What is the NASDAQ? - An Overview

From humble origins to 3,300 companies under its umbrella.

NASDAQ Stock Market
••• The NASDAQ, or National Association of Securities Dealers Automated Quotations, is a computerized network for trading stocks. It is headquartered in New York City. Many large companies, such as Microsoft, are traded on the NASDAQ.

If you buy or sell investments, you are likely aware that stocks move on exchanges that allow trading to take place. The New York Stock Exchange is the most well-known exchange, but the NASDAQ has emerged in the last quarter century as one of the largest as well. 

The NASDAQ is an electronic exchange where stocks are traded through an automated network of computers instead of a trading floor.

It stands for National Association of Securities Dealers Automated Quotations System and is the world's second-largest stock exchange based on market capitalization.

It trades listed stocks as well as over-the-counter (OTC) stocks. As a general rule of thumb, it is where most technology stocks are traded. A quick way to tell if a company is listed on the NASDAQ is to check out the ticker symbol. (e.g. Microsoft = MSFT, Dell Computers = DELL, Cisco = CSCO).

Major stocks that trade on the NASDAQ include Apple, Amazon, Microsoft, Facebook, Gilead Sciences, Intel, and Oracle.  

How The NASDAQ Was Created

In 1971, the National Association of Securities Details (NASD) set out to invent and create the world's first electronic stock market. When it opened its doors on February 7, 1971, the NASDAQ couldn't execute trades. Instead, it provided automated quotations. In the years following its founding, the NASDAQ regularly facilitated OTC trading, so much so that NASDAQ became synonymous with OTC and was often referred to as an OTC market in the media and trade publications.

Later, it added automated trading systems that could create trade and volume reports, and became the first exchange to offer online trading. Now, in 2018, the NASDAQ lists more than 3,700 companies and boasts the highest trade volume in the US market. More than $10 trillion worth of companies trade on the NASDAQ.

 

A history of the NASDAQ shows a track record of groundbreaking accomplishments. In addition to being the first exchange to offer electronic trading, it was the first exchange to launch a website, the first to store records in the cloud, and the first to sell its technology to other exchanges. 

NASDAQ Trading Hours

Just like the New York Stock Exchange (NYSE), the NASDAQ is open for trading between 9 a.m. ET and 4:30 p.m. ET.  However, NASDAQ offers traders "pre-market" and "post-market" hours.  Pre-market hours are from 4:00 AM to 9:30 AM ET, and post-market hours are from 4:30 PM to 8 PM ET.

NASDAQ Listing Requirements

For a stock or security to be listed on the NASDAQ electronic exchange, a company must meet certain requirements based on their finances, liquidity, and corporate governance, be registered with the Securities Exchange Commission (SEC), and have at least three market makers.  Once their application is submitted, it may take anywhere between 4 and 6 weeks for their listing to be approved.

NASDAQ U.S. Market Tiers

Based on the listing requirements, a company's stock will be listed in one of the three following market tiers. Companies listed in the Global Select Market must pass the most stringent requirements, while those listed in the Capital Market must pass the least stringent requirements.

  • Global Select Market
    This composite is made up of the stocks of 1,200 U.S. and international companies and is weighted based on market capitalization.  As I previously mentioned, companies listed here must pass NASDAQ's highest standards.  Global Market listings are surveyed annually by NASDAQ's Listing Qualifications Department and will move them to the Global Select Market if eligible.
  • Global Market
    NASDAQ's Global Market consists of 1,450 stocks of companies listed in the United States and internationally.  It is considered to be a mid-cap market. 
  • Capital Market
    Once called the SmallCap Market before NASDAQ changed the name, you'll find a large list of companies with smaller market capitalizations. 

Performance

Because the NASDAQ is largely made up of tech stocks, its overall performance has been very strong in the last quarter century.

As of June 2018, the NASDAQ-100 index, which includes the top 100 stocks in the exchange, reported a 5-year return of 155% and 240% over ten years. Meanwhile, its Biotechnology Index reported a 138% 5-year return and a 10-year return of 312%.