Do you know what do these acronyms mean: NYSE, NASDAQ, and AMEX? They may seem like some challenging medical terms to you; but they are actually trading platforms any new client or professional in the industry must get to know as a first and fundamental lesson. Eventually, like the rest, these words will become ordinary as you use them regularly in your job. For every platform possesses a specific character, characteristics, requirements and way of operating on its own.
To help you along in this initial encounter, here is a short reference guide:
Founded in 1817 in New York City, the New York Stock Exchange (NYSE) is the world’s largest stock exchange based on market capitalization. NYSE is often referred to as “the Big Board” – just like the “Big Apple”! NYSE works on a continuous auction format in which traders can make transactions for investors or their clients at any time.
As its nickname suggests, a big bulk of American securities, about 80%, are traded through the NYSE. For a company to be traded on this platform, it must satisfy certain requirements before entering into the exchange. Zacks states that a company must have a minimum of “400 shareholders who own more than 100 shares of stock, have at least 1.1 million shares of publicly traded stock and have a market value of public shares of at least $40 million”. Moreover, it must have a stock price of $4 per share or more. The NYSE operates Monday through Friday, 9:30 a.m. until 4:00 pm. (ET).
The second largest stock exchange in the world is the National Association of Securities Dealers
Automated Quotations or NASDAQ, which was initiated in 1971 by the National Association of Securities Dealers. It was, however, only in 2006 that the system was transformed into a licensed national securities exchange, being a computerized system which provides price quotations on securities traded over-the-counter (OTC).
A NASDAQ-affiliated company must be registered with the U.S. Securities and Exchange Commission (SEC), must possess a minimum of three (3) companies serving as security brokers and must also satisfy minimum values of assets, capital, etc. NASDAQ provides three separate sessions throughout the day: a pre-market session (4:00 till 9:30 a.m. ET), a normal trading session (9:30 a.m. till 4:00 p.m. ET) and a post-market session (4:00 till 8:00 p.m. ET)
AMEX stands for American Stock Exchange, which initially served as an alternative to the Big Board --NYSE. Although it operates like the NYSE through its own trading floor and system, it caters more to small and mid-cap stocks which do not comply with the stricter NYSE requirements. Eventually, AMEX was acquired by NASDAQ’s founding company in 1998; but both exchanges have continued to operate separately.
Over-the-Counter (OTC) Exchanges
In some cases, companies do not need a trading floor to do securities trading. We refer to this system generically as “OTC exchanges”, although it can denote many other forms in the current market environment, since the meaning has evolved several times in the past. Likewise, it can describe other systems of trading done beyond a formal exchange. While we mentioned that the NASDAQ can be considered an OTC exchange, this kind of platform usually consists of penny stock and other stocks which stay on the fringes of the mainstream. As such, this type of exchange is considered risky by some investors. OTC stocks are often unstable and, because of their nominal volumes, are not often traded.
For more information on basic industry terminology, check out a complete glossary of the industry and other valuable resources online.