What Nasdaq Is, History, and Financial Performance

What Is the Nasdaq?

Nasdaq is a global electronic marketplace for buying and selling securities. Its name was originally an acronym for the National Association of Securities Dealers Automated Quotations. Nasdaq started as a subsidiary of the National Association of Securities Dealers (NASD), now known as the Financial Industry Regulatory Authority (FINRA).

Nasdaq was launched after the Securities and Exchange Commission (SEC) urged NASD to automate the market for securities not listed on an exchange. The result was the first electronic trading system. Nasdaq opened for business in 1971.

Understanding the Nasdaq

As noted above, the Nasdaq is a stock exchange headquartered in New York. It began as a subsidiary of the NASD and officially opened for business on Feb. 8, 1971. It was the world's first automated stock exchange.

Nasdaq officially separated from the NASD and began to operate as a national securities exchange in 2006. In 2008, it combined with the Scandinavian exchanges group OMX to become the Nasdaq OMX Group. The company changed its name to Nasdaq Inc. in 2015.

There are more than 5,000 companies that are listed and traded on the exchange on a daily basis. Many of these companies are major technology companies, such as Apple (AAPL) and Microsoft (MSFT).

Since 2006, the Nasdaq has consisted of three tiers: the Nasdaq Global Select Market, the Nasdaq Global Market, and the Nasdaq Capital Market.

The exchange operates 29 markets enabling the trading of stocks, derivatives, fixed income, and commodities in the U.S., Canada, Scandinavia, and the Baltics. The company also runs a clearinghouse and five central securities depositories in the United States and Europe. Its trading technology is used by 100 exchanges in 50 countries.

Nasdaq Composite

The term Nasdaq is also used to refer to the Nasdaq Composite. This is an index of more than 2,500 stocks listed on the Nasdaq exchange. This index includes some of the major technology giants, such as:

• Apple (AAPL)
• Microsoft (MSFT)
• Alphabet (GOOG, GOOGL)
• Meta Platforms (META)
• Amazon (AMZN)
• Tesla (TSLA)

The Nasdaq Composite closed at a record high of 16,057.44 on Nov. 19, 2021. The index proceeded to drop more than 23% from that point through April 2022. The Nasdaq Composite's 13.3% decline in April 2022 was its worst monthly drop since October 2008, when the index lost 17.4% amid the global financial crisis. It closed at 13,787.92 on June 30, 2023.

Nasdaq Trading System

The Nasdaq computerized trading system was initially devised as an alternative to the inefficient specialist system, which was the prevalent model for almost a century. The rapid evolution of technology has made Nasdaq’s electronic trading model the standard for markets worldwide.

It was only fitting for the world’s up-and-coming technology companies to list on an exchange using the latest technology. As the tech sector grew in prominence in the 1980s and 1990s, the Nasdaq Composite Index became its most widely quoted proxy.

That turned Nasdaq Composite into the index of the dot-com boom and bust. After rallying nearly 150% in the 16 months through March 2000, the Nasdaq Composite then slumped almost 80% by October 2002.

History of the Nasdaq

In November 2016, chief operating officer (COO) Adena Friedman was promoted to the role of chief executive officer (CEO), becoming the first woman to run a major exchange in the United States. 

Board Diversity Disclosure Rule

On Dec. 1, 2020, Nasdaq proposed a new rule requiring companies listed on the exchange to report on the diversity of their board of directors. The rule requires companies to include on their boards at least one female director and one who is a member of an underrepresented minority or LGBTQ+, or to publicly explain why they have not done so. The SEC approved the board diversity disclosure rule on Aug. 6, 2021.

Financial Performance

Nasdaq generates revenue from clients, including financial institutions, brokers, institutional investors, and corporations. Nasdaq's revenue is mainly derived from fees charged for the following:

• Market services, which give investors access to various markets
• Investment intelligence, including data, indices, and investment analytics for financial institutions, brokers, and asset managers
• Market technology, which includes trading and settlement platforms as well as technology safeguards against financial crime
• Corporate services, such as listing fees and investment relations services

Nasdaq reported total net income of $1.12 billion on total revenue of $6.23 billion for the 2022 fiscal year ending Dec. 31, 2022. Revenue less transaction-based expenses came in at $3.58 billion. The company also increased the quarterly dividend per common share to $0.78 in 2022 from $0.70 in 2021.

The Bottom Line

The Nasdaq is one of the major stock exchanges in the United States. More than 5,000 domestic and foreign companies are listed with a major focus on technology. The exchange opened up for business in 1971 and was the first automated exchange in the world. The Nasdaq Composite Index, which is comprised of more than 2,500 listed companies, is one of the world's most-watched stock market indexes and is considered a gauge of the U.S. and global economies.

Correction—March 20, 2024: This article has been corrected to state that the Nasdaq consists of three tiers: the Nasdaq Global Select Market, the Nasdaq Global Market, and the Nasdaq Capital Market.