NASDAQ vs. NYSE
Trading StructureThe most fundamental difference between the NASDAQ and the NYSE is how transactions actually take place on each exchange.
The NYSE is an auction style market, where brokers purchase stocks on behalf of firms or clients and trades actually take place between individuals on the floor of the exchange.
The NASDAQ doesn't have any physical interaction for trades and instead is computer based, with orders and transactions being processed electronically. Member firms become the market makers (as opposed to the NYSE specialists) and match buyers and sellers in split seconds electronically. Being electronically based the NASDAQ also has a longer trading day than the NYSE, so active trades can be made for several hours more each day.
Listing RestrictionsThe NYSE has a higher threshold in terms of the types of companies that can list on the exchange. Companies on the NYSE must meet the following criteria (plus many additional smaller ones):
- More than 2200 shareholders
- More than 100,000 shares must be traded on a monthly basis
- A market valuation of over $100 million
- More than $75 million in revenues annually
The NASDAQ allows far more companies be listed, particularly those that may be too small to meet the requirements of the NYSE. As a result of this the NASDAQ has become a major exchange for tech firms, many of whom are too small in their start-up stages to be listed on the NYSE. The NASDAQ also has far lower listing fees than the NYSE (70-80% lower) so the up-front cost to listing is reduced.
Where should a company list?If a company meets the NYSE requirements it is generally advantageous to have an initial public offering (IPO) through that exchange. Historically companies listing on the NYSE have been able to generate more funds when holding their IPO here. If the NYSE requirements can't be met the NASDAQ is the alternative for an IPO.
Where should investors put their money?While the NYSE is far larger, and the market capitalization of the companies there far exceeds that of the NASDAQ, historically the NASDAQ has generated slightly better returns. This has to be taken with the caution that these better returns also come with more risk, as the companies on the NASDAQ are smaller and less established than those on the NYSE. Ultimately there's nothing stopping an investor from investing in companies on both exchanges, the focus in investing should really be on the underlying companies and not on the exchange they list with.
By Jeffrey Glen