Nasdaq Market Center Systems Description

---

I. 

Introduction and Background  

 

The Nasdaq Market Center is a fully integrated order display and execution 

system for all Nasdaq National Market securities, Nasdaq SmallCap Market securities, 

and securities listed on other markets.  The Nasdaq Market Center is a voluntary, open-

access system that accommodates diverse business models and trading preferences.  In 

contrast to traditional floor-based auction markets, Nasdaq has no single specialist 

through which transactions pass, but rather uses technology to aggregate and display 

liquidity and make it available for execution.  

 

The Nasdaq Market Center allows market participants to enter unlimited quotes 

and orders at multiple price levels.  Quotes and orders of all Nasdaq Market Center 

participants are integrated and displayed via data feeds to market participants and other 

Nasdaq data subscribers.  Nasdaq Market Center participants are able to access the 

aggregated trading interest of all other Nasdaq Market Center participants in accordance 

with an order execution algorithm that adheres to the principle of price-time priority.

1 

 

II. 

Nasdaq Market Participants 

 

The Nasdaq Market Center accommodates a variety of market participants.  

Market makers are securities dealers that buy and sell securities at prices displayed in 

Nasdaq for their own account (principal trades) and for customer accounts (agency 

trades).  Market makers actively compete for investor orders by displaying quotations 

representing their buy and sell interest – plus customer limit orders – in securities quoted 

in the Nasdaq Market Center.  By standing ready to buy and sell shares of a company’s 

stock, market makers provide to Nasdaq-listed companies and other companies quoted in 

the Nasdaq Market Center a valuable service.  The result of their combined quotation 

activity helps meet investor demand and creates an environment of immediate and 

continuous trading.  Currently, more than 260 market-making firms provide capital 

support for Nasdaq-listed stocks and more than 60 firms make markets in other stocks 

that trade on Nasdaq.  Market makers are required to display continuous two-sided 

quotations in all stocks in which they choose to make a market.  Trading interest from 

market makers may be displayed either as quotations attributable to the market maker 

through one or more market participant identifiers (“MPID”) or through the anonymous 

SIZE MPID.  

 

Order entry firms route orders to the Nasdaq Market Center for execution against 

displayed orders and quotations, and for display under the anonymous SIZE MPID.  

Order entry firms may not display trading interest under an attributable MPID.  

Electronic communications networks (“ECNs”) participate in Nasdaq by displaying 

orders routed to them by subscribers, thereby making such orders available for execution 

                                                 

1

  

Exceptions to the principle of price-time priority associated with directed order 

functionality were recently eliminated from the Nasdaq Market Center, and 

exceptions associated with preferenced order functionality will be eliminated at or 

prior to the effective date of exchange registration.   

 

1

---

either through Nasdaq or through the ECN’s own execution systems.  ECN orders can be 

displayed under attributable MPIDs or through the anonymous SIZE MPID, but ECNs, 

unlike market makers, do not have an obligation to maintain continuous two-sided 

quotations since all ECNs trade on an agency basis only.  Like order entry firms, ECNs 

may also enter orders into the Nasdaq Market Center for execution again displayed 

quotations.   

 

National securities exchanges trading Nasdaq-listed stocks pursuant to grants of 

unlisted trading privileges (“UTP Exchanges”) may also choose to participate directly in 

Nasdaq.  UTP Exchanges have the ability to enter orders, to display trading interest on an 

attributable basis, and to display agency interest on a non-attributable basis through the 

SIZE MPID.  In turn, UTP Exchanges are required to accept automatic execution of 

orders directed to their quotes by Nasdaq.   

 

III.  

System Access 

Market participants gain access to the Nasdaq Market Center via direct or indirect 

electronic linkages utilizing a variety of telecommunications protocols.  The Nasdaq 

Information Exchange, or QIX, protocol, is a proprietary Nasdaq protocol that supports 

the entry, cancellation, and updating of quotations and orders, order delivery and 

execution, and message transmittal for all securities traded through the Nasdaq Market 

Center.

2

  The Financial Information Exchange, or FIX, protocol, is a telecommunications 

protocol widely used in the financial services industry, and is used by Nasdaq market 

participants for order entry, modification, and cancellation and message transmittal for all 

securities traded through the Nasdaq Market Center.  Market participants using QIX or 

FIX establish connectivity to Nasdaq through third party connectivity providers, 

including a range of extranets and service bureaus.  Finally, market participants may 

connect to Nasdaq using the Computer-to-Computer Interface (“CTCI”) protocol, which 

utilizes a two-way communications link over point-to-point circuits.  CTCI is used by 

Nasdaq market participants for order entry, modification, and cancellation and message 

transmittal for all securities traded through the Nasdaq Market Center.   

In addition to selecting a telecommunications protocol and establishing 

connectivity, market participants must also utilize “front-end” software at their premises 

to serve as the interface between individual traders and the market.  Although Nasdaq 

currently offers, and will continue to offer, a “front-end” software product for market 

access,

3

 Nasdaq makes all of its communications protocols publicly available to allow 

                                                 

2

  

QIX replaces the Application Programming Interface (“API”) protocol, a Nasdaq 

proprietary protocol that supported (i) the Nasdaq Workstation II (the “NWII”), a 

proprietary “front-end” product used for market access, and (ii) front-end 

workstations developed by market participants and service bureaus using that 

protocol.  The API and the NWII are scheduled to be eliminated in the near term.     

 

3

  

As noted above, the NWII will be phased out in the near term.  It is being 

replaced with a new product known simply as the new Nasdaq Workstation.  

 

2

---