NASDAQ Quote Levels & Execution

Overview

• Originally started in the 1970s as an association of dealers, NASDAQ grew into one of the largest exchanges in the world.
• 🔑 Unlike the NYSE, which operates as an auction market, NASDAQ is considered a negotiated market.
• On the NYSE, trading in each listed stock is facilitated by a centralized Designated Market Maker (DMM); each stock’s trades are handled by one DMM.

🔑 Definitions

NASDAQ vs. NYSE

• NASDAQ is made up of dozens of market makers who trade with the public. Market makers compete with one another, and the firms showing the best prices tend to attract the most orders.

Continuous quotes

• 🔑 Market makers must be willing to provide continuous quotes on the securities they trade.
• There are legitimate reasons for a temporary or permanent withdrawal (e.g., closing the business, sick employees, unforeseen events, etc.).

Worked quote example (verbatim):

	Bid	Ask
Price	$50.25	$50.50
Size	7	3

This quote works the same way as the bid and ask quotes we’ve used throughout this chapter:

The market maker is willing to buy up to 700 shares at $50.25. The market maker is willing to sell 300 shares at $50.50. The spread is $0.25 ($50.50 − $50.25).

Check-your-understanding item on that visual (verbatim):

First, let’s check your understanding: what’s the inside market?

Answer = $50.30 x $50.45 / 1 x 2

• 🔑 “The inside market is the price and number of shares available at the highest bid (buy order) and the lowest ask (sell order).”

⚠️ Quote levels (constantly confused)

• 📌 “Level 2 data can sometimes provide insight into supply and demand. For example, a large interest to buy just below the highest bid, or to sell just above the lowest ask, can influence the market’s direction.”

Execution system

• NASDAQ uses its own execution system for routing trades, known as the NASDAQ Market Center Execution System.
• 🔑 Market makers using this system can enter quotes for up to 999,999 shares (just short of 1 million).

Trading hours

• Pre-market and post-market trading can increase trading opportunities, but they also add risk.
• Fewer investors trade during these sessions, which can increase volatility.
• ⚠️ “Most broker-dealers require customers to review a risk disclosure before trading in pre- and post-market sessions.”
• 🔑 Key risks include wider spreads, lower trading volume, and higher volatility.

SROs and FINRA

• The NYSE and NASDAQ used to regulate their own markets as self-regulatory organizations (SROs).
• SROs are granted regulatory power and oversee the participants in their markets.
• 🔑 “In 2007, the NYSE’s and NASDAQ’s regulatory arms combined into FINRA, which is the SRO that now supervises both markets.”
• ⚠️ “Although FINRA is not a governmental entity, it has the power to control who operates in the financial markets and how financial firms interact with the investing public.”

Key points

NASDAQ

• Negotiated market
• Made up of numerous market makers
• Considered an OTC market
• Normal operating hours from 9:30am - 4:00pm ET

Level 1 quote

• Shows the inside market
• Displays the highest bid and lowest ask

Level 2 quote

• Shows all market maker quotes

Level 3 quote

• Like level 2, but interactive
• Only market makers have access

Self-regulatory organizations (SROs)

• Granted the power to regulate markets

FINRA

• A self-regulatory organization (SRO)
• Regulates financial professionals

Sources

Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.