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Nasdaq vs. NYSE: Why Companies Choose One Over the Other

Lou Carlozo

OK, sports fans: American League or National League? Big 10 or Big 12? AFC or NFC? And finally, the one matchup that even intimidates Vegas bookies: NYSE or Nasdaq?

Many investors are dimly aware that these two exchanges exist, but that's about it. Then the stereotypes and shorthand take over. The NYSE, or New York Stock Exchange, is home to all those big, bold blue-chip companies, while the Nasdaq composite is where all those tech startups want to be.

Indeed, there's an element of truth to all that. But it's hardly a complete picture: Some Nasdaq stocks are among the largest traded today, for example. That said, it's hard even for the experts to shake the conventional images.

"When I was growing up, the NYSE was discussed in hushed tones among my family members," says Daniel S. Kern, chief investment strategist with TFC Financial Management in Boston. "A distant relative who owned a seat on the exchange was thought to have a license to print money. The Nasdaq had a very different image, and for many years after its founding was considered an upstart trying to draw attention and listings away from the NYSE."

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"Both exchanges have different trading models," says David A. Ethridge, managing director with PricewaterhouseCoopers' Deals practice. "The Nasdaq is computer-based, while the NYSE involves a hybrid model using people and technology. This difference extends to their approaches on IPOs and the first trade for a new listing -- an area of significant competitive dialogue over the last five years."

But what about that whole techie versus blue chip thing? Etheridge explains how that divide has evolved for modern investors.

"The legacy stems from the different listing standards for each exchange," he says. "For decades, the NYSE didn't allow small, new companies to list, whereas the Nasdaq provided a destination where new companies could list their IPOs."

That's still very much the case today -- in fact, by overwhelming numbers.

"Nasdaq continues to lead the market for U.S. IPOs in number of IPO pricings and has had more IPOs than any other U.S. exchange in each quarter since the first quarter of 2012," says Nelson Griggs, executive vice presidentof listing services at Nasdaq. "There have been 62 U.S. IPOs launched year to date -- and 46 are on Nasdaq, with a 74 percent current win rate."

The exchange's tech IPOs of the past "never transferred to the NYSE like many of their counterparts from other industries did," Etheridge says. "Both exchanges compete aggressively for new listings in every industry today."

The two exchanges have very different histories -- with one having roots in the 1790s, the other in the 1970s.

The NYSE dates to May 17, 1792. On that date, two dozen New York City stockbrokers and merchants (including Leonard and G.N. Bleecker, whose family gave the hip Bleecker Street its name) stood outside 68 Wall St. and signed the Buttonwood Agreement -- so named because they inked the deal under a buttonwood tree.

There's no conspicuous marker on the site and that tree long ago went the way of the dodo, but boy has it borne some fabulous fruit.

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The market capitalization of the 2,400-some companies listed on the NYSE today exceeds $19.29 trillion, making it the world's largest exchange by that measure. For those old enough to remember the old American Stock Exchange (AMEX), it was absorbed into the NYSE in 2008.

Businesses traded on the NYSE include General Motors Co. (GM), International Business Machines (IBM) and AT&T (T), along with Bank of New York Mellon Corp. (BK). Prior to a 2007 merger, it was simply the Bank of New York -- founded by Alexander Hamilton and the first-ever company listed on the exchange. (Why that never made it into "Hamilton" the musical is a matter for Broadway types to sort out.)

As for the Nasdaq, here's where you get to learn what those initials mean -- and more power to ya if you can remember "National Association of Securities Dealers Automated Quotations" a week from now. Still, it's hard to forget Nasdaq's role in investment history, opening on Feb. 8, 1971, as the world's first electronic stock market.

The Nasdaq can claim the distinction of being the birthplace of the modern IPO. And indeed, it's home to many high-tech and growth companies, including Apple (AAPL), Microsoft Corp. (MSFT), Facebook (FB) and Amazon.com (AMZN).

"It created the Nasdaq composite index and the Nasdaq 100 index to promote them," says David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. "Nasdaq created the image that cutting-edge high-tech firms listed on Nasdaq, not the 'stodgier' NYSE."

So lauded is its reputation in this regard that Tribune Publishing (TRNC) -- a company dating to the 1847 founding of the Chicago Tribune -- switched from the NYSE to the Nasdaq in June to rebrand itself as a digital content leader.

"While the NYSE is larger and lists more established companies, Nasdaq costs much less than the NYSE for a company to list its stock: up to 70 to 80 percent less," says Frederic Slade, assistant vice president and senior investment strategist at Pentegra Retirement Services, headquartered in White Plains, New York.

Given the smaller price tag for getting listed, "It's not surprising that smaller, growth-oriented companies as well as IPOs may be found on Nasdaq." That said, "Apple and Microsoft, two Nasdaq stocks, have become two of the largest stocks in the S&P 500 index."

And by way of market cap, the Nasdaq may be more blue chip than its competitor wants to acknowledge.

"Currently, the five largest companies by market capitalization are all technology companies and are all listed on Nasdaq," says David Kass, clinical professor of finance at the University of Maryland's Robert H. Smith School of Business. Aside from Apple and Microsoft, they are Alphabet (GOOG, GOOGL), Amazon and Facebook.

"The sixth-largest, Exxon Mobil Corp. (XOM) and the seventh-largest, Berkshire Hathaway (BRK.A, BRK.B) are each listed on the NYSE," Kass says. "It was only during the last week that Amazon and Facebook moved ahead of them."

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Not that investors are known to pick one exchange to the exclusion of the other. To borrow from the sporting world of "Jerry McGuire," the winner boils down not to Nasdaq or NYSE, but the intrepid investor whose motto is this: "Show me the money."

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