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What is NASDAQ?

NASDAQ, which stands for National Association of Securities Dealers Automated Quotation, is the world’s largest electronic stock market. Trading is not limited to one central trading location. Rather, trading is executed through NASDAQ’s sophisticated computer and telecommunications network, which transmits real-time quote and trade data to more than 1.3 million users in 83 countries. Without size limitations or geographical boundaries, NASDAQ’s market structure allows a virtually unlimited number of participants to trade in a company’s stock.

NASDAQ lists the securities of nearly 4,100 of the world’s leading companies and assists hundreds of companies successfully make the transition to public ownership. All firms trading NASDAQ stocks must be certified with the Securities and Exchange Commission (SEC) and registered with NASDAQ and National Association of Security Dealers (NASD) Regulation. Key to NASDAQ’s market structure are a core group of financial firms called market makers. More than 500 market making firms trade on NASDAQ, acting as distributors for NASDAQ-listed securities. Also known as dealers, market makers are unique in that they commit their own capital to NASDAQ-listed securities – then turn around and re-distribute the stock as needed. They are required at all times to post their bid and ask prices in the NASDAQ network where they can be viewed and accessed by all participants. By being willing to buy or sell stock using their own funds, market makers add liquidity to NASDAQ’s market, ensuring that there are always buyers and sellers for NASDAQ-listed securities, and enabling trades to be filled quickly and efficiently. The NASDAQ network connects alternative trading systems into the market, such as electronic communication networks (ECNs). ECNs provide electronic facilities that investors can use to trade directly with each other. As NASDAQ market participants, ECNs display either one-sided or two-sided quotes that reflect actual orders, providing investors with an anonymous way to enter orders into the marketplace. Unlike market makers, ECNs operate simply as order-matching mechanisms and do not maintain inventories of their own.Order-entry firms, also NASDAQ market participants, enter and execute orders through NASDAQ on behalf of retail and institutional customers and other broker/dealers, but they do not maintain buy or sell price quotations in NASDAQ-listed securities. Like ECNs, order-entry firms do not commit capital to stocks, but they do increase the competition among market participants – helping to keep stock prices competitive and adding to the market’s liquidity.