Investments, tenth edition

   NASDAQ 

 The NASDAQ Stock Market lists around 3,000 firms. It has steadily introduced ever-more 

sophisticated trading platforms, which today handle the great majority of its trades. The 

current version, called the NASDAQ Market Center, consolidates NASDAQ’s previous 

electronic markets into one integrated system. NASDAQ merged in 2008 with OMX, a 

Swedish-Finnish company that controls seven Nordic and Baltic stock exchanges to form 

NASDAQ OMX Group. In addition to maintaining the NASDAQ Stock Market, it also 

maintains several stock markets in Europe as well as an options and futures exchange in 

the U.S. 

 NASDAQ has three levels of subscribers. The highest, level 3 subscribers, are registered 

market makers. These are firms that make a market in securities, maintain inventories of 

securities, and post bid and ask prices at which they are willing to buy or sell shares. Level 

3 subscribers can enter and change bid–ask quotes continually and have the fastest execu-

tion of trades. They profit from the spread between bid and ask prices. 

 Level 2 subscribers receive all bid and ask quotes but cannot enter their own quotes. 

They can see which market makers are offering the best prices. These subscribers tend to 

be brokerage firms that execute trades for clients but do not actively deal in stocks for their 

own account. 

 Level 1 subscribers receive only inside quotes (i.e., the best bid and ask prices), but do 

not see how many shares are being offered. These subscribers tend to be investors who are 

not actively buying or selling but want information on current prices.  

 Figure 3.7 

Market share of trading in NYSE-listed shares 

 Source: James J. Angel, Lawrence E. Harris, and Chester Spatt, “Equity Trading in the 21 st  Century,”  Quarterly Journal of Finance  1 

(2011), 1–53. 

90%

Feb-02

Feb-03

Feb-04

Feb-05

Feb-06

Feb-07

Feb-08

Feb-09

Feb-10

Feb-11

80%

70%

60%

50%

40%

30%

20%

Percentage

10%

0%

NYSE

NYSE Arca

NASDAQ OMX

BATS

Other

Direct Edge

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6/18/13   7:44 PM

6/18/13   7:44 PM

Final PDF to printer

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  C H A P T E R  

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  How Securities Are Traded  

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