The Investor’s Guide to Understanding the Differences Between the Two Biggest Stock Exchanges: NYSE vs. Nasdaq


Whenever discussions of the stock market crop up, in terms of a place where sellers and buyers can exchange equities, two exchanges unquestionably come to mind: the New York Stock Exchange (NYSE) or Nasdaq. Most of the world’s equities, including those in North America, are traded in one or the other of these exchanges. However, Nasdaq and the NYSE have major operational differences and the equities traded in each can vary widely from the other. Investors who are well acquainted with these differences will have a better understanding of how a stock exchange functions as well as the behind-the-scenes mechanics of selling and buying stocks.

The first major difference between NYSE stocks and Nasdaq stocks is location. 

In the case of exchanges, location does not necessarily refer to a physical address as “place” as much as where the transactions are occurring. When speaking of the NYSE, the exchange and trades therein are, in fact, occurring in the physical place of a floor in New York City designated for trading. Anyone who has seen images of stock market trading on TV, with men waving hands or the ringing of a bell to mark the exchange’s opening, are seeing the NYSE trades in action.

In contrast, the Nasdaq exchange happens through a telecommunications network, not on a trading floor in a designated physical location. The trades taking place here move directly between investors and those who are buying or selling (called the market makers) instead of on a floor where traders are actively working to match buying or selling orders for investors. These direct communications are made possible through an intricate network of companies connected electronically.

What fundamentally sets Nasdaq apart from the NYSE is the manner in which those seeking stocks to buy and stock sellers conduct securities transactions on the exchange. 

To put it simply, what distinguishes the Nasdaq market from the NYSE market is the former is for dealers and the latter is an auction. In a dealer’s market, like Nasdaq, the buying and selling of stocks happens through dealers instead of direct transactions between market participants. Relative to the Nasdaq, these dealers are referred to as market makers. In an auction market, such as the NYSE, transactions typically take place, as the name suggests, through an auction between individuals who are buying and selling among themselves. In other words, the lowest asking price is matched with the highest bid.

When selling or buying stocks on the NYSE or the Nasdaq exchanges, different traffic controllers are employed to regulate the orders. 

These traffic controllers are essentially police offers for each exchange. In the same manner in which police officers are required to direct the flow of cars at a broken traffic light, each exchange employs its own officers at the intersections between buyers and sellers, where orders are placed. Here, traffic controllers address specific problems in the traffic of each exchange allowing the markets to run smoothly. The traffic controller on the Nasdaq is the same market maker mentioned in the previous section, whereas on the NYSE, the traffic controller is referred to as a specialist. The job of the specialist is to match buyers to sellers.

The two traffic controllers differ not only in name but in technical definition. The market makers are essentially creating markets for securities; the specialists are merely facilitators of those markets. However, the end game of each traffic controller, whether market maker or specialist, is the same: to ensure the markets operate in a smooth and orderly fashion for clients. For instance, if orders are backing up, the market makers and specialists step in to facilitate completion of orders by working to match as many “askers” with “bidders” as possible. In the event neither buyers or sellers can be found, traffic controllers of each exchange will search for new clients or sell from the inventories of their exchange, if need be.

The differing perception of each exchange among investors plays an unquantifiable role in the world of buying stocks. 

In the world of investing, the Nasdaq exchange is often referred to as the high-tech market. As such, it attracts a number of firms dealing with electronics or the internet, which generally translates to a more growth oriented and volatile stock market. The companies listed on the NYSE, on the other hand, are perceived as less turbulent. These include many stable, long established industrial companies and blue chip firms.

The choice of exchange, Nasdaq or NYSE, is a more critical decision for companies seeking to list than it is for investors deciding on stocks to buy, due to the differing perceptions of each exchange. Companies also have to bear in mind the differing requirements and costs of listing for each exchange. Companies can anticipate a much heftier entry fee to list on the NYSE ($500,000) versus the Nasdaq ($50,000-$75,000). Another big factor are annual fees, which are calculated differently for each exchange. Annual fees for the Nasdaq are a more set number, roughly $27,500; the NYSE, on the other hand, calculates yearly fees based on a listed security’s share number, with a cap of $500,000. Therefore, it makes sense for companies with less capital upfront, whose stocks focus on growth, would prefer the Nasdaq to the NYSE.

Prior to March 8, 2006, type of ownership was one of the biggest differences between the NYSE stocks and the Nasdaq stocks exchange.

Before this date, the NYSE had been a private (not-for-profit) exchange for almost 214 years, while the Nasdaq exchange listed under publicly-traded corporations. However, as of March 2006, the NYSE decided to go public. Though most of us think of these two entities primarily as exchanges or markets, in actuality, they are both businesses making a profit off proffering services to shareholders.

As with any publicly-traded company, both NYSE stocks and Nasdaq stocks are available for purchase or selling on an exchange; either exchange can trade on their own stocks. Both are subject to the same standard filing requirements as any publicly traded company, per the Securities and Exchange Commission’s guidelines. With the NYSE now trading publicly, the differences are lessening between the two exchanges. The remaining differences, however, should not impact how either entity functions as a marketplace for investors or for equity traders.

Understanding the differences of each exchange will provide vital insight into the workings of the market for investors buying stocks.

The NYSE and the Nasdaq exchanges accommodate the majority of all North American equity trading, but, the two exchanges are clearly different. These differences may not come to bear on an investor’s choice of stocks to buy; however, knowing them will provide insight into the execution of trades and the inner-workings of the market.


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