The Nasdaq system is by far the most important network that connects buyers and sellers in the OTC market. It is essentially a computer system run by FINRA that provides member firms with quotations for over 5,000 OTC securities. Given the fact that more shares trade daily on it than on any of the exchanges, the Nasdaq represents the largest securities market in the U.S.

Types of Issues
Securities trading on the Nasdaq must meet minimum listing requirements. Two types of issues trade on the system:

  • Nasdaq Global Market securities and
  • Nasdaq Capital market securities

Of the two, GMS securities are the more stringently regulated, widely traded and well-known.

Stock Quotation Service Levels
The Nasdaq system provides three levels of stock quotation service - simply called Levels I, II and III - to the securities industry:

  • Level I is available to registered representatives. It displays the inside market only - that is, the best (highest) bids and the best (lowest) asks for securities in the system. Level I prices are not guaranteed, as the market fluctuates too rapidly for a firm quote.
     
  • Level II subscription service is for broker dealers that are order entry firms. Level II allows the broker dealer to see the inside market, as well as the quotes of all market makers and to execute orders over the NASDAQ workstation
     
  • Level III provides subscribers with all of the services of Levels I and II. In addition, Level III allows market makers to update, change or delete their quotes and size of quotes on any security in which they make a market. Level III is the only level that allows quote inputs.
Exam Tips and Tricks
Make sure you know what types of securities trade on each market or exchange! Start with the securities listed on the
NYSE.

Review the important differences between the NYSE and Nasdaq in the following article: The Tale of Two Exchanges.



Broker-Dealers

Related Articles
  1. Investing

    Understanding NASDAQ

    NASDAQ is an acronym that stands for the National Association of Securities Dealers Automated Quotation system.
  2. Investing

    Electronic Trading: Level I, II and III Access

    There are a variety of ways in which Nasdaq quotes security prices to the public. These levels vary on the amount of information and access they provide to investors. Level I This type of quote ...
  3. Investing

    Electronic Trading: The Nasdaq Vs. The NYSE

    From a glance, the difference between the New York Stock Exchange (NYSE) and Nasdaq may not be marked. The NYSE lists household names like Coca-Cola, Wal-Mart, Citicorp, and General Electric, ...
  4. Investing

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks trade.
  5. Investing

    What's The Difference Between The Dow And The Nasdaq?

    The way people throw around the words “Dow” and “Nasdaq” makes them seem synonymous with “the market.” But there are important differences.
  6. Trading

    Introduction To Level II Quotes

    Level II quotes show a ranked list of the best bid and ask prices from each market participant, providing detailed insight into a stock’s price action.
  7. Markets

    Stocks Basics: How Stocks Trade

    Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide on a price. Some exchanges are physical locations where transactions are carried out on a trading ...
  8. ETFs & Mutual Funds

    Index Investing: The Nasdaq Composite Index

    The Nasdaq Composite Index represents all the stocks that trade on the Nasdaq stock market. The recent surge in popularity of technological stocks has launched the Nasdaq into the spotlight. ...
  9. Markets

    Why Do Companies Choose NASDAQ for Their IPO?

    The NYSE is known for its prestige so why do some companies opt to list on the NASDAQ instead?
  10. Financial Advisor

    What Is A “Broker-Dealer” And Why Should You Care?

    For many investors, the financial services industry is a strange and mysterious place filled with a language all in its own. Terms like “alpha,” “beta” and “Sharpe-Ratio” ...
Trading Center