You've seen and heard the terms: NASD, NYSE, AMEX. Here's a key to decoding these short-hand symbols of American securities trading. Start with the simple fact that, generally, securities are traded in the US either
- Through the major exchanges (centralized trading), or
- Over-the-counter (de-centralized trading).
Through the major exchanges
The three major US exchanges are the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), and the NASDAQ, all based in New York.
- Trading for NYSE and AMEX stocks takes place on the "floor" of a physical exchange.
- NASDAQ stocks are listed and traded electronically from broker offices around the country.
To be traded on any of these three exchanges, companies must meet the size and earnings requirements of the exchange (sometimes referred to as a "market"). Traditionally, a company is traded on only one of the three major markets, although it may also be traded on regional exchanges.
Companies can choose to list their stock on any one of the exchanges (but not on more than one), according to the different listing requirements set by the exchanges. The exchanges, however, have the final say on whether or not they choose to list (or delist, or re-list) companies.
- Securities that trade on the NYSE and the AMEX tend to be those of blue-chip or large companies.
For example: The Home Depot is a NYSE-listed security, so Home Depot trades occur primarily on the NYSE. Home Depot's securities, like those of all listed companies, are done by auction on the floor of the exchange -- a sale is made at the price at which the highest "bid" price and lowest "offer" prices meet.
- Securities that trade on the NASDAQ tend to be those of technology, telecommunications, and other growth-sector companies that range from small, start-up firms to corporate giants like Microsoft, Apple and Intel.
For example, Intel is listed and traded on the NASDAQ, so it's listed electronically through the NASD network. Since Intel is one of the largest and most actively traded of the NASDAQ stocks, it's also listed in the NASDAQ National Market Issues, which appears in the financial sections of newspapers such as The Wall Street Journal.
Over the counter (OTC)
Many companies aren't listed on the major exchanges, usually because they can't meet exchange requirements. Their securities are traded "over the counter" via computer and phone by "market makers," and the trades are monitored by the NASD. (This organization of securities firms registers members, writes the rules that govern their operations, review them for compliance, and disciplines them if they fail to comply with rules.)
- OTC stocks are usually very risky, since they are the stocks that are not considered large or stable enough to trade on a major exchange.
- These stocks also tend to trade infrequently, making the spread between bidding and asking prices larger.
- Research about these stocks is generally more difficult to obtain.
Overseeing the markets
Two organizations hold primary responsibility for regulating securities trading. These are the Securities and Exchange Commission (SEC) and the National Association of Securities Dealers(NASD):
-The SEC is a federal agency that protects investors from deception, fraud, and other illegality in the securities markets. The SEC's four divisions cover all aspects of publicly traded investments -- corporate finance (ensures that public companies disclose financial information), market regulation (responsible for legislation affecting brokers), investment management (oversee mutual fund and investment advisors) , and enforcement.
- The NASD is a self-regulatory group made up of stock market and over-the-counter market members. Half of the NASD board is made up of members and half of individuals not involved in the securities industry. While the NASD may expel individuals and firms from its organization, it has no legal power and relies on the SEC to take legal action in the event of wrongdoing.
|
