Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 119

Automated Quotation (NASDAQ) began its operation in 1971 to rein in a large number of stocks known as Over The Counter (OTC) under its systems. NASDAQ is actually a part of a larger organization called the National Association of Securities Dealers (NASD) which has several subsidiaries (including NASDAQ) and handles regulatory issues on securities that are traded through its subsidiaries. This is, however, soon to change as NASDAQ prepares to spin itself off as a separate, publicly traded entity. Prior to NASDAQ the OTC securities were not traded in any organized exchanges and had no proper policing. Thus NASDAQ is also sometimes referred to as the OTC market, although NASD really oversees the OTC market, which is separate from the NASDAQ National Market, a stock market for more prestigious (for the lack of a better word) stocks known as listed stocks. (We will cover these concepts a bit later on.) Instead of specialists (used in floor-based exchanges) NASDAQ employs a network of dealers known as Market Makers whose job is to compete for traders' orders by displaying their buy and sell prices on the system thereby maintaining the flow of trading.

So what determines which exchange a certain stock is traded at? Companies themselves make that determination as they go public. The decision to apply for listing in one exchange or another really comes down to general preferences. Some may prefer NYSE over NASDAQ because they prefer one specialist moving their stocks rather than a network of market makers. Others may consider prestige, or a desire to be with other stocks in their sector. For example, many technology stocks may prefer to be listed on NASDAQ because many other technology stocks are already there. Companies can also move their stocks from one exchange to another with the approval of the new exchange and their shareholders. For example, Gateway (the PC company) and E*Trade (the online broker) migrated from NASDAQ to NYSE not too long ago.


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