What is NASDAQ and its Market Structure?

  • Soumyaa Rawat
  • Jun 18, 2021
  • Financial Analytics
What is NASDAQ and its Market Structure? title banner

Learning about NASDAQ

 

National Association of Securities Dealers Automated Quotations (NASDAQ) was established on February 8, 1971, as the first electronic stock market worldwide. The second-largest stock company in the world, NASDAQ index deals in securities of major multinationals and other reputed companies. 

 

Inaugurated by the National Association of Securities Dealers (NASDAQ), the headquarters of NASDAQ are located in New York, USA. A variety of securities that are dealt by NASDAQ are company stocks, depository receipts, and company listings that are verified by NASDAQ. 

 

  1. As a source suggests, NASDAQ runs across the USA and the European continent via a group of 25 markets, a clearinghouse, and 5 central depositories of securities. What's more, NASDAQ also lists some of the most successful cryptocurrencies like Bitcoin, Ripple, and Ethereum. 
  2. Apart from cryptocurrencies, this stock market lists other famous corporations that have gained popularity and success with their unbeatable performance. One can discover all the NASDAQ-listed companies on an index that is known as the NASDAQ Composite Index. 
  3. A market of securities fully empowered by the technology, the NASDAQ platform conducted the buying and selling of securities and stocks via electronic platforms. Placed at the second position after the New York Stock Exchange (NYSE), NASDAQ has more than 3,000 companies that are traded as securities among investors. 

 

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From the energy sector to the healthcare industry, companies from all around are traded by brokers and investors who deal in securities through a market maker. This market maker is the link between brokers and the investors who buy and sell stocks accordingly. 

 

In addition, the NASDAQ-100 list consists of the top 100 NASDAQ companies that perform the best among all the securities listed in the NASDAQ Component Index. 

 

All these companies are rated as per their market capitalization capacity that can be defined as the market commercial value of a publicly traded firm's outstanding shares and securities. 

 

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Evolution of NASDAQ

 

While NASDAQ is termed to be the largest electronic securities market, it certainly trades the most number of shares in a day as compared to any other stock market in the entire world. 

 

However, it is important for us to dig deep into the history of this organization and learn about its evolution. By now, we already know that NASDAQ was established on February 8, 1971. Perhaps we shall read more about the history of NASDAQ and the way it has grown over the years. 

 

With an aim of ' rethinking capital markets and economies everywhere ', NASDAQ was primarily established as a stock market that dealt through the means of a computerized bulletin board that has today transformed into a wholly electronic platform for buying and selling stocks. 

 

Over time, NASDAQ has grown into a larger organization accommodating more and more organizations that are becoming the pioneers in any and every field. The history of this company dates back to 50 years when it started as a stock market with a vision to connect financial markets and take trade beyond such avenues. 

 

Today, the stock market trades a list of companies like Apple, Facebook, and Microsoft, which are leading names in the contemporary world.  

 

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Market Structure of NASDAQ

 

An American multinational company, NASDAQ is a stock market that deals in the buying and selling of company stocks that are a part of the NASDAQ Component Index. 

 

By running 25 markets, a clearinghouse, and 5 central depositories for securities, NASDAQ has a definite market structure that explains the functioning of the company altogether. 

 

The market structure of NASDAQ consists of 3 tiers that are as follows:-

 

  1. Capital Market

 

A market for companies that have small market capitalizations, the Capital Market is the easiest in terms of criteria that a firm has to pass in order to get listed. 

 

Earlier termed to be the 'SmallCap' Market, this market got its present name - Capital Market when the company began with the restructuring process. One of the 3 tiers, the Capital Market requires every company that wishes to be listed to follow a set of 3 standards. 

 

However, it is mandatory to fulfill any one of the NASDAQ Capital Market listing requirements. Firstly, a company should have at least 4-5 million worth of stockholders' equity. Secondly, a company must hold unrestricted public shares of 1 million. 

 

Thirdly, a company must have a daily average of minimum of 2,000 shares and this record should be held prior to 30 trading days before the listing begins. 

 

As compared to the other 2 tiers of NASDAQ, this tier particularly deals with less strict regulations and requirements. 

 

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  1. Global Market

 

The NASDAQ Global Market Index is the second tier of NASDAQ's market structure that consists of companies that have a moderate market capitalization. 

 

With over 1400 companies currently listed on its chart, the NASDAQ Global Market has stricter rules as compared to that of the Global Select Market and Capital Market. 

 

These are to be followed by companies that aim to be listed. With a 'mid-cap' portfolio, the companies that cannot be listed in the NASDAQ Global Select Market are included in the Global Market. 

 

A set of rules are to be followed in terms of financial capability and liquidity in order to get listed as the NASDAQ Global Market companies. 

 

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  1. Global Select Market

 

The Global Select is the third tier of the NASDAQ market and has the most stringent criteria to be followed in order for companies to get listed on the NASDAQ chart. 

 

Listing the companies that have the largest capitalization among all companies, the Global Select Market is the most exclusive equity market where stocks are bought and sold. 

 

Top tier companies that already exist in the Global Market are promoted and listed in the Global Select Market. Even those companies that are part of the Capital Market can be projected among Global Select Market companies if they pass the criteria and have progressively excelled. 

 

What's more, the companies listed in the NASDAQ 100 list are automatically listed in the Global Select Market that provides extraordinary perks to the companies. 


This image categorises the markets of NASDAQ-  NASDAQ Capital Market NASDAQ Global Market NASDAQ Global Select Market

Markets of NASDAQ, Image source  


Other than the NASDAQ stock market, the company also operates 8 European stock exchanges namely - NASDAQ Helsinki, NASDAQ Copenhagen, NASDAQ Stockholm,  NASDAQ Tallinn, NASDAQ Riga, NASDAQ Vilnius, NASDAQ Iceland, and NASDAQ Oslo. 

 

Out of all the stock markets that operate in the world, NASDAQ is the second-largest equity market. That said, the U.S. equity markets are the largest source of equity capital worldwide with a market capitalization of around $35 trillion. 

 

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5 Interesting Facts about NASDAQ-100 Index

 

  1. The NASDAQ-100 Index is the coming together of many innovation-led companies that have transformed the way industries operate. With revolutionary companies like Tesla and Apple, this index is a power-packed set of pioneers of the corporate sector worldwide.

  2. The index only lists the companies that do not belong to the finance sector. That said, the NASDAQ-100 index enlists companies that either belong to the technological realm or come from other sectors like healthcare or Consumer services. 

  3. The NASDAQ-100 index was one of the two indices launched on January 31, 1985. The other index launched along with this index was the NASDAQ Financial-100 Index. Although this index is in operation even today, the NASDAQ-100 Index was the one that gained the most popularity and thus rose in terms of success over time. 

  4. Ever since the establishment of this index, a rebalancing act is performed wherein every year, a set of companies are removed from the listing and likewise, a set of companies are added in the list as well. This act maintains a balanced composition of the list and ensures that investors have a variety to look at as well. 

  5. The NASDAQ 100 Index allows investors from around the world to invest in the companies thus, facilitating borderless equity trading. This gives an opportunity for local investors to invest in large-cap companies and stay connected with the second-largest equity market in the world. 

 

 

Summing Up 

 

To sum up, NASDAQ or the National Association of Securities Dealers of Automated Quotations is the second-largest equity market in the world. A major contributing element to the world’s largest source of equity capital, NASDAQ belongs to the U.S. equity market, and its headquarters are situated in New York City, New York, USA. 

 

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With a market structure that spans across 3 NASDAQ markets, NASDAQ allows small-cap companies, mid-cap companies, and large-cap companies to be listed as and when they pass the criteria for financial and liquidity aspects. 

 

In the years to come, this stock exchange is about to expand substantially and widen its boundaries across the borders of the world. 

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