A stock exchange is a regulated market where securities, such as bonds, notes, and stocks, are bought and sold. It provides structure for both primary and secondary markets and imposes rules and regulations to protect investors. Eligible entities must comply with government regulations and listing requirements to offer securities on the public stock market. The stock market is considered a barometer of a country’s economy.
A stock exchange is a place where securities are bought and sold. It is the physical apparatus of the stock market, in the same way that a shopping center is a retail market apparatus that allows transactions to occur. Most countries with stable economies and a public business sector have a stock market controlled by an exchange. The stock exchange imposes rules and regulations on the type and quality of securities that may be offered to the public for sale. It provides structure for a primary market for regulated entity-to-investor transactions and a secondary investor-to-investor market.
Securities are bonds, notes, and stocks offered for sale by public corporations and government entities to raise money in exchange for an equity or debt position. Every government that allows entities to raise money from the public sets regulations to protect investors against insider activities. There is typically no way for a public investor to be sure of a corporation’s inner workings, for example, without government regulation requiring the corporation to make standard disclosures. These disclosures allow investors to compare investment vehicles and make a decision with confidence.
Only those entities that comply with government regulations may offer securities on the public stock market. Eligible entities must offer their securities for listing on a stock exchange to provide a way to buy and sell them. The stock market imposes listing requirements that serve to control the quality of the public offering. Most exchanges require an entity to have minimum levels of shares outstanding, market capitalization, and annual revenue.
Some countries have multiple stock exchanges. For example, the US has the New York Stock Exchange (NYSE) and the NASDAQ Stock Market (NASDAQ). Both offer the same basic functionality as stock exchanges, but the NYSE operates according to a traditional format, while the NASDAQ is an electronic exchange. Transactions that occur through the NYSE occur on the trading floor of a physical location in the stock exchange building, while transactions on the NASDAQ occur through an electronic trading system in cyberspace.
A stock exchange serves the primary and secondary stock market. It allows regulated entities to offer securities to investors through an initial public offering as the primary market and allows investors to resell securities to other investors as the secondary market. This functionality is indispensable for the country’s financial industry because the quality and depth of investment in the business sector indicates consumer confidence in the prosperity of the country as a whole. For many countries, the stock market is considered a barometer of the general state of their economy.
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