Stock exchange

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v•d•e

A stock exchange, share market or bourse is a corporation or mutual organization

which provides facilities for stock brokers and traders, to trade company stocks and other
securities. Stock exchanges also provide facilities for the issue and redemption of
securities as well as other financial instruments and capital events including the payment
of income and dividends. The securities traded on a stock exchange include: shares issued
by companies, unit trusts and other pooled investment products and bonds. To be able to
trade a security on a certain stock exchange, it has to be listed there. Usually there is a
central location at least for recordkeeping, but trade is less and less linked to such a
physical place, as modern markets are electronic networks, which gives them advantages
of speed and cost of transactions. Trade on an exchange is by members only. The initial
offering of stocks and bonds to investors is by definition 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 is driven by
various factors which, as in all free markets, affect the price of stocks (see stock
valuation).

There is usually no compulsion to issue stock via the stock exchange itself, nor must
stock be subsequently traded on the exchange. Such trading is said to be off exchange or
over-the-counter. This is the usual way that bonds are traded. Increasingly, stock
exchanges are part of a global market for securities.

Contents
[hide]

• 1 History of stock exchanges

• 2 The role of stock exchanges
o 2.1 Raising capital for businesses
o 2.2 Mobilizing savings for investment
o 2.3 Facilitating company growth
o 2.4 Redistribution of wealth
o 2.5 Corporate governance
o 2.6 Creating investment opportunities for small investors
o 2.7 Government capital-raising for development projects
 o 2.8 Barometer of the economy
• 3 Major stock exchanges
• 4 Listing requirements
o 4.1 Requirements by stock exchange
• 5 Ownership
• 6 Other types of exchanges
• 7 The future of stock exchanges in the United States
• 8 References
• 9 See also

o 9.1 Lists

[edit] History of stock exchanges

In 11th century France the courtiers de change were concerned with managing and
regulating the debts of agricultural communities on behalf of the banks. As these men
also traded in debts, they could be called the first brokers.

Some stories suggest that the origins of the term "bourse" come from the Latin bursa
meaning a bag because, in 13th century Bruges, the sign of a purse (or perhaps three
purses), hung on the front of the house where merchants met.

However, it is more likely that in the late 13th century commodity traders in Bruges
gathered inside the house of a man called Van der Burse, and in 1309 they
institutionalized this until now informal meeting and became the "Bruges Bourse". The
idea spread quickly around Flanders and neighbouring counties and "Bourses" soon
opened in Ghent and Amsterdam.

In the middle of the 13th century, Venetian bankers began to trade in government
securities. In 1351, the Venetian Government outlawed spreading rumors intended to
lower the price of government funds. There were people in Pisa, Verona, Genoa and
Florence who also began trading in government securities during the 14th century. This
was only possible because these were independent city states ruled by a council of
influential citizens, not by a duke.

The Dutch later started joint stock companies, which let shareholders invest in business
ventures and get a share of their profits - or losses. In 1602, the Dutch East India
Company issued the first shares on the Amsterdam Stock Exchange. It was the first
company to issue stocks and bonds. In 1688, the trading of stocks began on a stock
exchange in London.

[edit] The role of stock exchanges

Bombay Stock Exchange

Frankfurt Stock Exchange

Hong Kong Stock Exchange

London Stock Exchange

Madrid Stock Exchange

Mexican Stock Exchange

Montreal Stock Exchange

New York Stock Exchange

Osaka Securities Exchange

Philippine Stock Exchange

São Paulo Stock Exchange

Shanghai Stock Exchange

SWX Swiss Exchange

 Taiwan Stock Exchange

Tokyo Stock Exchange

Toronto Stock Exchange

Stock exchanges have multiple roles in the economy, this may include the following:[1][2]

[edit] Raising capital for businesses

The Stock Exchange provides companies with the facility to raise capital for expansion
through selling shares to the investing public.

[edit] Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a more rational allocation
of resources because funds, which could have been consumed, or kept in idle deposits
with banks, are mobilized and redirected to promote business activity with benefits for
several economic sectors such as agriculture, commerce and industry, resulting in a
stronger economic growth and higher productivity levels and firms.

[edit] Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase

distribution channels, hedge against volatility, increase its market share, or acquire other
necessary business assets. A takeover bid or a merger agreement through the stock
market is one of the simplest and most common ways for a company to grow by
acquisition or fusion.

[edit] Redistribution of wealth

Stocks exchanges do not exist to redistribute wealth. However, both casual and
professional stock investors, through dividends and stock price increases that may result
in capital gains, will share in the wealth of profitable businesses.

[edit] Corporate governance

By having a wide and varied scope of owners, companies generally tend to improve on
their management standards and efficiency in order 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 and/or their families and heirs, or otherwise by a small group of
investors). However, 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 (Pets.com (2000), Enron Corporation (2001), One.Tel (2001), Sunbeam
(2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), or Parmalat (2003),
are among the most widely scrutinized by the media).

[edit] 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 because a person buys the number of
shares they can afford. Therefore the Stock Exchange provides the opportunity for small
investors to own shares of the same companies as large investors.

[edit] Government capital-raising for development projects

Governments at various levels may decide to borrow money in order 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 municipal bonds can obviate the need to directly tax
the citizens in order to finance development, although by securing such bonds with the
full faith and credit of the government instead of with collateral, the result is that the
government must tax the citizens or otherwise raise additional funds to make any regular
coupon payments and refund the principal when the bonds mature.

[edit] Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on market forces.
Share prices tend to rise or remain stable when companies and the economy in general
show signs of stability and growth. An economic 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.

[edit] Major stock exchanges

Twenty Major Stock Exchanges In The World: Market Capitalization & Year-to-
date Turnover at the end of October 2007

Total Share
Market Value
Turnover
Region Stock Exchange (trillions of US
(trillions of US
dollars)
dollars)
Johannesburg Securities
Africa $0.940 $0.349
Exchange
Americas NASDAQ $4.39 $12.4
Americas São Paulo Stock Exchange $1.40 $0.476
Americas Toronto Stock Exchange $2.29 $1.36
Americas/Europe NYSE Euronext $20.7 $28.7
Asia-Pacific Australian Securities Exchange $1.453 $1.003
South Asia Bombay Stock Exchange $1.61 $0.263
Asia-Pacific Hong Kong Stock Exchange $2.97 $1.70
Asia-Pacific Korea Exchange $1.26 $1.66
National Stock Exchange of
South Asia $1.46 $0.564
India
Asia-Pacific Shanghai Stock Exchange $3.02 $3.56
Asia-Pacific Shenzhen Stock Exchange $0.741 $1.86
Asia-Pacific Tokyo Stock Exchange $4.63 $5.45
Europe Frankfurt Stock Exchange $2.12 $3.64
 (Deutsche Börse)
Europe London Stock Exchange $4.21 $9.14
Madrid Stock Exchange (Bolsas
Europe $1.83 $2.49
y Mercados Españoles)
Milan Stock Exchange (Borsa
Europe $1.13 $1.98
Italiana)
Moscow Interbank Currency
Europe $0.9652 $0.4882
Exchange (MICEX)
Nordic Stock Exchange Group
Europe $1.38 $1.60
OMX1
Europe Swiss Exchange $1.33 $1.58

Note 1: includes the Copenhagen, Helsinki, Iceland, Stockholm, Tallinn, Riga and Vilnius Stock
Exchanges
Note 2: latest data available is at the end of June 2007
Note 3: latest data available is at the end of September 2007

• Sources: World Federation of Exchanges - Statistics/Monthly

• Remarks: There are 2 pending major mergers: NASDAQ with OMX; and London
Stock Exchange with Milan Stock Exchange

The main stock exchanges in the world include:

• American Stock Exchange

• Australian Stock Exchange
• Belgrade Stock Exchange
• Bermuda Stock Exchange
• Bolsa Mexicana de Valores
• Bolsa de Valores de Colombia
• Bolsa de Valores de Lima
• Bombay Stock Exchange
• Budapest Stock Exchange
• Casablanca Stock Exchange
• Euronext Amsterdam
• Euronext Brussels
• Euronext Lisbon
• Euronext Paris
• Frankfurt Stock Exchange
• Ghana Stock Exchange
• Helsinki Stock Exchange
• Hong Kong Stock Exchange
• Istanbul Stock Exchange
• Jakarta Stock Exchange
• JASDAQ
• Johannesburg Securities Exchange
• Karachi Stock Exchange
 • Korea Stock Exchange
• Kuwait Stock Exchange
• Lahore Stock Exchange
• London Stock Exchange
• Madrid Stock Exchange
• Malaysia Stock Exchange
• Milan Stock Exchange
• Nagoya Stock Exchange
• National Stock Exchange of India
• NASDAQ
• New York Stock Exchange
• Osaka Securities Exchange
• Philippine Stock Exchange
• Santiago Stock Exchange
• São Paulo Stock Exchange
• Shanghai Stock Exchange
• Singapore Exchange
• Stockholm Stock Exchange
• Taiwan Stock Exchange
• Tokyo Stock Exchange
• Toronto Stock Exchange
• Zurich Stock Exchange

See also: Category:Stock exchanges

[edit] Listing requirements

Listing requirements are the set of conditions imposed by a given stock exchange upon
companies that want to be listed on that exchange. Such conditions sometimes include
minimum number of shares outstanding, minimum market capitalization, and minimum
annual income.

[edit] Requirements by stock exchange

Companies have to meet the requirements of the exchange in order to have their stocks
and shares listed and traded there, but requirements vary by stock exchange:

• London Stock Exchange: The main market of the London Stock Exchange has
requirements for a minimum market capitalization (£700,000), three years of
audited financial statements, minimum public float (25 per cent) and sufficient
working capital for at least 12 months from the date of listing.

• NASDAQ Stock Exchange: To be listed on the NASDAQ a company must have

issued at least 1.25 million shares of stock worth at least $70 million and must
have earned more than $11 million over the last three years ([1]).
 • New York Stock Exchange: To be listed on the New York Stock Exchange
(NYSE), for example, a company must have issued at least a million shares of
stock worth $100 million and must have earned more than $10 million over the
last three years ([2]).

• Bombay Stock Exchange: Bombay Stock Exchange (BSE) has requirements for
a minimum market capitalization of Rs.250 Million and minimum public float
equivalent to Rs.100 Million ([3]).

[edit] Ownership
Stock exchanges originated as mutual organizations, owned by its member stock brokers.
There has been a recent trend for stock exchanges to demutualize, 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
Stock Exchange (1998), Euronext (merged with New York Stock Exchange), NASDAQ
(2002), the New York Stock Exchange (2005), Bolsas y Mercados Españoles, and the
São Paulo Stock Exchange (2007).

[edit] 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
exchanges 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.

[edit] The future of stock exchanges in the United States

The future of stock trading appears to be electronic, as competition is continually
growing between the remaining traditional New York Stock Exchange specialist system
against the relatively new, all Electronic Communications Networks, or ECNs. ECNs
point to their speedy execution of large block trades, while specialist system proponents
cite the role of specialists in maintaining orderly markets, especially under extraordinary
conditions or for special types of orders.

The ECNs contend that an array of special interests profit at the expense of investors in
even the most mundane exchange-directed trades. Machine-based systems, they argue,
are much more efficient, because they speed up the execution mechanism and eliminate
the need to deal with an intermediary.

Historically, the 'market' (which, as noted, encompasses the totality of stock trading on all
exchanges) has been slow to respond to technological innovation. Conversion to all-
electronic trading could erode/eliminate the trading profits of floor specialists and the
NYSE's "upstairs traders."
William Lupien, founder of the Instinet trading system and the OptiMark system, has
been quoted as saying "I'd definitely say the ECNs are winning... Things happen awfully
fast once you reach the tipping point. We're now at the tipping point."

Congress mandated the establishment of a national market system of multiple exchanges

in 1975. Since then, ECNs have been developing rapidly.[citation needed]

One example of improved efficiency of ECNs is the prevention of front running, by

which manual Wall Street traders use knowledge of a customer's incoming order to place
their own orders so as to benefit from the perceived change to market direction that the
introduction of a large order will cause. By executing large trades at lightning speed
without manual intervention, ECNs make impossible this illegal practice, for which
several NYSE floor brokers were investigated and severely fined in recent years.[citation
needed]
Under the specialist system, when the market sees a large trade in a name, other
buyers are immediately able to look to see how big the trader is in the name, and make
inferences about why s/he is selling or buying. All traders who are quick enough are able
to use that information to anticipate price movements.

ECNs have changed ordinary stock transaction processing (like brokerage services before
them) into a commodity-type business. ECNs could regulate the fairness of initial public
offerings (IPOs), oversee Hambrecht's OpenIPO process, or measure the effectiveness of
securities research and use transaction fees to subsidize small- and mid-cap research
efforts.

Some[attribution needed], however, believe the answer will be some combination of the best of
technology and "upstairs trading" — in other words, a hybrid model.

Trading 25,000 shares of General Electric stock (recent[when?] quote: $34.76; recent[when?]
volume: 44,760,300) would be a relatively simple e-commerce transaction; trading 100
shares of Berkshire Hathaway Class A stock (recent quote: $139,700.00; recent volume:
850) may never be. The choice of system should be clear (but always that of the trader),
based on the characteristics of the security to be traded.

Even with ECNs forming an important part of a national market system, opportunities
presumably remain to profit from the spread between the bid and offer price. That is
especially true for investment managers that direct huge trading volume, and own a stake
in an ECN or specialist firm. For example, in its individual stock-brokerage accounts,
"Fidelity Investments runs 29% of its undesignated orders in NYSE-listed stocks, and
37% of its undesignated market orders through the Boston Stock Exchange, where an
affiliate controls a specialist post."

Fidelity says these arrangements are governed by a separate brokerage "order-flow

management" team, which seeks to obtain the best possible execution for customers, and
that its execution is highly rated.[citation needed]

[edit] References
 1. ^ ROLE OF THE EXCHANGE IN THE ECONOMY, NAIROBI STOCK
EXCHANGE, source: Nairobi Stock Exchange website, accessed February 2007
2. ^ The Role of a Stock Market in a General Equilibrium Model with
Technological Uncertainty, Peter A. Diamond, The American Economic Review,
Vol. 57, No. 4 (Sep., 1967), pp. 759-776, source: JSTOR website, accessed
February 2007

[edit] See also

Look up bourse, stock exchange in Wiktionary, the free dictionary.

• Auction
• Capital market
• Commodities exchange
• Securities
• Shareholder
• Stock investor
• Stock market
• Trader (finance)

[edit] Lists

• List of stock exchanges

• List of stock market indices
• List of marketing topics
• List of management topics
• List of economics topics
• List of accounting topics
• List of finance topics

[hide]
v•d•e

Stock market
Stock · Common stock · Preferred stock · Outstanding stock · Treasury
Types of stocks
stock
Participants Market maker · Floor trader · Floor broker
Exchanges Stock exchange · List of stock exchanges
Gordon model · Dividend yield · Income per share · Book value · Earnings
Stock valuation
yield · Beta coefficient
Financial ratios P/CF ratio · P/E ratio · PEG ratio · Price/sales ratio · P/B ratio · D/E ratio ·
 ROIC · ROE
Dow Theory · Elliott Wave Theory · Fundamental analysis · Technical
Trading theories analysis · Mark Twain effect · January effect · Efficient market
hypothesis · Arbitrage pricing theory
Dividend · Stock split · Growth stock · Investment · Speculation · Trade ·
Related terms
Day trading · Stock trader/investor · IPO
Retrieved from "http://en.wikipedia.org/wiki/Stock_exchange"

Categories: All articles with unsourced statements | Articles with unsourced statements
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