Nasdaq Market Maker vs. NYSE Specialist: An Overview
The New York Stock Exchange (NYSE) and National Association of Securities Dealers Automated Quotations (NASDAQ) each employ market makers—dealers or traders whose role is to increase the liquidity of their respective exchanges, provide more fluid and efficient trading, and maintain a fair and orderly market.
The goal of facilitating a smooth flow of financial markets is the same for both Nasdaq market makers and NYSE specialists. So the differences between market makers and specialists have more to do with the characteristics of the exchanges themselves than with their basic functions.
Market Makers and Specialists
The NYSE operates with a system of individual securities "specialists" who work on the NYSE trading floor and specialize in facilitating trades of specific stocks. A specialist is simply a type of market maker.
In contrast, Nasdaq is an electronic market (basically, a computer network) that does not have a trading floor. Instead, Nasdaq relies on multiple market makers—major broker-dealer members of Nasdaq—for actively traded stocks.
Key Takeaways
- Both market makers and specialists help to maintain a fair and orderly market on a securities trading exchange.
- Nasdaq is a computer trading network that relies on multiple market makers—broker-dealers who are members of that exchange.
- A specialist is a type of market maker who works on the floor of the NYSE and specializes in trading specific stocks.
Nasdaq: Market Makers
How Nasdaq Works
Nasdaq consists of large investment companies that buy and sell securities through an electronic network. Each security on Nasdaq generally has more than one market maker; an average of 14 market makers for each stock provides liquidity and efficient trading.
These market makers maintain inventories of stock and buy and sell securities from their own accounts to individual customers and other dealers. Each market maker on Nasdaq is required to give a two-sided quote, meaning they must state a firm bid and ask price that they are willing to honor. Once an order is received from a buyer, the market maker immediately sells off their position of shares from their own inventory to complete the order.
Market Makers
Market makers are openly competitive and facilitate competitive prices; as a result, investors generally will get the best price. As this competition is evident in the limited spreads, sometimes market makers on Nasdaq will act as catalysts for trades, much like specialists on the NYSE.
Making a Market: Why It's Important
"Making a market" signals a willingness to buy and sell the securities of a defined set of companies to broker-dealer member firms of that exchange. In short, market making facilitates a smooth flow of financial markets by helping investors and traders to buy and sell. Without market making, there might be insufficient transactions and less overall investment activity.
A specialist is a type of market maker.
NYSE: Specialists
Because the NYSE is traded in person and Nasdaq is electronic, specialists have more duties than do Nasdaq market makers, both in breadth and in volume. Specialists working on the NYSE must fulfill the functions below to ensure a fair and orderly market.
1. Auctioneer
Because the NYSE is anauction market, bids and asks are competitively forwarded by investors. The specialist posts these bids and asks for the entire market to see and ensure that they are reported in an accurate and timely manner. They also make sure that the best price is always maintained, that all marketable trades are executed, and that order is maintained on the floor.
The specialist must also set the opening price for the stock each morning, which can differ from the previous day's closing price based on after-hours news and events. The specialist determines the correct market price based on supply and demand.
2. Agent
The specialist can also accept limit orders relayed by investors through brokers or electronic trading. The specialist must ensure that the order is transacted appropriately on behalf of others, using the same fiduciary care as the brokers themselves, once the price of the stock has reached the limit criteria.
3. Catalyst
Because the specialists are in direct contact with the bidders and sellers of particular securities, they must ensure that enough interest exists for a particular stock. In cases where the bids and asks can't be matched, the specialist must seek out recently active investors. This aspect of the specialist's job helps to induce trades that may not have happened if the specialist had not been there to bring buyers and sellers together.
4. Principal
If there is a demand-supply imbalance in a particular security, the market maker must act as "principal" by making adjustments—buying and selling from their own inventory—to equalize the market. If the market is in a buying frenzy, the specialist will provide shares until the price is stabilized. A specialist will also buy shares for their inventory in the event of a large selloff.
FAQs
Nasdaq is a computer trading network that relies on multiple market makers—broker-dealers who are members of that exchange. A specialist is a type of market maker who works on the floor of the NYSE and specializes in trading specific stocks.
What is the difference between the NYSE and the NASDAQ How can I tell the difference in their company acronyms? ›
NASDAQ is an acronym for the “National Association for Securities Dealers Automated Quotations.” NYSE is an acronym for the “New York Stock Exchange.” NASDAQ is a dealer's market where buying and selling shares perform through a dealer who arranges the process.
Are the market makers in the NYSE called specialists? ›
At one time, a specialist was the term used by the New York Stock Exchange (NYSE) to refer to a member of the exchange who acted as the market maker to facilitate the trading of a given stock. The NYSE now refers to these individuals as designated market makers (DMM).
What are the main differences between the NYSE and NASDAQ stock markets? ›
The NYSE is an auction market, while NASDAQ is a dealer market. In an auction market, the highest bid for a stock matches the lowest asking price. In a dealer market, buying and selling happens in split seconds electronically through dealers.
What does a NYSE specialist do? ›
A specialist is a person who is a member of a stock exchange, such as the New York Stock Exchange, whose role is to facilitate trading in certain stocks. Specialists must make a market in the stock they trade by displaying their best bid and ask prices to the market during trading hours.
What is the difference between NYSE and Nasdaq disclosure requirements? ›
The NYSE requires waivers from the code of ethics and business conduct to be disclosed to stockholders. This can be accomplished by, among other options, posting on the company's website. Nasdaq requires waivers from the code of conduct to be disclosed.
Why do companies choose Nasdaq over NYSE? ›
The primary advantages for a company listing on the Nasdaq exchange are lower listing fees and lower minimum requirements to qualify for a listing. The fact that Nasdaq features all-electronic trading is considered an advantage by many traders as well.
Who are the 3 market makers? ›
Market Maker Responsibilities
They are obligated to post and honor their bid and ask (two-sided) quotes in their registered stocks. There are three primary types of market making firms based on their specialization: retail, institutional and wholesale.
Are market makers brokers or dealers? ›
What exactly do they do, and what are they responsible for? A market maker, sometimes called a designated broker (DB), is a broker/dealer or investment firm that plays an essential role in how an ETF trades and ensures the continued and efficient exchange of securities between buyers and sellers.
Who is the market maker for NASDAQ? ›
Definition of a Market Maker
A market maker is a NASDAQ member firm that buys and sells securities at prices it displays in NASDAQ for its own account (principal trades) and for customer accounts (agency trades).
A company can list its shares on more than one exchange, which is often referred to as a dual-listing. A stock can trade on any exchange in which it is listed. However, companies must meet all of the exchange's listing requirements and pay for any associated fees in order to be listed.
Do companies trade on both NYSE and Nasdaq? ›
Summary. Companies can list both on NYSE and NASDAQ; it is called dual listing. The liquidity of the stocks goes up after they list both on both the exchanges. Companies often prefer to go for dual listing for visibility and business expansion.
Is Apple on NYSE or Nasdaq? ›
Apple stock is traded on the NASDAQ Global Select Market under the ticker symbol AAPL.
What is the NYSE specialist scandal? ›
In the market collapse of 1987, Specialists were accused of not living up to their positive obligations — hiding when besieged by mobs of desperate sellers. Recently, in the scandal involving “pennying,” Specialists were accused of not living up to their negative obligations by scalping trades for a penny.
What are specialists now called at the NYSE? ›
The cornerstone of the NYSE market model is the Designated Market Maker (DMM). Formerly known as “Specialists”, DMMs have obligations for maintaining fair and orderly markets for their assigned securities.
How much does a NASDAQ specialist make? ›
NASDAQ Quality Assurance Test Specialist salary in India ranges between ₹ 11.5 Lakhs to ₹ 23.0 Lakhs with an average annual salary of ₹ 17.5 Lakhs. Salary estimates are based on 20 NASDAQ latest salaries received from various employees of NASDAQ.
What is the acronyms of NYSE? ›
New York Stock Exchange (NYSE)
What is the difference between NYSE and Nasdaq quizlet? ›
NASDAQ is a dealer's market unlike NYSE which is an auction market. NASDAQ is basically known as the market dealing in technology and the companies under it are allied with Internet and other electronics, unlike NYSE where mostly all the companies are well established.
How does the Nasdaq differ from the NYSE quizlet? ›
The main difference between Nasdaq and NYSE is their markets. Nasdaq is a dealer's market, with participants trading through a dealer rather than directly with each other, while NYSE is an auction market, which enables individuals to transact between each other on an auction basis.
What are the primary differences and similarities between the Nasdaq and NYSE? ›
The NYSE is known for listing the stock of traditional blue chip and industrial companies. The NASDAQ is home to a number of Internet, biotechnology, and other companies in growth-oriented sectors. As a result, stocks on the NASDAQ have higher volatility. Currently, there are around 2,800 companies listed on the NYSE.
