Which one of the following best describes Nasdaq?

Question

BlackTom AI · Accepted Answer

Nasdaq is an electronic quotation system — a computer network that links securities dealers to display bid and ask prices and to execute trades.

1. Relevant knowledge points and concepts
- Market structures: exchange-based trading (physical trading floor) vs. dealer/quote-driven markets.
- Dealer network: dealers post bid/ask quotes and trade from inventory; electronic networks connect them.
- Designated Market Makers (DMMs) vs. dealers: DMMs operate posts on physical exchanges (e.g., NYSE).
- Nasdaq’s history and function: launched as an electronic quotation system to connect securities dealers and facilitate over-the-counter equity trading.

2. Complete reasoning process step by step
Step 1: Identify definitions: an exchange with physical posts and DMMs describes NYSE-style markets, not Nasdaq. Step 2: Options mentioning "three physical trading floors" or "largest U.S. market by dollar volume" are descriptions that can apply to other entities (and are inaccurate for Nasdaq’s defining characteristic). Step 3: Dealer behavior: “market where dealers buy at the asked price” is incorrect because dealers buy at the bid and sell at the ask; that option reverses the bid-ask roles. Step 4: Nasdaq’s actual operation: it is an electronic network connecting multiple dealers who display quotes and trade electronically—i.e., a computer network of securities dealers.

3. Intermediate steps / clarifications
- Bid/ask roles: Dealers quote a bid (price they buy) and an ask/offer (price they sell). The incorrect option flips this.
- Physical posts and DMMs are specific to floor-based exchanges; Nasdaq does not rely on physical posts.

4. Why the correct answer is correct
Nasdaq was created as an automated, decentralized quotation system and later became a full electronic exchange. Its fundamental characteristic is that it is a computer network linking securities dealers who post and update quotes electronically, matching the option “Computer network of securities dealers.”

5. Why other options are incorrect
- "Largest U.S. stock market in terms of dollar trading volume": Not a defining description; size varies and the phrasing is misleading.  
- "Market where dealers buy at the asked price": Incorrect mechanics—dealers buy at bid, sell at ask.  
- "Market where the designated market makers are located at posts": Describes NYSE, not Nasdaq.  
- "Market with three physical trading floors": Nasdaq is electronic and has no multiple physical trading floors.

6. Conclusion / confirmation
Therefore, the best description of Nasdaq is “Computer network of securities dealers,” which matches the provided correct answer.

Which one of the following best describes Nasdaq?Single choice

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