Stock exchange
Overview
 
A stock exchange is an entity
Entity
An entity is something that has a distinct, separate existence, although it need not be a material existence. In particular, abstractions and legal fictions are usually regarded as entities. In general, there is also no presumption that an entity is animate.An entity could be viewed as a set...

 that provides services for stock broker
Stock broker
A stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors...

s and traders
Trader (finance)
A trader is someone in finance who buys and sells financial instruments such as stocks, bonds, commodities and derivatives. A broker who simply fills buy or sell orders is not a trader, as they are merely executing instructions given to them. According to the Wall Street Journal in 2004, a managing...

 to trade stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

s, bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

, and other securities
Security (finance)
A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...

. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...

s. Securities traded on a stock exchange include shares issued by companies, unit trust
Unit trust
A unit trust is a form of collective investment constituted under a trust deed.Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore, Malaysia and the UK, unit trusts offer access to a wide range of securities....

s, derivatives
Derivative (finance)
A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...

, pooled investment products and bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

.

To be able to trade a security on a certain stock exchange, it must be listed there.
Encyclopedia
A stock exchange is an entity
Entity
An entity is something that has a distinct, separate existence, although it need not be a material existence. In particular, abstractions and legal fictions are usually regarded as entities. In general, there is also no presumption that an entity is animate.An entity could be viewed as a set...

 that provides services for stock broker
Stock broker
A stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors...

s and traders
Trader (finance)
A trader is someone in finance who buys and sells financial instruments such as stocks, bonds, commodities and derivatives. A broker who simply fills buy or sell orders is not a trader, as they are merely executing instructions given to them. According to the Wall Street Journal in 2004, a managing...

 to trade stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

s, bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

, and other securities
Security (finance)
A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...

. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...

s. Securities traded on a stock exchange include shares issued by companies, unit trust
Unit trust
A unit trust is a form of collective investment constituted under a trust deed.Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore, Malaysia and the UK, unit trusts offer access to a wide range of securities....

s, derivatives
Derivative (finance)
A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...

, pooled investment products and bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

.

To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only.

The initial offering of stocks and bonds to investor
Investor
An investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc...

s is by definition done in the primary market
Primary market
The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process...

 and subsequent trading is done in the secondary market
Secondary market
The page applies to the finanical term; For the merchandising concept, see Aftermarket .The secondary market, also called aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold....

. A stock exchange is often the most important component of a stock market
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...

. Supply and demand in stock markets is driven by various factors that, as in all free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...

s, affect the price of stocks (see stock valuation
Stock valuation
In financial markets, stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally potential market prices, and thus to profit from price movement – stocks that are judged...

).

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
Over-the-counter (finance)
Within the derivatives markets, many products are traded through exchanges. An exchange has the benefit of facilitating liquidity and also mitigates all credit risk concerning the default of a member of the exchange. Products traded on the exchange must be well standardised to transparent trading....

. This is the usual way that derivatives
Derivative (finance)
A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...

 and bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

 are traded. Increasingly, stock exchanges are part of a global market for securities.

History

Securities markets took centuries to develop. The idea of debt dates back to the ancient world, as evidenced for example by ancient Mesopotamia
Mesopotamia
Mesopotamia is a toponym for the area of the Tigris–Euphrates river system, largely corresponding to modern-day Iraq, northeastern Syria, southeastern Turkey and southwestern Iran.Widely considered to be the cradle of civilization, Bronze Age Mesopotamia included Sumer and the...

n clay tablets recording interest-bearing loans. There is little consensus among scholars as to when corporate stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

 was first trade
Trade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...

d. Some see the key event as the Dutch East India Company
Dutch East India Company
The Dutch East India Company was a chartered company established in 1602, when the States-General of the Netherlands granted it a 21-year monopoly to carry out colonial activities in Asia...

's founding in 1602, 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
Ancient Rome
Ancient Rome was a thriving civilization that grew on the Italian Peninsula as early as the 8th century BC. Located along the Mediterranean Sea and centered on the city of Rome, it expanded to one of the largest empires in the ancient world....

.

In the Roman Republic
Roman Republic
The Roman Republic was the period of the ancient Roman civilization where the government operated as a republic. It began with the overthrow of the Roman monarchy, traditionally dated around 508 BC, and its replacement by a government headed by two consuls, elected annually by the citizens and...

, which existed for centuries before the Empire
Roman Empire
The Roman Empire was the post-Republican period of the ancient Roman civilization, characterised by an autocratic form of government and large territorial holdings in Europe and around the Mediterranean....

 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
Cicero
Marcus Tullius Cicero , was a Roman philosopher, statesman, lawyer, political theorist, and Roman constitutionalist. He came from a wealthy municipal family of the equestrian order, and is widely considered one of Rome's greatest orators and prose stylists.He introduced the Romans to the chief...

. 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.

Tradable bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

 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
Renaissance
The Renaissance was a cultural movement that spanned roughly the 14th to the 17th century, beginning in Italy in the Late Middle Ages and later spreading to the rest of Europe. The term is also used more loosely to refer to the historical era, but since the changes of the Renaissance were not...

 periods.

In 1171, the authorities of the Republic of Venice
Republic of Venice
The Republic of Venice or Venetian Republic was a state originating from the city of Venice in Northeastern Italy. It existed for over a millennium, from the late 7th century until 1797. It was formally known as the Most Serene Republic of Venice and is often referred to as La Serenissima, in...

, concerned about their war-depleted treasury, drew a forced loan from the citizenry. Such debt, known as prestiti, paid 5 percent interest per year and had an indefinite maturity date. Initially regarded with suspicion, it came to be seen as a valuable investment that could be bought and sold. The bond market had begun.

From 1262 to 1379, Venice never missed an interest payment, solidifying the credibility of the new instruments. Other Italian city-states such as Florence and Genoa became bond issuers as well, often as a means of paying for warfare. Bonds were traded widely in Italy and beyond, a business facilitated by bankers such as the Medicis.

War between Venice and Genoa resulted in suspension of prestiti interest payments in the early 1380s, and when the market was restored, it was at a lower interest rate. Venice's bonds traded at steep discounts for decades thereafter. Other blows to financial stability resulted from the Hundred Years War, which caused monarchs of France and England to default on debts to Italian banks, and the Black Death
Black Death
The Black Death was one of the most devastating pandemics in human history, peaking in Europe between 1348 and 1350. Of several competing theories, the dominant explanation for the Black Death is the plague theory, which attributes the outbreak to the bacterium Yersinia pestis. Thought to have...

, which ravaged much of Europe. Still, the idea of debt as a tradable investment endured.

As with bonds, the concept of stock developed gradually. Some scholars place its origins as far back as ancient Rome. Partnership agreements dividing ownership into shares date back at least to the 13th century, again with Italian city-states in the vanguard. Such arrangements, however, typically extended only to a handful of people and were of limited duration, as with shipping partnerships that applied only to a single sea voyage.
The forefront of commercial innovation eventually shifted from Italy to northern Europe. The Hanseatic League
Hanseatic League
The Hanseatic League was an economic alliance of trading cities and their merchant guilds that dominated trade along the coast of Northern Europe...

, an alliance of mercantile cities such as Bruges
Bruges
Bruges is the capital and largest city of the province of West Flanders in the Flemish Region of Belgium. It is located in the northwest of the country....

 and Antwerp, operated counting houses to expedite trade. The term "bourse," which has become synonymous with "stock market," arose in Bruges, either from a sign outside a trading center showing one or a few purses (bursa is Latin for bag) or because merchants gathered at the house of a man named Van der Burse; nobody's quite sure.

By the late 1500s, British merchants were experimenting with joint-stock companies intended to operate on an ongoing basis; one such was the Muscovy Company
Muscovy Company
The Muscovy Company , was a trading company chartered in 1555. It was the first major chartered joint stock company, the precursor of the type of business that would soon flourish in England, and became closely associated with such famous names as Henry Hudson and William Baffin...

, which sought to wrest trade with Russia away from Hanseatic dominance. The next big step was in Amsterdam
Amsterdam
Amsterdam is the largest city and the capital of the Netherlands. The current position of Amsterdam as capital city of the Kingdom of the Netherlands is governed by the constitution of August 24, 1815 and its successors. Amsterdam has a population of 783,364 within city limits, an urban population...

. In 1602, the Dutch East India Company was formed as a joint-stock company with shares that were readily tradable. The stock market had begun.
The Dutch East India Company, formed to build up the spice trade, operated as a colonial ruler in what's now Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...

 and beyond, a purview that included conducting military operations against recalcitrant natives and 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.

However, shareholders were rewarded well for their investment. The company paid an average dividend of over 16 percent per year from 1602 to 1650. Financial innovation in Amsterdam took many forms. In 1609, investors led by one Isaac Le Maire
Isaac Le Maire
Isaac le Maire was a merchant for the Vereenigde Oostindische Compagnie and later for the Austraalse Compagnie. He is best known for his constant strife with the VOC, which ultimately led to the discovery of Cape Horn.Isaac le Maire was born in 1558 or 1559 in Tournai...

 formed history's first bear syndicate, but their coordinated trading had only a modest impact in driving down share prices, which tended to be robust throughout the 17th century. By the 1620s, the company was expanding its securities issuance with the first use of corporate bonds.

The Dutch West India Company was formed in 1621, bringing a new issuer to the burgeoning securities market. Amsterdam's growth as a financial center survived the tulip mania of the 1630s, in which contracts for the delivery of flower bulbs soared wildly and then crashed. New techniques and instruments proliferated for securities as well as commodities, including options, repos and margin trading.

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 explained the workings of the city's stock market. It was the earliest book about stock trading, 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.

The year that de la Vega published also brought an event that helped spread financial techniques and talent from Amsterdam to London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...

. This was the "glorious revolution," in which Dutch ruler William of Orange
William of Orange
William of Orange usually refers to either:*William the Silent, William I, , Prince of Orange, founder of the House Orange-Nassau and the Netherlands as a state...

 also ascended to England's throne. William sought to modernize England's finances to pay for its wars, and thus the kingdom's first government bonds were issued in 1693 and the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...

 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
Exchange Alley, London
Exchange Alley or Change Alley is a narrow alleyway connecting shops and coffeehouses in an old neighbourhood of the City of London in England, bounded by Lombard Street, Cornhill and Birchin Lane. It served as a convenient shortcut from the Royal Exchange to the Post Office...

. 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
London Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...

.

One of history's greatest financial bubbles occurred in the next few decades. At the center of it were the South Sea Company, set up in 1711 to conduct English trade with South America
South America
South America is a continent situated in the Western Hemisphere, mostly in the Southern Hemisphere, with a relatively small portion in the Northern Hemisphere. The continent is also considered a subcontinent of the Americas. It is bordered on the west by the Pacific Ocean and on the north and east...

, and the Mississippi Company
Mississippi Company
The "Mississippi Company" became the "Company of the West" and expanded as the "Company of the Indies" .-The Banque Royale:...

, focused on commerce with France's Louisiana colony and touted by transplanted Scottish financier John Law
John Law
John Law may refer to:*John Law *John Law DD was an English mathematician*John Law *John Law , Hong Kong film director...

, 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 were collapsing, as it became clear that expectations of imminent wealth from the Americas were overblown. In London, Parliament passed the Bubble Act
Bubble Act
Bubble Act 1720 was an Act of the Parliament of Great Britain that forbade all joint-stock companies not authorised by royal charter. It was passed on 9 June 1720, and was also known as the Royal Exchange and London Assurance Corporation Act 1719, because those companies were incorporated under...

, which stated that only royally chartered companies could issue public shares. In Paris
Paris
Paris is the capital and largest city in France, situated on the river Seine, in northern France, at the heart of the Île-de-France region...

, 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
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

.

On February 8, 1971, NASDAQ
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...

, the world's first electronic stock exchange, started its operations.

The role of stock exchanges

Stock exchanges have multiple roles in the economy
Economy
An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...

. This may include the following:

Raising capital for businesses

The Stock Exchange provide companies with the facility to raise capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...

 for expansion through selling shares to the investing public.

Common forms of capital raising

Besides the borrowing capacity provided to an individual or firm by the banking system, in the form of credit
Credit
Credit may refer to:* Debits and credits, a type of book keeping entry* Credit , acknowledging the ideas or other work of writers and contributors* Course credit, a system of measuring academic coursework...

 or a loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....

, there are four common forms of capital raising used by companies and entrepreneurs. All of these available options, might be achieved, directly or indirectly, involving a stock exchange.
Going public

Capital intensive companies, particularly high tech
High tech
High tech is technology that is at the cutting edge: the most advanced technology currently available. It is often used in reference to micro-electronics, rather than other technologies. The adjective form is hyphenated: high-tech or high-technology...

 companies, always need to raise high volumes of capital in their early stages. By 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 burst in the world's major stock exchanges, it has been much more demanding for the high-tech entrepreneur to take his/her company public, unless either the company already has products in the market and is generating sales and earnings, or the company has completed advanced promising clinical trials, earned potentially profitable patents or conducted market research which demonstrated very positive outcomes. 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 and any well-documented promising outcome. Anyway, every year a number of companies, including unknown highly speculative and financially unpredictable hi-tech startups, are listed for the first time in all the major stock exchanges - there are even specialized entry markets for this kind of companies or stock indexes tracking their performance (examples include the Alternext
Alternext
NYSE Alternext is an equity trading market that was opened May 17, 2005 by its parent institution Euronext to address an opportunity posed by small to medium sized firms that were anticipated to desire easier access to an equity market....

, CAC Small, SDAX
SDAX
The SDAX is a stock market index composed of 50 small and medium-sized companies in Germany. These so-called small caps rank directly below the MDAX shares in terms of order book volume and market capitalization...

, TecDAX
TecDAX
The TecDAX stock index tracks the performance of the 30 largest German companies from the technology sector. In terms of order book turnover and market capitalization the companies rank below those included in the DAX.The TecDax was introduced on 24 March 2003...

, or most of the third market companies).
Limited partnerships

A number of companies have also raised significant amounts of capital through R&D limited partnership
Limited partnership
A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...

s. 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. As a result, R&D limited partnerships are not a viable means of raising money for most companies, specially hi-tech startups.
Venture capital

A third usual source of capital for startup companies has been venture capital
Venture capital
Venture capital is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as...

. 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). At those level, venture capital firms typically become tapped-out because the financial risk to any one partnership becomes too great.
Corporate partners

A fourth 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 a IPO
Initial public offering
An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...

 or the issuance of new company shares
Seasoned equity offering
A Seasoned equity offering or secondary equity offering is a new equity issue by an already publicly-traded company. Secondary offerings may involve shares sold by existing shareholders , new shares or both....

 of an already listed company), it usually leads to rational
Rationality
In philosophy, rationality is the exercise of reason. It is the manner in which people derive conclusions when considering things deliberately. It also refers to the conformity of one's beliefs with one's reasons for belief, or with one's actions with one's reasons for action...

 allocation of resources because funds, which could have been consumed, or kept in idle deposits
Deposit account
A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the...

 with bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

s, are mobilized and redirected to help companies' management boards finance their organizations. This may promote business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...

 activity with benefits for several economic sectors such as agriculture
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...

, commerce
Commerce
While business refers to the value-creating activities of an organization for profit, commerce means the whole system of an economy that constitutes an environment for business. The system includes legal, economic, political, social, cultural, and technological systems that are in operation in any...

 and industry
Industry
Industry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...

, resulting in stronger economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...

 and higher productivity levels of firms. Sometimes it is very difficult for the stock investor to determine whether or not the allocation of those funds is in good faith and will be able to generate long-term company growth, without examination of a company's internal auditing.

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share
Market share
Market share is the percentage of a market accounted for by a specific entity. In a survey of nearly 200 senior marketing managers, 67 percent responded that they found the "dollar market share" metric very useful, while 61% found "unit market share" very useful.Marketers need to be able to...

, or acquire other necessary business asset
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...

s. A takeover
Takeover
In business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...

 bid or a merger
Mergers and acquisitions
Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...

 agreement through the stock market
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...

 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
Middle class
The middle class is any class of people in the middle of a societal hierarchy. In Weberian socio-economic terms, the middle class is the broad group of people in contemporary society who fall socio-economically between the working class and upper class....

 family
Family
In human context, a family is a group of people affiliated by consanguinity, affinity, or co-residence. In most societies it is the principal institution for the socialization of children...

, through dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...

s and stock price increases that may result in capital gain
Capital gain
A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the investor...

s, share in the wealth of profitable businesses. Unprofitable and troubled businesses may result in capital loss
Capital loss
Capital loss is the difference between a lower selling price and a higher purchase price, resulting in a financial loss for the seller. The IRS states that "If your capital losses exceed your capital gains, the excess can be deducted on your tax return"....

es for shareholders.

Corporate governance

By having a wide and varied scope of owners, companies generally tend to improve management
Management
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...

 standards and efficiency
Efficiency (economics)
In economics, the term economic efficiency refers to the use of resources so as to maximize the production of goods and services. An economic system is said to be more efficient than another if it can provide more goods and services for society without using more resources...

 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
Privately held company
A privately held company or close corporation is a business company owned either by non-governmental organizations or by a relatively small number of shareholders or company members which does not offer or trade its company stock to the general public on the stock market exchanges, but rather the...

 (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).

Despite this claim, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance
Corporate governance
Corporate governance is a number of processes, customs, policies, laws, and institutions which have impact on the way a company is controlled...

 on the part of some public companies. The dot-com bubble
Dot-com bubble
The dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...

 in the late 1990s, and the subprime mortgage crisis
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....

 in 2007-08, are classical examples of corporate mismanagement. Companies like Pets.com
Pets.com
Pets.com is a former dot-com enterprise that sold pet supplies to retail customers. It began operations in February 1999 and closed in November 2000. A high profile marketing campaign gave it a widely recognized public presence, including an appearance in the 1999 Macy's Thanksgiving Day Parade...

 (2000), Enron Corporation (2001), One.Tel
One.Tel
One.Tel was a group of Australian based telecommunications companies, including principally the publicly listed One.Tel Limited established in 1995 soon after deregulation of the Australian telecommunications industry, most of which are currently under external administration by court appointed...

 (2001), Sunbeam
Sunbeam Products
Sunbeam Products is an American brand that has produced electric home appliances since 1910. Their products have included the Mixmaster mixer, the Sunbeam CG waffle iron, Coffeemaster and the fully automatic T20 toaster. Sunbeam is owned by Jarden Consumer Solutions after Jarden's acquisition in...

 (2001), Webvan
Webvan
Webvan was an online "credit and delivery" grocery business that went bankrupt in 2001. It was headquartered in Foster City, California, USA, near Silicon Valley. It delivered products to customers' homes within a 30-minute window of their choosing. At its peak, it offered service in ten U.S...

 (2001), Adelphia (2002), MCI WorldCom (2002), Parmalat
Parmalat
Parmalat SpA is a multinational Italian dairy and food corporation. Having become the leading global company in the production of ultra high temperature milk, the company collapsed in 2003 with a €14 billion hole in its accounts in what remains Europe's biggest bankruptcy...

 (2003), American International Group
American International Group
American International Group, Inc. or AIG is an American multinational insurance corporation. Its corporate headquarters is located in the American International Building in New York City. The British headquarters office is on Fenchurch Street in London, continental Europe operations are based in...

 (2008), Bear Stearns
Bear Stearns
The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

 (2008), Lehman Brothers
Lehman Brothers
Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...

 (2008), General Motors
General Motors Chapter 11 reorganization
The General Motors Chapter 11 sale of the assets of automobile manufacturer General Motors and some of its subsidiaries was implemented through section 363 of Chapter 11, Title 11, United States Code in the United States Bankruptcy Court for the Southern District of New York...

 (2009) and Satyam Computer Services (2009) were among the most widely scrutinized by the media.

However, when poor financial, ethical or managerial records are known by the stock investors, 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 because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investor
Investor
An investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc...

s 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
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

. 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 the need, in the short term, to directly tax 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 market forces. Share prices tend to rise or remain stable when companies and the economy
Economy
An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...

 in general show signs of stability and growth. An economic recession, depression, or financial crisis
Financial crisis
The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these...

 could eventually lead to a stock market crash
Stock market crash
A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors...

. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.

Speculation

The stock exchanges are also fashionable places for speculation
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...

. In a financial context, the terms "speculation" and "investment" are actually quite specific. For instance, although the word "investment" is typically used, in a general sense, to mean any act of placing money in a financial vehicle with the intent of producing returns over a period of time, most ventured money—including funds placed in the world's stock markets—is actually not investment but speculation.

Major stock exchanges

The main stock exchanges:
  • American Stock Exchange
    American Stock Exchange
    NYSE Amex Equities, formerly known as the American Stock Exchange is an American stock exchange situated in New York. AMEX was a mutual organization, owned by its members. Until 1953, it was known as the New York Curb Exchange. On January 17, 2008, NYSE Euronext announced it would acquire the...

  • Australian Securities Exchange
    Australian Securities Exchange
    The Australian Securities Exchange was created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006. It is the primary stock exchange group in Australia....

  • Athens Stock Exchange
    Athens Stock Exchange
    The Athens Stock Exchange or ASE or ATHEX is a stock exchange located in Athens, Greece.-History:The Athens Stock Exchange started trading in 1876. The Athens Stock Exchange is a subsidiary of Hellenic Exchanges S.A., whose shares are listed in ATHEX...

  • Belgrade Stock Exchange
    Belgrade Stock Exchange
    The Belgrade Stock Exchange is a stock exchange in Belgrade, Serbia.-History:The first ideas about establishing an institution which would control the movement of the value of money appeared in Serbia in the 1830s. The Serbian Trading Association, important for the development of the entire...

  • Berliner Börse
    Berliner Börse
    Börse Berlin AG is a stock exchange based in Berlin, Germany, founded in 1685 through an edict of Great Elector Friedrich Wilhelm and is one of the oldest exchanges in Germany...

  • Bermuda Stock Exchange
    Bermuda Stock Exchange
    The Bermuda Stock Exchange , established in 1971, is currently the world’s leading fully electronic offshore securities market. The 2010 BSX 'Year End Review' report stated that the exchange's aggregate market capitalization stood at $USD319 billion.A breakdown of the securities listed on the BSX...

  • Bolsa Mexicana de Valores
    Bolsa Mexicana de Valores
    The Mexican Stock Exchange is Mexico's only stock exchange. It is situated on Paseo de la Reforma, a prestigious avenue in central Mexico City...

  • Bolsa de Valores de Colombia
    Bolsa de Valores de Colombia
    The Bolsa de Valores de Colombia, also known as BVC, is the principal stock exchange of Colombia. It was created on July 3, 2001 by the union of three extant stock exchanges in Colombia: Bogotá Stock Exchange , Medellín Stock Exchange and Cali's Western Stock Exchange .The company maintains...

  • Bolsa de Valores de Lima
    Bolsa de Valores de Lima
    The Bolsa de Valores de Lima is the stock exchange of Peru, situated in the capital Lima. It has several indices. The IGBVL is a value-weighted index that tracks the performance of the largest and most actively traded stocks on the Lima Exchange..Other indices are ISBVL and ISP-15 The Bolsa de...

  • Bombay Stock Exchange
    Bombay Stock Exchange
    The Bombay Stock Exchange is a stock exchange located on Dalal Street, Mumbai and is the oldest stock exchange in Asia. The equity market capitalization of the companies listed on the BSE was 1.63 trillion as of December 2010, making it the 4th largest stock exchange in Asia and the 8th largest...

  • Bucharest Stock Exchange
    Bucharest Stock Exchange
    The Bucharest Stock Exchange is a stock exchange in Bucharest, capital of Romania. On December 1, 2005, Bucharest's electronic over-the-counter stock market, Rasdaq, was merged with the Bucharest Stock Exchange....

  • Budapest Stock Exchange
    Budapest Stock Exchange
    The Budapest Stock Exchange was re-opened in 1990 with headquarters in Budapest, Hungary.BSE is the key institution of the Hungarian Financial market and the official trading venue for publicly offered securities....

  • Bulgarian Stock Exchange - Sofia
    Bulgarian Stock Exchange - Sofia
    The Bulgarian Stock Exchange – Sofia is a stock exchange operating in Sofia, the capital of Bulgaria. It was originally founded as Sofia Stock Exchange on 15 April 1914 through a tsar's decree, but ceased to operate after the Second World War as Bulgaria became a communist state...

  • Canadian National Stock Exchange - CNSX
  • Cairo & Alexandria Stock Exchange
    Cairo & Alexandria Stock Exchange
    Egypt's Stock Exchange, now Egyptian Exchange , comprises two exchanges, Cairo and Alexandria, both governed by the same board of directors and sharing the same trading, clearing and settlement systems.-History:...

  • Casablanca Stock Exchange
    Casablanca Stock Exchange
    The Casablanca Stock Exchange is a stock exchange in Casablanca, Morocco. The Casablanca Stock Exchange , which achieves one of the best performances in the region of the Middle East and North Africa , is Africa's third largest Bourse after Johannesburg Stock Exchange and Nigerian Stock Exchange...

  • Channel Islands Stock Exchange
    Channel Islands Stock Exchange
    The Channel Islands Stock Exchange is a stock exchange operating in St. Peter Port, Guernsey. It was founded as a company limited both by guarantee and by shares...

  • Chicago Stock Exchange
    Chicago Stock Exchange
    The Chicago Stock Exchange is a stock exchange in Chicago, Illinois, USA. The exchange is a national securities exchange and self-regulated organization, which operates under the oversight of the U.S. Securities and Exchange Commission . The Chicago Stock Exchange is the third most active stock...

  • Euronext Amsterdam
  • Euronext Brussels
  • Euronext Lisbon
    Euronext Lisbon
    Euronext Lisbon is a stock exchange in Lisbon, Portugal. It belongs to the NYSE Euronext group, the first global stock exchange.Euronext Lisbon trades equities, public and private bonds, participation bonds, warrants, corporate warrants, investment trust units, and exchange traded funds...

  • Euronext Paris
    Euronext Paris
    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 UK's London Stock Exchange...

  • Frankfurt Stock Exchange
    Frankfurt Stock Exchange
    The Frankfurt Stock Exchange is the world's 12th largest stock exchange by market capitalization. Located in Frankfurt am Main, Germany, the Frankfurt Stock Exchange is owned and operated by Deutsche Börse, which also owns the European futures exchange Eurex and the clearing company...

  • Ghana Stock Exchange
    Ghana Stock Exchange
    The Ghana Stock Exchange is the principal stock exchange of Ghana. The exchange was incorporated in July 1989 with trading commencing in 1990. It currently has around 30 listed companies and 2 corporate bonds. All types of securities can be listed. Criteria for listing include capital adequacy,...

  • Helsinki Stock Exchange
    Helsinki Stock Exchange
    The Helsinki Stock Exchange is a stock exchange located in Helsinki, Finland. Since 3 September 2003 it has been part of OMX, referred to as OMX Helsinki . Since NASDAQ's acquisition of OMX in February 2008, the official name of the Helsinki exchange has been NASDAQ OMX Helsinki.- History :The...

  • Hong Kong Stock Exchange
    Hong Kong Stock Exchange
    The Hong Kong Stock Exchange is a stock exchange located in Hong Kong. It is Asia's third largest stock exchange in terms of market capitalization behind the Tokyo Stock Exchange and the Shanghai Stock Exchange and fifth largest in the world...

  • Indonesia Stock Exchange
  • Irish Stock Exchange
    Irish Stock Exchange
    -History:The Irish Stock Exchange is Ireland's only stock exchange and has been in existence since 1793. It is an Irish private company limited by guarantee. It was first recognised by legislation in 1799 when the Irish Parliament passed the Stock Exchange Act...

  • Istanbul Stock Exchange
    Istanbul Stock Exchange
    The Istanbul Stock Exchange is the only corporation in Turkey for securities exchange established to provide trading in equities, bonds and bills, revenue-sharing certificates, private sector bonds, foreign securities and real estate certificates as well as international securities. The ISE was...

  • Karachi Stock Exchange
    Karachi Stock Exchange
    The Karachi Stock Exchange or KSE is a stock exchange located in Karachi, Sindh, Pakistan. It is Pakistan's largest and oldest stock exchange, with many Pakistani as well as overseas listings. Currently located in Stock Exchange Building on Stock Exchange Road, in the heart of Karachi's Business...

  • Korea Stock Exchange
  • Kuwait Stock Exchange
    Kuwait Stock Exchange
    The Kuwait Stock Exchange is the national stock market of The State of Kuwait. Although several share holding companies existed in Kuwait prior to the creation of the KSE, it was not until October 1962 that a law was passed to organize the country's stock market.The Kuwait Stock Exchange is also...

  • Ljubljana Stock Exchange
    Ljubljana Stock Exchange
    -About the Ljubljana Stock Exchange:The core business of the Ljubljana stock exchange is to ensure a secure, efficient and successful operation of the regulated segment of the Slovene capital market, in accordance with the law and other regulations.LJSE performs the following business activities:*...

  • London Stock Exchange
    London Stock Exchange
    The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...

  • Luxembourg Stock Exchange
    Luxembourg Stock Exchange
    The Luxembourg Stock Exchange is a stock exchange based in Luxembourg City, in southern Luxembourg.The Exchange is located on avenue de la Porte-Neuve,...

  • Madrid Stock Exchange
  • Malaysia Stock Exchange
  • Milan Stock Exchange
  • Montreal Stock Exchange
  • Moscow Interbank Currency Exchange
    Moscow Interbank Currency Exchange
    The Moscow Interbank Currency Exchange or MICEX is one of the largest universal stock exchanges in the Russian Federation and East Europe. MICEX opened in 1992 and is the leading Russian stock exchange...

  • Nagoya Stock Exchange
    Nagoya Stock Exchange
    Nagoya Stock Exchange is a stock trading market in Nagoya, Japan. It is Japan's third largest exchange, behind the Tokyo Stock Exchange and Osaka Securities Exchange.- History :...

  • National Stock Exchange of India
    National Stock Exchange of India
    The National Stock Exchange is a stock exchange located at Mumbai, Maharashtra, India. It is the 9th largest stock exchange in the world by market capitalization and largest in India by daily turnover and number of trades, for both equities and derivative trading. NSE has a market capitalization...

  • New York Stock Exchange
    New York Stock Exchange
    The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...

  • New Zealand Exchange
    New Zealand Exchange
    NZX Limited is a stock exchange located in Wellington, New Zealand. Since July 2005 it has been located in NZX Centre, the renovated Odlins building on the Wellington waterfront...

  • Nigerian Stock Exchange
  • Osaka Securities Exchange
    Osaka Securities Exchange
    is the second largest securities exchange in Japan, in terms of amount of business handled. As of 31 December 2007, the Osaka Securities Exchange had 477 listed companies with a combined market capitalization of $212 billion. The Nikkei 225 Futures, introduced at the Osaka Securities Exchange in...

  • Philippine Stock Exchange
    Philippine Stock Exchange
    The Philippine Stock Exchange is the national stock exchange of the Philippines. It is one of the oldest stock exchanges in Southeast Asia, having been in continuous operation since its inception in 1927...

  • Prague Stock Exchange
    Prague Stock Exchange
    The Prague Stock Exchange or PSE is the Czech Republic's main securities market and currently the second biggest stock exchange in Central and Eastern Europe...

  • Russian Trading System
    Russian Trading System
    The Russian Trading System is a stock market established in 1995 in Moscow, consolidating various regional trading floors into one exchange. Originally RTS was modelled on NASDAQ's trading and settlement software; in 1998 the exchange went on line with its own in-house system...

  • Santiago Stock Exchange
    Santiago Stock Exchange
    The Santiago Stock Exchange , founded on November 27, 1893, is Chile's dominant stock exchange.-Operations and Indices:The exchange trades in stocks, bonds, investment funds, stock options, futures, gold and silver coins minted by the Banco Central de Chile, and US dollars on Telepregon, its...

  • São Paulo Stock Exchange (BOVESPA
    Bovespa
    The BM&FBOVESPA is a stock exchange located at São Paulo, Brazil. As of December 31, 2010 it had a market capitalization of US $1.54 Trillion, making it one of the largest in the world. On May 8, 2008, the São Paulo Stock Exchange and the Brazilian Mercantile and Futures Exchange merged,...

    )
  • Shanghai Stock Exchange
    Shanghai Stock Exchange
    The Shanghai Stock Exchange , abbreviated as 上证所/上證所 or 上交所, is a stock exchange that is based in the city of Shanghai, China. It is one of the two stock exchanges operating independently in the People's Republic of China, the other is the Shenzhen Stock Exchange...

  • Shenzhen Stock Exchange
    Shenzhen Stock Exchange
    The Shenzhen Stock Exchange is one of the People's Republic of China's two stock exchanges, alongside the Shanghai Stock Exchange. It is based in Shenzhen, China...

  • Singapore Exchange
    Singapore Exchange
    Singapore Exchange Limited is an investment holding company located in Singapore and providing different services related to securities and derivatives trading and others. SGX is a member of the World Federation of Exchanges and the Asian and Oceanian Stock Exchanges FederationSingapore Exchange...

  • Stockholm Stock Exchange
    Stockholm Stock Exchange
    The Stockholm Stock Exchange is a stock exchange located in Stockholm, Sweden. Founded in 1863 it is the primary securities exchange of the Nordic Countries....

  • Stock Exchange of Thailand
    Stock Exchange of Thailand
    The Stock Exchange of Thailand is the national stock exchange of Thailand. It is located in Bangkok. As of 31 December 2007, the Stock Exchange of Thailand had 541 listed companies with a combined market capitalization of $280 billion. The indices of the stock exchange are SET Index, SET50 Index...

  • Taiwan Stock Exchange
    Taiwan Stock Exchange
    The Taiwan Stock Exchange Corporation is a financial institution, located in Taipei 101, in Taipei, Taiwan. The TSEC was established in 1961 and began operating as a stock exchange on 9 February 1962...

  • Tehran Stock Exchange
    Tehran Stock Exchange
    The Tehran Stock Exchange is Iran's largest stock exchange, which first opened in 1967. The TSE is based in Tehran. As of July 2010, 337 companies with a market capitalization of US$72 billion were listed on TSE...

  • Tel Aviv Stock Exchange
    Tel Aviv Stock Exchange
    The Tel Aviv Stock Exchange in Tel Aviv is Israel's only stock exchange.The TASE is the only public market for trading securities in Israel. It plays a major role in the Israeli economy....

  • Tokyo Stock Exchange
    Tokyo Stock Exchange
    The , called or TSE for short, is located in Tokyo, Japan and is the third largest stock exchange in the world by aggregate market capitalization of its listed companies...

  • Toronto Stock Exchange
    Toronto Stock Exchange
    Toronto Stock Exchange is the largest stock exchange in Canada, the third largest in North America and the seventh largest in the world by market capitalisation. Based in Canada's largest city, Toronto, it is owned by and operated as a subsidiary of the TMX Group for the trading of senior equities...

  • Trinidad and Tobago Stock Exchange
    Trinidad and Tobago Stock Exchange
    The Trinidad and Tobago Stock Exchange is the main stock exchange in the Republic of Trinidad and Tobago. Currently the leading stock exchange in the Caribbean region , the Trinidad and Tobago stock exchange caters mostly to the strong financial position of many indigenous companies incorporated...

  • Warsaw Stock Exchange
    Warsaw Stock Exchange
    The Warsaw Stock Exchange , , is a stock exchange located in Warsaw, Poland. It has a capitalization of € 220 bln .The WSE is a member of the World Federation of Exchanges and the Federation of European Securities Exchanges.-History:...

  • Zurich Stock Exchange


Since 1° October 2007 the London Stock Exchange
London Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...

 is merged with the Borsa Italiana
Borsa Italiana
The Borsa Italiana S.p.A., based in Milan, is Italy's main stock exchange. It was privatised in 1997 and is a part of the London Stock Exchange Group plc since 2007. In 2005, the companies listed on the Borsa were worth US$890 billion...

.

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.

Requirements by stock exchange

Companies must meet an exchange's requirements to have their stocks and shares listed and traded there, but requirements vary by stock exchange:
  • New York Stock Exchange: To be listed on the New York Stock Exchange
    New York Stock Exchange
    The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...

     (NYSE) 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.
  • NASDAQ Stock Exchange: To be listed on the NASDAQ
    NASDAQ
    The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...

     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.
  • London Stock Exchange: The main market of the London Stock Exchange
    London Stock Exchange
    The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...

     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
    Working capital
    Working capital is a financial metric which represents operating liquidity available to a business, organization or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is...

     for at least 12 months from the date of listing.
  • Bombay Stock Exchange: Bombay Stock Exchange
    Bombay Stock Exchange
    The Bombay Stock Exchange is a stock exchange located on Dalal Street, Mumbai and is the oldest stock exchange in Asia. The equity market capitalization of the companies listed on the BSE was 1.63 trillion as of December 2010, making it the 4th largest stock exchange in Asia and the 8th largest...

     (BSE) has requirements for a minimum market capitalization of 25 crore and minimum public float equivalent to 10 crore.

Ownership

Stock exchanges originated as mutual organization
Mutual organization
A mutual, mutual organization, or mutual society is an organization based on the principle of mutuality. Unlike a true cooperative, members usually do not contribute to the capital of the company by direct investment, but derive their right to profits and votes through their customer relationship...

s, 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
Initial public offering
An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...

. In this way the mutual organization becomes a corporation, with shares that are listed on a stock exchange. Examples are Australian Securities Exchange
Australian Securities Exchange
The Australian Securities Exchange was created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006. It is the primary stock exchange group in Australia....

 (1998), Euronext
Euronext
Euronext N.V. is a pan-European stock exchange based in Amsterdam and with subsidiaries in Belgium, France, Netherlands, Portugal and the United Kingdom. In addition to equities and derivatives markets, the Euronext group provides clearing and information services...

 (merged with New York Stock Exchange), NASDAQ
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...

 (2002), the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...

 (2005), Bolsas y Mercados Españoles
Bolsas y Mercados Españoles
Bolsas y Mercados Españoles is the operator of all stock Markets and financial systems in Spain. BME has been a listed company since 14 July 2006 and an IBEX 35® constituent since July 2007. In the last few years it has become a reference in the sector in terms of solvency, efficiency and...

, and the São Paulo Stock Exchange (2007).
The Shenzhen
Shenzhen Stock Exchange
The Shenzhen Stock Exchange is one of the People's Republic of China's two stock exchanges, alongside the Shanghai Stock Exchange. It is based in Shenzhen, China...

 and Shanghai
Shanghai Stock Exchange
The Shanghai Stock Exchange , abbreviated as 上证所/上證所 or 上交所, is a stock exchange that is based in the city of Shanghai, China. It is one of the two stock exchanges operating independently in the People's Republic of China, the other is the Shenzhen Stock Exchange...

 stock exchanges can been 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
China Securities Regulatory Commission
The China Securities Regulatory Commission is an institution of the State Council of the People's Republic of China , with ministry-level rank...

.

Other types of exchanges

In the 19th century, exchanges were opened to trade forward contract
Forward contract
In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed today. This is in contrast to a spot contract, which is an agreement to buy or sell an asset today. It costs nothing to enter a...

s on commodities. Exchange traded forward contracts are called futures contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...

s. These commodity exchange
Commodity exchange
Commodity exchange may refer to:* Commodities exchange, any exchange where various commodities and derivatives products are traded.* Commodity markets, for the markets trading on commodities in general....

s
later started offering future contracts on other products, such as interest rates and shares, as well as options
Option (finance)
In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the...

 contracts. They are now generally known as futures exchange
Futures exchange
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...

s.

See also

  • Auction
    Auction
    An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder...

  • Capital market
    Capital market
    A capital market is a market for securities , where business enterprises and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets...

  • Commodities exchange
    Commodities exchange
    A commodities exchange is an exchange where various commodities and derivatives products are traded. Most commodity markets across the world trade in agricultural products and other raw materials and contracts based on them...

  • Financial regulation
    Financial regulation
    Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system...

  • International Organization of Securities Commissions
    International Organization of Securities Commissions
    The International Organization of Securities Commissions is an association of organisations that regulate the world’s securities and futures markets....

  • Shareholder
    Shareholder
    A shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....

  • Stag profit
  • Stock exchanges for developing countries
  • Stock investor
  • Stock market
    Stock market
    A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...

  • Stock market data systems
    Stock market data systems
    Stock market data systems communicated market data—information about securities and stock trades—from stock exchanges to stock brokers and stock traders.-History:...



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