Financial Management of the American Stock Exchange and the NASDAQ Essay

Financial Management of the American Stock Exchange and the NASDAQ - Essay Example Their similarities and differences will also be outlined. In order to evaluate how events in business entities affect the valuation of their stocks, it will also deem worthwhile to look at how the Former WorldCom Inc. Chief Executive Bernard Ebber's case affected WorldCom Inc., and the whole telecommunication industry. The origin of the American Stock Exchange can be traced back during the colonial times when "stockbrokers created outdoor markets to trade government securities." During 1921, the trading began to be conducted indoors with the hand signals developed remaining popular during transactions. Nowadays, the AMEX has evolved to become a trading platform not only for securities but options. The AMEX also specializes in trading Exchange Traded Fund (ETF) like Standard and Poor's Depository Receipt (SPDR) and Powershares, and hybrid or structured securities (AMEX.com 2006). On the other hand, NASDAQ, whose name is originally taken from the acronym National Association of Securities Dealers Automated Quotations, is the largest screen based equity securities market in the United States. It prides of having 3,200 listed companies which are recognized leaders in their industries. Its technical capability as well as reliability enables it to list more companies as well as gain the recognition of having the most number of shares traded per day (NASDAQ.com 2006). Both AMEX and NASDAQ are financial intermediaries aimed to transfer surplus funds from investors to companies by the trading of securities. In their profiles, it can be seen that they both facilitate the trading of stocks from companies. However, AMEX has long changed its core business of stock to option trading. Furthermore, AMEX also facilitates the exchange of other financials instruments like EFT and hybrid/structured securities. It should also be noted that stocks traded in NASDAQ are often more volatile and geared for growth like electronics and internet companies. On the other hand, AMEX is recognized to have more liberal policies on company listing attracting smaller, less established firms. Aside from the financial instruments traded, AMEX and NASDAQ also differ in other operational aspects. It should be noted that as opposed to AMEX which operates on a physical location, the transaction in NASDAQ occurs not on a physical trading floor but on a telecommunication network. IN AMEX, people are on the trading floor matching exchange buy and sell orders in behalf of investors. In NASDAQ, trading occurs directly between investors and their buyers and sellers, who are referred to as market makers. This is made possible by the technology installed by NASDAQ which elaborately and electronically connects companies. The AMEX is an example of an auction market where the highest bidding price is often matched with the lowest asking price while NASDAQ is a market maker or dealer that buyers and sellers go through to facilitate their transactions. The WorldCom, Inc. Fiasco WorldCom, Inc. once became the second largest long distance company in the United States after AT&T. However, the company suffered financially and finally filled bankruptcy in July 21, 2002. This event became so detrimental to not only to WorldCom but the whole telecommunication industry (MCI 2006). The fiasco was traced to the corruption of the company's former CEO Bernard Ebbers who accumulated wealth