The NASDAQ and NYSE, both located in New York City, are the two largest stock exchanges in the world. The New York Stock Exchange (NYSE) has a larger market cap than the NASDAQ, which is known for its large selection of technology stocks (e.g., Google and Facebook). While trading on the NASDAQ is fully automated, the NYSE still uses human specialists to monitor and occasionally carry out its electronic trading. It is cheaper for companies to enter and stay listed on the NASDAQ exchange.
While both the NASDAQ and NYSE are located in New York City, the NYSE's location on Wall Street is generally considered more iconic, perhaps due to the exchange's human element. Though trading on the NASDAQ is fully automated, the NASDAQ still has a physical presence in New York City, owning a floor in the MarketSite tower that is at the center of Times Square.
How Trades Work
The way trades are executed is the biggest difference between the NYSE and NASDAQ. The NYSE is an auction market, so trades occur between buyers and sellers by matching their bid and ask prices respectively. If an investor wishes to buy stock that trades on the NYSE, her broker must call an order to the floor broker or enter it into the Universal Trading Platform (UTP). Each company's stock on the NYSE has a specialist who oversees all its trades; this person is not an NYSE employee but someone hired by the listing company. The specialist acts as an auctioneer to match buyers and sellers, as an agent to accept limit orders, and as a human support when markets are frenzied.
The NASDAQ is a little different. Instead of being an auction market, it's a dealer's market. Buyers and sellers make transactions through a dealer, also called a market maker. Stock brokers must either call the market maker to make a trade or enter an order into the online execution system. In the same system, market makers are also required to enter their prices (for both buying and selling) that they will honor for each security. The electronic trading system then matches the buyers and sellers and executes the trade.
In order for a security to be listed on the NASDAQ, a company must submit an application and meet the following initial requirements:
- Must have a minimum of 1,250,000 publically traded shares, with a regular bid price of at least $4.
- Must have at least three market makers for its stock.
- Must meet stringent government standards.
- Must either have aggregate pre-tax earnings in the past three years of at least $11 million, in two years at least $2.2 million, and no one year with a net loss, or a minimum aggregate cash flow of at least $27.5 million for the past three years, with market capitalization over the last 12 months of at least $550 million, with revenues at least $110 million. If a company has an average market capitalization over the last 12 months of at least $850 million and revenues over the last year of at least $90 million, it can also be listed.
To be listed on the NYSE, a company must submit a request along with the following: a list of corporate bylaws, five years of annual shareholder reports, copies of the company’s stock or bond certificates, the current year’s Form 10-K, a proposed schedule of expected stock distribution, and a proxy statement from the current year’s annual shareholder meeting.Moreover, the company is required to meet the following guidelines:
- Must issue at least 1.1 million shares to at least 400 shareholders.
- Market value of public shares must be at least $40 million, with a minimum share price of $4.
- Must have $10 million in aggregate pre-tax earnings for the last three fiscal years, including $2 million in most recent year. If this requirement cannot be met, the companycan also apply based on a global market capitalization of at least $500 million, with revenues of at least $100 million in the last year, and no negative cash flow in the three most recent years. The company can also be listed based on revenues of at least $75 million in the last fiscal year.
The entry fee companies must pay to list stocks on the NASDAQ exchange is $50,000 to $75,000. Yearly fees are usually around $27,500.
The entry fee to list stocks on the NYSE is up to $250,000. Yearly fees are based on the number of shares listed and are capped at $500,000.
Listings fees are very profitable for the NASDAQ and NYSE. In 2011, the NASDAQ made $372 million, or roughly 22% of all its revenue, from listing fees and similar corporate services. For the NYSE, listing fees and similar corporate services accounted for 17% of its 2011 revenue, or $446 million.
Companies Listed on Each Exchange
As of 2014, over 1,860 companies are listed on the NYSE with a market cap of $16.6trillion. The NASDAQ lists just over 2,900 companies with a market cap of over $ 8.5 trillion.
Examples of companies that trade on the NASDAQ include Apple, Facebook, Google, Microsoft, Intel, Kraft Foods, and Sun Microsystems. Examples of companies that trade on the NYSE are Bank of America, Coca-Cola, Wal-Mart, Citigroup, and General Electric.
The NASDAQ is perceived as a high-tech exchange and includes many firms that deal with the Internet or electronics. Its stocks are considered more volatile and growth oriented. Meanwhile, the NYSE is considered to be the exchange for well-established companies that have stable and established stocks.
NASDAQ indices include the NASDAQ Composite, NASDAQ-100, and NASDAQ Biotechnology.
Indices on the NYSE include the Dow Jones Industrial Average and NYSE Composite.
Other indices, like the S&P 500 and Russell 1000, include stocks listed on both exchanges.