History

Economy of New York City

When it began trading on February 8, 1971, it was the world's first electronic stock market. At first, it was merely a computer bulletin board system and did not actually connect buyers and sellers. The NASDAQ helped lower the "spread" but somewhat paradoxically was unpopular among brokerages because they made much of their money on the spread. Over the years, NASDAQ became more of a stock market by adding trade and volume reporting and automated trading systems. NASDAQ was also the first stock market to advertise to the general public, highlighting NASDAQ-traded companies (usually in technology) and closing with the declaration that NASDAQ was "the stock market for the next hundred years."

Until 1987, most trading occurred via the telephone, but during the October 1987 stock market crash, market makers often didn't answer their phones. To counteract this, the Small Order Execution System (SOES) was established, which provides an electronic method for dealers to enter their trades. NASDAQ requires market makers to honor trades over SOES.

On July 17, 1995, the NASDAQ Composite index closed above the 1,000 mark for the first time. The index peaked at an intra-day high of 5,132.52 on March 10, 2000, which signaled the beginning of the end of the dot-com stock market bubble. The index declined to half its value within a year, and finally found a bear market bottom at its intra-day low of 1,108.49 on October 10, 2002. While the index has gradually recovered since then, reaching a six-year monthly closing high above the 2,400 level on November 30, 2006, it is still (as of late 2006) valued at less than half its peak.

Merger attempt with London Stock Exchange

In December of 2005, the London Stock Exchange (LSE) rejected a £1.6 billion takeover offer from Macquarie Bank. The LSE described the offer as "derisory." It then received a bid in March of 2006 for £2.4 billion from NASDAQ, which was also rejected by the LSE. NASDAQ later pulled its bid, and less than two weeks later on April 11, 2006, struck a deal with LSE's largest shareholder, Ameriprise Financial's Threadneedle Asset Management unit, to acquire all of that firm's stake, consisting of 35.4 million shares, at £11.75 per share.NASDAQ also purchased 2.69 million additional shares, resulting in a total stake of 15%. While the seller of those shares was undisclosed, it occurred simultaneously with a sale by Scottish Widows of 2.69 million shares. The move was seen as an effort to force LSE to negotiate either a partnership or eventual merger, as well as to block other suitors such as NYSE.Subsequent purchases increased NASDAQ's stake to 25.1%, holding off competing bids for several months. United Kingdom financial rules required that NASDAQ wait for a period of time before renewing its effort. Within a month or two of the expiration of this period, NASDAQ increased its stake to 28.75% and relaunched a formal tender offer at the minimum permitted bid of £12.43 per share, which was the highest NASDAQ had paid on the open market for its existing shares.On prior occasions, NASDAQ had been spurned by LSE chief Clara Furst, and this time elected to go directly to the board of the London exchange. LSE's options had diminished by this time as two of the three most likely competing bidders, NYSE Group and Euronext, were close to finalizing their own merger, while Deutsche Börse, the third, had dropped out of the contest.The LSE immediately rejected this bid, stating that it "substantially undervalues" the company.