Interesting Market History

February 1971: The NASDAQ Exchange Opens

The first electronic, remote and eventually online exchange, the NASDAQ was a leap forward in accessibility and efficiency.

On February 8, 1971 the NASDAQ exchange opened for business. NASDAQ, originally an acronym for the National Association of Securities Dealers Automated Quotations, was initially only a quotation system. Now known simply as the Nasdaq, it became the world’s first electronic stock exchange. The Nasdaq has no physical trading floor, so all price quotes and trading is remote and electronic—not remarkable by today’s standards but significant innovations at the time.

The Nasdaq made capital markets more accessible and efficient by making trading no longer dependent on physical places or people. The new exchange was initially unpopular with brokers because it reduced the bid-ask spread in stock trading and, correspondingly, lessened brokers’ profits. However, the Nasdaq broadly benefitted investors by lowering trading costs and pioneering additional improvements in stock exchange technology. For example, in 1998 the Nasdaq was the first US stock exchange to offer online trading.

The Nasdaq also enabled trades of unlisted securities that were previously done “over-the-counter,” or directly between two parties. During the 1980s and 1990s the Nasdaq became the preferred exchange for many Technology companies, and as the Technology sector has grown dramatically, so too has the Nasdaq.

Fast-forward to today and the Nasdaq has over 3,000 companies listed and is the second largest stock exchange in the world by market capitalization. The Nasdaq was an important early innovation leading to faster and cheaper trading, ultimately providing more people greater access to investing.

Nasdaq MarketSite in Times Square, New York City. Source: Wikimedia Commons.