What is The NASDAQ?

Nasdaq was born in 1971 as the United States' first automated exchange system for stock market securities. In other words, the Nasdaq is an electronic stock market that does the same things as the New York Stock Exchange only with an emphasis on technology. Since its inception, Nasdaq has grown in size and is now one of the United States' largest and most competitive stock exchanges.

Image source: Victoria Peckham

• Stocks listed on Nasdaq

There are currently approximately 3200 company stocks listed on the Nasdaq stock exchange, 335 of which are foreign companies. Many of these companies are technology stocks such as information technology and telecommunications firms, however other economic sectors are represented in this exchange including financial services, retail and transportation companies. While technology stocks are not the only stocks listed on this exchange they do form a large part of the companies traded on this exchange.

• Regulation of Nasdaq

The Nasdaq stock exchange is regulated by the Securities Exchange Committee (SEC). The SEC regulation of Nasdaq and other exchanges centers around the following areas:

1. Assisting public investors in having fair access to investing opportunities
2. Ensuring competitive pricing among exchanges through inter-linking of them.
3. The prevention of fraud and stock manipulation.
4. Limiting risk to investors coming about through technological mishaps.

Recently, the regulatory environment has favored individual investors in terms of financial information. In 1996 an SEC ruling allowed greater individual access to financial information previously only made available to financial institutions. This has led to a larger volume and more favorable investing environment to individual investors. What's more, as of 2000 the 1996 ruling was enhanced. In the SEC's 2000 'fair disclosure' ruling required the distribution of sensitive financial information made available to large brokerage firms to be simultaneously available to individual investors.

• The competitiveness of Nasdaq

Nasdaq has become one of the leading U.S. stock exchanges and currently trades a greater volume of electronic shares per day than any other U.S. stock exchange. Due to its technologically savvy positioning, Nasdaq has been able to secure increasing market share over the last decade. It is currently gaining momentum in the exchange of shares listed on the New York Stock Exchange, specifically it traded 14.9% of NYSE shares as of January 2007.and allows for enhanced electronic features in the trading process according to Nasdaq's Chief Economist. It is believed this faster and more efficient trading platforms allows brokerage firms and Inevestment banks to gain an edge in the trading process. In 2006 Nasdaq bought nearly 3.5 million shares of the London Stock Exchange (LXE) and subsequently placed bids to purchase a majority stake in the exchange in 2007.

• The future of Nasdaq

The future of Nasdaq looks promising. It has a strong brand equity that meets the needs of an increasingly technological world and business environment. Recent developments and trends in stocks traded on the Nasdaq point to its future performance. Also, as a major U.S. stock exchange it is a market leader and therefore enjoys the fiscal benefits of economies of scale which will assist in its future competitiveness.

To summarize, the Nasdaq stock exchange is an electronic stock exchange that emerged alongside an increase in the distribution of computer technology. As information systems have developed, the Nasdaq has become more sophisticated and consequently has gained market share making it more competitive. The Nasdaq is poised for increased amounts of trading volume and a greater amount of corporate listings in the future. The Nasdaq is regulated by the Securities and Exchange Commission which is a U.S. government entity and this organization helps level the playing field for smaller investors.

Sources:

1. http://www.nasdaq.com/newsroom/news/pr2006/ne_section06_046.stm
2. http://www.sec.gov/rules/extra/regmark.shtml
3. http://www.nasdaq.com/reference/nasdaq_facts.stm
4. http://invest-faq.com/articles/regul-sec-nasdaq.html
5. http://findarticles.com/p/articles/mi_qa3715/is_200010/ai_n8912892
6. http://www.nasdaq.com/reference/NASDAQ%20Market%20Structure%20Bulletin.pdf

An overview of stock market indices

Stock market indicis are a financial tool used throughout the World to measure how a group of companies' stocks have been valued. Indicis also exist for commodities prices traded in exchanges such as the Chicago Mercantile Exchange. Stock market indicis can generally be thought of as financial indicators.

To better understand what stock market indicis are, it is helpful to consider the different types of indicis, why they are used and how they are measured. While some aspects of indicis such as their calculation can be conceptual and abstract they can be thought of as simple financial tools.

The World's many stock market indices

Many countries have their own indicis and many indicis exist within many countries. The type of index varies according to what is being measured. While it is usually the stock of a group of companies, it can also include a collection of commodities such as oil, grains and metals. A few of the various types of indicis are listed below.

• Local and Regional Indicis Ex-Bloomberg Chicago Index
• National Indicis Ex-Nasdaq-, DJI, S&P 500
• Commodities Indicis Ex- S&P GSCI
• Sector Indicis Ex- Nasdaq-100
• Specialized Indicis Ex-Sin fund Index (corporations specializing in alcohol and tobacco)

Why stock market indicis are used

Stock market indicis have several functions. One of the major functions of an index is to provide a navigational direction regarding financial stock valuation of a particular group of companies. Other uses of indicis include the following:

• In the sale of index futures
• To provide widespread performance data
• Recognition of corporate standards and achievement
• Analysis of business and economic trends.
• Research data for financial theorizing.
• Marketing and demonstration tool for financial services.

How Indicis are calculated

There are several ways to calculate in index value and how this is done is key to understanding what you are looking at when one sees an index number. For example, in a price weighted average index such as the Dow Jones industrial average, the prices of stocks are what influence the index value. However, in Nasdaq indicis the traditional calculation method is market value weighted which is a calculation based on the value of outstanding shares. This metric takes into account both share volume and price. Several ways to calculate an index value are the following.

• Market value weighted average
• Equal weighted
• Price weighted average
• Market share weighted average
• Float adjusted weighted average

While the final index value will be different using all these methods the general trend will sometimes be the same whichever method is used. That is to say, even if the individual companies within the index are measured differently in terms of proportion of influence on the index value, the overall trends of those companies may be correlated and therefore reflected in the index. Nevertheless, the more representative and proportional the index measurements are, the more accurate a reflection of the company pool the index value will be.

In summary, stock market indicis are financial measurement tools that reflect valuation of different groups of companies and/or commodities. Different indicis exist around the world to provide financial planners and others useful indicators of how particular segments of an economy are performing at any given time and under various economic climates.

The information from indicis can be used in a plethora of ways such as for statistical analysis of data in economic research, portfolio management and financial services. Many indicis are measured using weighted averages which provides for a more representational and proportional index value. However, there are several different ways to calculate a weighted average value using stock prices, outstanding shares, actively traded (float) shares and equal weighted.

Sources:

1. http://tinyurl.com/ygneawb
2. http://dynamic.nasdaq.com/services/indexes/default.aspx
3. http://www.djindexes.com/
4. http://www.bloomberg.com/markets/commodities/cfutures.html
5. http://www.cme.com/files/emini.pdf
6. http://www.investopedia.com/terms/f/float.asp