Why Do Companies Choose NASDAQ Over NYSE?

Summary

• NYSE has a hybrid model for trading. It provides trading facilities online as well as in person. On the other hand, NASDAQ conducts all trading activities online.
• NASDAQ is a dealer market where buyers and sellers do not contact directly. All transactions are conducted through market makers. The trading process is quicker online.
• NYSE facilitates trading by matching the highest buy bid with the lowest sell bid.

The New York Stock Exchange (NYSE) and the NASDAQ are the world’s most well-known stock exchanges. These two names pop up in any discussion on stock markets across geographies. Moreover, the combined wealth of the companies listed on these two exchanges represents a significant percentage of the global total; thus, they wield enormous influence.

The NYSE is the largest stock exchange by market cap, with a combined wealth of companies at around US$25 trillion. It was established in New York City in 1792, which also makes it the oldest. A total of 3,100 companies are listed on the exchange. It became public in 2006.

NASDAQ is the second-largest, with a market cap of around US$15 trillion. It was founded in 1971 in New York. It is the first to offer electronic trading. Around 4,200 companies are listed on the platform, including major blue-chip tech companies. NASDAQ went public in 2002.

In 2007, the European stock exchange Euronext merged with NYSE to form NYSE Euronext. In 2013, the Intercontinental Exchange acquired NYSE Euronext and became its parent company.

Both NYSE and NASDAQ are regulated by the US Security and Exchange Commission (SEC).

NYSE and NASDAQ Indices

NASDAQ has three popular indices: NASDAQ Composite, NASDAQ 100, and NASDAQ Biotech, among others. NYSE, on the other hand, has two major indices: the S&P 500, an index of top 500 companies, and the Dow Jones Industrial Average, a group of 30 companies.

Also Read: What Are The Three Biggest Stock Exchanges In The US?

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Here are some factors that may influence a company’s exchange selection before going public.

Listing Requirements

Exchange listing does not come for free. Companies must pay fees to secure a place in a trading exchange. Hence, listing and annual cost are major considerations for the companies. Listing requirements are majorly related to their market capital, total shares, and share price.

Listing on NASDAQ

NASDAQ has three market tiers, based on market cap. NASDAQ Global Select Market caters to large-cap companies, NASDAQ Global Market caters to mid-cap companies, and NASDAQ Capital Market comprises small-cap companies. The fee is varied for each of the tiers.

For listing on the Global Select Market segment, the company’s aggregate earnings in the past three fiscal years should be more than or equal to US$11 million. Also, the minimum publicly held shares should be 1,250,000 for Global Select and 1.1 million for Global Market.

Market Maker requirement is a minimum of 3.

The NASDAQ Capital Market requires companies to have 1 million unrestricted publicly held shares. At the time of entry, the fee is based on the aggregate number of shares outstanding at the time of initial listing. It starts from US$150,000 to US$295,000, including US$25,000 in application fee for the NASDAQ Global Select and NASDAQ Global listing.

For Capital Market, the fee is between US$50,000 and US$75,000, including US$5,000 application fee. Effective from January 1, 2021, the annual cost ranges from US$44,000 to US$163,000, depending on the total number of outstanding shares.

Also Read: Can Companies List Both On NYSE And NASDAQ?

Source: Pixabay

Listing on NYSE

The listing fee is US$ 0.0048 for up to 75 million common shares. It is US$0.00375 for shares between 75 million and 300 million and US$0.0019 for more than 300 million shares.

There is also a one-time special charge of US$50,000.

The minimum fee for the first-time issuer of common shares is between US$150,000 and US$295,000. It includes a special charge of US$50,000.

In addition, both NYSE and NASDAQ charge a minimum listing price of US$4 for securities.

The Trading Process

Another point to consider is the way shares will be traded at both exchanges.

NYSE has a hybrid model for trading. It provides trading facilities online as well as in-person through its facilities in New York and New Jersey.

On the other hand, NASDAQ conducts all trading activities online.  

Market Type

NYSE has been an auction market, where buyers and sellers participated physically on the trading floor, but it shifted to online trading some years ago. It has market makers that operate manually and electronically before opening, during, and at the market close.

NASDAQ is a dealer market where buyers and sellers do not contact directly. Instead, all transactions are conducted through market makers. As a result, the trading process is quicker. 

NYSE facilitates trading by matching the highest buy bid with the lowest sell bid.

Also Read: How Do I Find New IPO Stocks In The US?

Common Perceptions About NASDAQ and NYSE

A common perception about NYSE is that it houses only blue-chip companies that grow slowly. It is because NYSE did not allow the listing of smaller companies on its platform for a long time.

On the other hand, NASDAQ is perceived to be affordable for getting listed, but it may not be entirely accurate. But NASDAQ’s lower listing fee does attract small and mid-sized companies.

Five of the largest market cap companies, or FAANG (Facebook, Apple, Amazon, Netflix, and Google), are listed on NASDAQ. Furthermore, 21 companies with a combined market value of US$288 billion had switched to NASDAQ from NYSE in 2020.

A NASDAQ listing, however, does not mean that the shares cannot be traded on other exchanges. It is just a matter of a company’s preference over where it wants to sell.

Finally, one small but significant benefit with NASDAQ listing is that companies get featured on its MarketSite - a marketing initiative that relays real-time stock quotes on the busy Times Square in New York.