers and about the same number of firms that enter orders into the system (these firms, unlike market makers, are not obliged to simultaneously expose quotes for the purchase and sale of shares). It is worth noting, that market makers themselves do not receive orders from investors, and from brokerage firms (order entry firms). Investors send orders to brokerage firms, who charge a commission for this service .
As for market makers, then they do not charge commissions from brokerage firms, but they earn exclusively due to the exchange rate difference between the purchase and sale prices. However, large institutional investors do not use brokerage services, but trade directly with market makers, saving, in this way, significant amounts on commissions.
Market makers in the NASDAQ electronic marketplace have multiple responsibilities:
- Are engaged in the execution of orders, coming from clients of your brokerage company (in the process of fulfilling a customer's order, the market maker must remember, that the strike price should be the best at the time of the trade).
- Doing the main job, they do not forget about their own interests and the interests of their company (besides customer service, they are vitally interested in generating company income). Inside the spread, the market maker has the opportunity to move stocks in one direction or another.
- To ensure liquidity and continuity, two-way quotes are set, thus forming a bilateral market. Unlike the NYSE auction market, in the NASDAQ market, the market maker constantly includes his names in the list of buyers and sellers of shares, and the number of shares must be at least 1000 (100 or 500 for small cap stocks). In accordance with the rules of the exchange, every market maker, by placing bilateral quotes on shares, shouldn't forget about, that bid and ask prices must be reasonably different, thereby providing market liquidity.
In this way, NASDAQ is essentially a dealer market, which is based on the principle of promoting quotes (quote-driven system). A reasonable question may arise: and who are the market makers on the exchange?? The largest market makers are mainly represented by large financial securities companies, occupying leading positions on the main site of the USA - NYSE. Among the most famous are: Knight Securities, Merrill Lynch, Salomon Smith Barney Inc, Pierce, Morgan Stanley, Schwab Capital Markets, Goldman Sachs&Co., Spear, Leeds&Kellogg, Lehman Brothers Inc., Credit Suisse First Boston Corp., Fenner etc.
Electronic platform offers three levels of service:
- Level 1 reflects mainly the domestic market, namely, highest offered purchase prices and lowest sales prices, which form the best current market price.
- Level 2 shows detailed quotes, including a list of real market makers or firms, as well as purchase and sale prices ECN, that shape this domestic market. It also allows entry of orders into SOES systems. (Small Order Execution System) и SuperMontage (combined version of SOES and SelectNet).
- Level 3 provides all of the above operations and, Moreover, through it, market makers can set their buy and sell prices.
It is hard to overestimate the importance of the Nasdak Composite in the global economic system.. Together with Dow Jones, he is extremely influential in the direction of trading in Europe and developing countries.. Eventually, severe turmoil on the American stock exchange cannot pass without any traces for Russian or Asian trading. At the same time, similar macroeconomic reasons, as the location of the main production facilities in the PRC, makes the index sensitive to Asian statistics and labor market indicators in the region.