The two largest stock exchanges in the U.S. - NASDAQ and NYSE - use slightly different trading mechanisms. While trades on NASDAQ are entirely automated, the New York Stock Exchange (NYSE) uses designated specialists for each stock who act as a human backstop in case something goes wrong with electronic trading. NASDAQ has cultivated its image as the exchange for successful technology companies. It's the second largest exchange in the world by market cap; NYSE is the largest.
The New York Stock Exchange has a physical presence in New York City on Wall Street. The buying and selling of shares occurs on the trading floor. NASDAQ on the other hand is an automated exchange where trades occur virtually over the Internet.
edit How Trades Work
The way trades are executed is the biggest difference between 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 DOT system. Each stock on the NYSE has a specialist who oversees all its trades (this person is not an NYSE employee but 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 backstop when markets are frenzied.
The NASDAQ is a little different. Instead of an auction, it's a dealer's market. So buyers and sellers are transacting not with each other directly but 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.
edit Listing Process
In order for a security to be listed on NASDAQ, it must meet initial requirements and submit an application. Companies must have a minimum of 1,250,000 publically traded shares. The regular bid price must be $4, and there must be at least 3 market makers for the stock. Companies must meet stringent government standards. Companies must also either have aggregate pre-tax earnings in the past 3 years of at least $11 million, in two years at least $2.2, and no one year with a net loss, or a minimum aggregate cash flow of at least $27.5 million for past 3 years, with market capitalization over 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 and revenues over 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 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. They 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. A company must have $10 million in aggregate pre-tax earnings for the last 3 fiscal years, including $2 million in most recent year. If this requirement cannot be met, it can 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 three most recent years. It can also be listed based on revenues of at least $75 million in the last fiscal year.
edit Listing Fee
The entry fee to list stocks on NASDAQ is $50,000-$75,000. Yearly fees are usually around $27,500.
The entry fee to list stocks on NYSE is up to $250,000. Yearly fees are based on the number of shares listed and capped at $500,000.
For Nasdaq, listings and corporate services contributed $372 million in 2011, about 22% of its total revenue. For NYSE, listings and corporate services brought in $446 million last year, about 17% of revenue.
edit Companies listed on each exchange
There were 2,308 companies listed on NYSE with a market cap of $14 trillion (as of December 2011). The corresponding numbers for NASDAQ were 2,784 companies with a market cap of $4.4 trillion.
Examples of companies that trade on NASDAQ include Microsoft, Cisco, Intel, Oracle and Sun Microsystems. Examples of companies that trade on NYSE are Coca-Cola, Wal-Mart, Citicorp and General Electric.
NASDAQ is perceived as a high-tech market and includes many firms that deal with the internet or electronics. Its stocks are considered more volatile and growth oriented.
NYSE is considered to be the market for well-established companies, with stable and established stocks.
Indices on NASDAQ include NASDAQ Composite, NASDAQ-100 and NASDAW Biotechnology.
Indices on the NYSE include the Dow Jones Industrial Average, S&P 500 and NYSE Composite.