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Stock exchange

A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of 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 dividends.[citation needed] Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. Stock exchanges often function as "continuous auction" markets with buyers and sellers consummating transactions via open outcry at a central location such as the floor of the exchange or by using an electronic trading platform.

The New York Stock Exchange at 11 Wall Street in New York City, the world's largest stock exchange per total market capitalization of its listed companies

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

Courtyard of the Amsterdam Stock Exchange (1670), by Job Adriaensz Berckheyde

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

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

Contents

The term bourse is derived from the 13th-century inn named "Huis ter Beurze" (center) in Bruges. From Dutch-speaking cities of the Low Countries, the term 'beurs' spread to other European states where it was corrupted into 'bourse', 'borsa', 'bolsa', 'börse', etc. In England, too, the term ‘bourse’ was used between 1550 and 1775, eventually giving way to the term ‘royal exchange’.

There is little consensus among scholars as to when corporate stock was first traded. Some see the key event as the Dutch East India Company's founding in 1602, 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 and the Amsterdam Stock Exchange 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 argues that a share market existed as far back as ancient Rome, that derives from Etruscan "Argentari". In the Roman Republic, which existed for centuries before the Empire was founded, there were societates publicanorum, organizations of contractors or leaseholders who performed temple-building and other services for the government. One such service was the feeding of geese on the Capitoline Hill as a reward to the birds after their honking warned of a Gallic invasion in 390 B.C. Participants in such organizations had partes or shares, a concept mentioned various times by the statesman and orator Cicero. In one speech, Cicero mentions "shares that had a very high price at the time". Such evidence, in Malmendier's view, suggests the instruments were tradable, with fluctuating values based on an organization's success. The societas declined into obscurity in the time of the emperors, as most of their services were taken over by direct agents of the state.

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

A 17th-century engraving depicting the Amsterdam Stock Exchange (Amsterdam's old bourse, a.k.a. Beurs van Hendrick de Keyser in Dutch), built by Hendrick de Keyser (c. 1612).

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

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

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

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

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Börse Frankfurt (founded in 1585)
The floor of the New York Stock Exchange
Shanghai Stock Exchange, the largest stock exchange in mainland China
Shenzhen Stock Exchange, a stock exchange in Shenzhen, China
B3, the largest stock exchange in Latin America
Indonesian Stock Exchange (Bursa Efek Indonesia) building in Jakarta, considered one of the oldest in Asia.
Mexican Stock Exchange (Bolsa Mexicana de Valores), second-largest stock exchange in Latin America.
The offices of Bursa Malaysia, Malaysia's national stock exchange (known before demutualization as Kuala Lumpur Stock Exchange)
The Johannesburg Stock Exchange, the largest stock exchange in Africa

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 or a loan, a stock exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public.

Capital intensive companies, particularly high tech companies, always need to raise high volumes of capital in their early stages. For this reason, the public market provided by the stock exchanges has been one of the most important funding sources for many capital intensive startups. 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 in the most prominent stock exchanges around the world in the total absence of sales, earnings, or any type of well-documented promising outcome. Though it's not as common, it still happens that highly speculative and financially unpredictable hi-tech startups are listed for the first time in a major stock exchange. Additionally, there are smaller, specialized entry markets for these kind of companies with stock indexes tracking their performance (examples include the Alternext, CAC Small, SDAX, TecDAX).

Alternatives to stock exchanges for raising capital

Research and Development limited partnerships

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

Venture capital

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

Corporate partners

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

Mobilizing savings for investment

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

Facilitating acquisitions

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

Profit sharing

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

Corporate governance

By having a wide and varied scope of owners, companies generally tend to improve management standards and efficiency to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. 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 on the part of some public companies, particularly in the cases of accounting scandals. The policies that led to the dot-com bubble in the late 1990s and the subprime mortgage crisis in 2007–08 are also examples of corporate mismanagement. The mismanagement of companies such as Pets.com (2000), Enron (2001), One.Tel (2001), Sunbeam Products (2001), Webvan (2001), Adelphia Communications Corporation (2002), MCI WorldCom (2002), Parmalat (2003), American International Group (2008), Bear Stearns (2008), Lehman Brothers (2008), General Motors (2009) and Satyam Computer Services (2009) all received plenty of media attention.

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

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

Creating investment opportunities for small investors

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

Government capital-raising for development projects

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

Barometer of the economy

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

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 (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 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 requires a minimum market capitalization (£700,000), three years of audited financial statements, minimum public float (25%) and sufficient working capital for at least 12 months from the date of listing.
  • Bombay Stock Exchange: Bombay Stock Exchange (BSE) requires a minimum market capitalization of250 million (US$3.3 million) and minimum public float equivalent to100 million (US$1.3 million).

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

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

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

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, MEMX, an ownership structure similar to the mutual organizations of earlier exchanges.

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

Lists:

  1. The concept of the bourse (or the exchange) was 'invented' in the medieval Low Countries (most notably in predominantly Dutch-speaking cities like Bruges and Antwerp) before the birth of formal stock exchanges in the 17th century. A pre-VOC bourse was not exactly a formal stock exchange in its modern sense. With the founding of the Dutch East India Company (VOC) in 1602 and the rise of Dutch capital markets in the early 1600s, the 'old' bourse (a place to trade commodities, government and municipal bonds) found a new purpose – a formal exchange that specializes in creating and sustaining secondary markets in the securities (such as bonds and shares of stock) issued by corporations – or a stock exchange as we know it today.
  1. Neal, Larry (2005). "Venture Shares of the Dutch East India Company", in Goetzmann & Rouwenhorst (eds.), Oxford University Press, 2005, pp. 165–175
  2. Murphy, Richard McGill (1 July 2014). "Is Asia the next financial center of the world?". CNBC. As Richard McGill Murphy (2014) notes: "In 1602 the Dutch East India Company opened the world's first stock exchange in Amsterdam. (...) Rival European capitals launched their own stock exchanges. The securitization of the world was under way. (...) It's worth remembering the original Amsterdam Bourse because it established the template for the modern financial center, a physical place where finance professionals help companies access the capital they need to grow."
  3. Lemke and Lins, Soft Dollars and Other Trading Activities, §2:3 (Thomson West, 2013-2014 ed.).
  4. Lemke and Lins, Soft Dollars and Other Trading Activities, §§2:25 - 2:30 (Thomson West, 2013-2014 ed.).
  5. BEATTIE, ANDREW (13 December 2017). "What Was the First Company to Issue Stock?". Investopedia.
  6. Braudel, Fernand (1983). Wheels of Commerce: Civilization & Capitalism 15th-18th Century. New York: Harper & Row. ISBN 0060150912.
  7. Stringham, Edward Peter; Curott, Nicholas A.: On the Origins of Stock Markets [Part IV: Institutions and Organizations; Chapter 14], pp. 324-344, in The Oxford Handbook of Austrian Economics, edited by Peter J. Boettke and Christopher J. Coyne. (Oxford University Press, 2015, ISBN 978-0199811762). Edward P. Stringham & Nicholas A. Curott: "Business ventures with multiple shareholders became popular with commenda contracts in medieval Italy (Greif, 2006, p. 286), and Malmendier (2009) provides evidence that shareholder companies date back to ancient Rome. Yet the title of the world's first stock market deservedly goes to that of seventeenth-century Amsterdam, where an active secondary market in company shares emerged. The two major companies were the Dutch East India Company and the Dutch West India Company, founded in 1602 and 1621. Other companies existed, but they were not as large and constituted a small portion of the stock market (Israel [1989] 1991, 109–112; Dehing and 't Hart 1997, 54; dela Vega [1688] 1996, 173)."
  8. De la Vega, Joseph, Confusion de Confusiones (1688), Portions Descriptive of the Amsterdam Stock Exchange, introduction by Hermann Kellenbenz, Baker Library, Harvard Graduate School of Business Administration (1957)
  9. "Stockbroker 101 - A Cool History". Stockbroker 101.
  10. "History of the NY Stock Exchange". Library of Congress. May 2004.
  11. Diamond, Peter A. (1967). "The Role of a Stock Market in a General Equilibrium Model with Technological Uncertainty". American Economic Review. 57 (4): 759–776. JSTOR 1815367.
  12. Gilson, Ronald J.; Black, Bernard S. (1998). "Venture Capital and the Structure of Capital Markets: Banks Versus Stock Markets". Journal of Financial Economics. 47. doi:10.2139/ssrn.46909. S2CID 154673504.
  13. "Overview of NYSE Quantitative Initial Listing Standards"(PDF). New York Stock Exchange.
  14. "Applications, Notifications & Guides - Nasdaq Listing Center". NASDAQ.
  15. "Bombay Stock Exchange". Bombay Stock Exchange.
  16. "Stages of the Republican Stock Exchange". Tashkent Stock Exchange.
  17. Lahiri, Diptendu (7 January 2019). "Major Wall Street players plan exchange to challenge NYSE, Nasdaq". Reuters.
  18. Ramsay, John (23 May 2018). "Competition among exchanges has reached a new low, and it's dangerous for the stock market". Business Insider. (for recent history see also, "NYSE, Nasdaq and...? Get to Know the U.S.'s Stock Exchanges, Part 1". Financial Industry Regulatory Authority. 17 August 2016., and "Get to Know the U.S.'s Major Stock Exchanges, Part 2". Financial Industry Regulatory Authority. 17 August 2016.
  19. Osipovich, Alexander (7 January 2019)."Wall Street Firms Plan New Exchange to Challenge NYSE, Nasdaq". The Wall Street Journal.
Look up bourse or stock exchange in Wiktionary, the free dictionary.
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Stock exchange
Stock exchange Article Talk Language Watch Edit A stock exchange securities exchange or bourse note 1 is an exchange where stockbrokers and traders can buy and sell securities such as shares of 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 dividends citation needed Securities traded on a stock exchange include stock issued by listed companies unit trusts derivatives pooled investment products and bonds Stock exchanges often function as continuous auction markets with buyers and sellers consummating transactions via open outcry at a central location such as the floor of the exchange or by using an electronic trading platform 3 Courtyard of the Amsterdam Stock Exchange or Beurs van Hendrick de Keyser in Dutch The New York Stock Exchange at 11 Wall Street in New York City the world s largest stock exchange per total market capitalization of its listed companies To be able to trade a security on a certain stock exchange the security must be listed there Usually there is a central location at least for record keeping but trade is increasingly less linked to a physical place as modern markets use electronic communication networks which give them advantages of increased speed and reduced cost of transactions Trade on an exchange is restricted to brokers who are members of the exchange In recent years various other trading venues such as electronic communication networks alternative trading systems and dark pools have taken much of the trading activity away from traditional stock exchanges 4 Courtyard of the Amsterdam Stock Exchange 1670 by Job Adriaensz Berckheyde Initial public offerings of stocks and bonds to investors is done in the primary market and subsequent trading is done in the secondary market A stock exchange is often the most important component of a stock market Supply and demand in stock markets are driven by various factors that as in all free markets affect the price of stocks see stock valuation There is usually no obligation for stock to be issued through the stock exchange itself nor must stock be subsequently traded on an exchange Such trading may be off exchange or over the counter This is the usual way that derivatives and bonds are traded Increasingly stock exchanges are part of a global securities market Stock exchanges also serve an economic function in providing liquidity to shareholders in providing an efficient means of disposing of shares Contents 1 History 2 Roles 2 1 Raising capital for businesses 2 1 1 Alternatives to stock exchanges for raising capital 2 1 1 1 Research and Development limited partnerships 2 1 1 2 Venture capital 2 1 1 3 Corporate partners 2 2 Mobilizing savings for investment 2 3 Facilitating acquisitions 2 4 Profit sharing 2 5 Corporate governance 2 6 Creating investment opportunities for small investors 2 7 Government capital raising for development projects 2 8 Barometer of the economy 3 Listing requirements 3 1 Examples of listing requirements 4 Ownership 5 Other types of exchanges 6 See also 7 Notes 8 References 9 External linksHistory Edit The term bourse is derived from the 13th century inn named Huis ter Beurze center in Bruges From Dutch speaking cities of the Low Countries the term beurs spread to other European states where it was corrupted into bourse borsa bolsa borse etc In England too the term bourse was used between 1550 and 1775 eventually giving way to the term royal exchange There is little consensus among scholars as to when corporate stock was first traded Some see the key event as the Dutch East India Company s founding in 1602 5 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 and the Amsterdam Stock Exchange is often considered the oldest modern securities market in the world 6 On the other hand economist Ulrike Malmendier of the University of California at Berkeley argues that a share market existed as far back as ancient Rome that derives from Etruscan Argentari In the Roman Republic which existed for centuries before the Empire was founded there were societates publicanorum organizations of contractors or leaseholders who performed temple building and other services for the government One such service was the feeding of geese on the Capitoline Hill as a reward to the birds after their honking warned of a Gallic invasion in 390 B C Participants in such organizations had partes or shares a concept mentioned various times by the statesman and orator Cicero In one speech Cicero mentions shares that had a very high price at the time Such evidence in Malmendier s view suggests the instruments were tradable with fluctuating values based on an organization s success The societas declined into obscurity in the time of the emperors as most of their services were taken over by direct agents of the state Tradable bonds as a commonly used type of security were a more recent innovation spearheaded by the Italian city states of the late medieval and early Renaissance periods 7 A 17th century engraving depicting the Amsterdam Stock Exchange Amsterdam s old bourse a k a Beurs van Hendrick de Keyser in Dutch built by Hendrick de Keyser c 1612 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 8 explained the workings of the city s stock market It was the earliest book about stock trading and inner workings of a stock market taking the form of a dialogue between a merchant a shareholder and a philosopher the book described a market that was sophisticated but also prone to excesses and de la Vega offered advice to his readers on such topics as the unpredictability of market shifts and the importance of patience in investment London Stock Exchange in 1810 In England King William III sought to modernize the kingdom s finances to pay for its wars and thus the first government bonds were issued in 1693 and the Bank of England was set up the following year Soon thereafter English joint stock companies began going public London s first stockbrokers however were barred from the old commercial center known as the Royal Exchange reportedly because of their rude manners Instead the new trade was conducted from coffee houses along Exchange Alley By 1698 a broker named John Castaing operating out of Jonathan s Coffee House was posting regular lists of stock and commodity prices Those lists mark the beginning of the London Stock Exchange 9 One of history s greatest financial bubbles occurred around 1720 At the center of it were the South Sea Company set up in 1711 to conduct English trade with South America and the Mississippi Company focused on commerce with France s Louisiana colony and touted by transplanted Scottish financier John Law who was acting in effect as France s central banker Investors snapped up shares in both and whatever else was available In 1720 at the height of the mania there was even an offering of a company for carrying out an undertaking of great advantage but nobody to know what it is By the end of that same year share prices had started collapsing as it became clear that expectations of imminent wealth from the Americas were overblown In London Parliament passed the Bubble Act which stated that only royally chartered companies could issue public shares In Paris Law was stripped of office and fled the country Stock trading was more limited and subdued in subsequent decades Yet the market survived and by the 1790s shares were being traded in the young United States On May 17 1792 the New York Stock Exchange opened under a platanus occidentalis buttonwood tree in New York City as 24 stockbrokers signed the Buttonwood Agreement agreeing to trade five securities under that buttonwood tree 10 Roles EditThis section needs additional citations for verification Please help improve this article by adding citations to reliable sources Unsourced material may be challenged and removed March 2018 Learn how and when to remove this template message Borse Frankfurt founded in 1585 The floor of the New York Stock Exchange Shanghai Stock Exchange the largest stock exchange in mainland China Shenzhen Stock Exchange a stock exchange in Shenzhen China Tokyo Stock Exchange Tokyo B3 the largest stock exchange in Latin America Indonesian Stock Exchange Bursa Efek Indonesia building in Jakarta considered one of the oldest in Asia Mexican Stock Exchange Bolsa Mexicana de Valores second largest stock exchange in Latin America The offices of Bursa Malaysia Malaysia s national stock exchange known before demutualization as Kuala Lumpur Stock Exchange The Johannesburg Stock Exchange the largest stock exchange in Africa Stock exchanges have multiple roles in the economy This may include the following 11 Raising capital for businesses Edit Besides the borrowing capacity provided to an individual or firm by the banking system in the form of credit or a loan a stock exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public 12 Capital intensive companies particularly high tech companies always need to raise high volumes of capital in their early stages For this reason the public market provided by the stock exchanges has been one of the most important funding sources for many capital intensive startups 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 in the most prominent stock exchanges around the world in the total absence of sales earnings or any type of well documented promising outcome Though it s not as common it still happens that highly speculative and financially unpredictable hi tech startups are listed for the first time in a major stock exchange Additionally there are smaller specialized entry markets for these kind of companies with stock indexes tracking their performance examples include the Alternext CAC Small SDAX TecDAX Alternatives to stock exchanges for raising capital Edit Research and Development limited partnerships Edit Companies have also raised significant amounts of capital through R amp D limited partnerships Tax law changes that were enacted in 1987 in the United States changed the tax deductibility of investments in R amp 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 Edit A general source of capital for startup companies has been venture capital This source remains largely available today but the maximum statistical amount that the venture company firms in aggregate will invest in any one company is not limitless it was approximately 15 million in 2001 for a biotechnology company Corporate partners Edit 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 Edit When people draw their savings and invest in shares through an initial public offering or the seasoned equity offering of an already listed company it usually leads to rational allocation of resources because funds which could have been consumed or kept in idle deposits with banks are mobilized and redirected to help companies management boards finance their organizations This may promote business activity with benefits for several economic sectors such as agriculture commerce and industry resulting in stronger economic growth and higher productivity levels of firms Facilitating acquisitions Edit Companies view acquisitions as an opportunity to expand product lines increase distribution channels hedge against volatility increase their market share or acquire other necessary business assets A takeover bid or mergers and acquisitions through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion Profit sharing Edit Both casual and professional stock investors as large as institutional investors or as small as an ordinary middle class family through dividends and stock price increases that may result in capital gains share in the wealth of profitable businesses Unprofitable and troubled businesses may result in capital losses for shareholders Corporate governance Edit By having a wide and varied scope of owners companies generally tend to improve management standards and efficiency to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government 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 on the part of some public companies particularly in the cases of accounting scandals The policies that led to the dot com bubble in the late 1990s and the subprime mortgage crisis in 2007 08 are also examples of corporate mismanagement The mismanagement of companies such as Pets com 2000 Enron 2001 One Tel 2001 Sunbeam Products 2001 Webvan 2001 Adelphia Communications Corporation 2002 MCI WorldCom 2002 Parmalat 2003 American International Group 2008 Bear Stearns 2008 Lehman Brothers 2008 General Motors 2009 and Satyam Computer Services 2009 all received plenty of media attention Many banks and companies worldwide utilize securities identification numbers ISIN to identify uniquely their stocks bonds and other securities Adding an ISIN code helps to distinctly identify securities and the ISIN system is used worldwide by funds companies and governments However when poor financial ethical or managerial records become public stock investors tend to lose money as the stock and the company tend to lose value In the stock exchanges shareholders of underperforming firms are often penalized by significant share price decline and they tend as well to dismiss incompetent management teams Creating investment opportunities for small investors Edit As opposed to other businesses that require huge capital outlay investing in shares is open to both the large and small stock investors as minimum investment amounts are minimal Therefore the stock exchange provides the opportunity for small investors to own shares of the same companies as large investors Government capital raising for development projects Edit Governments at various levels may decide to borrow money to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds These bonds can be raised through the stock exchange whereby members of the public buy them thus loaning money to the government The issuance of such bonds can obviate in the short term direct taxation of citizens to finance development though by securing such bonds with the full faith and credit of the government instead of with collateral the government must eventually tax citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature Barometer of the economy Edit At the stock exchange share prices rise and fall depending largely on economic forces Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth A recession depression or financial crisis could eventually lead to a stock market crash Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy Listing requirements EditEach 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 Edit The listing requirements imposed by some stock exchanges include New York Stock Exchange the 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 13 NASDAQ Stock Exchange NASDAQ 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 14 London Stock Exchange the main market of the London Stock Exchange requires a minimum market capitalization 700 000 three years of audited financial statements minimum public float 25 and sufficient working capital for at least 12 months from the date of listing Bombay Stock Exchange Bombay Stock Exchange BSE requires a minimum market capitalization of 250 million US 3 3 million and minimum public float equivalent to 100 million US 1 3 million 15 Ownership EditStock exchanges originated as mutual organizations owned by its member stockbrokers However the major stock exchanges have demutualized where the members sell their shares in an initial public offering In this way the mutual organization becomes a corporation with shares that are listed on a stock exchange Examples are Australian Securities Exchange 1998 Euronext merged with New York Stock Exchange NASDAQ 2002 Bursa Malaysia 2004 the New York Stock Exchange 2005 Bolsas y Mercados Espanoles and the Sao 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 16 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 17 18 In 2019 a group of financial corporations announced plans to open a members owned exchange MEMX an ownership structure similar to the mutual organizations of earlier exchanges 19 17 Other types of exchanges EditIn the 19th century exchanges were opened to trade forward contracts on commodities Exchange traded forward contracts are called futures contracts These commodity markets later started offering future contracts on other products such as interest rates and shares as well as options contracts They are now generally known as futures exchanges See also EditAuction Capital market Commodities exchange Corporate governance Federation of Euro Asian Stock Exchanges Financial regulation Histoire des bourses de valeurs French International Organization of Securities Commissions Securities market participants United States Shareholder Stag profit Stock exchanges for developing countries 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 legislationNotes Edit The concept of the bourse or the exchange was invented in the medieval Low Countries most notably in predominantly Dutch speaking cities like Bruges and Antwerp before the birth of formal stock exchanges in the 17th century A pre VOC bourse was not exactly a formal stock exchange in its modern sense With the founding of the Dutch East India Company VOC in 1602 and the rise of Dutch capital markets in the early 1600s the old bourse a place to trade commodities government and municipal bonds found a new purpose a formal exchange that specializes in creating and sustaining secondary markets in the securities such as bonds and shares of stock issued by corporations or a stock exchange as we know it today 1 2 References Edit Neal Larry 2005 Venture Shares of the Dutch East India Company in Goetzmann amp Rouwenhorst eds Oxford University Press 2005 pp 165 175 Murphy Richard McGill 1 July 2014 Is Asia the next financial center of the world CNBC As Richard McGill Murphy 2014 notes In 1602 the Dutch East India Company opened the world s first stock exchange in Amsterdam Rival European capitals launched their own stock exchanges The securitization of the world was under way It s worth remembering the original Amsterdam Bourse because it established the template for the modern financial center a physical place where finance professionals help companies access the capital they need to grow Lemke and Lins Soft Dollars and Other Trading Activities 2 3 Thomson West 2013 2014 ed Lemke and Lins Soft Dollars and Other Trading Activities 2 25 2 30 Thomson West 2013 2014 ed BEATTIE ANDREW 13 December 2017 What Was the First Company to Issue Stock Investopedia Braudel Fernand 1983 Wheels of Commerce Civilization amp Capitalism 15th 18th Century New York Harper amp Row ISBN 0060150912 Stringham Edward Peter Curott Nicholas A On the Origins of Stock Markets Part IV Institutions and Organizations Chapter 14 pp 324 344 in The Oxford Handbook of Austrian Economics edited by Peter J Boettke and Christopher J Coyne Oxford University Press 2015 ISBN 978 0199811762 Edward P Stringham amp Nicholas A Curott Business ventures with multiple shareholders became popular with commenda contracts in medieval Italy Greif 2006 p 286 and Malmendier 2009 provides evidence that shareholder companies date back to ancient Rome Yet the title of the world s first stock market deservedly goes to that of seventeenth century Amsterdam where an active secondary market in company shares emerged The two major companies were the Dutch East India Company and the Dutch West India Company founded in 1602 and 1621 Other companies existed but they were not as large and constituted a small portion of the stock market Israel 1989 1991 109 112 Dehing and t Hart 1997 54 dela Vega 1688 1996 173 De la Vega Joseph Confusion de Confusiones 1688 Portions Descriptive of the Amsterdam Stock Exchange introduction by Hermann Kellenbenz Baker Library Harvard Graduate School of Business Administration 1957 Stockbroker 101 A Cool History Stockbroker 101 History of the NY Stock Exchange Library of Congress May 2004 Diamond Peter A 1967 The Role of a Stock Market in a General Equilibrium Model with Technological Uncertainty American Economic Review 57 4 759 776 JSTOR 1815367 Gilson Ronald J Black Bernard S 1998 Venture Capital and the Structure of Capital Markets Banks Versus Stock Markets Journal of Financial Economics 47 doi 10 2139 ssrn 46909 S2CID 154673504 Overview of NYSE Quantitative Initial Listing Standards PDF New York Stock Exchange Applications Notifications amp Guides Nasdaq Listing Center NASDAQ Bombay Stock Exchange Bombay Stock Exchange Stages of the Republican Stock Exchange Tashkent Stock Exchange a b Lahiri Diptendu 7 January 2019 Major Wall Street players plan exchange to challenge NYSE Nasdaq Reuters Ramsay John 23 May 2018 Competition among exchanges has reached a new low and it s dangerous for the stock market Business Insider for recent history see also NYSE Nasdaq and Get to Know the U S s Stock Exchanges Part 1 Financial Industry Regulatory Authority 17 August 2016 and Get to Know the U S s Major Stock Exchanges Part 2 Financial Industry Regulatory Authority 17 August 2016 Osipovich Alexander 7 January 2019 Wall Street Firms Plan New Exchange to Challenge NYSE Nasdaq The Wall Street Journal External links EditLook up bourse or stock exchange in Wiktionary the free dictionary Wikimedia Commons has media related to Stock exchanges Stock exchange at Curlie Retrieved from https en wikipedia org w index php title Stock exchange amp oldid 1055155646, wikipedia, wiki, book,

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