Nasdaq Examination: Background, Trading Process, and Financial Analyses
Nasdaq's Multi-Tiered Market Structure: A Comprehensive Approach to Listing Companies
In the world of stock exchanges, Nasdaq stands out as one of the major players in the United States, boasting over 5,000 domestic and foreign companies listed. Established in 1971, the exchange has evolved significantly over the years, introducing a three-tiered market structure to cater to companies at different stages of their development.
The Nasdaq Global Select Market is the highest-tier market, featuring companies that meet the most stringent financial, liquidity, and corporate governance standards. These are typically larger, more established companies with strong financials, robust regulatory compliance, higher market capitalizations, consistent earnings, and greater transparency. Examples of companies listed here include Apple (AAPL), Microsoft, Alphabet, Meta Platforms, Amazon, and Tesla.
The Nasdaq Global Market serves as the middle tier, accommodating mid-sized companies that meet Nasdaq’s general listing standards but with somewhat less rigorous requirements than the Global Select Market. These companies might not yet meet all criteria for the top-tier Global Select listing but still have solid financial performance. This tier offers access to U.S. capital markets with a significant but slightly more flexible regulatory burden.
The Nasdaq Capital Market is the entry-level tier, designed for smaller or developing companies, often with lower market capitalizations and less extensive operating histories. The requirements here are less demanding, allowing growth-stage companies access to public equity markets for raising capital. This tier has lower minimum financial thresholds but still mandates adequate disclosure and governance standards to protect investors.
This multi-tiered structure allows Nasdaq to classify companies based on their financial strength, transparency, and size, providing appropriate listing standards tailored to varying company maturity levels. This stratification helps investors gauge the relative risk and stability of listed firms based on the tier in which they trade.
Nasdaq's computerized trading system was initially devised as an alternative to the specialist system, which was the prevalent model for almost a century. In 2020, Nasdaq proposed a new rule requiring companies listed on the exchange to report on the diversity of their board of directors. To promote diversity, the board diversity disclosure rule requires listed companies to have female directors and members from underrepresented groups or explain their absence. The SEC approved this rule on Aug. 6, 2021.
In 2022, Nasdaq Inc. reported a significant net income of $1.12 billion and increased its quarterly dividend. The Nasdaq Composite Index, which includes over 2,500 stocks, reached a record high of 16,057.44 on Nov. 19, 2021, but dropped more than 23% from that point through April 2022. Despite this decline, the Nasdaq Composite Index is still considered a gauge of the U.S. and global economies.
Nasdaq Inc., traded under the symbol NDAQ, was formed in 2008 through a merger with the Scandinavian exchanges group OMX. The company is headquartered in New York and operates in more than 50 countries. Adena Friedman, the chief operating officer (COO), was promoted to the role of chief executive officer (CEO) in November 2016, becoming the first woman to run a major exchange in the United States.
In conclusion, Nasdaq's multi-tiered market structure provides a comprehensive approach to listing companies, catering to their varying stages of development while ensuring investor protection and confidence. The exchange's focus on diversity, technological innovation, and regulatory compliance continues to set it apart in the competitive world of stock exchanges.
- Some smaller or developing companies, with lower market capitalizations and less extensive operating histories, may find their place on the Nasdaq Capital Market, a tier that requires adequate disclosure and governance standards to protect investors, yet has lower minimum financial thresholds.
- Financial institutions might consider investing in companies listed on the Nasdaq Global Select Market, as these companies typically have strong financials, robust regulatory compliance, higher market capitalizations, consistent earnings, and greater transparency.
- Technology plays a significant role in Nasdaq's operations, as demonstrated by the computerized trading system, initially devised as an alternative to the specialist system, and the proposal of a new rule in 2020 requiring companies listed on the exchange to report on the diversity of their board of directors.
