Financial Management Assignment, Essay Example

NYSE merged with Paris based Euronext on April 2007 to form NYSE Euronext in a $20 billion deal. As of September 2007, the total market value of all NYSE Euronext listed companies was over $30 trillion and its daily trading value was $127 billion, making it the world’s largest and most liquid securities place (Mason, 2007). NASDAQ stands for the National Association of Securities Dealers Automated Quotation System. Unlike the NYSE where trades take place on an exchange, NASDAQ is an electronic stock market that uses a computerized system to provide brokers and dealers with price quotes (SEC).

NYSE requires the presence of traders on an exchange floor for trading where as NASDAQ is a telecommunications network with no physical exchange. Thus, trading on NASDAQ takes place directly between the investors and their buyers and sellers who are also market makers. In addition, NASDAQ is a dealer’s market where as NYSE is an auction market. In case of NYSE, the highest bid is matched with the lowest asking price where as in NASDAQ market maker acts as a dealer (Staff).

NASDAQ is known to attract internet and technology stocks that are often high growth and more volatile. In comparison, NYSE is known to host more well established and mature companies. The companies listed on NYSE are considered relatively less volatile and established including many of the blue chip companies. NYSE hosts consumer goods and industrial giants such as Coca Cola, Wal-Mart, Citicorp, and General Electric where as NASDAQ hosts technology titans such as Microsoft, Cisco, Intel, and Oracle. Both NYSE and NASDAQ are publicly traded companies themselves which means they strive to earn profits for their shareholders just like any other publicly listed company (Staff).

NYSE members are required to hold seats on the exchange which are like memberships. The seats are required to be able to trade on the exchange. There are 1,366 seats which can be bought and sold. NASDAQ licenses its brokers but has not membership seat system like NYSE. NYSE lists over 2,700 securities where as NASDAQ lists over 3,200 securities. NASDAQ is the largest stock exchange in the world in terms of daily traded volume (Pomoni).

As far as listing requirements are concerned, NYSE market value of public shares to be at least $40 million for IPOs, spin-offs, affiliates, and carve-outs and $100 million for everyone else. In addition, the issuer must have a $4 stock price at the time of listing. The listed company must have an aggregate pre-tax income of at least $10 million for the last 3 years, depending upon the financial criteria it chooses to satisfy. Alternatively, the listed company may have a global market capitalization of $150 million to $750 million, again depending upon the valuation criteria it chooses to meet (NYSE).

NASDAQ listing requirement is aggregate pre-tax income in the last three years to be at least $11 million to $27 million, depending upon the listing criteria the company opts for. Alternatively, the company may opt for valuation requirements that require $160 million to over $850 million market cap, depending upon the chosen valuation criteria (NASDAQ, 2010).

As of 2008, NYSE share of the global industry was largest. The market cap of the companies listed on NYSE accounted for 12.5% of the global industry value. In comparison, the market cap of the companies listed on NASDAQ accounted for 5.4% of the global industry value. NYSE also operates another exchange called NYSE Arca which operates two all electronic equity securities trading systems, one for trading NYSE, American Stock Exchange, and other exchanged listed securities and another for trading NASDAQ listed securities (DataMonitor Plc, 2009).

The Public Company Accounting and Investor Protection Act of 2002 which is also known as Sarbanes-Oxley Act was passed in the wake of Enron and WorldCom scandals to repair the investment community’s confidence in the U.S. security laws and increase companies’ accountability for the accuracy of their financial statements. It only applies to companies with publicly listing stocks. It requires CEOs to personally verify the accuracy of the financial statements and requires independent auditors to address the conflict of interest that existed between the companies and their auditors.

The act also requires companies to strengthen their internal control mechanisms to improve operating transparency. The act requires the companies to inform the public of any material changes in their economic reality on an urgent basis. The act also imposes punishment in the form of fine and/or imprisonment for altering, falsifying, or concealing evidence with the intention of influencing a legal investigation. The act also provides protection to the whistleblowers for exposing fraud and illegal activities within the companies.

The act has been criticized for imposing huge compliance costs and has been especially burdensome on smaller companies for whom the compliance cost has been disproportionately high. In addition, the critics have complained about the huge diversion of time and financial resources that could otherwise be spent on profitable economic activities. The act may have motivated certain companies to go private to avoid the compliance requirements.

References

DataMonitor Plc. (2009). Capital Markets Industry Profile: Global.

Mason, A. (2007, September). Equities. Equities , pp. 27-29.

NASDAQ. (2010, July). Listing Standards & Fees. Retrieved February 4, 2011, from http://www.nasdaq.com/about/nasdaq_listing_req_fees.pdf

NYSE. (n.d.). NYSE Listing Standards. Retrieved February 4, 2011, from NYSE Regulation: http://www.nyse.com/regulation/nyse/1147474807344.html

Pomoni, C. (n.d.). Personal Finance: Investing. Retrieved February 4, 2011, from Helium: http://www.helium.com/items/1148565-the-differences-between-the-new-york-stock-exchange-and-nasdaq

SEC. (n.d.). Nasdaq. Retrieved February 4, 2011, from U.S. Securities and Exchange Commission: http://www.sec.gov/answers/nasdaq.htm

Staff. (n.d.). The NYSE And Nasdaq: How They Work. Retrieved February 4, 2011, from Investopedia: http://www.investopedia.com/articles/basics/03/103103.asp