What is the NASDAQ?
What is the NASDAQ? The NASDAQ (National Association of Securities Dealers Automated Quotations) is an American stock exchange that was founded in 1971 and is based in New York City. It is known for being the first electronic stock market and is the second largest stock exchange in the world by market capitalization, after the New York Stock Exchange (NYSE). The NASDAQ is home to many technology-focused companies, including Apple, Amazon, and Microsoft, among others. It is known for its use of advanced technology to provide efficient and transparent trading in a variety of securities, including stocks, bonds, and exchange-traded funds (ETFs).
How Does the Nasdaq Work?
The NASDAQ works by matching buyers and sellers of securities in a centralized marketplace, with the aim of providing fair and efficient prices for investors. Here is a general overview of how the NASDAQ operates:
- Listing Requirements: Companies must meet certain listing requirements, such as minimum financial standards and good governance practices, in order to have their stock listed on the NASDAQ.
- Trading: When a buyer wants to purchase a security, they place an order through their brokerage firm. The brokerage firm then sends the order to the NASDAQ’s electronic trading system. If there is a matching sell order for the same security, the NASDAQ’s system will execute the trade automatically, at the best available price.
- Market Makers: Market makers play a critical role in the NASDAQ by providing liquidity to the market. Market makers are firms that buy and sell securities on behalf of their clients and are required to maintain continuous two-sided quotes for the securities they make a market in. This helps to ensure that there are always buyers and sellers available for a given security.
- Price Discovery: The NASDAQ operates on a price discovery mechanism, where the price of a security is determined by the supply and demand in the market. The NASDAQ’s electronic trading system helps to ensure that prices are determined fairly and efficiently, by continuously matching buy and sell orders in real time.
- Regulatory Oversight: The NASDAQ is regulated by the Securities and Exchange Commission (SEC), which oversees the operations of all stock exchanges in the United States. The NASDAQ is also subject to various rules and regulations aimed at ensuring fairness and transparency in the markets.
These are some of the basic elements of how the NASDAQ operates. The NASDAQ is known for its cutting-edge technology and has been at the forefront of the electronic trading revolution, making it a key player in the global financial markets.
History of the Nasdaq
The NASDAQ was created by the National Association of Securities Dealers (NASD), which was a self-regulatory organization for the securities industry in the United States. The NASD was established in 1939 to regulate and oversee the activities of its member firms, which were primarily involved in the over-the-counter (OTC) market for securities.
In the late 1960s, the NASD recognized the need for a more efficient and transparent method of trading OTC securities and began developing a new electronic exchange to meet this need. The NASDAQ was officially launched on February 8, 1971, as a way to provide real-time market data and automate the process of buying and selling stocks.
The NASDAQ has since evolved into a standalone stock exchange that operates independently of the NASD. Today, it is one of the largest and most influential stock exchanges in the world, known for its innovative use of technology and its focus on high-growth and technology-focused companies.
The Difference Between the NASDAQ and the DOW
The Dow Jones Industrial Average (Dow) and the NASDAQ are two of the most well-known stock market indices in the United States. While both provide a measure of the performance of the stock market, there are several key differences between the two:
- The Dow is comprised of 30 large, blue-chip companies that are considered to be representative of the U.S. stock market as a whole. The NASDAQ, on the other hand, is comprised of a much larger and more diverse group of companies of about 4000, including both small-cap and large-cap firms across a variety of industries.
- The Dow is a price-weighted index, meaning that the stocks with the highest prices have the greatest impact on the index’s value. The NASDAQ, on the other hand, is a market-cap-weighted index, meaning that the companies with the largest market capitalizations have the greatest impact on the index’s value.
- The Dow has a focus on traditional, established companies in mature industries, while the NASDAQ has a focus on technology and high-growth companies. As a result, the NASDAQ is often seen as a leading indicator of technology and innovation trends.
- Because the NASDAQ has a larger and more diverse group of companies, it tends to be more volatile than the Dow. This means that its value can fluctuate more rapidly and widely in response to market events and economic news.
Both the Dow and the NASDAQ provide valuable insights into the performance of the stock market, but they offer different perspectives and are used by different types of investors for different purposes.
What Are the Three Market Tiers of the NASDAQ?
The NASDAQ operates three market tiers, which are designed to provide a range of listing options for companies of different sizes and stages of development. The three market tiers are:
- NASDAQ Global Select Market: This is the highest tier of listing on the NASDAQ and has the most stringent requirements. Companies must have a minimum market capitalization of $250 million and a minimum of 1,250,000 publicly held shares. They also must have 450 unrestricted round lot shareholders and a minimum price bid of $4.00.
- NASDAQ Global Market: Companies must have a minimum market capitalization of $75 million and a minimum of 1 million publicly held shares. They must also have 400 unrestricted round lot shares, 4 market makers, and a minimum bid price of $4.00.
- NASDAQ Capital Market: The Capital Market is the lowest tier of the NASDAQ and is designed to provide a listing platform for small-cap and emerging growth companies that do not meet the listing requirements of the Global Select Market or the Global Market. Companies listed on the Capital Market are subject to fewer regulatory requirements, but must still meet basic financial and operational standards. Companies must have a minimum market capitalization of $5 million and a minimum of 1,000,000 publicly held shares. They also must have 300 unrestricted round lot shares, 3 market makers, and a minimum bid price of $4.00 or a closing price of $3.00
Each of the NASDAQ’s market tiers provides different benefits and challenges for listed companies, and companies may choose to list on the NASDAQ based on their specific needs and goals. Regardless of the tier, all companies listed on the NASDAQ have access to the exchange’s advanced trading technology and market data services, as well as to the broader investment community.
How to Get Listed on the NASDAQ?
Getting listed on the NASDAQ stock exchange can be a complex process, but it can also provide many benefits for a company, including increased visibility, liquidity, and credibility. Here are the steps that a company needs to follow to get listed on the NASDAQ:
- Meet Listing Requirements: The first step in getting listed on the NASDAQ is to ensure that the company meets the exchange’s listing requirements. This includes financial standards, such as minimum revenue and net income, as well as governance and reporting standards.
- Choose a NASDAQ Tier: Choose from the following:
- NASDAQ Global Select Market: Must pay a $270,000 flat fee plus a $25,000 application fee, and an annual fee of $50,000 to $173,500 depending on the number of shares.
- NASDAQ Global Market: Must pay a $270,000 flat fee plus a $25,000 application fee, and an annual fee of $50,000 to $173,500 depending on the number of shares.
- NASDAQ Capital Market. For up to 15 million outstanding shares there is a $50,000 plus a $5000 application fee. For over 15 million outstanding shares there is a $75,000 fee plus a $5,000 application fee, and an annual fee of $47,000 to $84,000 depending on the number of shares. Companies should choose the most appropriate tier for their size and financial position.
- Prepare an Application: The next step is to prepare a listing application, which will provide detailed information about the company, its financials, and its business operations. The application should be complete and accurate and should be reviewed by a securities lawyer to ensure compliance with regulatory requirements. Some of the forms that need to be filled out are:
- Listing Agreement
- Logo Submission Form
- Corporate Governance Certificate Form
- Regulatory Correspondence over the past 12 months
- Shareholder Confirmation Documents
- Letter from 3 Market Makers
- ETF Data Template
- Submit the Application: The company should submit its listing application to the NASDAQ, along with the required fees. The NASDAQ will then review the application and perform due diligence on the company to ensure that it meets the exchange’s listing standards.
- Complete the Listing Process: If the NASDAQ determines that the company meets its listing requirements, it will then proceed with the listing process. This includes providing the company with a listing agreement and establishing a trading symbol for the company’s stock.
- Start Trading: Once the NASDAQ has completed the listing process, the company’s stock will begin trading on the exchange. Companies will be required to comply with ongoing reporting requirements, including the filing of periodic financial statements and other disclosures.
These are the basic steps involved in getting listed on the NASDAQ. The process can be complex and time-consuming, and companies may also need to engage the services of a financial advisor or securities lawyer to help guide them through the process. However, getting listed on the NASDAQ can be a significant milestone for a company and can help to increase its visibility and credibility with investors.
How Can a Company Avoid Delisting on the NASDAQ?
To avoid delisting on the NASDAQ stock exchange, a company must meet certain listing requirements. These requirements are designed to ensure that only companies with a strong financial track record and good governance practices are listed on the exchange. Here are some of the key listing requirements for companies on the NASDAQ:
- Companies MUST continue to meet the minimum financial requirements in terms of revenue, net income, and market capitalization.
- Companies MUST maintain a minimum number of publicly held shares and a minimum level of shareholder approval to continue to be listed on the NASDAQ.
- Companies MUST continue to comply with NASDAQ’s corporate governance standards, which include requirements for board composition, shareholder voting rights, and executive compensation.
- Companies MUST regularly report their financial results and other information to the SEC and NASDAQ. This includes filing periodic reports such as 10-Ks and 10-Qs, as well as providing timely updates on material events and financial results.
- Companies MUST maintain a minimum number of market makers available to make a market in their share.
- Companies MUST take prompt action to address any compliance issues that arise.
- Companies MUST stay transparent with the NYSE and regularly engage with them to address any concerns or questions they may have.
- Companies MUST have contingency plans in place to address any unexpected financial or operational challenges.
- Companies MUST maintain a minimum of $1.00 per share listing on the NASDAQ. If a company’s closing bid price falls below $1.00 for 30 consecutive business days, NASDAQ will notify the company and provide a grace period of up to 180 calendar days to regain compliance.
These are just some of the key listing requirements for companies on the NASDAQ. If a company fails to meet these requirements, it may face delisting from the exchange or other penalties.
How to Contact the NASDAQ?
You can contact the NASDAQ in several ways:
- Phone: The NASDAQ has a customer service hotline that you can reach by calling (212) 401-8700 or (212) 417-7310. The hotline is available from 9:30 a.m. to 4:00 p.m. Eastern Standard Time.
- Email: You can send an email to the NASDAQ by using the contact form on the NASDAQ website: https://www.nasdaq.com/contact-us
- Mail: You can send a letter to the NASDAQ at the following address:
NASDAQ One Liberty Plaza 165 Broadway New York, NY 10006 USA or
- Social Media: You can also reach the NASDAQ through its social media accounts on Twitter (@NASDAQ) and Facebook (NASDAQ).
Regardless of the method you choose, the NASDAQ will make every effort to respond to your inquiry in a timely and professional manner.