Electronic Stock Exchange (NASDAQ)


In early stock markets, traders offered and accepted bids for stock prices to one another. People would stand in a stock exchange and literally yell out stock symbols and prices. Buyers would purchase blocks of stock.

This system was slow and expensive. Only high-level bankers had access to the people on a stock trading floor, and only the wealthiest could afford to buy even the smallest block of stock offered. Therefore, a middleman would broker smaller shares of the bundles to regular people, typically at high fees.

Everybody except the very wealthiest lacked real-time access to the difference between prices offered and accepted, called the spread. This allowed floor brokers to make a profit by exploiting the lack of information.


Eventually, brokers tired of the lack of transparency and banded together. The National Association of Securities Dealers created a computer-based electronic system to vastly reduce the spread, speed stock transactions, and reduce transaction costs. The system is known by the trade groups acronym, NASD plus Automated Quotations, or AQ (NASDAQ).

Originally, NASDAQ only provided pricing information faster and more accurately than other systems. In 1987, the business spun off from the NASD on its way to becoming a full-fledged exchange rather than an inexpensive stock quotation system.

Due to its all-electronic origins, NASDAQ was especially attractive to burgeoning Silicon Valley companies. Oracle, Microsoft, Apple, and countless other tech companies – plus many non-tech businesses – made an Initial Public Offering (IPO) of stock to the public on NASDAQ. The vast majority continue to trade on the exchange rather than the vastly older New York Stock Exchange (NYSE).

Today, all stocks are traded electronically. The New York Stock Exchange still has a trading floor but openly admits it exists more as a prop. Thirty media companies broadcast from the gilded trading floor and the opening bell ceremony looks cool.

Stock Exchange

Like insurance, regulated stock exchanges opened the door to high-quality stock offerings which allowed businesses to procure financing. That both lowered the cost of capital and also spread both the risk and returns of an investment to a wider group of people.

The Antwerp, formed in 1531, traded what today is called of government debt but not stocks.

Over time, investors created limited companies to invest in a voyage, typically to Asia (the East Indies). Multiple investors funded trips to diversify the risk of loss from any single ship. These companies dissolved after the completion of each voyage, either with success or the loss of the ship. Over time, large companies formed that issued stock and paid dividends, rather than creating new small companies every time.

The walls of London coffeehouses contained stock and debt issues that could be bought and sold. Investors typically hired brokers to find counter-parties to buy and sell stock offerings.

Many early stock issues were for sham businesses. Until, in 1773, the London Stock Exchange opened ensuring quality stock issues. Exchanges in the newly formed US formed soon after, first in Philadelphia then, soon after, in New York with the New York Stock Exchange.

Little changed over the next centuries; other countries opened stock exchanges, but most businesses preferred to list on the NYSE or in London. Eventually, in 1971, the National Association of Securities Dealers (then NASD, now the Financial Industry Regulatory Authority, FINRA), created a new computer-only stock exchange, the Nasdaq.