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A stock exchange, securities exchange, or bourse is an
exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorporated community in Green Township, Morgan County, Indiana, Green Township, Morgan County, Indiana, Morgan County, in the U.S. state of In ...
where
stockbroker A stockbroker, share holder registered representative (in the United States and Canada), trading representative (in Singapore), or more broadly, an investment broker, investment adviser, financial adviser, wealth manager, or investment professiona ...

stockbroker
s and traders can buy and sell
securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with ...
, such as
shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known ...
of
stock Stock (also capital stock) is all of the shares into which ownership of a corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recogn ...

stock
, bonds, and other financial instruments. Stock exchanges may also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and
dividend A dividend is a distribution of profits by a corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law 'b ...
s. Securities traded on a stock exchange include stock issued by listed companies, unit trusts,
derivatives Derivative may refer to: In mathematics and economics *Brzozowski derivative in the theory of formal languages *Derivative in calculus, a quantity indicating how a function changes when the values of its inputs change. *Formal derivative, an opera ...
, pooled investment products and bonds. Stock exchanges often function as "continuous auction" markets with buyers and sellers consummating transactions via
open outcry File:Chicago bot.jpg, Open outcry "pit" at the Chicago Board of Trade (CBOT) in 1993 Open outcry is a method of communication between professionals on a stock exchange or futures exchange typically on a trading floor. It involves shouting and the ...
at a central location such as the floor of the exchange or by using an
electronic trading platform In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary A financial intermediary is an ...
. To be able to trade a security on a certain stock exchange, the security must be
listed Listed may refer to: * Listed, Bornholm, a fishing village on the Danish island of Bornholm * Listed (MMM program), a television show on MuchMoreMusic * Endangered species in biology * Listed building, in architecture, designation of a historically ...
there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to a physical place, as modern markets use
electronic communication network An electronic communication network (ECN) is a type of computerized forum or network that facilitates the trading of financial products outside traditional stock exchanges. An ECN is generally an electronic system that widely disseminates orders e ...
s, which give them advantages of increased speed and reduced cost of transactions. Trade on an exchange is restricted to brokers who are members of the exchange. In recent years, various other trading venues, such as electronic communication networks,
alternative trading system Alternative trading system (ATS) is a US and Canadian regulatory term for a non-exchange trading venue An exchange, bourse (), trading exchange or trading venue is an organized market where (especially) tradable securities A security is a tr ...
s and "
dark pool ''Dark Pool'' is the third studio album packaged in book form, like a photograph album An album is a collection of audio recordings issued as a collection on compact disc (CD), Phonograph record, vinyl, audio tape, or another medium. Albums ...
s" have taken much of the trading activity away from traditional stock exchanges.
Initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also retail (individual) investors. An IPO is typically underwritten by one or more investment ...
s of stocks and bonds to investors is done in the
primary market:''"Primary market" may also refer to a market in art valuation.'' The primary market is the part of the capital market that deals with the issuance and sale of equity-backed securities to investors directly by the issuer. Investors buy securities ...
and subsequent trading is done in the
secondary market The secondary market, also called the aftermarket and follow on public offering, is the financial market A financial market is a market Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public ...
. A stock exchange is often the most important component of a
stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, as we ...

stock market
. Supply and demand in stock markets are driven by various factors that, as in all
free market In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goo ...
s, affect the price of stocks (see
stock valuationIn 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 fro ...
). There is usually no obligation for stock to be issued through the stock exchange itself, nor must stock be subsequently traded on an exchange. Such trading may be ''off exchange'' or
over-the-counter Over-the-counter (OTC) drugs are medicine Medicine is the Art (skill), art, science, and Praxis (process) , practice of caring for a patient and managing the diagnosis, prognosis, Preventive medicine, prevention, therapy, treatment or Palliat ...
. This is the usual way that
derivatives Derivative may refer to: In mathematics and economics *Brzozowski derivative in the theory of formal languages *Derivative in calculus, a quantity indicating how a function changes when the values of its inputs change. *Formal derivative, an opera ...
and bonds are traded. Increasingly, stock exchanges are part of a global securities market. Stock exchanges also serve an economic function in providing liquidity to shareholders in providing an efficient means of disposing of shares.


History

There is little consensus among scholars as to when corporate
stock Stock (also capital stock) is all of the shares into which ownership of a corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recogn ...

stock
was first traded. Some see the key event as the
Dutch East India Company The Dutch East India Company, officially the United East India Company ( nl, Vereenigde Oost Indische Compagnie; VOC), was a multinational corporation A multinational company (MNC) is a corporate organization that owns or controls the pro ...
's founding in 1602, while others point to earlier developments (Bruges, Antwerp in 1531 and in Lyon in 1548). The first book in history of securities exchange, the Confusion of Confusions, was written by the Dutch-Jewish trader
Joseph de la Vega José or Joseph Penso de la Vega, best known as Josseph de la Vega (ca. 1650 — Amsterdam, November 13, 1692), was a Sephardi Jewish merchant in diamonds, financial expert, moral philosopher and poet, residing in 17th century Amsterdam. He became ...
and the
Amsterdam Stock Exchange A bond from the Dutch East India Company, dating from 7 November 1623, for the amount of 2,400 florins. Euronext Amsterdam is a stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), excha ...
is often considered the oldest “modern” securities market in the world. On the other hand, economist Ulrike Malmendier of the
University of California at Berkeley The University of California, Berkeley (UC Berkeley, Berkeley, Cal, or California) is a public In public relations and communication science, publics are groups of individual people, and the public (a.k.a. the general public) is the tota ...
argues that a share market existed as far back as
ancient Rome In historiography, ancient Rome is Roman people, Roman civilization from the founding of the Italian city of Rome in the 8th century BC to the collapse of the Western Roman Empire in the 5th century AD, encompassing the Roman Kingdom (753 BC ...
, that derives from
Etruscan__NOTOC__ Etruscan may refer to: Ancient civilisation *The Etruscan language, an extinct language in ancient Italy *Something derived from or related to the Etruscan civilization **Etruscan architecture **Etruscan art **Etruscan cities **Etruscan ...
"Argentari". In the
Roman Republic The Roman Republic ( la, Rēs pūblica Rōmāna ) was a state of the ancient Rome, classical Roman civilization, run through res publica, public Representation (politics), representation of the Roman people. Beginning with the Overthrow of the ...
, which existed for centuries before the
Empire An empire is a "political unit" made up of several territories and peoples, "usually created by conquest, and divided between a dominant center and subordinate peripheries". Narrowly defined, an empire is a sovereign state called an empire and w ...

Empire
was founded, there were ''societates publicanorum'', organizations of contractors or leaseholders who performed temple-building and other services for the government. One such service was the feeding of geese on the Capitoline Hill as a reward to the birds after their honking warned of a Gallic invasion in 390 B.C. Participants in such organizations had ''partes'' or shares, a concept mentioned various times by the statesman and orator
Cicero Marcus Tullius Cicero ( ; ; 3 January 106 – 7 December 43 BC) was a Ancient Rome, Roman statesman, lawyer, scholar, philosopher and Academic skepticism, Academic Skeptic, who tried to uphold republican principles during crisis of th ...

Cicero
. In one speech, Cicero mentions "shares that had a very high price at the time". Such evidence, in Malmendier's view, suggests the instruments were tradable, with fluctuating values based on an organization's success. The ''societas'' declined into obscurity in the time of the emperors, as most of their services were taken over by direct agents of the state. Tradable bonds as a commonly used type of security were a more recent innovation, spearheaded by the Italian city-states of the late
medieval In the history of Europe The history of Europe concerns itself with the discovery and collection, the study, organization and presentation and the interpretation of past events and affairs of the people of Europe since the beginning of w ...

medieval
and early
Renaissance The Renaissance ( , ) , from , with the same meanings. is a period Period may refer to: Common uses * Era, a length or span of time * Full stop (or period), a punctuation mark Arts, entertainment, and media * Period (music), a concept in m ...

Renaissance
periods.Stringham, Edward Peter; Curott, Nicholas A.: ''On the Origins of Stock Markets'' art IV: ''Institutions and Organizations''; Chapter 14 pp. 324-344, in ''The Oxford Handbook of Austrian Economics'', edited by Peter J. Boettke and Christopher J. Coyne. (Oxford University Press, 2015, ). Edward P. Stringham & Nicholas A. Curott: "Business ventures with multiple shareholders became popular with ''commenda'' contracts in medieval Italy ( Greif, 2006, p. 286), and Malmendier (2009) provides evidence that shareholder companies date back to ancient Rome. Yet the title of the world's first stock market deservedly goes to that of seventeenth-century Amsterdam, where an active secondary market in company shares emerged. The two major companies were the
Dutch East India Company The Dutch East India Company, officially the United East India Company ( nl, Vereenigde Oost Indische Compagnie; VOC), was a multinational corporation A multinational company (MNC) is a corporate organization that owns or controls the pro ...
and the
Dutch West India Company The Dutch West India Company ( nl, Geoctrooieerde Westindische Compagnie, or GWC; ; en, Chartered West India Company) was a chartered company of Dutch merchants as well as foreign investors. Among its founders was Willem Usselincx Willem Usseli ...
, founded in 1602 and 1621. Other companies existed, but they were not as large and constituted a small portion of the stock market (Israel
989 Year 989 ( CMLXXXIX) was a common year starting on Tuesday (link will display the full calendar) of the Julian calendar The Julian calendar, proposed by Julius Caesar in , was a reform of the Roman calendar. It took effect on , by edict. I ...
1991, 109–112; Dehing and 't Hart 1997, 54; dela Vega
688 __NOTOC__ Year 688 ( DCLXXXVIII) was a leap year starting on WednesdayA leap year starting on Wednesday is any year with 366 days (i.e. it includes 29 February) that begins on Wednesday 1 January and ends on Thursday 31 December. Its dominical l ...
1996, 173)."
Joseph de la Vega José or Joseph Penso de la Vega, best known as Josseph de la Vega (ca. 1650 — Amsterdam, November 13, 1692), was a Sephardi Jewish merchant in diamonds, financial expert, moral philosopher and poet, residing in 17th century Amsterdam. He became ...
, 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 in Dutch). Stock trading activity, as we know it today, was originally a 17th-century Dutch investing technique. File:NY stock exchange traders floor LC-U9-10548-6.jpg, Historical photo of stock traders and stockbrokers in the trading floor of t ...
and inner workings of a stock market, taking the form of a dialogue between a merchant, a shareholder and a philosopher, the book described a market that was sophisticated but also prone to excesses, and de la Vega offered advice to his readers on such topics as the unpredictability of market shifts and the importance of patience in investment. In England,
King William III William III (William Henry; nl, Willem Hendrik; 4 November 16508 March 1702), also widely known as William of Orange, was sovereign Principality of Orange, Prince of Orange from birth, Stadtholder of County of Holland, Holland, County of Zeeland ...

King William III
sought to modernize the kingdom's finances to pay for its wars, and thus the first government bonds were issued in 1693 and the
Bank of England The Bank of England is the central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a State (polity), state or formal monetary union, and oversees their commercial ...

Bank of England
was set up the following year. Soon thereafter, English
joint-stock companies A joint-stock company is a business entity In law, a legal person is any person A person (plural people or persons) is a being that has certain capacities or attributes such as reason, morality, consciousness or self-consciousness, and be ...
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 or Change Alley is a narrow alley, alleyway connecting shops and coffeehouses in an old neighbourhood of the City of London. It served as a convenient shortcut from the Royal Exchange, London, Royal Exchange on Cornhill, London, Co ...
. 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 (LSE) is a stock exchange in the City of London The City of London is a City status in the United Kingdom, city, Ceremonial counties of England, ceremonial county and local government district that contains the histori ...
. One of history's greatest
financial bubble Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money available which could ...
s occurred around 1720. At the center of it were the
South Sea Company Hall of South Sea House, 1810 File:ShareCertificate SouthSeaCompany 1733.jpg, 1723 pro-forma power of attorney signed by a shareholder of the South Sea Company showing the Company's coat of arms and the Latin motto ''A Gadibus usque Auroram'' ...
, set up in 1711 to conduct English trade with South America, and the
Mississippi Company The Mississippi Company (french: Compagnie du Mississippi; founded 1684, named the Company of the West from 1717, and the Company of the Indies from 1719) was a corporation holding a business monopoly A monopoly (from Greek el, μόνος, m ...
, focused on commerce with France's Louisiana colony and touted by transplanted Scottish financier John Law, who was acting in effect as France's central banker. Investors snapped up shares in both, and whatever else was available. In 1720, at the height of the mania, there was even an offering of "a company for carrying out an undertaking of great advantage, but nobody to know what it is". By the end of that same year, share prices had started collapsing, as it became clear that expectations of imminent wealth from the Americas were overblown. In London, Parliament passed the
Bubble Act The Bubble Act 1720 (also Royal Exchange and London Assurance Corporation Act 1719) was an Act of the Parliament of Great Britain The Parliament of Great Britain was formed in May 1707 following the ratification of the Acts of Union by both ...
, which stated that only royally chartered companies could issue public shares. In Paris, Law was stripped of office and fled the country. Stock trading was more limited and subdued in subsequent decades. Yet the market survived, and by the 1790s shares were being traded in the young United States. On May 17, 1792, the
New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It is by far the List of stock exchanges, world's largest st ...

New York Stock Exchange
opened under a
platanus occidentalis ''Platanus occidentalis'', also known as American sycamore, American planetree, western plane, occidental plane, buttonwood, and water beech, is a species of ''Platanus'' native to the eastern and central United States, the mountains of northeast ...
(buttonwood tree) in
New York City New York City (NYC), often simply called New York, is the List of United States cities by population, most populous city in the United States. With an estimated 2019 population of 8,336,817 distributed over about , New York City is also the L ...

New York City
, as 24 stockbrokers signed the
Buttonwood Agreement The Buttonwood Agreement is the founding document of what is now New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York Cit ...
, agreeing to trade five securities under that buttonwood tree. Bombay Stock Exchange was started by Premchand Roychand in 1875. While BSE Limited is now synonymous with Dalal Street, it was not always so. In the 1850s, five stock brokers gathered together under a Banyan tree in front of Mumbai Town Hall, where Horniman Circle is now situated. A decade later, the brokers moved their location to another leafy setting, this time under banyan trees at the junction of Meadows Street and what was then called Esplanade Road, now Mahatma Gandhi Road. With a rapid increase in the number of brokers, they had to shift places repeatedly. At last, in 1874, the brokers found a permanent location, the one that they could call their own. The brokers group became an official organization known as "The Native Share & Stock Brokers Association" in 1875. The Bombay Stock Exchange continued to operate out of a building near the
Town Hall#REDIRECT Town hall In local government, a city hall, town hall, civic centre (in the United Kingdom, UK or Australia), guildhall, or (more rarely) a municipal building, is the chief administration (government), administrative building o ...
until 1928. The present site near Horniman Circle was acquired by the exchange in 1928, and a building was constructed and occupied in 1930. The street on which the site is located came to be called ''Dalal Street'' in Hindi (meaning "Broker Street") due to the location of the exchange. On 31 August 1957, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. Construction of the present building, the Phiroze Jeejeebhoy Towers at
Dalal Street Dalal Street ( hi, script=Latn, dalāl path, mr, script=Latn, dalāl gallī) in Financial District of Fort (Mumbai precinct), Fort in Mumbai, is the address of the Bombay Stock Exchange and several financial institutions of the world. The ter ...

Dalal Street
, Fort area, began in the late 1970s and was completed and occupied by the BSE in 1980. Initially named the ''BSE Towers'', the name of the building was changed soon after occupation, in memory of Sir Phiroze Jamshedji Jeejeebhoy, chairman of the BSE since 1966, following his death. In 1986, the BSE developed the S&P
BSE SENSEX The BSE SENSEX (also known as the S&P Bombay Stock Exchange Sensitive Index or simply the SENSEX) is a free-float market-weighted stock market index 300px, A comparison of three major U.S. stock indices: the NASDAQ Composite, Dow Jones Industr ...
index, giving the BSE a means to measure the overall performance of the exchange. In 2000, the BSE used this index to open its derivatives market, trading S&P BSE SENSEX futures contracts. The development of S&P BSE SENSEX options along with equity derivatives followed in 2001 and 2002, expanding the BSE's trading platform. Historically an open outcry floor trading exchange, the Bombay Stock Exchange switched to an electronic trading system developed by Cmc ltd. in 1995. It took the exchange only 50 days to make this transition. This automated, screen-based trading platform called BSE On-Line Trading (BOLT) had a capacity of 8 million orders per day. Now BSE has raised capital by issuing shares and as on 3 May 2017 the BSE share which is traded in NSE only closed with ₹999.


Roles

in
Shenzhen Shenzhen (; ; ), also known as Sham Chun, is a major sub-provincial A sub-provincial division () (or deputy-provincial divisions) in China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the List ...

Shenzhen
,
China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the List of countries and dependencies by population, world's most populous country, with a population of around 1.4 billion. Covering approximately 9.6& ...
is the seventh-largest stock exchange in the world, fourth-largest in Asia and second-largest in China. in
London London is the capital city, capital and List of urban areas in the United Kingdom, largest city of England and the United Kingdom. The city stands on the River Thames in the south-east of England, at the head of its estuary leading to the Nor ...

London
,
UK
UK
is the eighth-largest stock exchange in the world, largest non-EU European Stock Exchange and second largest in Europe. National Stock Exchange">File:National Stock exchange Mumbai.JPG, National Stock Exchange in Mumbai, India is the tenth-largest stock exchange in the world, sixth-largest in Asia and second-largest in India. Stock exchanges have multiple roles in the economy. This may include the following:


Raising capital for businesses

Besides the borrowing capacity provided to an individual or firm by the banking system, in the form of credit (finance), credit or a loan, a stock exchange provides company, companies with the facility to raise Financial capital, capital for expansion through selling Share (finance), shares to the investing public. Capital intensive companies, particularly
high tech High technology (high tech) or frontier technology (frontier tech) is technology Technology ("science of craft", from Ancient Greek, Greek , ''techne'', "art, skill, cunning of hand"; and , ''wikt:-logia, -logia'') is the sum of Art techni ...
companies, always need to raise high volumes of capital in their early stages. For this reason, the public market provided by the stock exchanges has been one of the most important funding sources for many capital intensive startups. In the 1990s and early 2000s, hi-tech listed companies experienced a boom and bust in the world's major stock exchanges. Since then, it has been much more demanding for the high-tech entrepreneur to take his/her company public, unless either the company is already generating sales and earnings, or the company has demonstrated credibility and potential from successful outcomes: clinical trials, market research, patent registrations, etc. This is quite different from the situation of the 1990s to early-2000s period, when a number of companies (particularly Internet boom and biotechnology companies)
went public An initial public offering (IPO) or stock market launch is a public offering A public offering is the offering of securities of a company or a similar corporation to the public. Generally, the securities are to be listed on a stock exchange. In m ...
in the most prominent stock exchanges around the world in the total absence of sales, earnings, or any type of well-documented promising outcome. Though it's not as common, it still happens that highly speculative and financially unpredictable hi-tech startups are listed for the first time in a major stock exchange. Additionally, there are smaller, specialized entry markets for these kind of companies with
stock index In finance, a stock index, or stock market index, is an Index (economics), index that measures a stock market, or a subset of the stock market, that helps investors compare current stock price levels with past prices to calculate market performan ...
es tracking their performance (examples include the Alternext,
CAC Small The CAC Small (formerly the CAC Small 90) is a stock market index 300px, A comparison of three major U.S. stock indices: the NASDAQ Composite, Dow Jones Industrial Average, and S&P 500 Index. All three have the same height at March 2007. The NASDAQ ...
,
SDAX The SDAX is a stock market index 300px, A comparison of three major U.S. stock indices: the NASDAQ Composite, Dow Jones Industrial Average, and S&P 500 Index. All three have the same height at March 2007. The NASDAQ spiked during the dot-com bubb ...
,
TecDAX The TecDAX stock index tracks the performance of the 30 largest German companies from the technology sector. In terms of order book Revenue, turnover and market capitalization the companies rank below those included in the DAX. The TecDax was int ...
).


Alternatives to stock exchanges for raising capital


= Research and Development limited partnerships

= Companies have also raised significant amounts of capital through
R&D
R&D
limited partnership A limited partnership (LP) is a form of partnership A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, business ent ...
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.


=Venture capital

= A general source of capital for startup companies has been
venture capital Venture capital (VC) is a form of private equity Private equity (PE) typically refers to investment funds, generally organized as limited partnerships, that buy and restructure companies that are not publicly traded. Private equity is a typ ...
. This source remains largely available today, but the maximum statistical amount that the venture company firms in aggregate will invest in any one company is not limitless (it was approximately $15 million in 2001 for a biotechnology company).


=Corporate partners

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


Mobilizing savings for investment

When people draw their savings and invest in shares (through an
initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also retail (individual) investors. An IPO is typically underwritten by one or more investment ...
or the
seasoned equity offeringA seasoned equity offering or secondary equity offering (SEO) or capital increase is a new equity (finance), equity issued by an already publicly traded company. Seasoned offerings may involve shares sold by existing shareholders (non-dilutive), new ...
of an already listed company), it usually leads to
rational Rationality is the quality or state of being rational – that is, being based on or agreeable to reason Reason is the capacity of consciously making sense of things, applying logic Logic (from Ancient Greek, Greek: grc, wikt:λογι ...

rational
allocation of resources because funds, which could have been consumed, or kept in idle
deposits A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, Transaction account#Current accounts, current accounts or any of several other ...
with banks, are mobilized and redirected to help companies' management boards finance their organizations. This may promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher
productivity Productivity describes various measures of the efficiency of production. Often, a productivity measure is expressed as the ratio of an aggregate output to a single input or an aggregate input used in a production process, i.e. output per unit o ...
levels of firms.


Facilitating acquisitions

Companies view acquisitions as an opportunity to expand
product line In marketing jargon, product lining is offering several related products for sale individually. Unlike product bundling, where several products are combined into one group, which is then offered for sale as a units, product lining involves o ...
s, increase distribution channels, hedge against volatility, increase their
market share Market share is the percentage of the total revenue or sales in a market Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an island shared by Finland and Swed ...
, or acquire other necessary business
asset In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...
s. A
takeover bid ''Takeover Bid'' is a British game show that aired on BBC One, BBC1 from 26 May 1990 until 15 July 1991. It is hosted by Bruce Forsyth and assisted by Claire Sutton (QVC presenter), Claire Sutton. The basic premise of ''Takeover Bid'' was that o ...
or
mergers and acquisitions In corporate finance Corporate finance is the area of finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money a ...
through the
stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, as we ...

stock market
is one of the simplest and most common ways for a company to grow by acquisition or fusion.


Profit sharing

Both casual and professional
stock investor in Dutch). Stock trading in Dutch). Stock trading activity, as we know it today, was originally a 17th-century Dutch investing technique. File:NY stock exchange traders floor LC-U9-10548-6.jpg, Historical photo of stock traders and stockbroker ...
s, as large as
institutional investor An institutional investor is an entity which pools money to purchase Security (finance), securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, St ...
s or as small as an ordinary middle-class family, through
dividend A dividend is a distribution of profits by a corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law 'b ...
s and
stock price A share price is the price of a single Share (finance), share of a number of saleable share capital, equity shares of a company. In layman's terms, the stock price is the highest amount someone is willing to pay for the stock, or the lowest amount ...
increases that may result in
capital gain Capital gain is an economic concept defined as the profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and econ ...
s, share in the wealth of profitable businesses. Unprofitable and troubled businesses may result in
capital loss Capital loss is the difference between a lower selling price and a higher purchase price or cost price of an eligible Capital asset, which typically represents a financial loss for the seller. This is distinct from losses from selling goods below c ...
es for shareholders.


Corporate governance

By having a wide and varied scope of owners, companies generally tend to improve management standards and
efficiency Efficiency is the (often measurable) ability to avoid wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, it is the ability to do things well, successfully, and without ...
to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. This improvement can be attributed in some cases to the price mechanism exerted through shares of stock, wherein the price of the stock falls when management is considered poor (making the firm vulnerable to a takeover by new management) or rises when management is doing well (making the firm less vulnerable to a takeover). In addition, publicly listed shares are subject to greater transparency so that investors can make informed decisions about a purchase. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately held companies (those companies where shares are not publicly traded, often owned by the company founders, their families and heirs, or otherwise by a small group of investors). Despite this claim, some well-documented cases are known where it is alleged that there has been considerable slippage in
corporate governance Corporate governance is the collection of mechanisms, processes and relations used by various parties to control and to operate a corporation. Governance structures and principles identify the distribution of rights and responsibilities among diff ...
on the part of some public companies, particularly in the cases of
accounting scandal Accounting scandals are corporate abuse, business scandals which arise from intentional manipulation of financial statements with the disclosure of financial misdeeds by trusted executive (management), executives of corporations or governments. Suc ...
s. The policies that led to the
dot-com bubble The dot-com bubble (also known as the dot-com boom, the tech bubble, and the Internet bubble) was a stock market bubble caused by excessive speculation of Internet-related companies in the late 1990s, a period of massive growth in the use and a ...
in the late 1990s and the
subprime mortgage crisis The United States subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis. It was triggered by a large decline in home prices after the collaps ...
in 2007–08 are also examples of corporate mismanagement. The mismanagement of companies such as Pets.com (2000),
Enron Enron Corporation was an American energy In physics Physics (from grc, φυσική (ἐπιστήμη), physikḗ (epistḗmē), knowledge of nature, from ''phýsis'' 'nature'), , is the natural science that studies matter, ...
(2001), One.Tel (2001),
Sunbeam Products Sunbeam Products is an American brand that has produced electric home appliances since 1910. Its products have included the Mixmaster mixer, the Sunbeam CG waffle iron, Coffeemaster (1938–1964) and the fully automatic T20 toaster. The compa ...
(2001),
Webvan Webvan was a dot-com company and grocery A grocery store (North America), grocer or grocery shop (UK), is a store primarily engaged in retailing a general range of food products, which may be Fresh food, fresh or Food preservation, packaged. ...

Webvan
(2001),
Adelphia Communications Corporation Adelphia Communications Corporation was an American cable television Cable television is a system of delivering television Television (TV), sometimes shortened to tele or telly, is a telecommunication medium used for transmitting mo ...
(2002), MCI WorldCom (2002),
Parmalat Parmalat S.p.A. is a dairy and food corporation which is a subsidiary of French multinational company Lactalis. It was founded by Calisto Tanzi in 1961. Having become the leading global company in the production of long-life milk using ultra ...
(2003),
American International Group American International Group, Inc., also known as AIG, is an American multinational finance and insurance corporation with operations in more than 80 countries and jurisdictions. , AIG companies employed 49,600 people.Bear Stearns The Bear Stearns Companies, Inc. was a New York-based global investment bank, security (finance), securities trading and brokerage firm that failed in 2008 as part of the Great Recession, global financial crisis and recession, and was subsequent ...
(2008),
Lehman Brothers Lehman Brothers Holdings Inc. () was a global financial services Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including cred ...

Lehman Brothers
(2008),
General Motors General Motors Company (GM) is an American Multinational corporation, multinational Automotive industry, automotive manufacturing company headquartered in Detroit, Michigan, United States. It was founded by William C. Durant on September 16, 1908 ...
(2009) and
Satyam Computer Services Mahindra Satyam (formerly Satyam Computer Services Limited) was an Indian information technology (IT) services company based in Hyderabad Hyderabad ( , , ) is the capital and largest city of the India, Indian States and union territorie ...
(2009) all received plenty of media attention. Many banks and companies worldwide utilize securities identification numbers (
ISIN Isin (, modern Arabic Arabic (, ' or , ' or ) is a Semitic language that first emerged in the 1st to 4th centuries CE.Semitic languages: an international handbook / edited by Stefan Weninger; in collaboration with Geoffrey Khan, Michael P ...
) to identify, uniquely, their stocks, bonds and other securities. Adding an ISIN code helps to distinctly identify securities and the ISIN system is used worldwide by funds, companies, and governments. However, when poor financial, ethical or managerial records become public,
stock investor in Dutch). Stock trading in Dutch). Stock trading activity, as we know it today, was originally a 17th-century Dutch investing technique. File:NY stock exchange traders floor LC-U9-10548-6.jpg, Historical photo of stock traders and stockbroker ...
s tend to lose money as the stock and the company tend to lose value. In the stock exchanges, shareholders of underperforming firms are often penalized by significant share price decline, and they tend as well to dismiss incompetent management teams.


Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small
stock investor in Dutch). Stock trading in Dutch). Stock trading activity, as we know it today, was originally a 17th-century Dutch investing technique. File:NY stock exchange traders floor LC-U9-10548-6.jpg, Historical photo of stock traders and stockbroker ...
s as minimum investment amounts are minimal. Therefore, the stock exchange provides the opportunity for small investors to own shares of the same companies as large investors.


Government capital-raising for development projects

Governments at various levels may decide to borrow money to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of
securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any form ...
known as bonds. These bonds can be raised through the stock exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate, in the short term, direct taxation of citizens to finance development—though by securing such bonds with the full faith and credit of the government instead of with collateral, the government must eventually tax citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.


Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on economic forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. A
recession In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
,
depression Depression may refer to: Mental health * Depression (mood), a state of low mood and aversion to activity * Mood disorders characterized by depression are commonly referred to as simply ''depression'', including: ** Dysthymia ** Major depressive ...
, or
financial crisis A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many ...
could eventually lead to a stock market crash. Therefore, the movement of share prices and in general of the
stock index In finance, a stock index, or stock market index, is an Index (economics), index that measures a stock market, or a subset of the stock market, that helps investors compare current stock price levels with past prices to calculate market performan ...
es can be an indicator of the general trend in the economy.


Listing requirements

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


Examples of listing requirements

The listing requirements imposed by some stock exchanges include: * New York Stock Exchange: the
New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It is by far the List of stock exchanges, world's largest st ...

New York Stock Exchange
(NYSE) requires a company to have issued at least 1.1 million shares of stock worth $40 million and must have earned more than $10 million over the last three years. * NASDAQ Stock Exchange:
NASDAQ The Nasdaq Stock Market () is an American stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and stock trader, traders can buy and sell security (finance), secur ...
requires a company to 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 (LSE) is a stock exchange in the City of London The City of London is a City status in the United Kingdom, city, Ceremonial counties of England, ceremonial county and local government district that contains the histori ...
requires a minimum market capitalization (£700,000), three years of audited financial statements, minimum public float (25%) and sufficient
working capital Working capital (abbreviated WC) is a financial metric which represents Accounting liquidity, operating liquidity available to a business, organization, or other entity, including governmental entities. Along with fixed assets such as plant and equ ...
for at least 12 months from the date of listing. * Bombay Stock Exchange:
Bombay Stock Exchange BSE Limited, formerly known as the Bombay Stock Exchange is an Indian stock exchange located on Dalal Street in Mumbai. Established in 1875, it is Asia's oldest stock exchange. The BSE is the world's 7th largest stock exchange with an overall ma ...
(BSE) requires a minimum market capitalization of and minimum public float equivalent to .


Ownership

Stock exchanges originated as
mutual organization A mutual, mutual organization, or mutual society is an organization An organization, or organisation ( Commonwealth English; see spelling differences), is an entity – such as a company, an institution, or an association – comprisin ...
s, owned by its member stockbrokers. However, the major stock exchanges have ''demutualized'', where the members sell their shares in an
initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also retail (individual) investors. An IPO is typically underwritten by one or more investment ...
. In this way the mutual organization becomes a corporation, with shares that are listed on a stock exchange. Examples are
Australian Securities Exchange The Australian Securities Exchange is Australia's primary securities exchange. It is owned and operated by ASX Limited, with the exchange also commonly referred to as the ASX. While the exchange and the operating companies are separate, they are ...
(1998),
Euronext Euronext N.V. (short for European New Exchange Technology) is a pan-European bourse that offers trading in regulated equities, exchange-traded funds (ETF), warrants and certificates, bond (finance), bonds, derivative (finance), derivatives, commod ...
(merged with New York Stock Exchange),
NASDAQ The Nasdaq Stock Market () is an American stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and stock trader, traders can buy and sell security (finance), secur ...
(2002),
Bursa Malaysia Bursa Malaysia is the stock exchange of Malaysia. It is in Kuala Lumpur , anthem = ''Maju dan Sejahtera'' , image_map = , map_caption = , pushpin_map = Malaysia#Southeast Asia#As ...

Bursa Malaysia
(2004), the
New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It is by far the List of stock exchanges, world's largest st ...

New York Stock Exchange
(2005), Bolsas y Mercados Españoles, and the São Paulo Stock Exchange (2007). The Shenzhen Stock Exchange and Shanghai Stock Exchange can be characterized as quasi-state institutions insofar as they were created by government bodies in China and their leading personnel are directly appointed by the China Securities Regulatory Commission. Another example is Tashkent Stock Exchange established in 1994, three years after the collapse of the Soviet Union, mainly state-owned but has a form of a public corporation (joint-stock company). Korea Exchange (KRX) owns 25% less one share of the Tashkent Stock Exchange. In 2018, there were 15 licensed stock exchanges in the United States, of which 13 actively traded securities. All of these exchanges were owned by three publicly traded multinational companies, Intercontinental Exchange, Nasdaq, Inc., and Cboe Global Markets, except one, IEX. In 2019, a group of financial corporations announced plans to open a members owned exchange, Members Exchange, MEMX, an ownership structure similar to the mutual organizations of earlier exchanges.


Other types of exchanges

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


See also

* Auction * Capital market * Commodities exchange * Corporate governance * Federation of Euro-Asian Stock Exchanges * Financial regulation * :fr:Histoire des bourses de valeurs, Histoire des bourses de valeurs (French) * International Organization of Securities Commissions * Securities market participants (United States) * Shareholder * Stag profit * Stock exchanges for developing countries * Investor, Stock investor * Stock market * Stock market data systems * World Federation of Exchanges Lists: * List of stock exchanges * List of European stock exchanges * List of stock exchanges in the Americas * List of African stock exchanges * List of stock exchanges in Western Asia * List of South Asian stock exchanges * List of East Asian stock exchanges * List of Southeast Asian stock exchanges * List of stock exchanges in Oceania * List of countries without a stock exchange * List of stock market indices * List of financial regulatory authorities by country * List of Swiss financial market legislation


Notes


References


External links

* {{Authority control Stock exchanges, Stock market, Exchange Dutch inventions