The Nasdaq Stock Market, located in New York City, is a major American stock exchange, second in market capitalization of shares traded. It is owned by Nasdaq Inc., with Nasdaq standing for the National Association of Securities Dealers Automated Quotations, also known as the Nasdaq Composite.
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About Nasdaq Stock Market
The Nasdaq began operations in 1971 as the world’s first electronic exchange, where securities are traded digitally. It operates 25 financial markets, one clearinghouse, and five central securities depositories across the US and Europe. As the second-largest stock exchange by market capitalization, it plays a crucial role in global finance.
Market makers at Nasdaq maintain stock inventories to facilitate buying and selling, providing two-sided quotes for bid and ask prices. Over 260 market-making firms offer liquidity for stocks listed on the Nasdaq index. Since 2006, Nasdaq has operated as a national securities exchange.
Sources of Revenue
Nasdaq generates revenue from financial institutions, corporations, brokers, and institutional investors through fees for:
- Market Services: Providing access to various markets.
- Investment Intelligence: Offering data, indices, and investment analytics to financial institutions, asset managers, and brokers.
- Market Technology: Including anti-financial crime technology solutions, trading, and settlement systems.
- Corporate Services: Including investor relations services and listing fees.
Nasdaq Financial Performance
Nasdaq reached a record closing in November 2021, with the composite index hitting 16,057.44, marking a gain of over 490% from January 2012 when it traded at 2,710.
Requirements for Listing on Nasdaq
Companies wishing to list on Nasdaq must submit an application, typically taking 4 to 6 months for approval. The Nasdaq listing qualifications team conducts a preliminary review and issues a comment letter. The company must address any issues raised, after which Nasdaq completes its review and approves the listing.
Market Tiers in Nasdaq Stock Market
Nasdaq operates three distinct market tiers:
The NASDAQ Global Select Market (NQGS)
- A market capitalization-weighted index of US and international stocks meeting stringent financial, liquidity, and corporate governance standards. Over 1,400 stocks are listed here, with the highest initial listing requirements worldwide. Companies must meet criteria in earnings, capitalization with cash flow, capitalization with revenue, or assets with equity, along with liquidity requirements.
The NASDAQ Global Market
- Comprising companies with international reach, meeting stringent criteria based on earnings, equity, market value, and total assets/revenue. A minimum of 1,100,000 publicly traded shares is required, with a minimum trading price of $4.
The NASDAQ Capital Market
- For early-stage companies with lower market capitalizations, typically listing small-cap stocks with market capitalizations between $300 million and $2 billion. Companies must adhere to corporate governance standards, including having a code of conduct, an audit committee, and independent directors. They must meet criteria under one of three listing standards.
Nasdaq Composite and Nasdaq 100 Indexes
- Nasdaq Composite Index: A broad index including over 3,000 common stocks, mainly from technology companies, but also from industries like oil, consumer goods, and healthcare.
- Nasdaq 100 Index: Tracks the 100 largest and most actively traded non-financial securities in the Nasdaq Composite, comprising 101 equity securities from the 100 largest non-financial companies. It is a modified capitalization-weighted index with rules to cap the influence of the largest components.
How to Invest in Nasdaq Stocks
To invest in Nasdaq-listed companies, you can purchase individual stocks through an online brokerage account. However, buying individual stocks can be risky, so diversifying your portfolio with shares from multiple companies is advisable to mitigate risk.
You can also invest in Nasdaq stocks through index funds or ETFs that hold Nasdaq company stocks. The Nasdaq is heavily influenced by technology-based companies, which can yield high or low returns. For the best investment strategy, consult a financial advisor to align your investments with your financial goals.