The definitions of the role of the market maker and that of the specialist are technically different; a market maker creates a market for a security, whereas a specialist merely facilitates it. However, the duty of both the market maker and specialist is to ensure smooth and orderly markets for clients. If too many orders get backed up, the traffic controllers of the exchanges will work to match the bidders with the askers to ensure the completion
of as many orders as possible. If there is nobody willing to buy or sell, the market makers of the Nasdaq and the specialists of the NYSE will try to see if they can find buyers and sellers and even buy and sell from their own inventories. (To learn more, see What's the difference between a Nasdaq market maker and an NYSE specialist?
Perception and Cost
One thing that we can't quantify but must acknowledge is the way in which the companies on each of these exchanges are generally perceived by investors. The Nasdaq is typically known as a high-tech market, attracting many of the firms dealing with the internet or electronics. Accordingly, the stocks on this exchange are considered to be more volatile
oriented. On the other hand, the companies on NYSE are perceived to be more well established. Its listings include many of the blue chip firms and industrials that were around before our parents, and its stocks are considered to be more stable and established.
Whether a stock trades on the Nasdaq or the NYSE is not necessarily a critical factor for investors when they are deciding on stocks to invest in. However, because both exchanges are perceived differently, the decision to list on a particular exchange is an important one for many companies. A company's decision to list on a particular exchange is affected also by the listing costs and requirements set by each individual exchange. The entry fee a company can expect to pay on the NYSE is up to $250,000 while on the Nasdaq, it is only $50,000-$75,000. Yearly listing fees are also a big factor: on the NYSE, they based on the number of shares of a listed security, and are capped at $500,000, while the Nasdaq fees come in at around $27,500. So we can understand why the growth-type stocks (companies with less initial capital) would be found on the Nasdaq exchange. (For further reading, see What are the listing requirements for the Nasdaq?
Public vs. Private
Prior to March 8, 2006, the final major difference between these two exchanges was their type of ownership: the Nasdaq exchange was listed as a publicly-traded corporation, while the NYSE was private. This all changed in March 2006 when the NYSE went public after being a not-for-proft exchange for nearly 214 years. Most of the time, we think of the Nasdaq and NYSE as markets or exchanges, but these entities are both actual businesses providing a service to earn a profit for shareholders. The shares of these exchanges, like those of any public company, can be bought and sold by investors on an exchange. (Incidentally, both the Nasdaq and the NYSE trade on themselves.) As publicly traded companies, the Nasdaq and the NYSE must follow the standard filing requirements set out by the Securities and Exchange Commission
. Now that the NYSE has become a publicly traded corporation, the differences between these two exchanges are starting to decrease, but the remaining differences should not affect how they function as marketplaces for equity traders and investors.
Both the NYSE and the Nasdaq markets accommodate the major portion of all equities trading in North America, but these exchanges are by no means the same. Although their differences may not affect your stock picks, your understanding of how these exchanges work will give you some insight into how trades are executed and how a market works. (For further reading, see Understanding Order Execution