NASDAQ & Securities Market

This research provides an overview of NASDAQ, the National Association of Securities Dealers Automated Quotations System. This overview is presented in three discussions. The history of NASDAQ is covered in the initial discussion. The role of NASDAQ in the broader securities market is addressed in the second discussion, and the advantages and disadvantages associated with the NASDAQ operation are enumerated in the final discussion.

In 1971, the National Association of Securities Dealers (NASD) placed the organization's automatic quotations system into operation (Sharpe, 1993, p. 53). The NASDAQ is a nationwide communication network that provides securities brokers with instant information on the terms of sale being offered by all major securities dealers that are a part of the system.

There are three levels of activity in NASDAQ (Sharpe, 1993, p. 54). Level I is used by individual account executives to obtain up-to-the-minute market information. Representative bid and ask prices are available for each security listed by the NASD. The representative bid price is the median of current bid prices in the NASDAQ system, while the representative ask price is the representative bid price added to the median bidask spread of current quotes on a security.

Level II is used by securities dealers to display on terminals in trading rooms the current quotations on any security listed by NASD (Sharpe, 1994, p. 54). Level III activity p

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vantages and Disadvantages Associated With NASDAQ Several advantages and disadvantages are associated with the functioning of NASDAQ. These factors and issues are enumerated and assessed in the discussions that follow. Advantages Associated With NASDAQ Any number of dealers can effect a market in an overthecounter stockone that is not traded on an exchange (Reilly, 1994, p. 79). This characteristic of the market creates enormous difficulties in the task of determining current quotation prices. The NASDAQ network system has virtually eliminated this problem. The listing of relatively small companies on NASDAQ is another signal advantage offered by the system (Stevens, 1992, pp. 6263). Many worthwhile firms reach public notice that otherwise either would not or that otherwise would be required to wait until they became larger companies. The socalled penny stocks included among NASDAQ's listings, however, have proven to be a source of aggravation for the NASD (Weiss and Foust, 1992, p. 59). NASD expanded the NASDAQ requirement that all market makers report all trades within 90 seconds as a means of eliminating the worst of the problems associated with the socalled penny stocks. The 90 second requirement had lo

Category: Economics - N