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 TodayNYSE/NASDAQ

Ownership: Public, for-profit

Market Type: Secondary markets Quote-driven Continuous market

aspects Hybrid structure

Technical: Price reporting,

regulation, price variation

Market Differences TodayNYSE 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