Amex and Nasdaq

Overview

Two of the more common stock exchanges in the United States today are the American Stock Exchange (AMEX) and the NASDAQ. In order to better understand each exchange, we will look at a brief history of each and then explore their differences and similarities. In closing, we will look at former WorldCom Inc. Chief Executive Bernard Ebber, and what affect his case has had on the telecommunication industry.

AMEX

AMEX is a mutual organization that is situated in its birth place of New York City. Since its humble beginnings in the outdoor market places, AMEX still continues to trade small to mid-size stocks, but over the years, has shifted its core business from stocks to options.

In 1998, the American Stock Exchange merged with the National Association of Securities Dealers (operators of NASDAQ) to create "The NASDAQ-Amex Market Group" where AMEX is an independent entity of the NASD parent company. After tension between the NASD and AMEX members, the latter group bought out the NASD and acquired control of the AMEX in 2004 (Wikipedia, 2006)

Due to the generally smaller size of the companies, AMEX has become known as one the most liberal when it comes to policies concerning company listings when compared to the New York Stock Exchange (NYSE) and NASDAQ.

NASDAQ

The NASDAQ is an electronic stock exchange that was formed in 1971 by the National Association of Securities Dealers (NASD). Originally, NASDAQ was an acronym for National Association of Securities Dealers Automated Quotations and it was the first electronic stock exchange in the United States.

Originally, NASDAQ merely operated as a bulletin board and did not connect buyers and sellers. Eventually NASDAQ became more of a stock market by adding trade and volume reporting and automated trading systems, and they were able to provide the buyer/seller connection. Stock brokers weren't too pleased with this new electronic exchange because due to this connection, their "spread' was lowered.

NASDAQ allows multiple market participants to trade through its electronic communications networks (ECNs) structure, increasing competition. The Small Order Execution System (SOES) is another NASDAQ feature, introduced in 1987, to ensure that in 'turbulent' market conditions small market orders are not forgotten but are automatically processed. With approximately 3,200 companies, it lists more companies and, on average, trades more shares per day than any other stock exchange in the world. It is home to companies that are leaders across all areas of business including technology, retail, communications, financial services, transportation, media and biotechnology. NASDAQ is the primary market for trading NASDAQ-listed stocks (Wikipedia, 2006).

Similarities and Differences

One similarity between Amex and NASDAQ is that they both indeed buy and sell stocks, but that seems to be where the similarities end.

In 1998 the National Association of Securities Dealers (operators of NASDAQ) merged with AMEX to create "The NASDAQ-Amex Market Group". NASDAQ was expected to play a key role in AMEX's technology evolution and a plan was outlined plan to develop a customized, rules-based version of its electronic limit order book for the AMEX's equity auction environment (Sales, 2001). But after NASDAQ decided to "demutualize" and AMEX was free to choose their own technology, AMEX and NASDAQ began to part ways.

The major difference in AMEX and NASDAQ is their stock trading methods. AMEX continues to operate under a brick and mortar setting using floor specialists while NASDAQ is completely electronic. Arguments have been made by AMEX and its supporters that having specialist reduces volatility and smoothes stock trading, but something has to be said for the volume of trading NASDAQ produces. Along with being the largest electronic trader, NASDAQ also list approximately 3,300 companies (more than any other exchange) and trades on average more shares.

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