Stock exchange

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Courtyard of the Amsterdam Stock Exchange (or Beurs van Hendrick de Keyser in Dutch), the world's first formal stock exchange. The first formal stock market in its modern sense, was a pioneering innovation by the VOC managers and shareholders in the early 1600s. MG 056-De Beurs van Hendrick de Keyser.jpg
Courtyard of the Amsterdam Stock Exchange (or Beurs van Hendrick de Keyser in Dutch), the world's first formal stock exchange. The first formal stock market in its modern sense, was a pioneering innovation by the VOC managers and shareholders in the early 1600s.
The New York Stock Exchange on Wall Street in New York City, the world's largest stock exchange per total market capitalization of its listed companies New York Stock Exchange New York City, May 2014 - 048.jpg
The New York Stock Exchange on Wall Street in New York City, the world's largest stock exchange per total market capitalization of its listed companies

A stock exchange, securities exchange or bourse, [note 1] 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.[ citation needed ] 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. [5]

Exchange (organized market) highly organized trading market

An exchange, or bourse 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.

Stock trader

A stock trader or equity trader or share trader is a person or company involved in trading equity securities. Stock traders may be an agent, hedger, arbitrageur, speculator, stockbroker. Such equity trading in large publicly traded companies may be through one of the major stock exchanges, such as the New York Stock Exchange or the London Stock Exchange, which serve as managed auctions for stock trades. Stock shares in smaller public companies are bought and sold in over-the-counter (OTC) markets.

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.

Contents

To be able to trade a security on a certain stock exchange, the security must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to a physical place, as modern markets use electronic communication networks, which give them advantages of increased speed and reduced cost of transactions. Trade on an exchange is restricted to brokers who are members of the exchange. In recent years, various other trading venues, such as electronic communication networks, alternative trading systems and "dark pools" have taken much of the trading activity away from traditional stock exchanges. [6]

In corporate finance, a listing refers to the company's shares being on the list of stock that are officially traded on a stock exchange. Some stock exchanges allow shares of a foreign company to be listed and may allow dual listing, subject to conditions.

An electronic communication network (ECN) is a type of computerized forum or network that facilitates the trading of financial products outside traditional stock exchanges. An ECN is generally an electronic system that widely disseminates orders entered by market makers to third parties and permits the orders to be executed against in whole or in part. The primary products that are traded on ECNs are stocks and currencies. ECNs are generally passive computer-driven networks that internally match limit orders and charge a very small per share transaction fee.

Alternative trading system (ATS) is a US and Canadian regulatory term for a non-exchange trading venue that matches buyers and sellers to find counterparties for transactions. Alternative trading systems are typically regulated as broker-dealers rather than as exchanges. In general, for regulatory purposes, an alternative trading system is an organization or system that provides or maintains a market place or facilities for bringing together purchasers and sellers of securities, but does not set rules for subscribers. An ATS must be approved by the United States Securities and Exchange Commission (SEC) and is an alternative to a traditional stock exchange. The equivalent term under European legislation is a multilateral trading facility (MTF).

Initial public offerings of stocks and bonds to investors is done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets are driven by various factors that, as in all free markets, affect the price of stocks (see stock valuation).

short description Type of securities offering}}

The primary market is the part of the capital market that deals with the issuance and sale of equity-backed securities to investors directly by the issuer. Investor buy securities that were never traded before. Primary markets create long term instruments through which corporate entities raise funds from the capital market. It is also known as the New Issue Market (NIM).

Secondary market company

The secondary market, also called the aftermarket and follow on public offering is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. Another frequent usage of "secondary market" is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac.

There is usually no obligation for stock to be issued through the stock exchange itself, nor must stock be subsequently traded on an exchange. Such trading may be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global securities market. Stock exchanges also serve an economic function in providing liquidity to shareholders in providing an efficient means of disposing of shares.

Over-the-counter (finance) trading done directly between two parties

Over-the-counter (OTC) or off-exchange trading is done directly between two parties, without the supervision of an exchange. It is contrasted with exchange trading, which occurs via exchanges. A stock exchange has the benefit of facilitating liquidity, providing transparency, and maintaining the current market price. In an OTC trade, the price is not necessarily published for the public.

Derivative (finance) financial instrument whose value is based on one or more underlying assets

In finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the "underlying." Derivatives can be used for a number of purposes, including insuring against price movements (hedging), increasing exposure to price movements for speculation or getting access to otherwise hard-to-trade assets or markets. Some of the more common derivatives include forwards, futures, options, swaps, and variations of these such as synthetic collateralized debt obligations and credit default swaps. Most derivatives are traded over-the-counter (off-exchange) or on an exchange such as the New York Stock Exchange, while most insurance contracts have developed into a separate industry. In the United States, after the financial crisis of 2007–2009, there has been increased pressure to move derivatives to trade on exchanges. Derivatives are one of the three main categories of financial instruments, the other two being stocks and debt. The oldest example of a derivative in history, attested to by Aristotle, is thought to be a contract transaction of olives, entered into by ancient Greek philosopher Thales, who made a profit in the exchange. Bucket shops, outlawed a century ago, are a more recent historical example.

Bond (finance) instrument of indebtedness

In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds and corporate bonds.

History

Early history

Among many other things, the Code of Hammurabi recorded interest-bearing loans. Prologue Hammurabi Code Louvre AO10237.jpg
Among many other things, the Code of Hammurabi recorded interest-bearing loans.
The term bourse is derived from the 13th-century inn named "Huis ter Beurze" (center) in Bruges. From Dutch-speaking cities of the Low Countries, the term 'beurs' spread to other European states where it was corrupted into 'bourse', 'borsa', 'bolsa', 'borse', etc. In England, too, the term 'bourse' was used between 1550 and 1775, eventually giving way to the term 'royal exchange'. Brugge - Saaihalle en beurs.jpg
The term bourse is derived from the 13th-century inn named "Huis ter Beurze" (center) in Bruges. From Dutch-speaking cities of the Low Countries, the term 'beurs' spread to other European states where it was corrupted into 'bourse', 'borsa', 'bolsa', 'börse', etc. In England, too, the term ‘bourse’ was used between 1550 and 1775, eventually giving way to the term ‘royal exchange’.

The idea of debt dates back to the ancient world, as evidenced for example by ancient Mesopotamian city clay tablets recording interest-bearing loans. There is little consensus among scholars as to when corporate stock was first traded. Some see the key event as the Dutch East India Company's founding in 1602, [7] while others point to earlier developments. Economist Ulrike Malmendier of the University of California at Berkeley argues that a share market existed as far back as ancient Rome. One of Europe's oldest stock exchanges is the Frankfurt Stock Exchange (Frankfurter Wertpapierbörse) established in 1585 in Frankfurt am Main.

Mesopotamia Historical region within the Tigris–Euphrates river system

Mesopotamia is a historical region of Western Asia situated within the Tigris–Euphrates river system, in the northern part of the Fertile Crescent, in modern days roughly corresponding to most of Iraq, Kuwait, the eastern parts of Syria, Southeastern Turkey, and regions along the Turkish–Syrian and Iran–Iraq borders.

The Dutch East India Company was an early megacorporation founded by a government-directed amalgamation of several rival Dutch trading companies (voorcompagnieën) in the early 17th century. It was established on March 20, 1602 as a chartered company to trade with India and Indianised Southeast Asian countries when the Dutch government granted it a 21-year monopoly on the Dutch spice trade. It has been often labelled a trading company or sometimes a shipping company. However, VOC was in fact a proto-conglomerate company, diversifying into multiple commercial and industrial activities such as international trade, shipbuilding, and both production and trade of East Indian spices, Formosan sugarcane, and South African wine.. The Company was a transcontinental employer and an early pioneer of outward foreign direct investment. The Company's investment projects helped raise the commercial and industrial potential of many underdeveloped or undeveloped regions of the world in the early modern period. In the early 1600s, by widely issuing bonds and shares of stock to the general public, VOC became the world's first formally-listed public company. In other words, it was the first corporation to be listed on an official stock exchange. It was influential in the rise of corporate-led globalisation in the early modern period.

Ulrike Malmendier is a professor of economics and finance at the University of California Berkeley. Her work focuses on behavioral economics, corporate finance, and law and economics. In 2013, she was awarded the Fischer Black Prize by the American Finance Association.

In the Roman Republic, which existed for centuries before the Empire was founded, there were societates publicanorum, organizations of contractors or leaseholders who performed temple-building and other services for the government. One such service was the feeding of geese on the Capitoline Hill as a reward to the birds after their honking warned of a Gallic invasion in 390 B.C. Participants in such organizations had partes or shares, a concept mentioned various times by the statesman and orator Cicero. In one speech, Cicero mentions "shares that had a very high price at the time". Such evidence, in Malmendier's view, suggests the instruments were tradable, with fluctuating values based on an organization's success. The societas declined into obscurity in the time of the emperors, as most of their services were taken over by direct agents of the state.

Roman Republic Period of ancient Roman civilization (509–27 BC)

The Roman Republic was the era of classical Roman civilization beginning with the overthrow of the Roman Kingdom, traditionally dated to 509 BC, and ending in 27 BC with the establishment of the Roman Empire. It was during this period that Rome's control expanded from the city's immediate surroundings to hegemony over the entire Mediterranean world.

Roman Empire Period of Imperial Rome following the Roman Republic (27 BC–476 AD)

The Roman Empire was the post-Roman Republic period of the ancient Roman civilization. Ruled by emperors, it had large territorial holdings around the Mediterranean Sea in Europe, North Africa, the Middle East, and the Caucasus. From the constitutional reforms of Augustus to the military anarchy of the third century, the Empire was a principate ruled from Italy, homeland of the Romans and metropole of the empire, with the city of Rome as capital. The Roman Empire was then ruled by multiple emperors and divided in a Western Roman Empire, based in Milan and later Ravenna, and an Eastern Roman Empire, based in Nicomedia and later Constantinople. Rome remained the nominal capital of both parts until 476 AD, when Odoacer deposed Romulus Augustus after capturing Ravenna and the Senate of Rome sent the imperial regalia to Constantinople. The fall of the Western Roman Empire to barbarian kings, along with the hellenization of the Eastern Roman Empire into the Byzantine Empire, is conventionally used to mark the end of Ancient Rome and the beginning of the Middle Ages.

Cicero 1st-century BC Roman lawyer, orator, philosopher and statesman

Marcus Tullius Cicero was a Roman statesman, orator, lawyer and philosopher, who served as consul in the year 63 BC. He came from a wealthy municipal family of the Roman equestrian order, and is considered one of Rome's greatest orators and prose stylists.

Tradable bonds as a commonly used type of security were a more recent innovation, spearheaded by the Italian city-states of the late medieval and early Renaissance periods.

Establishment of formal stock exchanges

While the Italian city-states produced the first transferable government bonds, they did not develop the other ingredient necessary to produce a fully-fledged capital market: the stock market in its modern sense. [9] In the early 1600s the Dutch East India Company (VOC) became the first company in history to issue bonds and shares of stock to the general public. As Edward Stringham (2015) notes, "companies with transferable shares date back to classical Rome, but these were usually not enduring endeavors and no considerable secondary market existed (Neal, 1997, p. 61)." [10] The VOC, formed to build up the spice trade, operated as a colonial ruler in what is now Indonesia and beyond, a purview that included conducting military operations against the wishes of the exploited natives and of competing colonial powers. Control of the company was held tightly by its directors, with ordinary shareholders not having much influence on management or even access to the company's accounting statements.

Replica of an East Indiaman of the Dutch East India Company/United East Indies Company (VOC). The Dutch East India Company was the first corporation to be ever actually listed on a stock exchange in its modern sense. In other words, the VOC was the world's first formally listed public company. Vereenigde Oostindische Compagnie spiegelretourschip Amsterdam replica.jpg
Replica of an East Indiaman of the Dutch East India Company/United East Indies Company (VOC). The Dutch East India Company was the first corporation to be ever actually listed on a stock exchange in its modern sense. In other words, the VOC was the world's first formally listed public company.
A 17th-century engraving depicting the Amsterdam Stock Exchange (Amsterdam's old bourse, a.k.a. Beurs van Hendrick de Keyser in Dutch), built by Hendrick de Keyser (c. 1612). The Amsterdam Stock Exchange (now Euronext Amsterdam) was the world's first official (formal) stock exchange when it began trading the VOC's freely transferable securities, including bonds and shares of stock. Engraving depicting the Amsterdam Stock Exchange, built by Hendrik de Keyser c. 1612.jpg
A 17th-century engraving depicting the Amsterdam Stock Exchange (Amsterdam's old bourse, a.k.a. Beurs van Hendrick de Keyser in Dutch), built by Hendrick de Keyser (c. 1612). The Amsterdam Stock Exchange (now Euronext Amsterdam) was the world's first official (formal) stock exchange when it began trading the VOC's freely transferable securities, including bonds and shares of stock.
Courtyard of the Amsterdam Stock Exchange (Beurs van Hendrick de Keyser), the foremost centre of European stock markets in the 17th century. SA 3025-De binnenplaats van de Beurs van Hendrick de Keyser.jpg
Courtyard of the Amsterdam Stock Exchange (Beurs van Hendrick de Keyser), the foremost centre of European stock markets in the 17th century.

However, shareholders were rewarded well for their investment. The company paid an average dividend of over 16% per year from 1602 to 1650. Financial innovation in Amsterdam took many forms. In 1609, investors led by Isaac Le Maire formed history's first bear market syndicate, but their coordinated trading had only a modest impact in driving down share prices, which tended to remain robust throughout the 17th century. By the 1620s, the company was expanding its securities issuance with the first use of corporate bonds.

Joseph de la Vega, also known as Joseph Penso de la Vega and by other variations of his name, was an Amsterdam trader from a Spanish Jewish family and a prolific writer as well as a successful businessman in 17th-century Amsterdam. His 1688 book Confusion of Confusions [13] explained the workings of the city's stock market. It was the earliest book about stock trading and inner workings of a stock market, taking the form of a dialogue between a merchant, a shareholder and a philosopher, the book described a market that was sophisticated but also prone to excesses, and de la Vega offered advice to his readers on such topics as the unpredictability of market shifts and the importance of patience in investment.

London Stock Exchange in 1810 Microcosm of London Plate 075 - New Stock Exchange (tone).jpg
London Stock Exchange in 1810

In England, King William III sought to modernize the kingdom's finances to pay for its wars, and thus the first government bonds were issued in 1693 and the Bank of England was set up the following year. Soon thereafter, English joint-stock companies began going public.

London's first stockbrokers, however, were barred from the old commercial center known as the Royal Exchange, reportedly because of their rude manners. Instead, the new trade was conducted from coffee houses along Exchange Alley. By 1698, a broker named John Castaing, operating out of Jonathan's Coffee House, was posting regular lists of stock and commodity prices. Those lists mark the beginning of the London Stock Exchange. [14]

One of history's greatest financial bubbles occurred around 1720. At the center of it were the South Sea Company, set up in 1711 to conduct English trade with South America, and the Mississippi Company, focused on commerce with France's Louisiana colony and touted by transplanted Scottish financier John Law, who was acting in effect as France's central banker. Investors snapped up shares in both, and whatever else was available. In 1720, at the height of the mania, there was even an offering of "a company for carrying out an undertaking of great advantage, but nobody to know what it is".

By the end of that same year, share prices had started collapsing, as it became clear that expectations of imminent wealth from the Americas were overblown. In London, Parliament passed the Bubble Act, which stated that only royally chartered companies could issue public shares. In Paris, Law was stripped of office and fled the country. Stock trading was more limited and subdued in subsequent decades. Yet the market survived, and by the 1790s shares were being traded in the young United States. On May 17, 1792, the New York Stock Exchange opened under a platanus occidentalis (buttonwood tree) in New York City, as 24 stockbrokers signed the Buttonwood Agreement, agreeing to trade five securities under that buttonwood tree. [15]

Role of stock exchanges

Borse Frankfurt (founded in 1585) Frankfurt Am Main-Neue Boerse von Suedosten-20120222.jpg
Börse Frankfurt (founded in 1585)
The floor of the New York Stock Exchange NYSE.jpg
The floor of the New York Stock Exchange
London Stock Exchange, the City of London Paternoster Square.jpg
London Stock Exchange, the City of London
Tokyo Stock Exchange, Tokyo TokyoStockExchange1144.jpg
Tokyo Stock Exchange, Tokyo
B3 is the largest stock exchange in Latin America Sao Paulo Stock Exchange Building.jpg
B3 is the largest stock exchange in Latin America
Indonesian Stock Exchange (Bursa Efek Indonesia) building in Jakarta is considered one of the oldest in Asia. Indonesia Stock Exchange.jpg
Indonesian Stock Exchange (Bursa Efek Indonesia) building in Jakarta is considered one of the oldest in Asia.
Mexican Stock Exchange (Bolsa Mexicana de Valores), it's the second largest stock exchanges in Latin America. Torre Axtel y Bolsa de Valores.jpg
Mexican Stock Exchange (Bolsa Mexicana de Valores), it's the second largest stock exchanges in Latin America.
The offices of Bursa Malaysia, Malaysia's national stock exchange (known before demutualization as Kuala Lumpur Stock Exchange) Bursa Malaysia.JPG
The offices of Bursa Malaysia, Malaysia's national stock exchange (known before demutualization as Kuala Lumpur Stock Exchange)

Stock exchanges have multiple roles in the economy. This may include the following: [16]

Raising capital for businesses

Besides the borrowing capacity provided to an individual or firm by the banking system, in the form of credit or a loan, a stock exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public. [17]

Capital intensive companies, particularly high tech companies, always need to raise high volumes of capital in their early stages. For this reason, the public market provided by the stock exchanges has been one of the most important funding sources for many capital intensive startups. After the 1990s and early-2000s hi-tech listed companies' boom and bust in the world's major stock exchanges[ clarification needed (confusing syntax)], it has been much more demanding for the high-tech entrepreneur to take his/her company public, unless either the company is already generating sales and earnings, or the company has demonstrated credibility and potential from successful outcomes: clinical trials, market research, patent registrations, etc. This is quite different from the situation of the 1990s to early-2000s period, when a number of companies (particularly Internet boom and biotechnology companies) went public in the most prominent stock exchanges around the world in the total absence of sales, earnings, or any type of well-documented promising outcome. Though it's not as common, it still happens that highly speculative and financially unpredictable hi-tech startups are listed for the first time in a major stock exchange. Additionally, there are smaller, specialized entry markets for these kind of companies with stock indexes tracking their performance (examples include the Alternext, CAC Small, SDAX, TecDAX).

Alternatives to stock exchanges for raising capital

R&D limited partnerships

Companies have also raised significant amounts of capital through R&D limited partnerships. Tax law changes that were enacted in 1987 in the United States changed the tax deductibility of investments in R&D limited partnerships. In order for a partnership to be of interest to investors today, the cash on cash return must be high enough to entice investors.

Venture capital

A usual source of capital for startup companies has been venture capital. This source remains largely available today, but the maximum statistical amount that the venture company firms in aggregate will invest in any one company is not limitless (it was approximately $15 million in 2001 for a biotechnology company).

Corporate partners

Another alternative source of cash for a private company is a corporate partner, usually an established multinational company, which provides capital for the smaller company in return for marketing rights, patent rights, or equity. Corporate partnerships have been used successfully in a large number of cases.

Mobilizing savings for investment

When people draw their savings and invest in shares (through an initial public offering or the seasoned equity offering of an already listed company), it usually leads to rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to help companies' management boards finance their organizations. This may promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels of firms.

Facilitating acquisitions

Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase their market share, or acquire other necessary business assets. A takeover bid or mergers and acquisitions through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.

Profit sharing

Both casual and professional stock investors, as large as institutional investors or as small as an ordinary middle-class family, through dividends and stock price increases that may result in capital gains, share in the wealth of profitable businesses. Unprofitable and troubled businesses may result in capital losses for shareholders.

Corporate governance

By having a wide and varied scope of owners, companies generally tend to improve management standards and efficiency to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately held companies (those companies where shares are not publicly traded, often owned by the company founders, their families and heirs, or otherwise by a small group of investors).

Despite this claim, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies, particularly in the cases of accounting scandals. The policies that led to the dot-com bubble in the late 1990s and the subprime mortgage crisis in 2007–08 are also examples of corporate mismanagement. The mismanagement of companies such as Pets.com (2000), Enron (2001), One.Tel (2001), Sunbeam Products (2001), Webvan (2001), Adelphia Communications Corporation (2002), MCI WorldCom (2002), Parmalat (2003), American International Group (2008), Bear Stearns (2008), Lehman Brothers (2008), General Motors (2009) and Satyam Computer Services (2009) all received plenty of media attention.

Many banks and companies worldwide utilize securities identification numbers (ISIN) to identify, uniquely, their stocks, bonds and other securities. Adding an ISIN code helps to distinctly identify securities and the ISIN system is used worldwide by funds, companies, and governments.

However, when poor financial, ethical or managerial records become public, stock investors tend to lose money as the stock and the company tend to lose value. In the stock exchanges, shareholders of underperforming firms are often penalized by significant share price decline, and they tend as well to dismiss incompetent management teams.

Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors as minimum investment amounts are minimal. Therefore, the stock exchange provides the opportunity for small investors to own shares of the same companies as large investors.

Government capital-raising for development projects

Governments at various levels may decide to borrow money to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the stock exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate, in the short term, direct taxation of citizens to finance development—though by securing such bonds with the full faith and credit of the government instead of with collateral, the government must eventually tax citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on economic forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. A recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore, the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.

Listing requirements

Each stock exchange imposes its own listing requirements upon companies that want to be listed on that exchange. Such conditions may include minimum number of shares outstanding, minimum market capitalization, and minimum annual income.

Examples of listing requirements

The listing requirements imposed by some stock exchanges include:

Ownership

Stock exchanges originated as mutual organizations, owned by its member stock brokers. However, the major stock exchanges have demutualized, where the members sell their shares in an initial public offering. In this way the mutual organization becomes a corporation, with shares that are listed on a stock exchange. Examples are Australian Securities Exchange (1998), Euronext (merged with New York Stock Exchange), NASDAQ (2002), Bursa Malaysia (2004), the New York Stock Exchange (2005), Bolsas y Mercados Españoles, and the São Paulo Stock Exchange (2007).

The Shenzhen Stock Exchange and Shanghai Stock Exchange can be characterized as quasi-state institutions insofar as they were created by government bodies in China and their leading personnel are directly appointed by the China Securities Regulatory Commission.

Another example is Tashkent Stock Exchange established in 1994, three years after the collapse of the Soviet Union, mainly state-owned but has a form of a public corporation (joint-stock company). Korea Exchange (KRX) owns 25% less one share of the Tashkent Stock Exchange. [21]

In 2018, there were 15 licensed stock exchanges in the United States, of which 13 actively traded securities. All of these exchanges were owned by three publicly traded multinational companies, Intercontinental Exchange, Nasdaq, Inc., and Cboe Global Markets, except one, IEX. [22] [23] In 2019, a group of financial corporations announced plans to open a members owned exchange, MEMX, an ownership structure similar to the mutual organizations of earlier exchanges. [24] [22]

Other types of exchanges

In the 19th century, exchanges were opened to trade forward contracts on commodities. Exchange traded forward contracts are called futures contracts. These commodity markets later started offering future contracts on other products, such as interest rates and shares, as well as options contracts. They are now generally known as futures exchanges.

See also

Lists:

Notes

  1. The concept of the bourse (or the exchange) was 'invented' in the medieval Low Countries (most notably in predominantly Dutch-speaking cities like Bruges and Antwerp) before the birth of formal stock exchanges in the 17th century. A pre-VOC bourse was not exactly a formal stock exchange in its modern sense. With the founding of the Dutch East India Company (VOC) in 1602 and the rise of Dutch capital markets in the early 1600s, the 'old' bourse (a place to trade commodities, government and municipal bonds) found a new purpose – a formal exchange that specializes in creating and sustaining secondary markets in the securities (such as bonds and shares of stock) issued by corporations – or a stock exchange as we know it today. [3] [4]

Related Research Articles

The Nasdaq Stock Market is an American stock exchange. It is the second-largest stock exchange in the world by market capitalization, behind only the New York Stock Exchange located in the same city. The exchange platform is owned by Nasdaq, Inc., which also owns the Nasdaq Nordic and Nasdaq Baltic stock market network and several U.S. stock and options exchanges.

Capital market financial market for medium and long-term capital raising

A capital market is a financial market in which long-term debt or equity-backed securities are bought and sold. Capital markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments. Financial regulators like the Bank of England (BoE) and the U.S. Securities and Exchange Commission (SEC) oversee capital markets to protect investors against fraud, among other duties.

Financial market generic term for all markets in which trading takes place with capital

A financial market is a market in which people trade financial securities and derivatives such as futures and options at low transaction costs. Securities include stocks and bonds, and precious metals.

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.

London Stock Exchange Stock exchange in the City of London

London Stock Exchange is a stock exchange located in the City of London, England. As of April 2018, London Stock Exchange had a market capitalisation of US$4.59 trillion. It was founded in 1571, making it one of the oldest exchanges in the world. Its current premises are situated in Paternoster Square close to St Paul's Cathedral in the City of London. It is part of London Stock Exchange Group (LSEG).

Public company Company that offers its securities for sale to the general public

A public company, publicly-traded company, publicly-held company, publicly-listed company, or public limited company is a corporation whose ownership is dispersed among the general public in many shares of stock which are freely traded on a stock exchange or in over-the-counter markets. In some jurisdictions, public companies over a certain size must be listed on an exchange. A public company can be listed or unlisted.

Euronext N.V. is a European stock exchange operator with its registered office in Amsterdam and other markets operated in Brussels, London, Lisbon, Dublin, and Paris. In addition to cash and derivatives markets, the Euronext group provides listing market data, market solutions, custody and settlement services. Its total product offering includes equities, exchange-traded funds, warrants and certificates, bonds, derivatives, commodities and indices as well as a foreign exchange trading platform.

American depositary receipt

An American depositary receipt is a negotiable security that represents securities of a company that trades in the U.S. financial markets.

Tel Aviv Stock Exchange Stock exchange located in Tel Aviv, Israel

The Tel Aviv Stock Exchange is Israel's only public stock exchange. Legally, the exchange is regulated by the Securities Law (1968), and is under the direct supervision of the Israel Securities Authority (ISA).

An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds and generally operates with an arbitrage mechanism designed to keep it trading close to its net asset value, although deviations can occasionally occur. Most ETFs track an index, such as a stock index or bond index. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features.

Securities Exchange Act of 1934

The Securities Exchange Act of 1934 is a law governing the secondary trading of securities in the United States of America. A landmark of wide-ranging legislation, the Act of '34 and related statutes form the basis of regulation of the financial markets and their participants in the United States. The 1934 Act also established the Securities and Exchange Commission (SEC), the agency primarily responsible for enforcement of United States federal securities law.

Securities market securities market

Securities market is a component of the wider financial market where securities can be bought and sold between subjects of the economy, on the basis of demand and supply. Securities markets encompasses equity markets, bond markets and derivatives markets where prices can be determined and participants both professional and non professionals can meet.

Euronext Amsterdam Stock exchange located in Amsterdam, Netherlands

Euronext Amsterdam is a stock exchange based in Amsterdam. Formerly known as the Amsterdam Stock Exchange, it merged on 22 September 2000 with the Brussels Stock Exchange and the Paris Stock Exchange to form Euronext.

Nairobi Securities Exchange Stock Exchange, Former constituted as Nairobi Stock Exchange, located in Kenya

The Nairobi Securities Exchange (NSE) was established in 1954 as the Nairobi Stock Exchange, based in Nairobi the capital of Kenya. It was a voluntary association of stockbrokers in the European community registered under the Societies Act in British Kenya.

NYSE Euronext, Inc. was a Euro-American multinational financial services corporation that operated multiple securities exchanges, including the New York Stock Exchange, Euronext and NYSE Arca. NYSE merged with Archipelago Holdings on March 7, 2006, forming NYSE Group, Inc. On April 4, 2007, NYSE Group, Inc. merged with Euronext N.V. to form the first global equities exchange, with its headquarters in Lower Manhattan. The corporation was then acquired by IntercontinentalExchange, which subsequently spun off Euronext.

References

  1. Stringham, Edward Peter (2015). Private Governance: Creating Order in Economic and Social Life. Oxford University Press. ISBN   9780199365166
  2. Stringham, Edward Peter (5 October 2015). "How Private Governance Made the Modern World Possible". Cato Institute .
  3. Neal, Larry (2005). "Venture Shares of the Dutch East India Company", in Goetzmann & Rouwenhorst (eds.), Oxford University Press, 2005, pp. 165–175
  4. Murphy, Richard McGill (1 July 2014). "Is Asia the next financial center of the world?". CNBC . As Richard McGill Murphy (2014) notes: "In 1602 the Dutch East India Company opened the world's first stock exchange in Amsterdam. (...) Rival European capitals launched their own stock exchanges. The securitization of the world was under way. (...) It's worth remembering the original Amsterdam Bourse because it established the template for the modern financial center, a physical place where finance professionals help companies access the capital they need to grow."
  5. Lemke and Lins, Soft Dollars and Other Trading Activities, §2:3 (Thomson West, 2013-2014 ed.).
  6. Lemke and Lins, Soft Dollars and Other Trading Activities, §§2:25 - 2:30 (Thomson West, 2013-2014 ed.).
  7. BEATTIE, ANDREW (13 December 2017). "What Was the First Company to Issue Stock?". Investopedia .
  8. Brooks, John (1968). “The Fluctuation: The Little Crash in '62”, in “Business Adventures: Twelve Classic Tales from the World of Wall Street”. (New York: Weybright & Talley, 1968)
  9. Stringham, Edward Peter; Curott, Nicholas A.: On the Origins of Stock Markets [Part IV: Institutions and Organizations; Chapter 14], pp. 324-344, in The Oxford Handbook of Austrian Economics, edited by Peter J. Boettke and Christopher J. Coyne. (Oxford University Press, 2015, ISBN   978-0199811762). Edward P. Stringham & Nicholas A. Curott: "Business ventures with multiple shareholders became popular with commenda contracts in medieval Italy (Greif, 2006, p. 286), and Malmendier (2009) provides evidence that shareholder companies date back to ancient Rome. Yet the title of the world's first stock market deservedly goes to that of seventeenth-century Amsterdam, where an active secondary market in company shares emerged. The two major companies were the Dutch East India Company and the Dutch West India Company, founded in 1602 and 1621. Other companies existed, but they were not as large and constituted a small portion of the stock market (Israel [1989] 1991, 109–112; Dehing and 't Hart 1997, 54; dela Vega [1688] 1996, 173)."
  10. Stringham, Edward Peter: Private Governance: Creating Order in Economic and Social Life. (Oxford University Press, 2015, ISBN   9780199365166), p.42
  11. Petram, Lodewijk: The World's First Stock Exchange: How the Amsterdam Market for Dutch East India Company Shares Became a Modern Securities Market, 1602–1700. Translated from the Dutch by Lynne Richards. (Columbia University Press, 2014, 304pp)
  12. Neal, Larry (2005). "Venture Shares of the Dutch East India Company", in Origins of Value, in The Origins of Value: The Financial Innovations that Created Modern Capital Markets, Goetzmann & Rouwenhorst (eds.), Oxford University Press, 2005, pp. 165–175
  13. De la Vega, Joseph, Confusion de Confusiones (1688), Portions Descriptive of the Amsterdam Stock Exchange, introduction by Hermann Kellenbenz, Baker Library, Harvard Graduate School of Business Administration (1957)
  14. "Stockbroker 101 - A Cool History". Stockbroker 101.
  15. "History of the NY Stock Exchange". Library of Congress. May 2004.
  16. Diamond, Peter A. (1967). "The Role of a Stock Market in a General Equilibrium Model with Technological Uncertainty". American Economic Review . 57 (4): 759–776. JSTOR   1815367.
  17. Gilson, Ronald J.; Black, Bernard S. (1998). "Venture Capital and the Structure of Capital Markets: Banks Versus Stock Markets". Journal of Financial Economics. 47. doi:10.2139/ssrn.46909.
  18. "Overview of NYSE Quantitative Initial Listing Standards" (PDF). New York Stock Exchange.
  19. "Applications, Notifications & Guides - Nasdaq Listing Center". NASDAQ.
  20. "Bombay Stock Exchange". Bombay Stock Exchange.
  21. "Stages of the Republican Stock Exchange". Tashkent Stock Exchange.
  22. 1 2 Lahiri, Diptendu (7 January 2019). "Major Wall Street players plan exchange to challenge NYSE, Nasdaq". Reuters .
  23. Ramsay, John (23 May 2018). "Competition among exchanges has reached a new low, and it's dangerous for the stock market". Business Insider . (for recent history see also, "NYSE, Nasdaq and...? Get to Know the U.S.'s Stock Exchanges, Part 1". Financial Industry Regulatory Authority. 17 August 2016., and "Get to Know the U.S.'s Major Stock Exchanges, Part 2". Financial Industry Regulatory Authority. 17 August 2016.
  24. Osipovich, Alexander (7 January 2019). "Wall Street Firms Plan New Exchange to Challenge NYSE, Nasdaq" . The Wall Street Journal .