Final_nyse vs. Nasdaq

8/7/2019 Final_nyse vs. Nasdaq

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Jyotsana Rawat RashmiUpasana Chourasia



h Stock market is a secondary market which provides amechanism where sellers and buyers of shares caninteract.

h Functions of SM in economy:

Primary market allows companies to access capital forfinancing projects.

Provide investment and diversification opportunities to

investors. Aggregation of information on supply and demand

conditions of stocks.

What is a Stock ExchangeWhat is a Stock Exchange



Stock market TransactionStock market Transaction

BUYINGBROKER

SETTLEMENT

CLEARING

MARKETPLACE

SELLINGBROKER



h Participants: Investors, Broker, Specialists, otherintermediaries, Clearing house, Depositary,Issuers, and Regulator.

h Categories of trading mechanism:

Quote Driven

Order Driven Continuous

Call or batch market

Working of exchangesWorking of exchanges



h History

Founding agreement in 1792.

Earlier was called New York Stock and Exchange Board.

Established first disclosure requirements for listedcompanies in 1853.

Adopted the specialist system in 1869. Also continuoustrading replaced call market.

By early 1920s, NYSE accounted for ¾ of listed securitytransactions.

Toughest competition was from OTC.



h History

Commenced trading on February 8, 1971.

2,500 OTC stocks were traded on the NASDAQ's first trading day.

means to increase the trading of Over-the-Counterstocks.

world's first electronic stock market.

h NASD was charged with providing automation and thusresulted in establishment of NASDAQ.

h It has no physical trading floor. NASDAQs central computers areconnected with terminals in market makers offices.



Small order execution system(SOES) was madecompulsory in 1987 after stock market crash.

h SOESprovides an electronic method for dealers to enter their

trades and market makers to honor these trades upto 1000shares.

SelectNet: another means to communicate order to theMarket Maker for sizes in excess of the allowable SOES

limit.h Automatic execution.



h History:

It is the oldest exchange in Asia. It traces its history to the 1850s.

First stock exchange in India, recognized in 1956.

Developed the BSE Sensex in 1986, giving the BSE a means tomeasure overall performance of the exchange.

Became an electronic trading system in 1995 with setting up of BSEOn ine Trading facility (BO T).

h Capacity- 8mn orders per day.

Expansion of BSE trading platform in the year 2000:h opened to derivatives market, Sensex futures contract.

h development of Sensex options.



h In 1938, hired 1st paid president and 33 memberboard of governors.

h

In 2002, mutually owned by itsmembers(nos.1366)

Only member firms were allowed to directly buy andsell.

Seats of a retiring member could be bought or seatscould be leased as well.

h For profit corporation.



h Earlier NASD had control and ownership of NASDAQ.

h Now, NASDAQ OMX Group has the possession of the stock exchange.

Trading its shares on its own exchange under the ticker

symbol NDAQ.



h The day-to-day operation is managed by the Board of Directors.

h The Board works to benefit from the market

intermediaries participation.h Has full authority to control and formulates large trade

policies.

h To safeguard market integrity and to operate with

transparency.



h Major participants: Specialist, floor brokers, stock brokersand investors.

h Order placement: Investors -> Stock brokers -> Floor

brokers -> Specialist.



h Condition for trading:

certification by SEC and

to be registered with NASDAQ and NASD regulation.

h NASDAQ participants:

Market makers:

h Fill orders for customers and their own account.

h Commit their own capital to the traded securities.

h They quote bid and ask price for select securities.

h Minimum market makers for a security is 2 while there is nolimit on maximum number.



Alternative trading systems (ATS):

h Electronic Communication Networks (ECN).

h Electronic order matching facility for investor to trade directly

with one another.h Did not hold inventory.

h Display of their best buy/sell order on NASDAQ.

h Provided anonymity.

Order-Entry Firms:h Route orders to the Nasdaq for execution against displayed

orders and quotations.

h To increase liquidity and competition.



Original fees + Annual feesisting Fees (33.4%)

Sells its market data to vendors likeBloomberg.

Market DataFees(18.1%)

As an SRO, NYSE is responsible for its

own regulation and enforcement, this isrecovered through regulatory fees.

Regulatory Fees

(17.2%)

Members pay the trading fees.(proportional to volumes)

Trading Fees(16.4%)





Me ers a t e tra i fees.Tra iMe ers (29%)

I vest e t &De osits (53%)

Listi fees w ic e e e o arket i w ict e co a was liste a its outsta i s ares.

Services toCor orates ( %)

Trai i I stitute(2%)

Ot er I co e(9%)



SimilaritiesSimilarities

h These organizations are similar becausethey are well known in the trading sector,

and offer high-end services.h They are publicly traded organizations.



DifferencesDifferences

NYSE

1. New York Stock Exchange.

2. NYSE is an auction market.

3. NYSE comprises of olderand more established

companies, that are mostlyvast industries, and blue

chip organizations.

NASDAQ

1. National Association of Securities Dealers

Automated Quotation.

2. NASDAQ is a dealers market.

3. Components are basicallyelectronics, technology andInternet-based companies.

Often determined as a high-tech market



NYSE

4. NYSE handles itstransactions on the basis of

physical trading.

5. NYSE is said to be a typicalmarket where people tradeon behalf of their

companies.6. higher listing requirements

7. An individual responsiblefor controlling the trades iscalled a Specialist.

NASDAQ

4. NASDAQ stocks are traded onthe basis of a

telecommunication network.

5. NASDAQ investors are

facilitated with a direct contact system.

6. lower listing requirements7. An individual responsible

for controlling the trades inthis case is the Market-

maker, which is the Dealer.

DifferencesDifferences ContdContd



NYSE

8. Specialist has an

affirmative obligation.9. Highest fee payable for a

listing is $2,50,000 +yearly fee is around$5,00,000.

10. NYSE has more constant fluctuation within itsprices.

NASDAQ

8. The dealer has noaffirmative obligation.

9. Highest cost of investment for a listing onNASDAQ is $1,50,000 +annual fee of $60,000.

10. NASDAQ stocks areconsidered to have highvolatility.

NASDAQ would be the more cost effective for investment. (Based on feerequirements)

DifferencesDifferences ContdContd



h 1.1 mn

h $60 mn - $100 mn

h $ 2.5 mn - $ 4.5 mn

h N/Ah N/A

h 1.1 mn

h $8 mn - $20 mn

h $ 1 mn

h $5h 3 - 4

Listing requirementsListing requirements

NYSE (Initial) NASDAQ (Initial)

1. No. of publicallylisted shares

2. Market value of publically heldshares

3. Pre Tax income past year

4. Minimum bid price5. Number of activemarket makers



h 600,000

h $15 mn - $50 mn

h N/A

h $1h N/A

h 750,000 - 1.1 mn

h $5 mn - $15 mn

h N/A

h $1- $3h 2 - 4

Listing requirementsListing requirements

NYSE (Continued listing)

1. No. of publicallylisted shares

2. Market value of publically heldshares

3. Pre Tax income past year

4. Minimum bid price5. Number of activemarket makers

NASDAQ (Continuedlisting)



h Classification of companies:

Large Cap:

h

minimum issue size of Rs. 10 crore and market capitalization of not less than Rs. 25 crore.

Small Cap:

h minimum issue size of Rs. 3 crore and market

capitalization of not less than Rs. 5 crore.



SummarySummary

h There are more stringent rules for listings on theNYSE.

h The NYSE has SETS that are sold to traders.

h The NYSE trades on the basis of double auction.h NASDAQ succeeds in the OTC market.

h NASDAQ is not a physical exchange, and trades areaccomplished through an electronic network.

h NASDAQ consists of market makers, instead of specialists.

h Unlike the NYSE, NASDAQ is considered to have highvolatility.





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