Does NASDAQ Hold Inventories of Stock?
Original post by Slav Fedorov of Demand Media
National Association of Securities Dealers Automated Quotations (NASDAQ), is the largest electronic marketplace in the U.S. for trading stocks and other equity securities. NASDAQ’s main function is to facilitate trading, not participate in it, so it does not hold inventories of stock; however, various market participants trading on NASDAQ may hold inventories of stock as part of their normal business operations.
NASDAQ facilitates trading in stocks, derivatives, debt, commodities, structured products and exchange-traded funds, provides free stock quotes and facilitates access to capital by listing company securities.
NASDAQ derives its profits from listing stocks and facilitating trading. These profits fluctuate with market conditions but are generally safer, or more secure, than trading stocks or holding them for appreciation.
Hundreds, if not thousands, of small and large institutions trade on NASDAQ for their own, as well as their clients’, accounts. Many of them, such as brokerage houses and trading firms, make markets in various NASDAQ-listed stocks. Market makers routinely maintain inventories of stocks they make market in so that they can buy and sell them in sufficient quantity in response to changing market conditions and investor demand.
The NASDAQ exchange is owned by NASDAQ OMX Group, Inc., a publicly traded company that is itself listed on NASDAQ under the symbol NDAQ. A corporate charter authorizes a company to issue a certain number of shares. Shares already issued are in the hands of investors and trade on an exchange. From time to time, a company may buy back shares of its own stock or issue new shares for sale to investors. The stock bought back by a company is called Treasury stock and is owned and held by the company. When a company issues new stock, it temporarily creates an inventory of new shares for sale to investors. To that extent, NASDAQ OMX Group may sometimes hold inventories of its own stock, but not those of other companies.
About the Author
Based in San Diego, Slav Fedorov started writing for online publications in 2007, specializing in stock trading. He has worked in financial services for more than 20 years, serving as a banker, financial planner and stockbroker. Now working as a professional trader, Fedorov is also the founder of a stock-picking company.