National Association of Securities Dealers Automated Quotations - Example

NASDAQ Student’s Name: Instructor’s Name: Course Code: Date of Submission: Introduction NASDAQ stands for National Association of Securities Dealers Automated Quotations. It is one of the largest stock exchange organizations in American market. For any economy to succeed in the way it conducts its operations there is need to establish a stock exchange market which can bring various companies together. The stock exchange market will quote different companies where their products are listed and can be bought by the customers. It sets regulations under which companies should operate so that there will be no exploitation to any party (Jeffrey et al 1998). Under these laws and regulations, the companies can conduct themselves a way in which is according to specific market requirements so as to manage rivalry competition which can phase out some companies out of the market. In addition, NASDAQ provides a forum for buyers and dealers to transact business. Therefore, NASDAQ is very important for better management of companies in the American market and beyond as it brings order in which companies should conduct their businesses. In this regard therefore, this paper will discuss the establishment of NASDAQ, objectives and functions, listing requirements and growth of trading in NASDAQ. History and establishment of NASDAQ NASDAQ is an American stock exchange market. Currently it is among the largest stock exchange markets I the US and it is ranked second after the New York stock exchange. The platform for NASDAQ is owned by OMX Group. NASDAQ was founded in the year 1971. It was founded by National Association of Securities Dealers (Jeffrey et al 1998). The NASDAQ started operating in the same year of establishment that is 1971 August. It was the first stock exchange to apply electronic in stock market. This helped to manage the spread (differences between bid price and the asking price). However, this system was not popular because the brokers made much of their money through spread. NASDAQ was successful in implementing over the counter trading system. Since its establishment until late the years of 1978, it was still applying the OTC system. The association improved its operations by introducing more automated systems of trading. In the American economy, NASDAQ was the first stock exchange to start the online trading which enabled it to gain large market share as the services between the buyers and the dealers was made faster satisfying the way customers were served (Jeffrey et al 1998). Until the year 1987, the NASDAQ stock exchange had been applying telephone communication but late in the same year there was market crash and the market did not answer their telephone calls (Jeffrey et al 1998). To manage this situation, there was an establishment of Small Order Execution System which was able to offer an electronic media in which the market dealers will transact business with their customers. NASDAQ requires that all the market makers should respect the small order of execution system. NASDAQ joined London Stock exchange in the year 1992 which was among the first intercontinental link between stock exchanges associations. NASDAQ spun off in the year 2000 and formed a publicly traded Company called the NASDAQ stock market Inc. In the year 2004, NASDAQ changed from being the stock market to a national exchange which is licensed. In order for any company to be listed in the stock exchange, it must be registered with the United States Securities and Exchange Commission. In addition, it must have at least three market makers- these are firms which act as dealers or brokers concerning specific securities. Furthermore, it must meet the requirements for assets, capital and public shares. European Association of Securities Dealers Automatic Quotation System was first established in Europe but was later purchased by NASDAQ in the year 2001 (NASDAQ Stock exchange 2003). Its name changed to NASDAQ Europe. Currently, NASDAQ Europe is operating under Borse Berlin. In this year 2013, NASDAQ was approached by a firm which is privately owned concerning the operator exchange private but the talks fell out because they failed to agree on the prices. Objectives and functions of NASDAQ In order for any association to successfully achieve its aim, it must have objectives and functions to achieve. NASDAQ has various objectives and functions. Discussed below are some of the functions and objectives of NASDAQ. The first objective of NASDAQ is to provide safe environment where the investors can meet and transact business. It does this by creating an environment where the investors can have confidence and invest their financial resources. The investors will also have the opportunity to buy and sale their securities (Simi & Venkatesh 2004). Another objective is to ensure that NASDAQ is meeting the latest international standards. NASDAQ aims at applying the latest standards of trading in the stock market. It does this by developing strategies and methods which are used elsewhere internationally. This improves the competitiveness of the listed companies globally (Simi & Venkatesh 2004). It also aims at disseminating information to a large number of interested buyers and sellers of securities. NASDAQ aims at ensuring that investors access information relevant when making decisions concerning the investment (NASDAQ Stock exchange 2003). This information provided by NASDAQ is useful because it helps to determine the future changes in the security market thus make a valid decision. NASDAQ has the responsibility of advising the board of directors concerning the issues which relate to listing of companies in the stock exchange (Simi & Venkatesh 2004). The board of directors greatly relies on the information from the NASDAQ concerning the issues which affect the listing of companies in the stock exchange. This will help to protect investors and also promotes the integrity of the stock market. The operations of NASDAQ will be promoted due to integrity. Another function of NASDAQ is to ensure consistency to by laws of NASDAQ. It ensures that there is consistent application of the laws like the listing rules as well as the procedures and policies set by NASDAQ (Simi & Venkatesh 2004). It takes the responsibility of monitoring how the laws are implemented and if there is any deviation from the laws by any company; correction is made before it causes a storm in the stock exchange. It ensures that all companies observe the laws of being listed in the stock exchange are followed and the policies of listed companies are followed to the latter. This brings laws and order when trading in the stock exchange and also helps to reduce disputes among trading members. Another function of NASDAQ is to create confidence among the investors. It achieves this by ensuring there is a strict application of the laws of NASDAQ. It ensures that all the laws are followed and this helps to reduce risks that might be involved in stock exchange (Jeffrey et al 1998). The investors will have confidence in the stock exchange market which ensures there are strict laws which are implemented fully. The investors will be attracted to the stock exchange which has fewer risks because it involves huge investments and in any case of high risks the investors will not be attracted to invest in the stock exchange market. Moreover, NASDAQ has the responsibility of ensuring that there are no disputes among the investors or among the companies which are listed in the stock exchange. NASDAQ has laws which govern its operations also which should be followed by all listed companies. When there is a dispute between the listed companies, NASDAQ reviews its laws and finds a solution to the dispute (Jeffrey et al 1998). The solution is made based on the laws and any investor found guilty of breaching the laws shall be liable to meet the penalties as spelt out in the NASDAQ laws. Hence it helps to smoothen the transactions when trading in the stock exchange market. Further, NASDAQ is responsible for managing issues which might be affecting the investors. It does this by consulting with the listed companies issues which affect them. It also takes the recommendations which are made by the listed companies on how to improve the management of the stock market (Jeffrey et al 1998). NASDAQ then analyses the issues and the recommendations before making a decision based on the issues affecting the investors. This helps to improve the management of the stock market. On the other hand, it sets laws which govern the operations of the stock exchange market. It makes time to time review of the laws which are used to manage the companies in the stock exchange. These laws are used to manage the operations of listed companies in the stock exchange. These laws help to indicate how companies should conduct themselves (Jeffrey et al 1998). They also help in listing new companies. The laws show what should be fulfilled by the companies in order to be listed in the stock exchange. In addition, NASDAQ aims to improve management of companies by conducting independent internal audit. Before a company is listed in the NASDAQ stock exchange, it must meet some specific requirements. One of the requirements is financial requirements (NASDAQ Market place rules 2004). In order to determine the financial capacity of a company, NASDAQ should conduct an internal audit to understand the financial position of the company before it is being listed in the stock exchange. Through internal audit, many companies are better managed as they could want to be listed in the stock exchange. NASDAQ further helps to provide a location where transaction can take place between the buyers and the dealers. Stock market brings the buyers and the dealers together so that they can exchange their transaction. Without NASDAQ, it will be hard for buyers and sellers to meet which can make it difficult for investors to meet and offer their products (NASDAQ Market place rules 2004). In this regard, NASDAQ acts as a mediator between the sellers and the buyers which make easier business transaction. This is because it provides physical floor where the investors meet to transact business. Moreover, NASDAQ is responsible for controlling human traffic in the stock exchange market. In any market there has to be law and order (NASDAQ Market place rules 2004). In order to manage human traffic at the stock exchange market, NASDAQ has rules which should be followed when transacting business in the stock exchange. Further, it helps to reduce number of people to be served by New York stock exchange. In this effect, there is improved service delivery to customers. NASDAQ is also responsible for managing the transactions taking place at the stock exchange. It does this by developing a system which keeps track of all the transactions taking place at over the counter. It can develop a computerized system to serve the customers and record the transactions as they occur. This brings law and order in the stock exchange (NASDAQ Market place rules 2004). It also helps to manage investors and the transactions as it will be faster and easier to manage. The computerized network enhances the transaction process as it keeps track of all transactions which take place. It facilitates trading in stocks between the buyers and dealers. It is the responsibility of the NASDAQ to facilitate a forum where the buyers and sellers can meet to transact trade. The willing buyers and sellers can meet at the stock exchange market and offer their stocks (Gene & Roger 2003). It could not be easy to facilitate transaction between buyers and sellers if there is no forum where they can meet and sell their stocks. Therefore, NASDAQ aims at facilitating business transactions between the buyers and sellers which makes business transitions easier. It also provides access to stock as it enables companies to sell and buy securities at the stock exchange market. Investors can raise revenue through selling of their securities at the stock exchange market. Through the selling of securities, there will be willing buyers who will buy the securities and in the process, the company will be able to raise capital (Gene & Roger 2003). Further, it helps investors to find the best investments where they can invest their financial resources. For instance, the investors can buy securities when the prices are low and sell them when the prices have risen. This is a form of investment as it helps the investor to generate some income through buying and selling of securities. Listing requirements For any organization or investor to be listed in the NASDAQ, it must have the following requirements laid down. The first requirement is that the company must be a registered company under the company Act of 1940. The company should not be a dealer in the issuance of securities (Gene & Roger 2003). Registration of the new company will be considered once there is a clearance by the commission. Any company shall be considered for being listed considering its statement of registration alongside the application form filled. The applicant should have at least three registered deal makers but any application for continued registration, only two market makers are required. Only one market maker is required for any application for stabilizing the bids (Gene & Roger 2003). For an investor who is offering initial securities, must meet the $4 million financial resources net of tangible assets. In addition, he or she must meet the capitalization of market of worthy $50 million. Alternatively, he or she must have a net income of $750 000 which should be of not more than two years ago. Preferably it should be of the most recent fiscal year. For investors who want continued inclusion should have tangible assets worth $2 million, market capitalization worth $35 million or an equivalent of net income of $500000 I the most recent financial year (Gene & Roger 2003). In addition, for initial inclusion the investor must have at least $50 million market capitalization in the past one year. In addition, the bid price per share for initial offers should be $4 per share on the minimum. For convertible debt security for initial offer should include a principal of $10 million and $5 for continued offers. On the other hand, common stock initial offers should have at least 1 million shares which are held and 500,000 for continuing inclusion. When there is failure to meet the required number of market makers can only be determined within a period of ten days of continuing deficiency. Failure to achieve that, the applicant will be given another thirty days to comply with the requirement (Simi & Venkatesh 2004). There should be at least 100,000 security which should be held has warranty in the NASDAQ stock exchange. If it should be held by NASDAQ, it should be held by any other national stock exchange security. In the case of component parts, the requirements for the parts should be met The first issue to be listed in the stock exchange, there must be three copies of reports accompanies with all other documents to be signed by the commission (Simi & Venkatesh 2004). The applicant should respond immediately to NASDAQ incase of any enquiry concerning its application. In addition, each company should be in possession of minimum of 1.2 million shares which are publicly traded upon listing. This excludes those shares which are held in other stock markets. Concerning the first bid price which is supposed to be a minimum of $4 can vary depending on the varying requirements and can range between $3 and $2 (Simi & Venkatesh 2004). Moreover, for a firm to be registered in the NASDAQ stock exchange it must comply with the corporate governance laws of NASDAQ 4350, 4351 and 4352. The company must have at least 100 shareholders, 2,200 total shareholders or averagely a total of 5,550 shareholders in the last one financial year. They should have an average of trading volume of 1.1 in terms of volume. Furthermore, the company should have at least $1.1 million earnings in the last one financial year and this includes the tax. The company should have not suffered any loss in the last three financial years. This proves the competency of the company to be listed in the stock exchange market (Simi & Venkatesh 2004). There should be a minimum of $27.5 million cash flow in the last three financial years. It should not indicate any negative cash flow. This helps to assess the financial management of the company before it is listed in the national stock exchange market thus lowers the risks instead create confidence among the investors (Simi & Venkatesh 2004). Growth of trading in NASDAQ There are various factors which have led to the growth of trading in NASDAQ. It started as a small organization but later grew and currently it is the second largest stock exchange company in the US after. To start with, high degree (Simi & Venkatesh 2004)of competition among firms globally led to faster growth of NASDAQ. Each company wants to gain competitive advantage and one of the strategies is to ensure there is the company is competitive globally. Best performing companies globally should be quoted in the stock exchange market which is reputable globally. This encouraged many companies in the US to join NASDAQ thus led to its growth and reputation globally. In addition, industrial revolution in East led to improved growth of the global economy. Many companies from the Middle East invested in the US economy and to promote their competitiveness they wanted to be quoted in the national stock exchange so that they can improve their reputation (NASDAQ Stock exchange 2003). Many companies were interested to trade in the stock exchange market. This led to increased number of companies listed in the stock exchange market. Moreover, globalization led to improved trading activities. Trading tariffs were eliminated and many companies were able to access the American market because barriers to entry were eliminated. This led to faster economic growth of the American economy (NASDAQ Stock exchange 2003). Many companies were established and the best performing companies and which were qualified were listed in the NASDAQ. The economic growth of America thus led to improved growth of NASDAQ as many companies whether local or international were listed in the NASDAQ stock exchange. Good corporate governance further led to the growth of NASDAQ. There are strict laws and measures which should be fulfilled by a company before it is being listed in the stock exchange market. Fully implementation of these laws created confidence among the investors. The impact of confidence was that it attracted many investors to the NASDAQ (NASDAQ Stock exchange 2003). They could invest their financial resources in the national stock exchange and they can also sell their securities in the stock exchange market. This led to its faster growth as it attracted many investors thus improved its market share. The economic stability of the US further led to faster growth of NASDAQ. In the years of 1980s and 1990s, the economy of US grew steadily. Many investors had adequate finances to invest in the market. One of the markets where they can invest their resources is with the stock exchange market (Simi & Venkatesh 2004). This led to growth of the market share of NASDAQ and also improved its financial capacity due to huge investments made. Therefore, economic stability of the US enabled NASDAQ to grow faster than other national stock exchange markets except the New York stock exchange. References Gene, C. & Roger, W.G. (2003). Does Austrian business cycle theory help explain the dot-com boom and bust? The quarterly journal of Austrian economics, Vol. 6, No. 2, pp. 67–98, Retrieved 29th Nov. 2013, http://mises.org/journals/qjae/pdf/qjae6_2_3.pdf Jeffrey W.S., James P. & Timothy M. (1998). The NASDAQ Stock Market: Historical Background and Current Operation, NASD Working Paper 98-01, Retrieved 29th Nov. 2013, http://fisher.osu.edu/fin/faculty/werner/PhD/Empirical%20Problem%20Sets/wp98_01.pdf NASDAQ Stock exchange. (2003). Market Place Rules. Retrieved 29th Nov. 2013, https://www.sec.gov/pdf/nasd1/4000ser.pdf NASDAQ Market place rules. (2004). NASDAQ New Listing Rules. Retrieved 29th Nov. 2013, http://nasdaq.cchwallstreet.com/NASDAQ/pdf/new_listing_rules.pdf Simi, K. & Venkatesh, P. (2004). Why Do Only Some NASDAQ Firms Switch to the NYSE? Evidence from Corporate Transactions, Rutgers Business School, Retrieved 29th Nov. 2013, http://kedia.rutgers.edu/wp/exlist_sept2004.pdf Read More