What Is the Nasdaq?

By Markets Fool.com


Image source: Nasdaq.

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The Nasdaq Stock Market is known throughout the investment community as one of the two major stock exchanges in the U.S. market. Founded in 1971, the Nasdaq was the first stock market in the world to use an electronic system to provide stock quotes. Later, the Nasdaq added the capability to handle trades electronically, executing buy and sell orders for stocks that were traded over the counter rather than on the New York Stock Exchange.

Now, the Nasdaq has grown into a global leader, taking full advantage of technological advances to bill itself as a natural home for high-tech companies seeking to list their shares. Some of the largest companies in the world are primarily listed on the Nasdaq, validating its place in the financial world.

How Nasdaq has been a first mover

The Nasdaq takes pride in its role as an innovator. In addition to its electronic roots, the exchange was also the first to launch a financial website in 1996. The Nasdaq pioneered dual listing in 2004, wooing several companies listed on the New York Stock Exchange to try to have their shares traded on both major U.S. exchanges.

The Nasdaq has also played a vital role in advancing the use of technology in financial operations. The stock market was the first to sell its own technology for use in powering other stock exchanges, and it has promoted the use of its market technology across the globe from Hong Kong to Latvia. In 2012, the Nasdaq started embracing cloud-based solutions, including work on data and infrastructure management, as well as storage of regulatory records.

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The Nasdaq indexes

Many references to the Nasdaq among investors actually refer to the Nasdaq Composite Index, which has become a key benchmark of the broader stock market. The index was launched with the Nasdaq's founding in 1971 with a starting value of 100. The Nasdaq Composite incorporates more than 3,000 stocks that are traded primarily on the exchange, and it has a heavy bias toward the technology industry because of its appeal to fast-growing tech companies during the tech boom of the 1980s and 1990s.

The Nasdaq 100 is a narrower cross section of the Nasdaq, with the index including the 100 largest non-financial companies listed on the exchange. The Nasdaq 100 is the basis for the popular PowerShares QQQ ETF , which seeks to track the index, and is one of the most heavily traded exchange-traded funds in the U.S. market.

In its 45-year history, the Nasdaq has made a huge impression on the investing world. Given its leadership role in making technology an integral part of investing, you can expect the Nasdaq to stay relevant throughout the 21st century and beyond.

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