What is the Nasdaq stock exchange?

AP News
Posted: Aug 22, 2013 6:33 PM
What is the Nasdaq stock exchange?

NEW YORK (AP) — Trading on the Nasdaq stock exchange was halted for three hours Thursday after a computer malfunction.

It's the latest computer mishap on Wall Street, and raises new concerns about the electronic systems that have come to dominate trading in financial markets.

Here's a look at the Nasdaq, which hosts the biggest names in technology, including Apple, Microsoft and Google:

What is the Nasdaq?

The Nasdaq is an exchange where stocks of public companies are bought and sold. It debuted as the National Association of Securities Dealers Automated Quotations in 1971 and says it was the world's first electronic stock market. When you hear people talking about "the Nasdaq," they're probably referring to the Nasdaq composite index, which gives an indication of how stocks on the entire Nasdaq stock market are performing.

The Nasdaq bills itself as a tech-savvy stock exchange, and many of the companies that list their stocks there are tech companies such as Apple, Microsoft and Google.

How is it different from the New York Stock Exchange?

The New York Stock Exchange is the other widely known U.S. stock exchange, and it bills itself as a stately, traditional symbol of the financial markets. The NYSE, now housed at a columned building in lower Manhattan at Wall and Broad streets, dates to 1792 when two dozen brokers and merchants traded stocks under a buttonwood tree. The NYSE has struggled, though, as trading has come to be dominated not by traders in colorful jackets hollering across the floor of the exchange, but by high-powered computers that execute trades in fractions of a second. Parent company NYSE Euronext is being bought by an upstart rival.

So they're rivals?

Right. They compete to get public companies to list with them. Nasdaq-listed companies account for 109 of the 500 companies that trade on the Standard & Poor's 500 stock index. That represents 22 percent of the index's market value, according to S&P Dow Jones Indices. The rest of the S&P 500 companies list on the NYSE.

What happened with Nasdaq and Facebook last year?

Nasdaq was triumphant when Facebook chose to list there when it went public in May 2012. Things went sour on opening day, though. Technical problems delayed the start of trading, then kept many investors wondering if their trades had gone through. Since the Facebook offering, 18 companies, including software giant Oracle, have left Nasdaq for the NYSE.

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What's the broader effect?

Computer snafus shouldn't matter to investors who are holding stocks for the long term. And there are safeguards to try to limit the impact of glitches on trading. For example, "circuit breakers" are supposed to kick in and halt trading when a stock undergoes a huge fluctuation. James Angel, a professor at Georgetown University who specializes in the structure and regulation of financial markets, said people have gotten used to the fact that every once in a while the power goes out and a computer crashes.

"As long as the trading is fair and orderly I don't think that's going to deter people from investing," he said.

Even so, glitches do have an impact, making some investors nervous about putting their money in the market. The error-riddled Facebook IPO left some investors holding stocks they didn't want. Computer problems on exchanges can also make or break individual companies. Knight Capital teetered near bankruptcy and eventually had to sell itself after a glitch in its new software program sent some stocks swinging wildly last summer.


AP Markets Writer Steve Rothwell contributed to this report.