Trading on the NYSE and NASDAQ Exchanges
BA 543 – Mike Carrigg
Overview
Timeline Similarities
and Differences
Trading Mechanisms
Other Trading Methods
History
NYSE
1792 – Founded 2000 – Rule 390
Eliminated 2005 – Hybrid Market
Launch 2006 – Acquired
Archipelago 2006 – NYSE made
Public 2007 – Euronext
Merger 2008 – Amex
Acquistion
NASDAQ
1971 – Founded 1978 – Amex Merger 1987 – Small Order
Execution System (SOES)
2002 – SuperMontage 2005 – Acquired
Instanet 2007 – Acquired PHLX
Market Similarities Today
NYSE/NASDAQ
Ownership: Public, for-profit
Market Type: Secondary markets Quote-driven Continuous market
aspects Hybrid structure
Technical: Price reporting,
regulation, price variation
Market Differences Today
NYSE
Market Order-driven market Auction type Specialists system Physical Location
Mechanisms SuperDOT Broker-dealer Commission broker Floor Brokers Registered Traders
NASDAQ
Market Dealer-quote driven
market Market-makers No physical location
Mechanisms SOES and
SuperMontage NMM Small Cap Market
Trading at NYSE
Originally You/Firm > Broker > Floor
Broker > Execution Specialist (agents &
principals) auction system Open/close with call
market, continuous normally
Now You/Firm > Broker > Floor
Broker/SuperDOT > Execution
Specialists, broker-dealers, commission brokers, registered traders
Trading at NYSE
Role of the Specialist NYSE-listed stock assigned to a specialist Match bid/ask prices for execution Balance for liquidity by holding shares to
maintain market equilibrium Establish a fair price for stocks at day
start Can also execute stop orders
Trading at NASDAQ
Originally You > Broker > Market Maker >
Execution Purely quote-driven, “fragmented”
Now Market Maker, SOES, and SuperMontage PHLX – physical floor space NMM – Outstanding of $1.1 mil at
$1/share Small Cap – those not meeting NMM
Trading at NASDAQ
Role of the Market Makers Assigned to stock by average daily
volume Once order is received, sells from
inventory or locates an offsetting order Ensure a buyer for every sell order and a
seller for every buy order Enhance market liquidity and long-term
market growth
Other Trading Mechanisms ECN (Electronic Communication Network)
Off-exchange brokers connecting buyers and sellers
Rule 390 ATS (Alternative trading System)
Direct trading without the use of a broker ITS (Intermarket Trading System)
Allows traders to move to other exchanges for best price
Algorithmic Trading Splits large orders into smaller ones, NYSE
trade size reduction from 2000 to 330
Questions?
Resources Investopedia Staff. "Electronic Trading Tutorial."
Investopedia. 2010. Web. 15 Apr. 2011. <http://www.investopedia.com/university/electronictrading/trading1.asp>.
Investopedia Staff. "The NYSE and NASDAQ: How They Work." Investopedia. Web. 15 Apr. 2011. <http://www.investopedia.com/articles/basics/03/103103.asp>
NASDAQ. Web. 16 Apr. 2011. <http://www.nasdaq.com/>. NYSE. Web. 16 Apr. 2011. <http://www.nyse.com/>.
Image Sources NASDAQ.com, NYSE.com, dealbreaker.com, ceoworld.biz
Trading on the NYSE and NASDAQ Exchanges
BA 543 – Mike Carrigg
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