How NASDAQ Got its Start

Copyright (c) 2010 John Howell

NASDAQ trading stands for National Association of Securities Dealers Automated Quotations. The exchange later realized that the full name had become obsolete and now prefers to simply be called by the acronym NASDAQ.

NASDAQ trading got its start as the first-ever electronic trading market in the United States and it is currently the fourth largest stock exchange by market capitalization in the world. With 3,700 companies currently using it to trade, it has the largest trading volume of any stock exchange worldwide.

NASDAQ trading was founded in 1971 by the National Association of Securities Dealers. The electronic board used to post trades was actually a computerized bulletin board. At the time, it did not connect buyers and sellers and it was initially unpopular among brokerage firms because it helped lower the spread.

As the successor to the OTC method of trading, NASDAQ trading helped lower the spread between stock prices. In the late 1980's, NASDAQ became a tried-and-true stock market by adding automated trading systems and trade and volume reporting.

NASDAQ trading was also the first stock exchange to advertise directly to the American public. With the tagline "the stock market for the next hundred years", NASDAQ sought to court the average investor's attention by flashing the logos of technology companies it traded during its ads.

Most trading generally took place over the telephone but after a number of market makers stopped answering their phones during the October 1987 stock market crash, NASDAQ trading also took on the Small Order Execution System to allow dealers to enter trades electronically.

In recent years, NASDAQ trading has taken on an international linkage of securities markets by joining with the London Stock Exchange. When NASDAQ merged with the American Stock Exchange in 1998, it became the largest electronic stock market in the United States. It made history again by buying the Philadelphia Stock Exchange in 2007. Having been in operation since 1790, PHLX was the oldest stock market in the United States.

Today, NASDAQ trading continues to thrive as the world becomes more dependent on electronic trading. To qualify for an exhance listing, a company must be registered with the Securities and Exchange Commission and meet minimum requirements for assets, capital, and public shares.

NASDAQ trading quotes are available in three levels with level one showing the highest and lowest offers, level two showing public quotes of market makers and level three being used by market makers to execute orders.