Partial requirements for initial listing on Nasdaq markets

Source: The Nasdaq Stock Market.

Nasdaq has three levels of subscribers. The highest, level 3 subscribers, are for firms dealing, or "making markets," in OTC securities. These market makers maintain inventories of a security and constantly stand ready to buy or sell these shares from or to the public at the quoted bid and ask prices. They earn profits from the spread between the bid and ask prices.

Level 3 subscribers may enter the bid and ask prices at which they are willing to buy or sell stocks into the computer network and may update these quotes as desired.

Level 2 subscribers receive all bid and ask quotes, but they cannot enter their own quotes. These subscribers tend to be brokerage firms that execute trades for clients but do not actively deal in the stocks on their own account. Brokers attempting to buy or sell shares call the market maker (a level 3 subscriber) with the best quote in order to execute a trade. Notice that Nasdaq is a price quotation, rather than a trading, system. While bid and ask prices can be obtained from the Nasdaq computer network, the actual trade still requires direct negotiation (often over the phone) between the broker and the dealer in the security.

Level 1 subscribers receive only the inside quotes (i.e., the highest bid and lowest ask prices on each stock). Level 1 subscribers are investors who are not actively buying and selling securities but want information on current prices.

The Third and Fourth Markets third market

Trading of exchange-listed securities on the OTC market.


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