National Association of Securities Dealers Automated Quotation System

The National Association of Securities Dealers Automated Quotation System (NASDAQ) is the world’s largest electronic stock market. Created by the National Association of Securities Dealers (NASD) in 1971, NASDAQ is a computerized market system allowing 11,000 traders at 790 firms to buy and sell shares of stock. The NASDAQ processes 5,000 transactions per second. NASDAQ is called an over-the-counter market because there is no central location where shares are traded. On a typical day, 6.5 million quotes and 2.5 million trades are executed. In 2001 471 million shares were traded over the system. In 1971 NASDAQ began trading shares of 2,500 companies. Generally, companies listed on NASDAQ are smaller, less well-known corporation, which, when they grow in assets, leave the NASDAQ for the “big board,” the New York Stock Exchange (NYSE). Unlike the NYSE, where Wall Street specialists make a market in particular stocks, raising and lowering prices depending on the number of buy and sell orders, on the NASDAQ dealers list buy and sell orders on linked computer terminals. Sales are executed when there is a match between bids (buy) and offers (sell). There are 400,000 terminals in 83 countries, providing a huge, global market with liquidity and transparency. Liquidity, in a stock market, is the ease and speed of buying and selling shares. Transparency is openness, the ability to view buy and sell orders in the market. In 1994 NASDAQ surpassed the NYSE is yearly volume of shares traded. In 1999 it became the world’s biggest stock market in dollar volume. In the 1990s NASDAQ became the major market for new technology companies. The NASDAQ 100, an index of the 100 largest nonfinancial companies trading on the NASDAQ exchange, is considered the major technology index. Microsoft, one of the world’s largest companies, chose to remain on the NASDAQ rather than move to the NYSE. On many days Microsoft is the highest dollar-volume stock traded on the NASDAQ.