Everything You Need To Know About The Nasdaq Stock Exchange

Everything You Need To Know About The Nasdaq Stock Exchange

U.S. stock exchanges attract billions of dollars in capital every day. Investors from all around the world flock to buy and sell shares in some of the most exciting and profitable businesses in the country. One of the prime destinations for investors is the Nasdaq exchange, which is home to over 3,500 public listings and has a heavy focus on technology stocks. 

  • The Nasdaq was founded in 1971, which makes it one of the youngest exchanges among developed economies
  • The exchange is home to the Nasdaq-100, which is a market capitalization-weighted index that focuses on 101 of the largest technology stocks on the market
  • The Nasdaq has a total market capitalization of $18 trillion, which makes it the second-largest stock exchange in the world, only behind the NYSE
  • The Nasdaq Composite is an index that represents the entire exchange, along with the 3,500+ listings available 
  • The Nasdaq is a fully automated exchange with no physical trading floor or human traders
  • The exchange is located at 151 W. 42nd Street, New York City
  • Some notable Nasdaq stocks include the likes of Microsoft, Alphabet, Meta, Apple, Amazon, etc

"What we [at the NASDAQ] really do is, allow for buyers and sellers to come together in an efficient way and make sure that the trading is occurring in a fair and efficient manner. We basically are a global technology company at this point because we provide the stock exchange here in the States and so that's an electronic system that allows buyers and sellers to come together, we have the largest multi-listed options exchange in the United States, and we are an energy futures exchange here and we also own all of the exchanges other than Norway in the Nordic markets, and then we also provide the technology that powers 90 other markets around the world. So we, in fact, are truly global technology company at this point" - Adena T. Friedman

If you are curious about the Nasdaq exchange and what sets it apart from other stock exchanges, then this investfox guide is for you. 

10 Facts You Need To Know About The Nasdaq Exchange

nasdaq website.png
  1. The Nasdaq was an acronym for the National Association of Securities Dealers Automated Quotations and was founded in 1971
  2. The exchange is fully automated and, unlike the NYSE, hosts no human traders
  3. The Nasdaq’s trading hours start at 9:30 am and end at 4:30 pm EST
  4. Companies listed on the Nasdaq are grouped into three tiers: Capital Market, Global Market, and Global Select Market
  5. Capital Market is the Nasdaq tier with the least amount of listing requirements
  6. The Nasdaq-100 accounts for roughly 90% of the movements of the Nasdaq Composite index
  7. As a for-profit exchange, the Nasdaq is owned and operated by Nasdaq Inc, which also owns the Nasdaq Baltic group of exchanges and is listed under the ticker NDAQ
  8. The entry fee for the Nasdaq Capital Market is at least three times less than that of Global and Global Select Markets
  9. The Nasdaq has four sets of listing requirements for companies seeking an IPO on the exchange
  10. The Nasdaq was greatly affected by the DotCom bubble of the 90s when hundreds of internet stocks collapsed after reaching unreasonably high valuations 

What Are The Listing Requirements On The Nasdaq?

Since the Nasdaq is a world-renowned stock exchange, its reputation rests on the quality of the companies that trade their shares there. This is why the Nasdaq has four sets of requirements for IPO candidates. Each candidate must meet at least one of the four sets of requirements in order to obtain a spot on the list. Failure to meet these rules may result in the delisting of shares.

The four sets of requirements upheld by the Nasdaq are:

  •  Earnings - the company must have pre-tax earnings of at least $11 million in the prior three years of operation, at least $2.2 million in the prior two years, and no single year must end in a net loss
  • Capitalization and cash flow - the company must have a cash flow of at least $27.5 million in the past three years, with none of those years ending with a negative cash flow. Furthermore, its average market cap must be at least $550 million over the prior 12 months, and the previous fiscal year’s revenue must be no less than $110 million
  • Capitalization and revenue - if the company’s average market cap over the prior 12 months is at least $850 million, and the revenues from the prior fiscal year are at least $90 million, the company is removed from the previous cash flow requirement
  • Assets and equity - if the company has minimum total assets of $80 million and shareholder’s equity of $55 million, it can eliminate the cash flow and revenue requirements, and the market cap threshold is lowered to $160 million

How Does The Nasdaq Make Money?

The Nasdaq is a for-profit exchange that generates its revenues through five different sources:

  1. Transaction fees: the Nasdaq charges fees for each transaction that takes place on its exchange. These fees vary based on the volume of trades executed by the market participants
  2. Market data fees: the Nasdaq also generates revenue by selling market data to various financial institutions, including stock quotes, trade data, and other information
  3. Listing fees: Companies pay the Nasdaq to list their stocks on the exchange. The Nasdaq charges an initial listing fee as well as ongoing annual fees to maintain the listing
  4. Technology solutions: the Nasdaq offers a range of technology solutions to financial institutions, such as trading systems, risk management software, and data analytics tools
  5. Exchange-traded products: the Nasdaq generates revenue from the creation and trading of exchange-traded products (ETPs) such as ETFs

The Nasdaq Listing and Other Fees

A company that wants to IPO on the Nasdaq must pay an entry fee based on the number of shares they wish to list and pay an annual fee to maintain the listing. 

For the Nasdaq Global Market and Global Select Market, the fee structure can be summarized as follows:

  • Entry fee based on the number of shares - $150,000-$295,000 ($25,000 application fee)
  • $48,000-$167,000 annual fee for companies
  • $48,000-$86,000 annual fee for ADR issuers

For the Nasdaq Capital Market tier:

  • Entry fee based on the number of shares - $50,000-$75,000 ($5,000 application fee)
  • $45,000-$81,000 annual fee for companies
  • $45,000-$54,000 annual fee for ADR issuers 

Companies listed on the Nasdaq are required to participate in the Nasdaq's all-inclusive fee program, which involves paying a single annual fee that covers all the typical costs associated with listing for the year. However, if a company needs a review of a delisting decision or wants to list new classes of securities, separate fees will still apply. 

The program simplifies the fee structure by eliminating transactional fees for events such as issuing additional shares of an already listed class, record-keeping changes, substitution listing events, and requests for written interpretations of the Nasdaq's listing rules and requirements. 

The Nasdaq-100 Index

The Nasdaq-100 is one of the most followed equity indices in the world. The index is composed of 101 of the largest and most influential companies listed on the Nasdaq exchange. The index includes the likes of Apple, Meta, Amazon.com, Tesla, Alphabet, Microsoft, etc. 

What Is The Nasdaq-100?

The Nasdaq-100 is a market capitalization-weighted index that includes the 101 largest stocks listed on the Nasdaq. The index is often used as a benchmark for the entire exchange, as 90% of the exchange’s movements can be attributed to the Nasdaq-100. 

Here are a few notable facts to know about the Nasdaq-100:

  • The Nasdaq-100 contains stocks of many high-tech, innovative companies that drive economic growth
  • Companies from 28 countries around the world are represented on the Nasdaq-100
  • The Nasdaq-100 has had 467 members since its inception in 1985
  • To become a part of the index, members need to have a daily minimum trading volume of 200,000 shares 
  • The smallest members of the Nasdaq-100 have historically been larger than the smallest members of large-cap benchmarks, such as the S&P 500 

The Nasdaq-100 was adversely affected by the 2022 bear market, which tanked technology stocks. The index is down over 10% over the past 12 months:

nasdaq 100.png

The Nasdaq-100 Weighting By Sector

The Nasdaq-100 is a market capitalization-weighted index and the value of the index is equal to the sum total of the index share weights. Here’s how the weighting of the index is calculated:

Value of the index = Aggregate Adjusted Market Value / Divisor

Divisor = (Market value after adjustments / Market value before adjustments) X Divisor before adjustments. 

There are three versions of calculating the index:

  1. The price return index without considering cash dividends
  2. The total return index considers the reinvestment of cash dividends on the ex-dividend date
  3. The notional net total return index, which reflects the net total return after factoring in a 30% tax rate and 70% cash dividend reinvestment 

The Nasdaq Composite Index

The Nasdaq Composite is the second most important index on the exchange, which tracks every stock listed on the Nasdaq to provide an aggregate market cap-weighted index that investors can follow. Nowadays, the Nasdaq Composite is one of the most popular indices on the market and is followed by millions of investors and analysts. 

What Is The Nasdaq Composite?

The Nasdaq Composite Index is a market capitalization-weighted index that consists of every stock listed on the Nasdaq exchange. The index was launched in 1971 and had an initial value of 100. The Nasdaq Composite is heavily weighted towards the technology sector, which accounts for over half of the index. 

The bearish 2022 market has been hard on technology stocks, which is why the Nasdaq Composite is down by over 13% over the past 12 months:

The Nasdaq Composite Weighting By Sector

The sector makeup of the Nasdaq Composite Index is as follows:

Sector WeightNumber of Securities
Health Care9.12%1095
Real Estate1.11%58
Consumer Discretionary17.84%450
Consumer Staples3.33%121
Basic Materials0.51%64

As expected, the Nasdaq Composite is heavily weighted in favor of technology stocks, which represent over half of the total market cap of the exchange. However, it must also be noted that a bulk of that value comes from a handful of giant technology corporations, such as Apple, Meta, Amazon, Alphabet, Microsoft, etc. 

For a more accurate perspective of the index, let’s look at the weight breakdown by 10 of the largest listings on the Nasdaq:

AAPLApple Inc12.19%
MSFTMicrosoft Corp10.54%
AMZNAmazon.com Inc5.05%
GOOGAlphabet Class C3.18%
GOOGLAlphabet Class A3.11%
TSLATesla Inc2.29%
NVDANVIDIA Corporation2.12%
METAMeta Platforms Inc1.60%
PEPPepsiCo Inc1.47%
AVGOBroadcom Inc1.34%

As evident from the chart, the Nasdaq Composite is heavily outweighed by its largest components. Namely, the 10 largest stocks on the index by market capitalization account for nearly 43% of the entire index. 

Key Takeaways From Everything You Need To Know About the Nasdaq Stock Exchange

  • The Nasdaq is the second largest stock exchange in the world, only behind the NYSE
  • The exchange was founded in 1971 and is located in New York City
  • The Nasdaq is home to the Nasdaq-100 and the Nasdaq Composite indexes, which are heavily tech-focused indices
  • Listing requirements on the Nasdaq are less stringent than on the NYSE
  • There are a total of over 3,500 listings on the Nasdaq
  • A bulk of the Nasdaq’s market cap can be attributed to a handful of stocks, such as Amazon, Alphabet, Microsoft, Apple, Meta, PepsiCo, Tesla, etc
  • The Nasdaq is fully digitalized and does not host human traders on its trading floor

FAQs On Everything You Need To Know About The the Nasdaq Stock Exchange

What stocks does the Nasdaq have?

The Nasdaq is home to the stocks of some of the largest companies in the world, including Apple, Meta, Amazon, Tesla, Alphabet, Microsoft, etc. The Nasdaq exchange is home to a large number of technology stocks, which represent roughly half of the market capitalization of the exchange. 

Can I buy shares in the Nasdaq?

Yes. Nasdaq Inc, the owner, and operator of the Nasdaq exchange is also a public company and is listed under the NDAQ ticker symbol. Nasdaq Inc also owns and operates the Nasdaq Baltic exchanges in Estonia, Latvia, and Lithuania. 

What is the biggest stock on the Nasdaq?

Apple is by far the largest company currently listed on the Nasdaq and accounts for over 12% of the market capitalization of the entire exchange.