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Trading on the NYSE and NASDAQ Exchanges

BA 543 – Mike Carrigg. Trading on the NYSE and NASDAQ Exchanges. Overview. Timeline Similarities and Differences Trading Mechanisms Other Trading Methods. History. NYSE. NASDAQ. 1971 – Founded 1978 – Amex Merger 1987 – Small Order Execution System (SOES) 2002 – SuperMontage

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Trading on the NYSE and NASDAQ Exchanges

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  1. BA 543 – Mike Carrigg Trading on the NYSE and NASDAQ Exchanges

  2. Overview • Timeline • Similarities and Differences • Trading Mechanisms • Other Trading Methods

  3. History NYSE NASDAQ 1971 – Founded 1978 – Amex Merger 1987 – Small Order Execution System (SOES) 2002 – SuperMontage 2005 – Acquired Instanet 2007 – Acquired PHLX • 1792 – Founded • 2000 – Rule 390 Eliminated • 2005 – Hybrid Market Launch • 2006 – Acquired Archipelago • 2006 – NYSE made Public • 2007 – EuronextMerger • 2008 – Amex Acquistion

  4. Market Similarities Today NYSE/NASDAQ • Ownership: • Public, for-profit • Market Type: • Secondary markets • Quote-driven • Continuous market aspects • Hybrid structure • Technical: • Price reporting, regulation, price variation

  5. Market Differences Today NYSE NASDAQ Market Dealer-quote driven market Market-makers No physical location Mechanisms SOES and SuperMontage NMM Small Cap Market • Market • Order-driven market • Auction type • Specialists system • Physical Location • Mechanisms • SuperDOT • Broker-dealer • Commission broker • Floor Brokers • Registered Traders

  6. Trading at NYSE • Originally • You/Firm > Broker > Floor Broker > Execution • Specialist (agents & principals) auction system • Open/close with call market, continuous normally • Now • You/Firm > Broker > Floor Broker/SuperDOT > Execution • Specialists, broker-dealers, commission brokers, registered traders

  7. Trading at NYSE • Role of the Specialist • NYSE-listed stock assigned to a specialist • Match bid/ask prices for execution • Balance for liquidity by holding shares to maintain market equilibrium • Establish a fair price for stocks at day start • Can also execute stop orders

  8. Trading at NASDAQ • Originally • You > Broker > Market Maker > Execution • Purely quote-driven, “fragmented” • Now • Market Maker, SOES, and SuperMontage • PHLX – physical floor space • NMM – Outstanding of $1.1 mil at $1/share • Small Cap – those not meeting NMM

  9. Trading at NASDAQ • Role of the Market Makers • Assigned to stock by average daily volume • Once order is received, sells from inventory or locates an offsetting order • Ensure a buyer for every sell order and a seller for every buy order • Enhance market liquidity and long-term market growth

  10. Other Trading Mechanisms • ECN (Electronic Communication Network) • Off-exchange brokers connecting buyers and sellers • Rule 390 • ATS (Alternative trading System) • Direct trading without the use of a broker • ITS (Intermarket Trading System) • Allows traders to move to other exchanges for best price • Algorithmic Trading • Splits large orders into smaller ones, NYSE trade size reduction from 2000 to 330

  11. Questions? • Resources • Investopedia Staff. "Electronic Trading Tutorial." Investopedia. 2010. Web. 15 Apr. 2011. <http://www.investopedia.com/university/electronictrading/trading1.asp>. • Investopedia Staff. "The NYSE and NASDAQ: How They Work." Investopedia. Web. 15 Apr. 2011. <http://www.investopedia.com/articles/basics/03/103103.asp> • NASDAQ. Web. 16 Apr. 2011. <http://www.nasdaq.com/>. • NYSE. Web. 16 Apr. 2011. <http://www.nyse.com/>. • Image Sources • NASDAQ.com, NYSE.com, dealbreaker.com, ceoworld.biz

  12. BA 543 – Mike Carrigg Trading on the NYSE and NASDAQ Exchanges

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