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Back in 1971, NASDAQ stood for National Association of Securities Dealers
Automated Quotations.3 NASDAQ was founded in 19714 by the National Association
of Securities Dealers (NASD), who divested themselves of it in a series of sales
in 2000 and 2001. It is owned and operated by the NASDAQ OMX Group, the stocks
of which was listed on its own stock exchange beginning July 2, 2002, under the
ticker symbol NDAQ. It is regulated by the Financial Industry Regulatory
Authority (FINRA), the successor to the NASD.
When the NASDAQ began trading
on February 8, 1971, it was the world's first electronic stock market. At first,
it was merely a quotation system and did not give a way to actually do
electronic trades.5 The NASDAQ helped lower the spread (the difference between
the bid price and the ask price of the stock) but was unpopular among brokerages
which made much of their money on the spread.
NASDAQ was the successor to the
over-the-counter (OTC) system of trading. As late as 1987, the NASDAQ exchange
was still commonly referred to as the OTC in media and also in the monthly Stock
Guides issued by Standard & Poor's Corporation.
Over the years, NASDAQ became
more of a stock market by adding trade and volume reporting and automated
trading systems. NASDAQ was also the first stock market in the United States to
start trading online, highlighting NASDAQ-traded companies (usually in
technology) and closing with the declaration that NASDAQ is "the stock market
for the next hundred years." Its main index is the NASDAQ Composite, which has
been published since its inception. However, its exchange-traded fund tracks the
large-cap NASDAQ-100 index, which was introduced in 1985 alongside the NASDAQ
100 Financial Index.
Until 1987, most trading occurred via the telephone, but
during the October 1987 stock market crash, market makers often didn't answer
their phones. To counteract this, the Small Order Execution System (SOES) was
established, which provides an electronic method for dealers to enter their
trades. NASDAQ requires market makers to honor trades over SOES.
In 1992, it
joined with the London Stock Exchange to form the first intercontinental linkage
of securities markets. NASD spun off NASDAQ in 2000 to form a publicly traded
company, the NASDAQ Stock Market, Inc.
In 2006, NASDAQ changed from stock
market to licensed national securities exchange.6
On November 8, 2007, NASDAQ
bought the Philadelphia Stock Exchange (PHLX) for US$652 million. PHLX is the
oldest stock exchange in America¡ªhaving been in operation since 1790.
To
qualify for listing on the exchange, a company must be registered with the
United States Securities and Exchange Commission (SEC), have at least three
market makers (financial firms that act as brokers or dealers for specific
securities) and meet minimum requirements for assets, capital, public shares,
and shareholders.
In February 2011, in the wake of an announced merger of
NYSE Euronext with Deutsche Börse, speculation developed that Nasdaq and
IntercontinentalExchange (ICE) could mount a counter-bid of their own for NYSE.
Nasdaq could be looking to acquire the American exchange's cash equities
business, ICE the derivatives business. As of the time of the speculation, "NYSE
Euronext¡¯s market value was $9.75 billion. Nasdaq was valued at $5.78 billion,
while ICE was valued at $9.45 billion."7 Late in the month, Nasdaq was reported
to be considering asking either ICE or the Chicago Merc to join in what would
probably have to be, if it proceeded, an $11¨C12 billion counterbid.8
The
European Association of Securities Dealers Automatic Quotation System (EASDAQ)
was founded originally as a European equivalent to NASDAQ. It was purchased by
NASDAQ in 2001 and became NASDAQ Europe, but operations were shut down as a
result of the burst of the dot-com bubble. In 2007, NASDAQ Europe was revived as
Equiduct and is currently operating under Börse Berlin.
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