5.2.2. Negotiated Markets
Another type of securities market is a negotiated market. Unlike an auction market, which is facilitated by a single market maker, a negotiated market is created by multiple market makers that post competing bid and ask prices over a computerized network. Orders are filled either automatically, with the computer matching the best quotes first, or by private negotiation. Traditionally, negotiated markets traded mostly in unlisted securities. Today, however, Nasdaq trades listed securities on a negotiated basis. Thus, the negotiated markets include both the Nasdaq stock exchange and over-the-counter (OTC) markets, such as OTC Link, formerly known as the Pink Sheets. OTC Link is discussed later in this chapter.
The Nasdaq exchange consists of three tiers of securities based on initial listing requirements, such as the number of publicly held shares and the issuer’s market capitalization. Once listed, a company must continue to meet a set of less stringent continued listing requirements. The three tiers are:
1. Nasdaq Global Select Market, a list of blue chip companies that meet its highest listing requirements
2. Nasdaq Global Market, a list of blue chip companies that meet high listing requirements
3. Nasdaq Capital Market, a group of smaller, less capitalized companies
As with any stock exchange, the companies that would like to list their securities on Nasdaq must meet specific minimum standards. To be listed on the Nasdaq stock exchange, a stock must meet Nasdaq’s initial listing requirements and pay a listing fee. A listed company must have a minimum share price (e.g., $4), minimum number of market makers (e.g., 4), minimum market capitalization, and a minimum number of shares and shareholders.
Issuers must maintain listing standards to remain listed, though the continued listing requirements are typically not as stringent. Companies that don’t meet minimum continued listing standards will be delisted. The