1.5 The Exchanges
Stock exchanges are organized marketplaces where securities trade. The two dominant U.S. exchanges - NYSE and NASDAQ - have different structures, histories, and personalities.
What Is a Stock Exchange?
A stock exchange is a regulated marketplace where securities are bought and sold. Exchanges provide:
- Liquidity - A ready market for buying and selling
- Price transparency - Public display of bid and ask prices
- Standardized rules - Consistent trading practices
- Investor protection - Regulatory oversight and listing standards
The New York Stock Exchange (NYSE)
The New York Stock Exchange is the world's largest stock exchange by market capitalization of listed companies. Founded in 1792, it's often called "The Big Board."
Key Characteristics
Type: Auction market with Designated Market Makers
Founded: 1792 (Buttonwood Agreement)
Location: 11 Wall Street, New York City
Companies Listed: About 2,400
Trading Hours: 9:30 AM - 4:00 PM ET
How NYSE Trading Works
1. Orders flow to the exchange electronically or through floor brokers
2. Designated Market Makers (DMMs) maintain orderly markets in assigned stocks
3. Price discovery occurs through auction process
4. Trades execute when buy and sell orders match
DMMs (Formerly Specialists)
Designated Market Makers have special responsibilities:
- Maintain fair and orderly markets
- Provide liquidity during imbalances
- Set opening prices each day
- Quote continuous bid and ask prices
NYSE Listing Requirements
To list on the NYSE, a company must meet stringent standards:
Pre-tax earnings: $10 million over 3 years
Market cap: $100 million
Public float: 1.1 million shares
Share price: $4.00 minimum
Shareholders: 400 round-lot holders
NASDAQ
NASDAQ (National Association of Securities Dealers Automated Quotations) is the world's first electronic stock exchange. It's known for listing many technology and growth companies.
Key Characteristics
Type: Electronic dealer market
Founded: 1971
Location: No physical trading floor (electronic)
Companies Listed: About 3,300
Trading Hours: 9:30 AM - 4:00 PM ET
How NASDAQ Trading Works
1. Multiple market makers compete on each stock
2. Electronic quotations display bid and ask prices
3. Orders execute through automated matching systems
4. Competition among dealers keeps spreads tight
NASDAQ Tiers
NASDAQ has three listing tiers with different requirements:
NASDAQ Global Select: Largest, most liquid companies; Highest standards
NASDAQ Global Market: Mid-cap companies; Moderate standards
NASDAQ Capital Market: Smaller companies; Lower thresholds
NASDAQ Listing Requirements (Capital Market)
Stockholders' equity: $5 million
Market value of listed securities: $15 million
Public float: 1 million shares
Share price: $4.00 minimum
Shareholders: 300
NYSE vs. NASDAQ: Key Differences
Market Type: NYSE - Auction; NASDAQ - Dealer
Trading Venue: NYSE - Physical floor + electronic; NASDAQ - Fully electronic
Liquidity Providers: NYSE - DMMs; NASDAQ - Multiple market makers
Company Profile: NYSE - Traditional, blue-chip; NASDAQ - Tech, growth companies
Listing Costs: NYSE - Higher; NASDAQ - Lower
Prestige: NYSE - Historic reputation; NASDAQ - Innovation reputation
Which Companies List Where?
NYSE tends to attract:
- Established, blue-chip companies
- Financial services firms
- Industrial companies
- Companies seeking traditional prestige
NASDAQ tends to attract:
- Technology companies
- Biotech and healthcare firms
- Growth-oriented companies
- Companies preferring electronic trading
Listing and Delisting
Why Companies List
- Access to capital - Easier to raise money
- Liquidity - Investors can easily buy and sell
- Visibility - Increased profile and credibility
- Currency for acquisitions - Use stock for M&A
Maintaining a Listing
Companies must continue meeting standards to stay listed:
- Minimum share price (typically $1.00)
- Minimum market capitalization
- Timely financial reporting
- Corporate governance requirements
Delisting
Companies can be delisted for:
- Falling below minimum price ($1.00) for extended periods
- Failing to meet financial requirements
- Bankruptcy
- Failure to file required reports
Other U.S. Exchanges
While NYSE and NASDAQ dominate, other exchanges exist:
NYSE American: Small-cap stocks (formerly NYSE MKT)
CBOE: Options trading
IEX: "Investors Exchange" - designed to reduce high-frequency trading advantages
BATS/Cboe BZX: Electronic exchange competing for order flow
Extended Hours Trading
Both NYSE and NASDAQ offer trading outside regular hours:
Pre-market: 4:00 AM - 9:30 AM ET
Regular session: 9:30 AM - 4:00 PM ET
After-hours: 4:00 PM - 8:00 PM ET
Note: Extended hours trading has lower liquidity and wider spreads.
Key Takeaways
- The NYSE is an auction market with physical and electronic trading
- NASDAQ is a fully electronic dealer market
- Both have listing requirements that companies must meet and maintain
- DMMs (NYSE) and market makers (NASDAQ) provide liquidity
- Companies can be delisted for failing to meet ongoing standards
- Most trading now occurs electronically on both exchanges