The Nasdaq Stock Market

The Nasdaq Stock Market (Nasdaq), one of the largest markets in the world for the trading of stocks. In 2001 more than 4,800 companies were listed on Nasdaq—more than on any of the other stock exchanges in the United States, including the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX). The majority of companies listed on Nasdaq are smaller or less established than most of those on the NYSE and AMEX. Nasdaq has become known as the home of new technology companies, particularly computer and computer-related businesses.

Trading on Nasdaq is initiated by stockbrokers acting on behalf of their clients. These brokers place orders with certain Nasdaq brokers, called market makers, who concentrate on trading specific stocks. The broker and the market maker negotiate to reach a price for the stock.

Unlike other stock exchanges, Nasdaq has no central location where trading takes place. Instead, its market makers are located all over the country and make trades by telephone and via the Internet. Because brokers and market makers trade stocks directly instead of on the floor of a stock exchange, Nasdaq is called an over-the-counter market. The term over-the-counter refers to the direct nature of the trading, as in a store where goods are handed over a counter.

The National Association of Securities Dealers started the National Association of Securities Dealers Automated Quotation (NASDAQ) system in 1971 to organize the over-the-counter market. Until then the over-the-counter market had few regulations, and traders often took unfair advantage of individual investors. In 1990 the Association formally changed the NASDAQ’s name to The Nasdaq Stock Market. In 1998 the National Association of Securities Dealers, the organization that manages the Nasdaq, merged operations with the American Stock Exchange to form the Nasdaq-AMEX Market Group. The new management organization maintains Nasdaq and AMEX as separate stock exchanges.