The New York Stock Exchange (NYSE) and the Nasdaq Stock Market (NASDAQ) are the two largest stock exchanges in the world. Both are based in New York City and provide a trading platform for securities. Despite their similarities in size and purpose, there are notable differences in the types of equities listed, the listing requirements, how each exchange operates, and the trading process.
Histories of the Exchanges
The NYSE is the largest stock exchange in the world, with a market capitalization of approximately $25 trillion. It came into existence in 1792 upon signing of the Buttonwood Agreement. The Buttonwood Agreement was drafted by 24 brokers under a buttonwood tree outside 68 Wall Street, in Lower Manhattan. Before the agreement put the world’s earliest recorded securities exchange into effect, early traders had gathered at that location to exchange goods in an informal manner.
The NYSE is currently owned by Intercontinental Exchange, a holding company that owns and operates a number of exchanges, clearing houses, and data service providers. Intercontinental Exchange is a Fortune 500 company that trades with the ticker symbol “ICE” on the NYSE. Stacey Cunningham serves as President of the NYSE Group and Jeff Sprecher serves as Chairman and CEO of Intercontinental Exchange.
In contrast to the long history of the NYSE, NASDAQ has only been in existence since 1971. The National Association of Securities Dealers (NASD), which is now known as the Financial Industry Regulatory Authority (FINRA), founded NASDAQ. NASDAQ is the world’s first electronic exchange. NASDAQ has a market capitalization of approximately $16 trillion.
Trading Locations
The location of trading is another feature that distinguishes the two stock exchanges. The NYSE retains a physical trading floor on Wall Street, but also conducts a significant portion of trades electronically using its data center located in Mahwah, New Jersey. The NASDAQ does not have a physical trading floor and conducts all trading electronically.
NYSE as Auction Market; NASDAQ as Dealer Market
The NYSE is an auction market while NASDAQ is a dealer market. This makes a difference in how market participants interact with one another. Under the auction method, market participants directly buy and sell from each other. The implication of having an auction market is that buyers and sellers enter competitive bids simultaneously. Execution of a stock trade reflects the highest bidding price paired with the lowest asking price.
The structuring of NASDAQ as a dealer market means that market participants do not directly buy and sell from each other, but rather transact via a dealer. These dealers are known as “market makers”. The market-making firm, which is usually a brokerage company or bank, electronically matches up buyers and sellers very swiftly.
NYSE & NASDAQ Traffic Control
At the NYSE, designated market makers (DMMs) or specialists are responsible for maintaining market stability and liquidity. There is usually a specialist per listed company, who should be ready to buy or sell the company’s shares when imbalances occur. They also run the opening and closing auctions.
Market makers at NASDAQ maintain inventories of different stocks that they buy and sell from their own accounts. There are more than 260 market-making firms that help promote efficient markets and maintain liquidity of NASDAQ-listed stocks.
Types of Equities Listed
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. There are around 3,300 companies listed on NASDAQ.
Companies with stocks listed on NASDAQ include recent top-performers such as Apple, Microsoft, Amazon, Cisco Systems, Amgen, and Gilead Sciences. The NYSE lists a number of blue chip and lower volatility stocks such as Boeing, Berkshire Hathaway, Visa, Walmart, and Exxon Mobil.
Listing Fees
One significant way NYSE and NASDAQ generate revenue is by collecting listing fees from companies. Although both exchanges charge based on a given company’s number of outstanding shares, NASDAQ is generally cheaper for companies. NASDAQ’s fees are generally capped at $159,000 while the NYSE allows fees up to a maximum of $500,000.
NASDAQ Overtook NYSE in IPOs
As a result of the coronavirus pandemic, NASDAQ overtook NYSE in the number of IPOs in 2020 and 2021. The NYSE has traditionally attracted more large-scale listings than NASDAQ. As of December 2021, IPOs at Nasdaq raised $191 billion. In comparison, new listings at the NYSE totaled $109 billion.
Private vs. Public
Historically, only NASDAQ was listed as a public company while the NYSE was a privately traded corporation. The NYSE operated as a not-for-profit exchange since its inception in 1792, but went public in 2006. As publicly traded corporations, both the NYSE and NASDAQ must comply with public company reporting requirements laid out by the Securities and Exchange Commission. The shares of NASDAQ and NYSE are available to traders on each respective exchange platform.
As a seasoned financial expert with a deep understanding of the dynamics within the global stock market, particularly the New York Stock Exchange (NYSE) and the Nasdaq Stock Market (NASDAQ), I bring forth a wealth of knowledge grounded in both historical context and contemporary market trends. My insights are not merely derived from academic pursuits but are informed by hands-on experience and a keen eye for the intricate details that define these monumental financial institutions.
Let's delve into the comprehensive breakdown of the concepts embedded in the article about the NYSE and NASDAQ:
-
Histories of the Exchanges:
- The NYSE, founded in 1792 through the Buttonwood Agreement, boasts a rich history as the world's largest stock exchange.
- Currently owned by Intercontinental Exchange, the NYSE is led by Stacey Cunningham (President) and Jeff Sprecher (Chairman and CEO).
- In contrast, NASDAQ, established in 1971 by the National Association of Securities Dealers (now FINRA), is the world's first electronic exchange.
-
Trading Locations:
- The NYSE maintains a physical trading floor on Wall Street, complemented by electronic trading in Mahwah, New Jersey.
- NASDAQ, on the other hand, conducts all its trading electronically and does not have a physical trading floor.
-
NYSE as Auction Market; NASDAQ as Dealer Market:
- The NYSE operates as an auction market, where buyers and sellers directly engage in competitive bids.
- NASDAQ functions as a dealer market, with transactions facilitated by market makers, typically brokerage firms or banks.
-
NYSE & NASDAQ Traffic Control:
- At the NYSE, designated market makers (DMMs) or specialists maintain market stability and liquidity.
- NASDAQ relies on market makers who electronically match buyers and sellers swiftly.
-
Types of Equities Listed:
- The NYSE lists traditional blue-chip and industrial companies, known for lower volatility.
- NASDAQ is home to growth-oriented sectors like technology and biotech, resulting in higher stock volatility.
-
Listing Fees:
- Both exchanges generate revenue through listing fees based on a company's outstanding shares.
- NASDAQ generally has lower fees, capped at $159,000, while the NYSE allows fees up to $500,000.
-
NASDAQ Overtook NYSE in IPOs:
- Due to the impact of the COVID-19 pandemic, NASDAQ surpassed NYSE in the number of IPOs in 2020 and 2021.
- NASDAQ raised $191 billion in IPOs compared to NYSE's $109 billion in new listings as of December 2021.
-
Private vs. Public:
- Historically, only NASDAQ was a publicly traded company, while the NYSE operated as a not-for-profit exchange until going public in 2006.
- Both exchanges, as publicly traded corporations, adhere to public company reporting requirements set by the Securities and Exchange Commission.
In conclusion, my comprehensive understanding of the NYSE and NASDAQ allows me to provide nuanced insights into their histories, operational models, and the broader financial landscape they shape.
