NYSE and NASDAQ:
How they operate:
Each stock traded on NYSE is assigned a specialist, the function of the specialist is to control trading of that particular stock, trading on NYSE does not occur online but stocks are traded on a physical floor. The price of stock traded on NYSE depends on the demand and supply by individual investors.
Stocks traded on NASDAQ are controlled by dealers or market makers, each stock may be controlled by several dealers and therefore competition arises, due to competition the stocks traded fluctuate more than stock traded on NYSE. The dealers purchase stock from individuals, hold them for a limited time period and then sell them to individuals, NASDAQ stocks can be traded online and prices are determined by the demand and supply of the stocks
NYSE and NASDAQ similarities:
There are similarities between NYSE and NASDAQ, both companies engage in stock exchange and both tend to match the demand and supply for stocks. Another similarity is that majority of equity traded in the US occurs on NYSE and NASDAQ.
NYSE and NASDAQ differences:
The two exchanges differ in a number of ways, it is evident that companies traded on the NYSE are relatively more stable whereas those traded on NASDAQ are relatively unstable; this means that the two exchanges differ in the way they allow companies to trade stocks.
Another difference is that NYSE trading occurs on a physical floor and trading does not occur online, whereas on NASDAQ trading may occur on a physical floor or online.
NYSE is an auction market where trading occurs between individuals whereas NASDAQ is a dealers market whereby the dealers buy stock from individuals, hold the stocks and then sell them to individuals.
On the NYSE a specialist controls trade, the specialist is charged with the responsibility of creating demand and supply for a stock, on NASDAQ the market maker controls trade, the market maker in this exchange is the dealer and therefore roles are similar to those of the specialist despite the fact that the market maker has no obligation to create a supply of demand.
For each stock traded on NYSE only one specialist is assigned, however on NASDAQ there can be more than one market makers for a certain stock, this creates competitions among dealers.
Ebber, B. formed WorldCom in 1983, over the years it expanded by acquiring other companies in the industry. Top officials manipulated the company’s accounting reports by inflating assets, in the year 2000 and 2001 it inflated its profits misleading investors, at the time it was the second largest telecommunication company in the US. In 2002 the company filled a bankruptcy case for protection and therefore disclosed the scandal.
The case has affected WorldCom given that investors incurred losses after investing in the company. This means that despite the company changing its name to MCI investors are less willing to purchase the company’s stocks. The company stock prices and demand declined and the major exchanges including NYSE and NASDAQ delisted the company, this means that the company may not raise enough capital to fund its operations and for expansion purposes.
The telecommunication industry was also affected by this scandal, firms in the industry benefited from this scandal. this is because investors shifted their preferences to other telecommunication industry that had the potential to take the position previously held by WorldCom. For this reason therefore the firms in the telecommunication dinstry benefited given that WorldCom market share declined providing the other firms in the industry an opportunity to expand.
NASDAQ (2010) about NASDAQ, retrieved on 26th March, available at http://www.nasdaq.co m
NASDAQ (2002) News: NASDAQ delists World Com, retrieved on 26the March., from
NYSE (2010) about NYSE, retrieved on 26th March, available at http://www.nyse.com/home.ht ml
PRMIA (2002) WorldCom case study, retrieved on 26th March, from http://docs.google.com/vie wer?a=v&q=cache:G3AhhjBsFO4J:prmia.org/pdf/Case_Studies/WorldCom_Case_Study_ April_2009.pdf+the+WorldCom+case&hl=en&gl=ke&sig=AHIEtbTfXM8xLdBoJB DFjOanbOB3LO0Pbg
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