History of Stock Exchanges


The first stock exchanges date back to the Middle Age in Europe with debt trading between merchants. However the first stock trading can be found in the 17th century with the creation of various companies to explore European colonies such as the Dutch East India Company. Historically stocks and bonds were traded in a physical place or building with traders gathering on the floor and exchanging financial titles by hand.

Since the 1980's and 1990's, with the development of computer technologies, stock exchanges have been dematerialized and most of the transactions now happen electronically, though some exchanges have kept floor trading activities like the New York Stock Exchange. Euronext has adopted a fully electronic system.

Definition of Stock Exchanges

A stock exchange is an entity such as an institution, organization or association which provides "trading" facilities for stock brokers and traders, to trade financial instruments such as stocks, bonds, securities and their related derivatives. 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, derivatives, pooled investment products and bonds. Most modern stock exchanges, like NYSE Euronext, have both a trading floor and an electronic trading system.

Electronic Stock Exchanges


Traditional stock exchanges have met increasing competition from fully electronic platforms. Electronic trading has dramatically reduced the cost of entry into this market. Several exchanges have developed in recent years such as BATS Exchange out of Kansas City. This new competition has reduced the spread of purchases and sales across the market.

Photo: Trading at the BATS Exchange in Lenexa, Kansas is a world away from the shouting on the floor at the New York Stock Exchange.

A Simplified Explanation of Stock Exchanges

Most of the stock securities are traded on what are called stock exchanges. Stock exchanges are where stock traders come together to decide on the price of a stock security. Trading on an exchange has usually taken place on a trading floor but with the introduction of the computer and the internet, much of the trading nowadays, takes place in virtual reality and therefore lacks an actual trading floor. These virtual stock exchanges are made up of a network of computers where the stock trades are executed electronically.

Function of a Stock Exchange

Stock exchanges have a vital function in modern economies as places where investors and companies can meet and exchange capitals. They offer standardized instruments which are traded with transparency contrary to what happens in OTC transactions. They display prices and volumes for every product they trade.

The Importance of Stock Exchanges


The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate.

History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to be an up and coming economy. In fact, the stock market is often considered the primary indicator of a country’s economic strength and development. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Financial stability is the purpose which justifies having central banks.

Stock Exchanges Making Money

Stock Exchanges make money in several different areas. Listings, sales, and selling market statistics are some of the various ways that they produce revenue.

Listing of A Security On Stock Exchanges

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 in the 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 are driven by various factors which, as in all free markets, affect the price of stocks.


Primary market

The primary market - also called "issuance market" - is the one in which a security is first issued. Companies use the primary market to raise capital. By issuing securities, they can divide major capital outlays into small units.

If a company decides to issue securities in order to raise short- or long-term capital, it enters the money or capital market as an issuer. Companies can issue different kinds of securities: shares, bonds, debt securities, warrants, etc.

In a first step, securities such as shares and bonds are placed directly with investors or indirectly via banks with no involvement of a stock exchange to begin with. After examining the issuer's accounts, the bank acquires all of the bonds or shares at a predetermined price. The placement risk, then, is taken on by the banks, and the capital seeker can dispose of the proceeds from the transaction.

If trading on a stock exchange is desired (secondary market), the bank continues the issuing process. Among other things, this involves the duty to publish a prospectus, the subscription period and the lodging of a listing application with the stock exchange. When a joint-stock company goes public, the first share issue is called the "initial public offering" (IPO).

The proceeds from issuing shares constitute or increase the company's equity capital. Issuing a bond constitutes or increases its debt capital.

Secondary market

The secondary market is the market in which securities are traded on the stock market.

In the secondary market, companies are not in search of capital; instead, you as an investor deal with other buyers and sellers of securities. This is where actual stock-exchange trading takes place. All traded securities are public and available to everyone.

In order for a security to be traded on the Exchange, the company has to successfully complete the issuing process and meet various requirements set out in the Listing Rules.

In order to remain listed, issuers have to carry out certain duties such as publication of price-sensitive data. This is why news about listed companies is published in the media on an almost daily basis.


Increasingly, exchange owners and operators are getting themselves listed on their own exchanges and have become private companies just like any other company. This is the case with companies like NYSE Euronext, Deutsche Boerse AG and the NASDAQ OMX Group. These companies have evolved into international groups operating on different continents and gathering multiple activities like traditional stock markets, derivatives markets and commodities markets.


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


Stock Certificate: Pittsburgh, McKeesport & Youghiogheny Railroad stock certificate

The Pittsburgh, McKeesport & Youghiogheny Railroad was operated as the eastern end of the Pittsburgh & Lake Erie Railroad. The PMcK&Y was 50% owned by the P&LE and the New York Central owned Michigan Central Railroad and leased its tracks, locomotives and rolling stock to the P&LE.

Stock Markets in the USA

The United States of America (USA) comes under the high income OECD countries depending upon the classification of Economies by Income and region made by the World Bank for year 2005.

Major US Stock Exchanges


A "national securities exchange" is a securities exchange that has registered with the SEC (Securities and Exchange Commission) under Section 6 of the Securities Exchange Act of 1934.

There are currently fourteen securities exchanges registered with the SEC under Section 6(a) of the Exchange Act as national securities exchanges:

• NYSE Amex LLC (formerly the American Stock Exchange) - 86 Trinity Place, New York

• BATS Exchange, Inc.

• NASDAQ OMX BX, Inc. (formerly the Boston Stock Exchange) - 38th Floor, One Boston Place, Boston

• C2 Options Exchange, Incorporated

• Chicago Board Options Exchange, Incorporated - 400 S. LaSalle Street, Chicago

• Chicago Stock Exchange, Inc. - One Financial Place, 440 S. LaSalle St, Chicago

• EDGA Exchange, Inc.

• EDGX Exchange, Inc.

• International Securities Exchange, LLC - 60 Broad Street, NY, NY 10004, New York

• The Nasdaq Stock Market LLC - 1735 K Street NW, Washington DC

• National Stock Exchange, Inc.


• New York Stock Exchange LLC - (NYSE) - 11 Wall Street, New York. One of the most famous stock exchanges is the New York Stock Exchange or the NYSE. Also referred to as the "Big Board" the NYSE was first founded over two centuries ago, on May 17, 1792, under the Buttonwood Agreement.

• NYSE Arca, Inc.

• NASDAQ OMX PHLX, Inc. (formerly Philadelphia Stock Exchange) - 1900 Market Street, Philadelphia

Exchanges for the Purpose of Trading Security Futures

Certain exchanges are also registered with the SEC through a notice filing under Section 6(g) of the Exchange Act for the purpose of trading security futures.

• Board of Trade of the City of Chicago, Inc. - 141 West Jackson Boulevard, Chicago

• CBOE Futures Exchange, LLC

• Chicago Mercantile Exchange - 30 S. Wacker Drive, Chicago

• One Chicago, LLC

• The Island Futures Exchange, LLC


Exchanges Exempted from Registration

There are also two exchanges that the SEC has exempted from registration as national securities exchanges on the basis of a limited volume of transactions:

• Arizona Stock Exchange

• SWX Europe Limited

Recently Approved Exchange Applications

• EDGA Exchange, Inc.

• EDGX Exchange, Inc.

• C2 Options Exchange, Incorporated

• BATS Exchange, Inc.

• The Nasdaq Stock Market LLC - 1735 K Street NW, Washington DC