Major U.S. Securities Exchanges

Table of Contents
1. New York Stock Exchange (NYSE)
2. NASDAQ Stock Market
3. NYSE American (formerly NYSE MKT and AMEX)
4. Chicago Board Options Exchange (CBOE)
5. Key Exchange Comparison
6. Common Exchange Functions and Regulatory Framework
7. Common Student Mistakes and Exam Traps
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U.S. securities exchanges are organized marketplaces where buyers and sellers trade stocks, bonds, and other securities through standardized systems. These exchanges provide liquidity, price discovery, and regulatory oversight. Understanding the structure, operations, and differences between major U.S. exchanges is essential for securities industry professionals.

1. New York Stock Exchange (NYSE)

1.1 Basic Characteristics

• Type: Hybrid market combining electronic trading with traditional floor-based auction market system
• Location: 11 Wall Street, New York City
• Ownership: Operated by Intercontinental Exchange (ICE) since 2013
• Market Capitalization: Largest equity exchange globally by market capitalization of listed companies
• Trading Hours: 9:30 AM to 4:00 PM Eastern Time (regular session)

1.2 Market Structure and Trading Mechanism

• Designated Market Makers (DMMs): Specialists assigned to specific stocks who maintain fair and orderly markets. They have affirmative and negative obligations to provide liquidity
• Auction Market: Uses a centralized system where DMMs facilitate price discovery by matching buy and sell orders
• Floor Brokers: Execute large or complex orders on the trading floor on behalf of institutional clients
• Supplemental Liquidity Providers (SLPs): Electronic traders who add liquidity and receive financial incentives
• Hybrid Model: Approximately 15-20% of trades occur on the physical floor; remainder execute electronically

1.3 Listing Requirements

• Initial Listing Standards: Companies must meet minimum requirements for pre-tax income, market capitalization, publicly held shares, and shareholders
• Three Alternative Tests: Earnings test (most common), valuation/revenue test, or pure valuation test with cash flow
• Corporate Governance: Listed companies must comply with strict governance standards including independent directors and audit committee requirements
• Continued Listing: Minimum average global market capitalization of $15 million over 30 trading days; minimum price of $1.00 per share

1.4 Key Features

• Opening and Closing Auctions: Significant price discovery occurs during opening (9:30 AM) and closing (4:00 PM) auctions with high volume concentration
• Trading Halts: DMMs can request halts for news pending or order imbalances
• Circuit Breakers: Market-wide trading halts triggered at 7%, 13%, and 20% declines in S&P 500
• Blue-Chip Companies: Known for listing large, established corporations with long operating histories

2. NASDAQ Stock Market

2.1 Basic Characteristics

• Type: Fully electronic, dealer-based market (no physical trading floor)
• Acronym: Originally stood for National Association of Securities Dealers Automated Quotations
• Founded: 1971 as the world's first electronic stock market
• Ownership: Operated by Nasdaq, Inc. (publicly traded company)
• Trading Hours: 9:30 AM to 4:00 PM Eastern Time (regular session)

2.2 Market Structure and Trading Mechanism

• Market Maker System: Multiple market makers (dealers) compete to provide liquidity for each stock
• No Specialists: Unlike NYSE, no single designated entity is responsible for maintaining markets in specific securities
• Competing Quotes: Market makers post bid and ask prices; best bid and offer displayed through National Best Bid and Offer (NBBO)
• Electronic Communication Networks (ECNs): Automatic matching systems that allow direct trading between participants
• Screen-Based Trading: All transactions occur through computer networks without physical trading floor

2.3 Listing Requirements

• Three Market Tiers: Nasdaq Global Select Market (most stringent), Nasdaq Global Market, and Nasdaq Capital Market
• Global Select Market: Requires minimum $110 million market value of listed securities and 1.25 million publicly held shares
• Global Market: Lower requirements than Global Select; minimum $70 million market value of listed securities
• Capital Market: Designed for smaller companies; minimum $50 million market value of listed securities or lower with additional requirements
• Financial Standards: Alternative listing standards based on income, equity, market value, or total assets/total revenue combinations

2.4 Key Features

• Technology Focus: Known for listing technology, biotechnology, and growth-oriented companies (e.g., Apple, Microsoft, Amazon)
• Extended Hours Trading: Pre-market (4:00 AM - 9:30 AM) and after-hours (4:00 PM - 8:00 PM) sessions available
• Market Volatility Safeguards: Limit Up-Limit Down (LULD) mechanism prevents trades outside specified price bands
• Order Types: Supports diverse order types including market, limit, stop, and various conditional orders

3. NYSE American (formerly NYSE MKT and AMEX)

3.1 Basic Characteristics

• Historical Name: American Stock Exchange (AMEX) until 2008; renamed NYSE MKT in 2012; became NYSE American in 2017
• Type: Fully electronic auction market since 2017 (previously hybrid)
• Ownership: Part of Intercontinental Exchange (ICE) group, acquired by NYSE Euronext in 2008
• Market Focus: Small-cap and mid-cap companies, exchange-traded funds (ETFs), and options

3.2 Market Structure and Listing Standards

• Lower Listing Requirements: More accessible standards compared to NYSE and Nasdaq; minimum $3 million market value of public float
• Electronic Trading: Eliminated floor-based trading operations in 2017; fully automated execution
• ETF Hub: Major venue for ETF listings and trading
• Target Companies: Emerging growth companies and businesses transitioning between private and full NYSE listing

4. Chicago Board Options Exchange (CBOE)

4.1 Basic Characteristics

• Founded: 1973 as the first U.S. marketplace for listed options trading
• Primary Market: Options on equities, equity indices, and ETFs (not primarily an equity exchange)
• Ownership: Part of Cboe Global Markets, Inc.
• VIX Index: Calculates and disseminates the CBOE Volatility Index (VIX), known as the "fear gauge"

4.2 Market Structure

• Hybrid Trading: Combines electronic trading platform with traditional open outcry trading floor
• Market Makers: Designated Primary Market Makers (DPMs) and market makers provide liquidity in options
• Product Range: Equity options, index options (S&P 500, Dow Jones Industrial Average), volatility products

5. Key Exchange Comparison

6. Common Exchange Functions and Regulatory Framework

6.1 Core Functions

• Price Discovery: Exchanges facilitate transparent pricing through continuous matching of buy and sell orders
• Liquidity Provision: Market makers and specialists ensure continuous markets with posted bid-ask spreads
• Transaction Settlement: Exchanges coordinate with clearinghouses for trade clearing and settlement (T+2 for equities)
• Market Surveillance: Real-time monitoring for trading irregularities, manipulation, and insider trading

6.2 Self-Regulatory Organizations (SROs)

• SRO Status: Major exchanges function as Self-Regulatory Organizations under Securities Exchange Act of 1934
• Rule Enforcement: Exchanges create and enforce rules for listed companies, member firms, and trading conduct
• SEC Oversight: All exchange rules and rule changes subject to Securities and Exchange Commission (SEC) approval
• FINRA Coordination: Exchanges coordinate with Financial Industry Regulatory Authority on broker-dealer regulation

6.3 Trading Halts and Circuit Breakers

• Individual Stock Halts: Trading paused for news pending, order imbalances, or regulatory concerns
• Limit Up-Limit Down (LULD): Prevents trades outside price bands that adjust throughout trading day based on stock's average reference price
• Market-Wide Circuit Breakers: Level 1 (7% decline) and Level 2 (13% decline) halt trading for 15 minutes; Level 3 (20% decline) closes market for remainder of day
• Single Stock Circuit Breaker: 5-10 minute pause if stock moves 10% or more within 5-minute period (varies by price tier)

7. Common Student Mistakes and Exam Traps

7.1 Exchange Type Confusion

• Trap: Students confuse NYSE as "fully auction-based" when it is actually a hybrid market with significant electronic trading component
• Trap: Assuming NASDAQ has no liquidity providers; multiple market makers compete to provide liquidity
• Trap: Believing NYSE American still operates with floor trading; it became fully electronic in 2017

7.2 Market Maker vs. Specialist Confusion

• Key Difference: NYSE uses Designated Market Makers (one per stock with obligations); NASDAQ uses multiple competing market makers per stock without exclusive assignments
• Common Error: Using terms "specialist" and "market maker" interchangeably; specialist is NYSE-specific term now called DMM

7.3 Listing Requirement Misunderstandings

• Trap: Assuming all NASDAQ-listed companies are small; NASDAQ Global Select Market has stringent requirements and lists many large-cap companies
• Trap: Believing companies can only list on one exchange; companies can be dual-listed but typically have one primary listing venue

7.4 Trading Hours and Sessions

• Regular Hours: 9:30 AM - 4:00 PM ET is standard for both NYSE and NASDAQ (not 9:00 AM start)
• Extended Hours: Pre-market and after-hours available primarily on electronic platforms; NYSE floor does not operate during these sessions
• Trap: Assuming all orders execute during extended hours; liquidity significantly lower and price volatility higher

7.5 Circuit Breaker Triggers

• Reference Point: Market-wide circuit breakers based on S&P 500 Index decline from previous day's close (not intraday high)
• Time Restrictions: Level 1 and Level 2 halts only occur if triggered before 3:25 PM ET; after 3:25 PM, trading continues
• Level 3: 20% decline closes market for remainder of day regardless of time

Understanding the structure, operations, and distinctions between major U.S. securities exchanges provides essential foundational knowledge for securities professionals. The NYSE's hybrid auction model with DMMs, NASDAQ's electronic dealer market with competing market makers, and NYSE American's focus on smaller companies represent different approaches to facilitating securities trading. Recognizing each exchange's unique characteristics, listing requirements, and trading mechanisms enables professionals to navigate capital markets effectively and understand where different securities trade and why.