Nasdaq Is Best Described as a Global Leader in Electronic Trading

Nasdaq has transformed financial markets by pioneering electronic trading, making it one of the most influential stock exchanges in the world. Its technology-driven approach has increased market efficiency, transparency, and accessibility for investors globally.

Beyond a marketplace for stocks, Nasdaq plays a key role in capital formation and economic growth. It is home to many of the world’s largest and most innovative companies, particularly in the technology sector.

Market Structure

Nasdaq operates as a dealer market, where transactions occur through a network of market makers rather than a centralized trading floor. Market makers—typically large financial firms—commit to buying and selling specific stocks, ensuring liquidity and reducing price volatility. Unlike traditional auction markets where buyers and sellers interact directly, Nasdaq relies on these intermediaries to facilitate trades.

Orders are executed through an advanced system that matches buy and sell orders based on price and time priority, allowing for continuous trading and minimizing delays. Multiple competing market makers for each security help tighten bid-ask spreads, reducing transaction costs.

Nasdaq also integrates electronic communication networks (ECNs), which allow investors to place orders directly. These ECNs provide an alternative to market makers, increasing transparency and enabling institutional investors to execute large trades without significantly impacting stock prices. This combination of dealer-based trading and direct order placement creates a dynamic market.

Listing Criteria

Companies seeking to list on Nasdaq must meet financial, corporate governance, and liquidity requirements to ensure stability and investor confidence. Nasdaq offers three market tiers: the Nasdaq Global Select Market, the Nasdaq Global Market, and the Nasdaq Capital Market. The Global Select Market has the most stringent requirements, often comparable to those of the New York Stock Exchange (NYSE).

Financial criteria vary by tier. For example, companies aiming for the Global Select Market must meet higher thresholds for income, market capitalization, or assets and equity. A firm might qualify by reporting at least $11 million in aggregate pre-tax earnings over the past three years, with a minimum of $2.2 million in the most recent year. Alternatively, a company could qualify with a market capitalization of at least $850 million and revenues of $90 million in the latest fiscal year.

Liquidity and corporate governance requirements also play a role. Companies must have at least 1.1 million publicly held shares and a shareholder base that includes at least 300 round-lot holders—investors who own at least 100 shares each. Governance rules require a board of directors with a majority of independent members and an audit committee composed entirely of independent directors. These measures enhance transparency and protect investors.

Electronic Trading Platform

Nasdaq’s electronic trading infrastructure is built for speed, reliability, and seamless connectivity. Its matching engine processes millions of orders per second, handling extreme market volatility without disruptions. Latency is minimal, often measured in microseconds, allowing institutional and retail investors to execute trades with precision.

A key advantage of Nasdaq’s platform is direct market access (DMA), which allows traders to connect to the exchange without intermediaries. This benefits high-frequency trading (HFT) firms and algorithmic traders who rely on speed to capitalize on small price movements. The platform also supports smart order routing, directing trades to the venue offering the best available price.

Beyond order execution, Nasdaq employs market surveillance tools powered by artificial intelligence and predictive analytics. These systems detect irregular trading patterns and potential market manipulation in real time, helping maintain fair and orderly markets while ensuring compliance with SEC and Financial Industry Regulatory Authority (FINRA) regulations.

Major Indices

Nasdaq’s benchmark indices provide insights into market trends, sector performance, and investor sentiment. The Nasdaq Composite Index, which includes over 3,000 stocks listed on the exchange, is widely regarded as a barometer of the broader market, particularly for growth-oriented companies. It is calculated using a market capitalization-weighted methodology, meaning larger companies have a greater influence on its movements.

Another widely followed benchmark is the Nasdaq-100 Index, which tracks the 100 largest non-financial companies listed on the exchange. This index is heavily weighted in technology, featuring companies like Apple, Microsoft, and Nvidia. It serves as the basis for several exchange-traded funds (ETFs), including the Invesco QQQ Trust (QQQ), which allows investors to gain exposure to Nasdaq-100 constituents without purchasing individual stocks. Due to its focus on high-growth firms, the index tends to be more volatile than broader market indices like the S&P 500.

Capital Formation

Nasdaq provides companies with access to public markets, enabling them to raise funds for expansion, research, and operations. Through initial public offerings (IPOs), direct listings, and special purpose acquisition companies (SPACs), firms can secure capital from a broad investor base. The exchange is a preferred destination for high-growth businesses, particularly in technology, biotechnology, and consumer sectors, due to its flexible listing requirements and global visibility.

IPOs remain the most common method for companies to go public, requiring firms to work with underwriters to determine pricing and share allocation. Nasdaq has hosted some of the largest IPOs in history, including Airbnb and Rivian. Direct listings offer an alternative by allowing companies to sell shares directly to the public without intermediaries, reducing underwriting fees. SPACs, which surged in popularity in recent years, enable private firms to merge with publicly traded shell companies, streamlining the path to public markets. These diverse capital-raising mechanisms make Nasdaq an attractive option for businesses seeking liquidity and investor engagement.