How NASDAQ Was Able to Compete with NYSE

June 4, 2015 by  

By Phin Upham

A stock exchange is a place where multiple sellers are able to come together and exchange equities. Two components are necessary: a buyer and a seller. In today’s markets, there are two major exchanges, both based out of the United States: the New York Stock Exchange and the NASDAQ.

It’s important to understand that location played a large role in the development of both exchanges. NYSE was able to flourish because of its proximity to importing locations like the pier. The constant movement of goods made New York a prime center for commerce, and Wall Street was close enough to the action.

The traditional image most people have of people standing in a crowd, throwing papers and yelling, takes place at NYSE. The Exchange has a physical location on Wall Street.

NASDAQ, on the other hand, relies on computer trading done over a network. There is no trade floor, and the transaction is very different in nature. NYSE charged exorbitant fees to list and manage trades, and they were largely able to get away with it until the NASDAQ offered investor-to-investor transactions that lowered the costs of money.

NASDAQ relies on electronically connected computers to move its transactions, which means there are no costs maintaining a physical location.

Another way of viewing these differences is to say that NYSE is an auction market while NASDAQ is comprised of individual “market makers.” Using NYSE, sellers are auctioning shares such that the lowest asking price is matched with the highest bidding price.

About the Author: Phin Upham is an investor at a family office/ hedgefund, where he focuses on special situation illiquid investing. Before this position, Phin Upham was working at Morgan Stanley in the Media and Telecom group. You may contact Phin on his Phin Upham website or LinkedIn page.


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