Overview

Two names are synonymous when we conjure up images of US stocks: the NYSE and NASDAQ.  The acronyms stand for the New York Stock Exchange and National Association of Securities Dealers Automated Quotations, respectively. At their core, both are stock exchanges based in New York City and two of the biggest by market capitalization in the world. Both exchanges also contain two of the most followed US stock market indices, namely the Dow Jones Industrial Average (for NYSE), and NASDAQ Composite (for NASDAQ)

Naturally, comparisons often come to the fore and whether any significant impacts for companies and investors stem from them. Interestingly, both exchanges themselves are also publicly-traded companies. The NYSE is owned by Intercontinental Exchange, while Nasdaq Inc owns NASDAQ.

Basic differences between NYSE and NASDAQ

Basic differences between NYSE and NASDAQ

Age and market capitalization: The NYSE is significantly older than its successor, with roots spanning several centuries. The former exchange was founded in 1792, while NASDAQ in 1971. As a result, NYSE boasts a market cap of roughly $22.9 trillion from at least 2400 listed companies, while NASDAQ, still impressively, is approximately $10.9 trillion with more than 3300 listed companies.

Location: Aside from both their central offices in New York City, the actual trading happens at different places for both exchanges. NYSE, in keeping with its traditional heritage, still currently retains a trading floor with 21 rooms at its main Wall Street office, though some of the bulk of trading occurs at its Mahwah data center in New Jersey. 

Whereas with NASDAQ, there is no physical trading floor, rather facilitating trading activity through various ECNs (electronic communication networks). This feat was revolutionary back when the exchange formed almost five decades ago, making them the world’s first fully electronic stock market. We could consider the NYSE to use both an ‘old school’ model through their Wall Street trading floor and electronic means as well.

Technical differences between NYSE and NASDAQ

The technical differences between the two corporations are the key distinctions and should enhance our understanding of how trading occurs in exchanges. We refer to the NYSE as an auction market, while the NASDAQ as a dealer’s market. An auction market is more centralized (hence part of the reason for NYSE’s trading floor), while a dealer’s market has many different organizations involved. Both of these models elicit pros and cons, but don’t inherently affect the performance of the stocks themselves. These processes are known as the traffic control for the exchanges.

An auction market, which is how the NYSE performs transactions, involves an auction of buyers and sellers trading amongst themselves where the ‘specialist’ (that runs the auction) matches the highest bidding prices with the lowest asking prices (and vice versa). However, there is some portion of NYSE’s trading that happens electronically like NASDAQ.

In contrast, a dealer’s market, which is how NASDAQ facilitates transactions, involves the process of dealers ‘creating the market’ by offering transparent prices for clients to buy and sell securities. They are often known as ‘market makers’ for the mere fact they ‘make the markets’ by creating liquidity, which comes from their own capital. This process is far more electronic as it eliminates the need for any physical trading.

Effects on corporate listings and public perception

NASDAQ has grown in leaps and bounds in the last few decades, even though size-wise, the exchange is still miles away from the NYSE. It would be interesting to see if this may change in the future. Over the years, both exchanges have garnered more commonalities than before. 

Other than this factor, the decision of which exchange to opt for is more logistical for corporations than traders. When looking solely at US stocks, we shouldn’t necessarily choose stocks based on these two exchanges as both are well-established entities offering stocks of all sizes. 

For corporations, it’s more expensive to list on the NYSE than it is on the NASDAQ. There is more prestige on the former, though generally, big-name brands can easily afford to list on both simultaneously. Depending on the number of shares, to list on the NYSE costs a company between $100 000 to $150 000. Additional yearly fees can go as high as $500 000. 

For NASDAQ, the listing fee is between $55 000 to $80 000, with yearly fees racking up to $160 000. The disparity in these listing fees partly shows why NASDAQ has at least a third more listings than its counterpart. We must also bear in mind there are also differences between the minimum share listing price, revenue targets, and market capitalization required.

The public perception with both exchanges boils down to the type of stocks one typically finds. The NYSE has always held a reputation to house older companies such as Berkshire Hathaway, Coca-Cola, Pfizer, and Procter & Gamble that analysts perceive as less volatile. In contrast, the NASDAQ has built a name as the playground for newer, value stocks, most notably tech companies, that analysts perceive as more volatile. 

The FAANG stocks (Facebook, Amazon, Apple, Netflix, Google) are probably the first brands that we think of with regards to prominent NASDAQ listings. Analysts perceive a market that has existed for years as more predictable and less volatile compared to one that only has relatively a few years in the game. 

Conclusion

The perceptions that have been around for both exchanges shouldn’t necessarily create a strong preference for one exchange over another. Observing the distinctions helps us to understand more about the inner workings of the stock market broadly. For US stocks, any of these stock exchanges are the perfect marketplace for investing in the large, recognized companies we know and use every day