It looks as though the NASDAQ stock exchange is the winner of a fierce competition for Facebook’s initial public offering, but retail investors may wonder what – if anything – the victory means for them.
News that Facebook had selected the NASDAQ over the NYSE Euronext stock exchange for its initial public offering was first reported last week by The New York Times, which cited unnamed sources. According to Tomio Geron, in a recent Forbes article the initial public offering expected in May could value the social media giant as high as $100 billion, making it the largest technology IPO ever.
Though the NASDAQ is traditionally associated with high tech companies, the NYSE Euronext has picked up recent IPOS for Yelp, Linked and Pandora and competed aggressively for the Facebook offering, said Geron, “so Facebook is a major win for NASDAQ, which has traditionally been well known for tech names such as Apple and Google.”
The NASDAQ and the NYSE Euronext may be locked in high-stakes competition for IPO offerings, but the battle many not mean much to the average investor. What are the differences between the two exchanges?
The NASDAQ was launched 40 years ago to create a computerized, fast and transparent system for trading stocks, according to the company website, which explains, “This would eliminate the burden and inefficiency of in-person stock transactions, which had been the prevalent model for nearly half a century.”
Today, the NASDAQ OMX Group is the world’s largest exchange company, operating on six continents, trading in a range of financial products and providing nearly 2,000 indexes to track asset classes, countries and sectors, according to the company. NASDAQ is publicly traded and part of the S&P 500 Index since 2008.
“Trading on the NASDAQ is through an open market, multiple dealer system,” explains Wells Fargo in an Investing 101 feature.“Those dealers, or participating firms, are called market makers and compete to handle transactions in individual stocks. That’s a contrast to the auction market system used on traditional exchanges, where all the buy and sell orders in a stock must go through a single specialist.”
The NYSE traces its roots back to 1792, when 24 stock brokers gathered under a buttonwood tree outside 68 Wall Street and signed an agreement for buying and selling stocks and bonds. The NYSE Euronext now represents one-third of the world’s equities trading, according to the company website. The company’s exchanges operate in more than 55 counties, and is a publicly traded Fortune 500 country.
The NYSE exchange recently instituted a “designated market maker” system to supplant its system of specialists , a next-generation model that “preserves the most beneficial elements of floor-based trading, while incorporating the speed and benefits of fully electronic trading.”
According to the company website, the system results in lower volatility and execution costs than comparable stocks traded on the NASDAQ and other venues.”