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    Exchanges, NYSE, NASDAQ, etc

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    How does the two exchanges operate?

    How are NYSE and NASDAQ similar, if at all?

    How are the two exchanges different from one another, if at all?

    In light of the recent corporate scandals like Enron, WorldCom, etc, have any of the two exchanges taken some meaningful measures to help allay the concerns of investors? Explain.

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    Solution Preview

    These two exchanges account for the trading of a major portion of equities in North America and the world. NYSE and NASDAQ are very different in the way they operate and in the types of equities that trade upon them.

    On the NYSE, all trades occur in a physical place, on the trading floor. So when you see those guys waving their hands on TV, you are seeing the people through whom stocks are transacted. The NASDAQ, is not located on a physical trading floor but on a telecommunications network. Trading takes place directly between the investors and their buyers or sellers through an elaborate system of companies electronically connected to one another.

    The fundamental difference is the way securites are transacted between buyers and sellers. The NASDAQ is a dealer's market - wherein market participants are not buying from and selling to one another but to and from a dealer, which is the case of the NASDAQ, is called a market-maker. A market-maker is a broker-dealer that is willing to accept the risk of holding a particular number of shares of a particular security in order to facilitate trading in that security. Each market-maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the market-maker immediately sells from its own inventory or seeks an offsetting order. Examples of major market-makers are J.P.Morgan and ...

    Solution Summary

    How NYSE and NASDAQ operates is explained.