The NASDAQ Stock Market
9600 Blackwell Road
Rockville, MD 20850
Phone:(877)536-2737;(877) 53-NASDQ;(301) 978-8008
Public stock issues not traded on any domestic stock exchange are traded in the OTC market. The OTC market is a negotiated market, whereas most stock exchanges are auction markets. The National Association of Securities Dealers (NASD) represents thousands of brokers and dealers who trade OTC stocks. Since 1970, the prices of over 5,000 of the more than 40,000,000 OTC issues have been reported through the National Association of Securities Dealers Automatic Quotation System, called NASDAQ. The NASDAQ system consists of two areas: the National Market System and the OTC market. The National Market System (NMS) comprises so-called Tier 1 OTC stocks, a select part of the OTC market whose issues meet higher volume and price requirements than the remainder of the OTC market.
NASD is a not-for-profit association of brokers and dealers founded in 1939. A self-regulating organization, the NASD establishes standards of conduct for members trading through NASDAQ and other over-the-counter securities markets. Members of NASD may sell securities to each other at wholesale prices while selling retail to non-members.
NASDAQ is the third-largest market in the world, after the New York and Tokyo exchanges, and handles over 45 percent of all shares traded in the major U.S. markets. More than 4,900 companies have their stocks traded in the NASDAQ; statistics on over 5,700 domestic and foreign securities are transmitted through NASDAQ.
The NASD maintains and publishes two composite indexes and six subindexes daily:
All eight stock price indexes are capitalization-weighted; each was assigned a base level of 100 as of February 5, 1971. Adjustments for the addition or deletion of securities or for capitalization changes are made after the market closes on the day of the change. Adjustments for stock splits and stock dividends are made in the same manner, but no adjustments are made for cash dividends. The prices used inthe computation of each index are the median bid prices at the time the index is computed. Because of the bid-asked price spreads associated with the OTC market, index levels may be affected by dealer judgments (bid prices). In addition, there may be as few as one or two market makers for some stock issues, so that a dealer's change in bid price can substantially affect he median price that is used in the calculation of the index.
Concerning the NASDAQ indexes, the majority of which include larger numbers of issues than other stock groups, the weighting by capitalization may tend to skew the performance of OTC stocks more than do other measures such as the S& P 500, DJIA, or the NYSE Composite. Only about 15 (0.9 percent) of the issues traded on the NYSE have market capitalizations of less than $10 million (1998). However, more than 1,500 (35 percent) NASDAQ issues represent less than $10 million each in capitalization. Furthermore, these 1,500 issues collectively have a capitalization that is smaller than the combined capitalization of NASDAQ's six largest issues.