NYSE, NASDAQ and ETFs
Table of Contents
- An Overview of NYSE and NASDAQ and ETFs
- New York Stock Exchange
- Price for a
- The Difference Between NYSE and NASDAQ
- Auction Market vs. Dealers
- Cost and Perception
- Traffic Control
- Factors Affecting the Performance of Shareholder Value on Companies Listed on ETFS
- Related Free Economics Essays
At a glance, the variation between NASDAQ and the New York Stock Exchange may not be perceived. The NYSE lists household names such as Wal-Mart, Coca-Cola and General Electric. On the other hand, NASDAQ is a host to many giant corporations including Cisco, Microsoft, Oracle and Sun Microsystems. Along with the heavy tech weighting, the basic variations between the two exchanges are the means, by which the securities are traded.
An Overview of NYSE and NASDAQ and ETFs
New York Stock Exchange
The NYSE (New York Stock Exchange) is among the leading stock exchanges globally. The entity, which was established back in it and founded in the year 1817, relies on auction form of trading. This is the way of centralized buyers and sellers instruction, through an exchange, matching the lowest selling price and the highest purchase price and turnover. By open outcry and the specialist support, the NYSE helps purchasers and buyers to finish the whole process of stock exchange. The NYSE is managed by the NYSE Euronext that differs from the NYSE Amex Equities and the NYSE Amex Options in terms of the functions performed. It is owned by an American holding agency, Intercontinental Exchange. The agency had been previously a part of NYSE Euronext (NYX), which was established through the merger of NYSEs with Euronext, a fully electronic stock exchange. Euronext and NYSE currently operate as divisions of the intercontinental Exchange (Geisst, 2004, p. 66).
The New York Stock Exchange has been subjected to various lawsuits concerning breach of duty and fraud. This is the reasons that mandated the agency’s former CEO to sue it for defamation and breach of contract. Essentially, the New York Stock Exchange offers a means, by which sellers and buyers trade stock in registered organizations for public trading. It operates from Monday to Friday, from 9.30.a.m to 4.00 p.m, with an exception for public holidays. NYSE operates in a regular auction format where traders are capable of executing stock transactions on behalf of investors. These traders gather around a specific post where a broker contracted by NYSE auctioneers the available stock. Occasionally, the brokers facilitate trades through commitment of their own capital and relay information to sellers and buyers to assist them in their trading. However, the agency automated the auction process in 1995 by incorporating hand held wireless computers in the auction process. This ended a 203 year of paper transactions and ushered the an era of automated trading at NYSE (Geisst, 2004, pp. 66-75).
The National Association of Securities Dealers Automated Quotations is the nation’s largest electronic stock market in terms of market capitalization. It was founded in the year 1971, and there are more than 500 Market Makers, which public their purchase price and selling price. The investors can choose the best price to make a successful deal. The Market Maker gain profit by buy-in with low price and sell with a higher price (NASDAQ 1).
When it was first established in 1971, NASDAQ was the world’s largest electronic stock market. It began by operating as a quotation system, which did not offer a means of performing electronic trades. NASDAQ assisted in lowering the spread, the difference between the asking price of the stock and the bidding price. However, it was popular among brokerages, which established much of their money on the spread (Dzikevičius & Vetrov, 2012, pp. 36-42). NASDAQ eventually assumed the majority of the main traders, which had been formerly executed by the over-the-counter OTC trading system. Nonetheless, there are still major securities, which are traded in this manner. In early 1990s, the NASDAQ exchange was popularly referred as OTC by media firms, as well as the Stock Guides that were issued by the Poor and Standard Corporation.
Gradually, NASDAQ became a stock market by adding volume reporting and trade as well as automated systems in trade. Further, NASDAQ is regarded as the first stock market in the US to commence trading online suggesting the traded companies for NASDAQ and closing by declaring that NASDAQ is the “stock market for many years to come”. The NASDAQ main index is the NASDAQ composite, which has been continually published since its establishment. Nonetheless, the exchange traded fund has capabilities of tracking the large-cap NASDAQ index, which was brought forth in 1985, together with the NASDAQ 100 Financial Index. NASDAQ partnered with the London Stock Exchange in 1990s and created the first intercontinental connection of securities market. The agency was propelled by the National Association of Securities Dealers in forming a publicly traded corporation, the NASDAQ Stock Market, Inc.
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The NASDAQ stock market or simply the NASDAQ is a stock exchange based in America that was designed to assist investors in buying and selling stock on a speedy, transparent and automatic computer network. Originally, the NASDAQ stood for National Association Securities Dealers Automated Quotations. Its creation in the year 1971 offered a good alternative to the in-person system of stock transaction that NASD believed burdened investors with delays and inefficient trading (Dzikevičius & Vetrov, 2012, pp. 36-42). NASDAQ is the second largest world’s stock exchange containing almost 3,200 publicly traded companies. In addition, it is the leading one in terms of electronic stock market (Pinto, 2010, p. 44).
This is a fund(s) that tracks an index but may be traded as a stock (Geisst, 2014, pp. 66-75). In most instances, such funds package together the securities existing in an index; they never track mutual fund portfolios that are actively controlled (Dzikevičius & Vetrov, 2012, pp. 36-42). The reason for this is the fact that many of the actively managed funds disclose their holdings only a few times in a year, so ETFs would not be aware when they should adjust their holdings most at times. An investor is able to do almost anything with ETFs that they are able to do with normal stock, for instance, short selling. Since ETFs are normally traded on stock exchange, it is possible to buy or sell them at any time in a day in contrast to many other mutual funds. The price of an ETF can fluctuate from one moment to another similar to the price of any stock can fluctuate, and any investor will require a broker if they are to purchase one meaning that they must pay a commission (Vanguard Group ,2015).
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In the context of advantages, ETFs are more tax-efficient than regular mutual funds, and because they track indexes, the costs of transactions and operations associated with them are relatively low. No investment minimums or sales loads are required to purchase ETFs. The first ETF to be created was Standards and Poor Deposit Receipts (SPDSPR pronounced as SPIDER) in the year 1993. SPIDERS gave investors a very easy way of tacking the S&P 500, without buying index fund, and soon enough, they grew rather popular.
The Difference Between NYSE and NASDAQ
Both the NYSE and NASDAQ are ETFs, and whenever the question is about stock markets as a place for exchanging equities, the first thing to cross people’s minds is either the NASDAQ or the NYSE. These two exchanges are the ones that account for a major portion of equities both in North America and worldwide (Dzikevičius and Vetrov, 2012, pp. 36-42). However, at the same time, the NASDAQ and the NYSE are extremely different in the way they carry out their operations and in the kinds of equities traded therein. A few of these differences are discussed below.
Location of stock exchange does not infer physical address, such as street, but rather a place where stock transactions occur. For the NYSE, stock transactions occur over a physical place, usually on the floor of New York City. People can be seen or heard ringing bells or waving hand prior to opening exchanges on national TV. These are the people, by which stock is transacted in the NYSE.
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On the other hand, NASDAQ is not located on a physical floor but on a telecommunication network. There are no people on the floor of the exchange who match buying and selling orders in their investor’s behalf. NASDAQ is regarded as an over the counter OTC market, which relies on market makers instead of specialists in facilitating liquidity and trading of stocks. For every stock traded, there is at least one market maker (large stocks including Microsoft have a number of stocks in the market). In contrast to the NYSE where there are brokers who call out orders, market makers place their names on a specific list of sellers and buyers who are then distributed by the NASDAQ swiftly on several computers. If an individual wants to purchase stock that is trading on NASDAQ, the broker could either call up a market maker who possesses the information on the trade or enter the order into online execution systems that are sponsored by the NASDAQ.
Auction Market vs. Dealers
The ultimate difference between NASDAQ and NYSE is how securities are transacted on exchanges between sellers and buyers. The NASDAQ is basically a dealer’s market where the participants in the market are not selling to or buying from one another directly but through a dealer. The dealer is the market maker for the case of NASDAQ. The NYSE is an auction market. This is where individuals are buying and selling typically between each other, and therefore, an auction is occurring. This means that the lowest asking price will be matched with the highest bidding price. If one wishes to buy stock, which trades on the NYSE, the broker will need to call the order to a floor broker or enter the order into the DOT system.
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Cost and Perception
One thing that cannot be quantified but has to be acknowledged is the way companies on each exchange are perceived generally by investors. NASDAQ is classically known as high-tech market, and it attracts several of the firms, which deal with electronics or the Internet. Consequently, stocks on this exchange are perceived as more growth oriented and volatile. On the other hand, the companies on NYSE are alleged to be well established. The listings on NYSE include several blue chip industries and firms that were around very long time ago and the stocks are therefore considered more established and stable. It is not necessarily a critical factor for an investor whether a stock may trade on the NYSE or NASDAQ when deciding on stock to invest in. However, both exchanges are perceived differently; as such, the decision to list on a specific exchange is an essential one for any company.
Every stock market harbors a police officer who controls traffic. The same way as broken traffic light requires an individual to control the flow of cars. All exchanges require persons who at the “intersection” where sellers and buyers meet or an intersection where they can place their orders. Traffic controllers of both exchanges deal with particular traffic issues and consequently facilitate the operation of their market. For NASDAQ, the traffic controller is identified as a market maker who, as already explained, transacts with sellers and buyers in keeping with the trading flow consistent. On the other hand, the exchange traffic controller for NYSE is identified as a specialist who is mandated with connecting sellers with buyers.
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Essentially, the role of a specialist and market maker are dissimilar in a number of ways. While a market marker creates a market for security, a specialist is considered as a facilitator for market security. Nonetheless, the duty of both the specialist and market maker is ensuring an orderly and smooth market environment for clients. In the event that there are many orders, which get backed up, traffic controllers of the exchanges will work in matching the askers with the bidders in ensuring completion of as many orders as possible. In case that no one is there to sell or buy, NYSE specialists and market makers for NASDAQ will endeavor to see if they are capable of finding sellers and buyers, as well as selling or buying from their own inventories.
Generally, while NYSE centralize buyers and sellers instruction to make the stock exchange, NASDAQ is a loose market, Market Maker public their purchase price and selling price to attract investors; also, they can choose the best price from the competition among Market Makers. Further, NYSE is mainly face to face exchange, or by phone, which is located in an institute. All exchanges in NASDAQ are online and address through the Internet system.
To be a listed company, NYSE have more requirements than NASDAQ, the price is also higher. Thus, most well developed famous companies are listed in NYSE and most of developing companies are listed in NASDAQ. The National Association of Securities Dealers Automated Quotations (NASDAQ) is the nation’s largest electronic stock market. It was founded in 1971, and there are more than 500 Market Maker, which public their purchase price and selling price. The investors can choose the best price to make a successfiul deal. The Market Maker gain profit by buy-in with low price and sell with higher price.
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Factors Affecting the Performance of Shareholder Value on Companies Listed on ETFS
The majority of companies listed in ETFs and S&P 500 embarked on setting targets in improving environmental performance as well as shareholder value through high revenue performances. However, a closer examination reveals that the companies did not and have not actually realized these objectives effectively. Further, it has also been found that there is a high level of variation in the degree of rigor and ambition alongside with missed opportunities for these companies in ensuring high returns, as well as incorporation of strategies aimed at sustainability.
In recent perspectives, the speed and severity in the decrease of value for currencies in emerging markets has had a transactional impact on FTSE 100 and S&P companies. These companies are unable to raise their prices early enough in offsetting the decrease in currency value. In fact, understanding the role of currency in the performance of international firms is a crucial aspect. In essence, the impact of currency on multinationals can be huge. One of the reasons why ETFS and S&P have failed to achieve their targets is that they did not pay a closer attention to managing the fluctuation and uncertainties of foreign currency (Snowdon, 2012, p. 76).
More than half of their sales for S&P 500 and ETFE companies are generated outside the U.S. For any multinational organization, currencies can influence the business performance in a number of ways. These impacts can be manifested in such issues as (a) exposure in translation where an organization converts its revenue for foreign destinations to its home currencies; b) exposure in transaction where prices that have been received or paid out for goods are influenced by currency, and, c) economic exposure, whereby the input costs, cost of the goods sold, competitive advantage and the values in the balance sheet are affected (Dzikevičius & Vetrov, 2012, pp. 36-42).
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For companies that are based in America, a strong dollar in their home country, particularly during the reporting period, can affect the businesses negatively. The reason for this is the fact that revenue from foreign nations may be valued lesser in comparison to the dollar at that time. Stated differently, the units of foreign currency denominated revenue will be exchanged for lesser dollars when it is translated in reporting financial results (Alan, 2009, p. 134).
Examples of companies that have experienced losses due to the impact of currency value include Pfizer, among others. Regardless of the reality that there are companies, which thrive amidst the weak dollar, many companies in the EFTS and S&P listings experienced losses probably due to ineffective currency strategies. Approximately 25% of large organizations that have exposed themselves to currency risks did absolutely nothing to edge it out. This points to the reason why many of them failed to achieve their objectives (Alan, 2009, p. 138).
Economic analysts, expert commentators and the business media have occasionally cited the high rate of unemployment in the US as an aspect, which depicts the stock and economic market health. In general, a drop or rise in the rate of unemployment is either good or bad for stocks. When the US markets had been showing significant improvements, investors and companies found themselves confronted by major obstacles. In essence, there can be no company, which has been immune to the effects of unemployment in economic perspective. There are various ways, by which negative job reports affected ETFE and S&P 500 companies. This happens due to the fact that it directly affects the economy of a country in general. Unemployment issue had been so broad and continued to be for some investors that it is better to capture the entire economy through buying stock from such companies as DIA or SPY (Snowdon, 2012, p. 76).
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There is no doubt that the NYSE and the NASDAQ are a significant portion of equities in the USA and globally. Despite this, the NYSE and the NASDAQ have a number of variations in relation to their operations and the type of equities traded. An understanding of these variations is quite helpful in comprehending the role of stock exchange, as well as the mechanics behind the exchange of stocks.