Nasdaq

What Is Nasdaq?

Nasdaq is a global electronic marketplace for buying and selling securities. Originally an acronym for "National Association of Securities Dealers Automated Quotations"—it was a subsidiary of the National Association of Securities Dealers (NASD), now known as the Financial Industry Regulatory Authority (FINRA). Nasdaq was created as a site where investors could trade securities on a computerized, speedy, and transparent system. It commenced operations on Feb. 8, 1971.

Key Takeaways

  • Nasdaq is an online global marketplace for buying and trading securities—the world's first electronic exchange.
  • It operates 25 markets, one clearinghouse, and five central securities depositories in the United States and Europe.
  • Most of the world's technology giants are listed on the Nasdaq.
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NASDAQ

Understanding Nasdaq

The term “Nasdaq” is also used to refer to the Nasdaq Composite, an index of more than 3,000 stocks listed on the Nasdaq exchange that includes the world’s foremost technology and biotech giants such as Apple, Alphabet (Google), Microsoft, Meta (formerly Facebook), Amazon, and Intel.

Nasdaq officially separated from the NASD and began to operate as a national securities exchange in 2006. In 2007, it combined with the Scandinavian exchange group OMX to become the Nasdaq OMX Group, which is the largest exchange company globally, powering one in 10 of the world’s securities transactions.

Headquartered in New York, Nasdaq OMX operates 25 markets—primarily equities and also including options, fixed income, derivatives, and commodities—as well as one clearinghouse and five central securities depositories in the United States and Europe. Its cutting-edge trading technology is used by 90 exchanges in 50 countries. It is listed on the Nasdaq under the symbol NDAQ and has been part of the S&P 500 since 2008.

The Nasdaq Trading Platform

The Nasdaq computerized trading system was initially devised as an alternative to the inefficient “specialist” system, which had been the prevalent model for almost a century. The rapid evolution of technology has made Nasdaq’s electronic trading model the standard for markets worldwide.

As a leader in trading technology from the outset, it was only fitting that the world’s technology giants chose to list on the Nasdaq in their early days. As the technology sector grew in prominence in the 1980s and 1990s, the Nasdaq became the most widely followed proxy for this sector.

The technology and dot-com boom and bust of the late 1990s are exemplified by the rise and fall of the Nasdaq Composite—an index that should not be confused with the Nasdaq trading platform. According to the Corporate Finance Institute, the index crossed the 1,000-mark for the first time in July 1995, soared in the following years, and peaked at over 5,000 in March 2000. It then slumped almost 80% by October 2002 in the subsequent correction.

In April 2000, the index fell to 3,227 and hit a low in October 2002 of 1,108.49. After the bust, the index gradually recovered until 2007/2008, when the global financial crisis hit.

Recent History of Nasdaq

The European Association of Securities Dealers Automatic Quotation System (EASDAQ) was founded as a European equivalent to the Nasdaq Stock Market. It was purchased by NASDAQ in 2001 and became NASDAQ Europe. Operations were shut down, however, and in 2007, NASDAQ Europe was revived as Equiduct, and it is currently operating under Börse Berlin.

On June 18, 2012, Nasdaq OMX became a founding member of the United Nations Sustainable Stock Exchanges initiative on the eve of the United Nations Conference on Sustainable Development. In November 2016, Nasdaq Chief Operating Officer Adena Friedman was promoted to the role of CEO, becoming the first woman to run a major exchange in the United States. 

Board Diversity Disclosure Rule

On Dec. 1, 2020, Nasdaq proposed a rule change to the U.S. Securities and Exchange Commission (SEC) that would require companies on the exchange to report on the diversity of their board of directors.

Also, it would require most boards to have at least two "diverse directors," including at least one "who self-identifies as female" and one "who self-identifies as either an underrepresented minority or LGBTQ+." On August 6, 2021, the SEC approved the Board Diversity Disclosure Rule, which will begin being implemented in 2022.

Financial Performance

Nasdaq earns its revenue from clients, including financial institutions, brokers, institutional investors, and corporations. Nasdaq's revenue is mainly derived from fees charged for the following:

  • Market services, which allows investors access to various markets
  • Investment intelligence, which is access to data, indices, and investments analytics for financial institutions, brokers, and asset managers
  • Market technology, which includes trading and settlement platforms as well as anti-financial crime technology solutions
  • Corporate services, such as listing fees and investment relations services

Nasdaq earned $3.3 billion in net revenue over the 12 month period ending Sept. 30, 2021. In Q3 2021, Nasdaq earned $838 million in net revenue, which was a 17% jump from the prior-year period. As of Sept. 30, 2021, annualized recurring revenue jumped by 19% to $1.843 billion from Q3 2020.

Market Performance

Nasdaq achieved a record close on Nov. 19, 2021, when the composite index hit 16,057.44. The gain represented more than a 490% gain over the period from mid-January of 2012, when the index was trading at 2,710.

Article Sources

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  2. U.S. Securities and Exchange Commission. "The Nasdaq Stock Market New Approaches to Market Information Submission to the SEC Advisory Committee on Market Information February 19, 2001," Page 1. Accessed Jan. 8, 2022.

  3. Nasdaq. "What Is the Nasdaq Composite, and What Companies Are in It?" Accessed Jan. 8, 2022.

  4. Nasdaq. "Nasdaq and OMX to Combine." Accessed Jan. 8, 2022.

  5. Nasdaq. "Investor Relations: Investor FAQs." Accessed Jan. 8, 2022.

  6. Corporate Finance Institute. "What Is the NASDAQ Composite?" Accessed Jan. 8, 2022.

  7. Claremont Colleges. "Effects of Early Round Venture Capital Syndication on IPO Exits in Europe and the United States," Page 3. Accessed Jan. 8, 2022.

  8. Börse Berlin. "Börse Berlin – In a Nutshell." Accessed Jan. 8, 2022.

  9. Nasdaq. "A History Anchored in Innovation: About, Timeline, 2012." Accessed Jan. 8, 2022.

  10. Nasdaq. "Nasdaq (NDAQ) Picks President Adena Friedman as New CEO." Accessed Jan. 8, 2022.

  11. U.S. Securities and Exchange Commission (SEC). "Securities and Exchange Commission, Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Approving Proposed Rule Changes," Pages 1-4. Accessed Jan. 8, 2022.

  12. Nasdaq. "Nasdaq to Advance Diversity Through New Proposed Listing Requirements." Accessed Jan. 8, 2022.

  13. Nasdaq. "Investor Presentation, December 2021," Pages 5-6. Accessed Jan. 8, 2022.

  14. Nasdaq. "Nasdaq Reports Third Quarter 2021 Results; Delivers 17% Increase in Revenue Compared to Prior Year," Pages 1-2. Accessed Jan. 8, 2022.

  15. Nasdaq. "Nasdaq Composite Index (COMP), Market Activity." Accessed Jan. 8, 2022.