Nasdaq (National Association of Securities Dealers Automated Quotation System) is the electronic stock exchange run by the National Association of Securities Dealers for over-the-counter trading. Established in 1971, it is America's fastest growing stock market and a leader in trading foreign securities and technology shares as well. It boasts many more listed companies than the New York Stock Exchange, and handles more than half the stock trading that occurs in this country.

Rather than a trading floor like that of the NYSE, Nasdaq relies entirely on a computerized trading system that enables dealers, regardless of location, to bid on orders. Theoretically this should result in the most efficient possible market, but this hasn't been the case in fact. On traditional exchanges buyers and sellers meet directly -- that is, brokers representing investors on each side of the transaction come together on price. But Nasdaq uses market makers who trade for their own account and profit on the spread between bid and ask prices. In 1996 the SEC issued a scathing report citing various abuses on the exchange, including excessively wide bid-ask spreads, collusion among dealers, and other manipulations. NASD, without admitting guilt, agreed to be censured and to initiate reforms.

Although once the province of smaller companies, Nasdaq today is where many leading companies are traded, including Microsoft, Intel, MCI, Amgen, Cisco Systems, Nordstrom, Oracle, McCormick, SAFECO Insurance, Sun Microsystems, T. Rowe Price, Tyson Foods and Northwest Airlines.



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