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The US financial market is the largest and most trusted in the world. There are several reasons, the first of which is the security of the system and the trust held by participants that their money is invested safely.
Another reason is the regulatory environment which encourages investment and keeps liquidity very high.
We’ll focus on this because the US hosts the two largest stock exchanges globally – the New York Stock Exchange (NYSE) and the Nasdaq.
NYSE vs. Nasdaq Overview
The NYSE and Nasdaq are two different stock exchanges that offer both a space for companies to list their stock to raise money and a space for investors and traders to buy and sell shares in those companies.
These two exchanges operate roughly the same, but they arrive at their goals very differently. They also both have a history that made them into the giants they eventually would become.
What Is the NYSE?
The NYSE is the largest stock exchange in the world by market capitalization. The total market cap of all companies listed on the NYSE is over $24 trillion. It is also the oldest of the two, having started in 1792.
How the NYSE Works
The NYSE requires companies to meet certain financial requirements and pay fees, after which they will list a company’s stock in their exchange for investors to buy and sell.
The method by which stocks are priced is called an auction market. This means that the price of a stock is set based on where a seller’s price “ask” meets a buyer’s price “bid.”
There is more to it than that, but traders, brokers, institutions, banks, and hedge funds all have the option of either trading electronically or in-person on one of the two famous trading floors in New York City.
What Is the Nasdaq?
The Nasdaq is the second-largest exchange globally and is far younger than the NYSE, starting in 1971.
When the Nasdaq was created, the intention was to focus on those companies which could not qualify for the minimum requirements of the NYSE, commonly called “Over-the-Counter” stocks.
Because these companies were typically tech stocks (or rather growth stocks) growing up through the tech boom, the Nasdaq closely correlates with the tech sector. However, it also lists many non-tech companies.
How the Nasdaq Works
The Nasdaq was created to be completely electronic, so there is no trading floor. However, because of this, the accessibility to the internet was built into the infrastructure, so it was also the first exchange that was electronic, let alone fully electronic.
Companies must still meet certain financial requirements and pay fees, but one of the additional benefits to being fully electronic is that the Nasdaq offers pre-market and post-market hours.
What Are the Differences Between the NYSE and Nasdaq?
Both exchanges provide the same service from a top-level, but they operate entirely differently and mostly cater to a different type of investor
Location of Transactions
The Nasdaq is completely electronic, so all transactions are made online now.
This contrasts with the NYSE, which offers two trading floors in New York City, though it also offers electronic trading.
Auction Market vs. Dealer’s Market
The NYSE is called an auction market. This means that the seller’s “ask” price and the buyer’s “bid” price must meet, at which point a trade can take place.
The prices of stocks move as a result of this happens millions of times per day.
The Nasdaq is called a dealer’s market. Being fully electronic, the Nasdaq depends on dealers of stocks to update their prices throughout the day.
One of the most desirable characteristics of these two exchanges is how they manage traffic control, in other words, how they ensure high liquidity and smooth trade transactions.
The NYSE has either individuals or computers known as designated market makers, who operate as the representative for the company listed on the exchange.
They typically set opening and closing prices and take the opposing trade to provide price stability. They are typically human representatives, but they might use algorithms to assist in making markets.
The Nasdaq has always used market makers to manage traffic, whereas the NYSE formerly called their version specialists.
On the Nasdaq, the market makers keep inventories of company shares and use that inventory to buy and sell when customers place orders.
There are over 260 firms that function as market makers on the Nasdaq, and they only make money when transactions occur.
The computers behind the scenes have advanced in such a way that the market makers must compete to provide the best price match for a particular stock.
Different Types of Companies Listed
While the NYSE has historically been connected with established, blue-chip stocks, whereas the Nasdaq lists only tech stocks, that’s not necessarily a rule.
The Nasdaq lists many non-tech companies like Amgen and Starbucks, and the NYSE lists companies like Gamestop, which aren’t terribly stable right now.
That being said, the Nasdaq’s heavy tech portfolio correlates very closely to the tech sector.
Private vs. Public
The NYSE and Nasdaq are both publicly traded companies, and each is listed on its own exchange.
The NYSE only recently listed its stock publicly after being bought by the Intercontinental Exchange, so its ticker is that of its parent company: ICE. The Nasdaq’s ticker symbol is NDAQ.
NYSE vs. Nasdaq: Listing Requirements
Companies must meet several requirements to list their stock on either exchange, though some have even opted for dual listing on both exchanges.
Listing requirements depend on several factors, but to simplify, let’s focus on minimum revenue, stock requirements, and entry and annual fee expectations.
NYSE Listing Requirements
- Minimum market cap: $500 million
- Minimum number of shares: 1.1 million
- Minimum initial stock price: $4
- The minimum market value of publicly held shares: $40 million
- Initial Fees: $25,000 application, $50,000 one-time fee, $0.004 per share
- Annual Fee: $0.00113 or $71,000, whichever is greater
Nasdaq Listing Requirements
- Minimum net income or market value of listed securities: $750,000 or $50 million
- Minimum number of shares: 1 million
- Minimum initial stock price: $4
- The minimum market value of publicly held shares: $5 million
- Application Fee: $55,000 to $80,000 depending on number of shares
- Annual Fee: $43,000 to $77,000 depending on shares
It should be noted that the Nasdaq has three tiers, and the above information is for the lowest tier.
There is also a requirement to have at least 3 market makers who are willing to take inventory of a new company’s stock.
Is the Nasdaq or NYSE more volatile?
The Nasdaq is more volatile because most of the companies tend to be startups. It’s clear from the fees and requirements that the Nasdaq caters to companies who can’t quite meet the NYSE minimums.
May companies on the NYSE have also been listed for a long period of time, so the stability of the companies helps the NYSE experience less volatility.
Is the NYSE better than Nasdaq?
That completely depends on the investor hoping to invest their money or the company which hopes to list their stock.
There are benefits and drawbacks to both as a company hoping to list their shares, though newer companies might find solace in the lower minimums for the Nasdaq.
However, investors usually have access to companies listed on both exchanges. These days, you’d be hard-pressed to find a financial institution that didn’t allow access to both exchanges.
Is Apple Listed on Nasdaq or NYSE?
Apple is and always has been listed on the Nasdaq. Initially listing on December 12, 1980, at $22.00 per share, AAPL, the ticker for Apple’s stock, has split five times since it’s offering.
Can You List on Both NYSE and Nasdaq?
Absolutely, and several companies have done this. The fees are fairly astronomical, but the companies that choose this route gain additional visibility, liquidity, and access to capital for expansion.
Companies such as Charles Schwab, Hewlett-Packard, and Countrywide Financials are listed on both exchanges.
Why Do Technology Companies List on Nasdaq?
Technology companies are relatively young in comparison to some of the companies listed on the NYSE.
Because of its long history, the NYSE was able to charge higher fees and set stricter requirements to limit their listings to those companies that prove they have a bit more stability.
As we’ve discussed, the Nasdaq was created specifically to provide younger, less prosperous companies the have access to an exchange so they could raise capital and grow.
Since many tech companies started small, listing on the Nasdaq was the logical choice, especially as the Nasdaq grew to such lofty heights as it occupies now as the second-largest exchange.
Bottom Line: NYSE vs. NASDAQ
The NYSE and the Nasdaq are both massive exchanges that list companies for public buying and selling, though the two approach the goal in different ways.
Despite this, neither could be described as “better” than the other as they both have proved their respective philosophies.
The NYSE has a long history and, for much of that history, was able to keep an ivory tower mentality for those companies which were a bit more established and could offer investors more stability.
Meanwhile, the Nasdaq, the first all-electronic exchange, catered to newer companies hoping to raise capital to improve their business and grow.
Either way, investors benefit from having access to these companies every day.