NASDAQ means a worldwide trading platform for purchasing and selling securities. Initially, it was an abbreviation for “National Association of Securities Dealers Automated Quotations”. NASDAQ was actually set up as an affiliate company of the National Association of the Security Dealers (NASD), currently known as the Financial Industry Regulatory Authority (FINRA). An impetus for creating NASDAQ was the SEC call to automate the securities market. As a result, the first electronic system for trading was instituted.
Essence of NASDAQ
NASDAQ is considered an exchange focusing on stocks of high-tech companies. Being the second largest platform in the world, NASDAQ trades shares of the leading technology giants. The term is also used to link to the NASDAQ Composite, meaning the index for more than 3,700 stocks. There are such corporate giants’ stocks as Apple Inc, Amazon, BioNTech, EBay, Google, etc.
A legal separation from the NASD happened only in 2006. Back in time, NASDAQ started to function as a national securities exchange. In 2008, the exchange merged with the Scandinavian group OMX.
NASDAQ is headquartered in New York. It holds control of 29 markets, where the trading process anticipates shares, constant revenues, derivatives and goods all over the world. A symbol NDAQ is used for its designation. NASDAQ is included in the S&P Index. Currently, more than 3,200 companies are trading shares on this exchange.
Let’s dig deep into the rapid development of NASDAQ. To trace its history, it’s better to go back to the 30s of the last century. It was the exact same moment, when the legislation, regulating the work of stock markets in its modern form, was formed in the United States.
According to the laws, not all companies' shares could be traded on the stock exchange. But that didn’t mean they were completely absent. There existed over-the-counter transactions, when the parties bought and sold directly, bypassing exchanges. To regulate the market, the US Congress adopted amendments to the Stock Exchange Act in 1936 and 1938, known as the "Maloney Act". The act obliged all brokers, who weren’t the exchange members to unite in a self-regulating organization. This institution was entrusted to control the market.
Despite the establishment of the NASD, an over-the-counter securities market remained extremely unsystematic and, as a result, risky. Trading volumes increased, but issuers reported on their financial performance not regularly, while the securities had low liquidity.
NASD was determined to implement computer technologies. Thus, the NASD Automated Quotations (NASDAQ) system was presented. But that couldn’t be called an exchange in its current form — the NASDAQ system was an information base with the best stock quotes. Meanwhile, trading was prohibited.
The 80s became a period, when particular NASDAQ systems were launched, that finally provided appropriate trading.
Gradually, NASDAQ has splitted into two markets:
- The NASDAQ National Market, where the most liquid shares of the major companies are traded. All of them undergo a rigorous selection process before listing.
- The NASDAQ Small Cap Market is a market for smaller enterprises with fewer capitalization.
Highs and lows of NASDAQ
NASDAQ has become a favorite location for technology companies. Securities of such corporate giants as Apple, Google, Microsoft, Oracle, Intel and Amazon are presented on the market.
The main shock of the NASDAQ is also connected with tech corporations. In the late 1990s, the technology startup market was growing at a record pace, but most companies were unable to make a profit. An economic bubble, known as the dotcom boom, has emerged on NASDAQ.
In 2000, the NASDAQ index had risen to its historic highs, and then collapsed — the bubble burst, companies went bankrupt, while investors lost billions of dollars. Anyway, it didn’t prevent NASDAQ from speedy progress.
A NASDAQ model of electronic trading, known all over the world, became a certain standard for other financial markets. Currently, NASDAQ has been granted the status of the second stock exchange across the globe. As of the beginning of September 2019, its capitalization, which is calculated through the value and number of all traded shares, amounted to $11.6 trillion. According to this indicator, NASDAQ is inferior only to the NYSE.
In 2016, Adena Friedman was put in charge of NASDAQ. She has been given a post of CEO, and became the first woman in history to head the American stock exchange.
These days, NASDAQ includes stocks not only of high-tech giants. In addition to the main NASDAQ Composite Index, the exchange calculates indices of companies in the financial, industrial, telecommunications, pharmaceutical and other sectors.
The profit of NASDAQ is made up of interests, charged from the following activities:
- Business facilities, assisting in financial decision-making.
- Market related services, offering entry to the investors for trading completion.
- Market-oriented technologies, granting access to the investment platforms, as well as protecting from fraudulent activities.
- Investment insights, providing most recent analytical data for trading.