Exchange (organized market)

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An exchange, or bourse /bʊərs/ also known as a trading exchange or trading venue, is an organized market where (especially) tradable securities, commodities, foreign exchange, futures, and options contracts are sold and bought.

Market (economics) mechanisms whereby supply and demand confront each other and deals are made, involving places, processes and institutions in which exchanges occurs (for physical venues, use Q132510 or Q330284)

A market is one of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers. It can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enable the distribution and resource allocation in a society. Markets allow any trade-able item to be evaluated and priced. A market emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights of services and goods. Markets generally supplant gift economies and are often held in place through rules and customs, such as a booth fee, competitive pricing, and source of goods for sale.

Security (finance) tradable financial asset

A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some jurisdictions the term specifically excludes financial instruments other than equities and fixed income instruments. In some jurisdictions it includes some instruments that are close to equities and fixed income, e.g., equity warrants. In some countries and languages the term "security" is commonly used in day-to-day parlance to mean any form of financial instrument, even though the underlying legal and regulatory regime may not have such a broad definition.

Commodity marketable item produced to satisfy wants or needs

In economics, a commodity is an economic good or service that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. Most commodities are raw materials, basic resources, agricultural, or mining products, such as iron ore, sugar, or grains like rice and wheat. Commodities can also be mass-produced unspecialized products such as chemicals and computer memory.

Contents

History

The "Huis ter Beurze" (center) in Bruges, Belgium. Brugge - Saaihalle en beurs.jpg
The "Huis ter Beurze" (center) in Bruges, Belgium.

The term bourse [note 1] is related to the 13th-century inn named " Huis ter Beurze " owned by Van der Beurze  [ nl ] family in Bruges, Belgium, where traders and foreign merchants from across Europe, especially the Italian Republics of Genoa, Florence and Venice, conducted business in the late medieval period. [1] The building, which was established by Robert van der Buerze as a hostelry, had operated from 1285. [2] Its managers became famous for offering judicious financial advice to the traders and merchants who frequented the building. This service became known as the "Beurze Purse" which is the basis of bourse, meaning an organized place of exchange. Eventually, the building became solely a place for trading in commodities.

Bruges Municipality in Flemish Community, Belgium

Bruges is the capital and largest city of the province of West Flanders in the Flemish Region of Belgium, in the northwest of the country.

Belgium Federal constitutional monarchy in Western Europe

Belgium, officially the Kingdom of Belgium, is a country in Western Europe. It is bordered by the Netherlands to the north, Germany to the east, Luxembourg to the southeast, France to the southwest, and the North Sea to the northwest. It covers an area of 30,688 square kilometres (11,849 sq mi) and has a population of more than 11.4 million. The capital and largest city is Brussels; other major cities are Antwerp, Ghent, Charleroi and Liège.

Republic of Genoa former state on the Apennine Peninsula between 1005–1797

The Republic of Genoa was an independent state from 1005 to 1797 in Liguria on the northwestern Italian coast, incorporating Corsica from 1347 to 1768, and numerous other territories throughout the Mediterranean.

During the 18th century, the façade of the Huis ter Beurze was rebuilt with a wide frontage of pilasters. However, in 1947 it was restored to its original medieval appearance.[ citation needed ]

Pilaster decorative architectural element giving the appearance of a supporting column

The pilaster is an architectural element in classical architecture used to give the appearance of a supporting column and to articulate an extent of wall, with only an ornamental function. It consists of a flat surface raised from the main wall surface, usually treated as though it were a column, with a capital at the top, plinth (base) at the bottom, and the various other elements. In contrast to a pilaster, an engaged column or buttress can support the structure of a wall and roof above.

In the twelfth century, foreign exchange dealers in France were responsible for controlling and regulating the debts of agricultural communities on behalf of banks. These were actually the first brokers. They met on the Grand Bridge in Paris, the current Pont au Change. It takes its name from the forex brokers.[ citation needed ]

France Republic with mainland in Europe and numerous oversea territories

France, officially the French Republic, is a country whose territory consists of metropolitan France in Western Europe and several overseas regions and territories. The metropolitan area of France extends from the Mediterranean Sea to the English Channel and the North Sea, and from the Rhine to the Atlantic Ocean. It is bordered by Belgium, Luxembourg and Germany to the northeast, Switzerland and Italy to the east, and Andorra and Spain to the south. The overseas territories include French Guiana in South America and several islands in the Atlantic, Pacific and Indian oceans. The country's 18 integral regions span a combined area of 643,801 square kilometres (248,573 sq mi) and a total population of 67.3 million. France, a sovereign state, is a unitary semi-presidential republic with its capital in Paris, the country's largest city and main cultural and commercial centre. Other major urban areas include Lyon, Marseille, Toulouse, Bordeaux, Lille and Nice.

Pont au Change bridge

The Pont au Change is a bridge over the Seine River in Paris, France. The bridge is located at the border between the first and fourth arrondissements. It connects the Île de la Cité from the Palais de Justice and the Conciergerie, to the Right Bank, at the Place du Châtelet.

In the thirteenth century, the Lombard bankers were the first to share state claims in Pisa, Genoa, and Florence. In 1409, the phenomenon was institutionalized by the creation of the Exchange Bruges. It was quickly followed by others, in Flanders and neighboring countries (Ghent and Amsterdam). It is still in Belgium and the first building designed to house a scholarship was built in Antwerp. The first scholarship organized in France was born in Lyon in 1540.[ citation needed ]

The first documented crash took place in 1636 in Holland. [3] The prices of tulip bulbs reaching excessively high levels, known as the Tulip mania. The price collapsed on October 1.

Tulip mania 17th-century economic bubble in the Netherlands

Tulip mania was a period in the Dutch Golden Age during which contract prices for some bulbs of the recently introduced and fashionable tulip reached extraordinarily high levels and then dramatically collapsed in February 1637. It is generally considered the first recorded speculative bubble; although some researchers have noted that the Kipper und Wipper episode in 1619–1622, a Europe-wide chain of debasement of the metal content of coins to fund warfare, featured mania-like similarities to a bubble. In many ways, the tulip mania was more of a hitherto unknown socio-economic phenomenon than a significant economic crisis. Historically, it had no critical influence on the prosperity of the Dutch Republic, the world's leading economic and financial power in the 17th century. Also, from about 1600 to 1720 the Dutch had the highest per capita income in the world. The term "tulip mania" is now often used metaphorically to refer to any large economic bubble when asset prices deviate from intrinsic values.

In the seventeenth century, the Dutch were the first to use the stock market to finance companies. [4] The first company to issue stocks and bonds was the Dutch East India Company, introduced in 1602.

The London Stock Exchange started operating and listing shares and bonds in 1688. [5]

In 1774, the Paris Stock Exchange (founded in 1724), say the courts, must now necessarily be shouted to improve the transparency of operations.[ citation needed ] In the nineteenth century, the industrial revolution enables rapid development of stock markets, driven by the significant capital requirements for the finance industry and transport. Since the computer revolution of the 1970s, we are witnessing the dematerialization of securities traded on the stock exchange.

In 1971, the NASDAQ became the primary market quotes computer. In France, the dematerialization was effective from November 5, 1984,.[ citation needed ]

The development of information technology during the late part of the 20th century led to a new type of electronic exchange that replaced the more traditional physical markets. This led to new definitions in financial regulations that recognized these new exchanges, such as the Multilateral trading facility in Europe and Alternative trading system in the United States. Regulators also started using the term trading venue to describe the wider definition which encompasses both traditional exchanges and electronic exchanges.

Description

Exchanges bring together brokers and dealers who buy and sell these objects. These various financial instruments can typically be sold either through the exchange, typically with the benefit of a clearing house to reduce settlement risk.

Exchanges can be subdivided:

In practice, futures exchanges are usually commodity exchanges, i.e., all derivatives, including financial derivatives, are usually traded at commodity exchanges. This has historical reasons: the first exchanges were stock exchanges. In the 19th century, exchanges were opened to trade forward contracts on commodities. Exchange-traded forward contracts are called futures contracts. These "commodity exchanges" later started offering future contracts on other products, such as interest rates and shares, as well as options contracts; now they are generally known as futures exchanges.

For details, see:

See also

Notes and Citations

Notes
  1. The term bourse is derived from (Ancient Greek: βύρσα , translit.  bursa, lit.  '"the skin stripped off a hide"') which was later used as bursa in Medieval Latin to refer to the "purse".
Citations
  1. Bourse. Online Etymology Dictionary
  2. "The stock market: from the 'Ter Buerse' inn to Wall Street". nbbmuseum.be.
  3. Kindleberger, Charles P. and Aliber, Robert (2005). Manias, Panics, and Crashes. A History of Financial Crises. New York. p. 16. ISBN   0-465-04380-1.CS1 maint: Multiple names: authors list (link)
  4. Crump, Thomas (1 March 2006). "The Dutch East Indies Company – The First 100 Years [Transcript]". Gresham College (Gresham.ac.uk). Retrieved 21 August 2017.
  5. "Sustainable Trade: Changing the Environment the Market Operates in, Through Standardized Global Trade Tariffs" by Zoltan Ban. https://books.google.co.in/books?id=-Q6mMdieX0EC&pg=PA219&dq=1688+AND+%22london+stock+exchange%22&hl=en&sa=X&ved=0ahUKEwjapLqesObPAhXpz1QKHQlTA2o4ChDoAQgyMAA#v=onepage&q=1688%20AND%20%22london%20stock%20exchange%22&f=false. p. 219.
  6. Stock Exchanges are the most publicly recognized places for buying and selling shares. They are easily the single most important component of the secondary market for corporate shares. Over-the-Counter Options. About.com.

Related Research Articles

Stock exchange organization that provides services for stock brokers and traders to trade securities

A stock exchange, securities exchange or bourse, is a facility where stock brokers and traders can buy and sell securities, such as shares of stock and bonds and other financial instruments. Stock exchanges may also provide for facilities the issue and redemption of such securities and instruments and capital events including the payment of income and dividends. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. Stock exchanges often function as "continuous auction" markets with buyers and sellers consummating transactions via open outcry at a central location such as the floor of the exchange or by using an electronic trading platform.

Commodity market physical or virtual transactions of buying and selling involving raw or primary commodities

A commodity market is a market that trades in primary economic sector rather than manufactured products. cocoa, fruit and sugar. Hard commodities are mined, such as gold and oil. Investors access about 50 major commodity markets worldwide with purely financial transactions increasingly outnumbering physical trades in which goods are delivered. Futures contracts are the oldest way of investing in commodities. Futures are secured by physical assets. Commodity markets can include physical trading and derivatives trading using spot prices, forwards, futures, and options on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management.

Stock market public entity for the trading of company stocks and shares

A stock market, equity market or share market is the aggregation of buyers and sellers of stocks, which represent ownership claims on businesses; these may include securities listed on a public stock exchange, as well as stock that is only traded privately. Examples of the latter include shares of private companies which are sold to investors through equity crowdfunding platforms. Stock exchanges list shares of common equity as well as other security types, e.g. corporate bonds and convertible bonds.

Stockbroker professional who buys and sells shares and other securities for both retail and institutional clients

A stockbroker, share broker, registered representative, trading representative, or more broadly, an investment broker, investment adviser, financial adviser, wealth manager, or investment professional is a regulated broker, broker-dealer, or Registered Investment Adviser who may provide financial advisory and investment management services and execute transactions such as the purchase or sale of stocks and other investments to financial market participants in return for a commission, markup, or fee, which could be based on a flat rate, percentage of assets, or hourly rate. Examples of professional designations held by individuals in this field, which affects the types of investments they are permitted to sell and the services they provide include Chartered Financial Consultants, Certified Financial Planners or Chartered Financial Analysts, Chartered Strategic Wealth Professionals, Chartered Financial Planners, and Master of Business Administration. The Financial Industry Regulatory Authority (FINRA) provides an online tool designed to help understand professional designations in the United States.

In finance, the underlying of a derivative is an asset, basket of assets, index, or even another derivative, such that the cash flows of the (former) derivative depend on the value of this underlying. There must be an independent way to observe this value to avoid conflicts of interest.

Futures contract standardized legal agreement to buy or sell something (usually a commodity or financial instrument) at a predetermined price (“forward price”) at a specified time (“delivery date”) in the future

In finance, a futures contract is a standardized forward contract, a legal agreement to buy or sell something at a predetermined price at a specified time in the future, between parties not known to each other. The asset transacted is usually a commodity or financial instrument. The predetermined price the parties agree to buy and sell the asset for is known as the forward price. The specified time in the future—which is when delivery and payment occur—is known as the delivery date. Because it is a function of an underlying asset, a futures contract is a derivative product.

Futures exchange central financial exchange where people can trade standardized futures contracts

A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of contracts fall into the category of derivatives. The opposite of the futures market is the spots market, where trades will occur immediately after a transaction agreement has been made, rather than at a predetermined time in the future. Futures instruments are priced according to the movement of the underlying asset. The aforementioned category is named "derivatives" because the value of these instruments are derived from another asset class.

Hedge (finance)

A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles, many types of over-the-counter and derivative products, and futures contracts.

In finance, a contract for difference (CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time.

Osaka Securities Exchange Securities exchange located in Osaka, Japan

Osaka Securities Exchange Co., Ltd. is the second largest securities exchange in Japan, in terms of amount of business handled.

The Malaysia Derivatives Exchange (MDEX), also known as Malaysian Distribution Exchange, is a limited share company formed during June 2001 in Malaysia through the merger of the Kuala Lumpur Options and Financial Futures Exchange (KLOFFE) and the Commodity and Monetary Exchange of Malaysia. It is a subsidiary of the Kuala Lumpur Stock Exchange (KLSE).

Euronext Paris Securities market located in Paris, France

Euronext Paris is France's securities market, formerly known as the Paris Bourse, which merged with the Amsterdam, Lisbon, and Brussels exchanges in September 2000 to form Euronext NV, which is the second largest exchange in Europe behind the United Kingdom's London Stock Exchange Group.

The Sibex-Sibiu Stock Exchange was established as a private company in December 1994, with 33.24 million lei share capital, and was the first Romanian exchange authorized by Romanian National Securities Commission (RNSC). Being the pioneer of exchange listed derivatives in Romania, at the moment Sibex is the leader on this market segment. In July 1997, Sibex has become Romania's first derivatives exchange through the implementation of futures contracts.

A commodity broker is a firm or an individual who executes orders to buy or sell commodity contracts on behalf of the clients and charges them a commission. A firm or individual who trades for his own account is called a trader. Commodity contracts include futures, options, and similar financial derivatives. Clients who trade commodity contracts are either hedgers using the derivatives markets to manage risk, or speculators who are willing to assume that risk from hedgers in hopes of a profit.

LCH is a British clearing house that serves major international exchanges, as well as a range of OTC markets. Based on 2012 figures LCH cleared approximately 50% of the global interest rate swap market, and is the second largest clearer of bonds and repos in the world, providing services across 13 government debt markets. In addition, LCH clears a broad range of asset classes including: commodities, securities, exchange traded derivatives, credit default swaps, energy contracts, freight derivatives, interest rate swaps, foreign exchange and Euro and Sterling denominated bonds and repos.

Securities market participants (United States)

Securities market participants in the United States include corporations and governments issuing securities, persons and corporations buying and selling a security, the broker-dealers and exchanges which facilitate such trading, banks which safe keep assets, and regulators who monitor the markets' activities. Investors buy and sell through broker-dealers and have their assets retained by either their executing broker-dealer, a custodian bank or a prime broker. These transactions take place in the environment of equity and equity options exchanges, regulated by the U.S. Securities and Exchange Commission (SEC), or derivative exchanges, regulated by the Commodity Futures Trading Commission (CFTC). For transactions involving stocks and bonds, transfer agents assure that the ownership in each transaction is properly assigned to and held on behalf of each investor.

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