What is the difference between US stock exchanges?
Marcie asks:
For example, between the NASDAQ and Dow Jones. Are they each associated with particular industries? If they are not associated with particular industries, I don’t understand the reason they do not always move in the same direction.
For example, between the NASDAQ and Dow Jones. Are they each associated with particular industries? If they are not associated with particular industries, I don’t understand the reason they do not always move in the same direction.
Also, how do corporations decide which stock exchange to initiate their IPO through?
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The two major exchanges in the US are the New York Stock Exchange (NYSE), and Nasdaq.
Nasdaq is completely an electronic exchange. All transactions are made by computer.
The NYSE up till recently has been conducted on a trading floor, but it too is starting to trade electronically.
There are different requirements for listing on each exchange. Generally the requirements are tougher on the NYSE. Smaller start-up companies–the sort that Silicon Valley is famous for–have an easier time meeting the requirements of Nasdaq.
Generally the NYSE will have larger companies, whereas Nasdaq is generally balanced towards smaller companies. I say “generally.” Note that Microsoft is traded on Nasdaq.
On any given day, one measure of the market–such as the Dow Jones–may be up while another may be down. Before the recent stock market slide, the Dow was soaring while the Nasdaq was lagging. This simply means that investors and traders happened to be favoring giant companies over smaller ones.
Trends change. Back in the year 1999, Nasdaq rose something more than 80% that year, well ahead of other averages. Investors back then were simply favoring small, entrepreneurial companies. Then came the year 2000–a top before a huge fall.
The NASDAQ is a totally negotiated market, where market makers dictate prices on the NASDAQ exchange through bids and offers.
The NYSE is an auction market, which was at one time completely traded by broker and specialists on the floor of the NYSE in downtown NY. Since then they have gone to more electronic trade. However it is still an auctioned market where stocks are traded by the specialists by supply and demand. The difference is that the NASDAQ market has a spread that changes as the market makers move their bids and offers, the NYSE does not.
Companies that wish to go to an IPO stage have to meet a certain criteria dictated by the different exchanges. The NYSE has extremely High criteria, while the NASDAQ is lower and easier to get “listed”. The OTC pink sheets will take anything with a name, it’s got the lowest terms for an IPO.
Hope this helps.
NASDAQ is generally more “tech heavy” than the other US exchanges. This goes back to its history as having easier requirements catering to smaller technology start-up companies.
You must also understand that the Dow Jones you refer to is an index of just 30 stocks and not all are traded on the NYSE (MSFT is a DJIA stock traded on NASDAQ). So the DJIA is not a good representation of any particular exchange.
If you want to track the NYSE vs. NASDAQ for example try comparing the NYSE Composite Index to the NASDAQ Composite Index.
Corporations decide which stock exchange to initiate an IPO on based primarily on greed :). Where they think they can get the most money for their IPO. Usually this is analyzed with the help of the primary underwriters.
NASDAQ (National Association of Securities Dealers Automated Quotations system) is a fully electronic stock exchange where there is no live trading floor such as on other exchanges (most popular is the NYSE).
Dow Jones (DJ) is not a stock exchange, rather it is a media company founded by Charles Dow and Edward Jones in the late 1800’s. History link below. Company is currently being acquired by NewsCorp (NYSE: NWS).
The Dow Jones Industrial Average is an index representing 30 industrial stocks. The stock in the index has changed over the last 200 years many times. It started out with mining and rail roads, then steel and has evolved as the country has evolvd. DJ solely determines what companies are in their indexes. The DJIA is the most widely followed index, but does not represent the stock market. The S&P 500, and the Wilshire 5000 are better overall market indexes to see how the broader market is doing.
The following are US stock exchanges:
* Archipelago Exchange, merged with NYSE
* Arizona Stock Exchange, closed down
* American Stock Exchange (AMEX)
* Boston Stock Exchange (BSE)
* Chicago Stock Exchange
* Detroit Stock Exchange closed in 1976
* HedgeStreet
* NASDAQ
* National Stock Exchange (formerly the Cincinnati Stock Exchange)
* New York Board of Trade
* New York Stock Exchange (NYSE), merged with Archipelago Holdings
* Pacific Exchange (PCX), taken over by Archipelago Holdings
* Philadelphia Stock Exchange (PHLX)
* Chicago Board Options Stock Exchange (CBSX), owned and operated by CBOE
Suggest pick up a copy of the Wall Street Journal (news stands/ book stores) (published by none other, Dow Jones), there is lots of info to help new and seasoned readers understand the indexes.
Market Movement:
This is a book right here. Indexes moves in different directions based on what the underlined stocks are doing at the moment. Some indexes are concentrated, SOX (tech index), some are diversified (S&P500). See link.
IPO
This is decided by the company and the investment banks bringing the deal to the pubic. NASDAQ has generally been associated with smaller technology stocks over the last 20-30 years (whereas NYSE has generally been associated with mature companies (GE, Proctor and Gamble, AT&T, Coke, etc.). Now some NASDAQ stocks over this time are huge (intel, Microsoft, Dell, etc). They still trade on NASDAQ despite their size. The NYSE tried to woo intel and MSFT over to the Big Board (NYSE) in late 1990’s, and even reserved the ticker symbol “M” for Microsoft, by the company refused. It get’s complicated here.
After the Bear Market of 2000-2003 (which I called when I was with a leading Wall Street firm, BTW, 3rd week March 2000 - I said this is it. I didn’t expect that big of a drop, but a huge correction yes), a number of tech firms have moved to the NYSE or are being listed on the NYSE (recent IPO - WM Ware (VMW) was listed on the NYSE. The reason is normally meting min capital requirements to get listed, but also some people don’t want to be associate to the tech heavy NASDAQ.
A lot of this listing and placement has a big impact on how a stock trades, institutional holdings (pensions, mutl funds, hedge funds, etc,) it gets very deep here, but hope this helps. No time to proof. Got to zzzz.
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