A stock exchange, share market or bourse is a corporation or mutual organization which provides facilities for stock brokers and traders, to trade company stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks.
There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded. Increasingly, stock exchanges are part of a global market for securities.
The role of stock exchanges
Raising capital for businesses
The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public.
Mobilizing savings for investment
When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in a stronger economic growth and higher productivity levels.
Facilitating company growth
Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.
Redistribution of wealth
Stocks exchanges do not exist to redistribute wealth although casual and professional stock investors through stock price increases (that may result in capital gains for the investor) and dividends get a chance to share in the wealth of profitable businesses.
Corporate governance
By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors). However, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies (Pets.com (2000), Enron Corporation (2001), One.TelSunbeam (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), or Parmalat (2003), are among the most widely scrutinized by the media). (2001),
Creating investment opportunities for small investors
As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.
Government capital-raising for development projects
Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such municipal bonds can obviate the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.
Barometer of the economy
At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.
Major stock exchanges
Twenty Major Stock Exchanges In The World: Market Capitalization & Year-to-date Turnover at the end of August 2007
| Region | Stock Exchange | Market Value | Total Share Turnover |
| | $0.777 | $0.264 | |
| | $4.07 | $9.71 | |
| | $1.09 | $0.348 | |
| | $1.90 | $1.05 | |
| Americas/Europe | $19.6 | $22.8 | |
| Asia-Pacific | $1.28 | $0.886 | |
| Asia-Pacific | $1.11 | $0.182 | |
| Asia-Pacific | $2.28 | $1.15 | |
| Asia-Pacific | $1.10 | $1.26 | |
| Asia-Pacific | $1.05 | $0.381 | |
| Asia-Pacific | $2.38 | $2.83 | |
| Asia-Pacific | $0.707 | $1.49 | |
| Asia-Pacific | $4.52 | $4.47 | |
| | $1.89 | $2.94 | |
| | $3.85 | $7.64 | |
| | Madrid Stock Exchange (BME Spanish Exchanges) | $1.50 | $1.98 |
| | Milan Stock Exchange (Borsa Italiana) | $1.06 | $1.57 |
| | $0.965 | $0.488 | |
| | Nordic Stock Exchange Group OMX | $1.27 | $1.26 |
| | $1.25 | $1.28 |
Note 1: includes the
Note 2: latest data available is at the end of June 2007
- Sources: World Federation of Exchanges - Statistics/Monthly
- Remarks: There are 2 pending major mergers: NASDAQ with OMX; and London Stock Exchange with Milan Stock Exchange
The main stock exchanges in the world include:
- American Stock Exchange
- Australian Stock Exchange
- Bolsa Mexicana de Valores
- Bombay Stock Exchange
- Euronext Amsterdam
- Euronext Brussels
- Euronext Lisbon
- Euronext Paris
- Frankfurt Stock Exchange
- Helsinki Stock Exchange
- Hong Kong Stock Exchange
- Istanbul Stock Exchange
- JASDAQ
- Johannesburg Securities Exchange
- Karachi Stock Exchange
- Korea Stock Exchange
- Kuwait Stock Exchange
- London Stock Exchange
- Madrid Stock Exchange
- Milan Stock Exchange
- Nagoya Stock Exchange
- National Stock Exchange of India
- NASDAQ
- New York Stock Exchange
- Osaka Securities Exchange
- São Paulo Stock Exchange
- Shanghai Stock Exchange
- Singapore Exchange
- Stockholm Stock Exchange
- Taiwan Stock Exchange
- Tokyo Stock Exchange
- Toronto Stock Exchange
- Zurich Stock Exchange
FYI: There are many external links (text with blue color) in the post, please use them for more information and to check for terminologies.
Stockbroker: What is a million years like to you?
God: Like one second.
Stockbroker: What is a million dollars like to you?
God: Like one penny.
Stockbroker: Can I have a penny?
God: Just a second ...
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Always play with other people's money!
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