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Major stock exchanges in the United States include the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX), both in New York City. Far more corporations list their stock on the NYSE than on the AMEX, however. Nine smaller regional stock exchanges operate in Boston, Massachusetts; Cincinnati, Ohio; Chicago, Illinois; Los Angeles, California; Miami, Florida; Philadelphia, Pennsylvania; Salt Lake City, Utah; San Francisco, California; and Spokane, Washington. In addition, most of the world's industrialized nations have stock exchanges. Among the larger international exchanges are those in London, England; Paris, France; Milan, Italy; Hong Kong, China; Toronto, Canada; and Tokyo, Japan. These stock exchanges all have a central location for trading. The major over-the-counter market in the United States is the Nasdaq Stock Market (formerly, the National Association of Securities Dealers Automated Quotation [NASDAQ] system). The European Association of Securities Dealers Automated Quotation system (EASDAQ) is the major over-the-counter market for the European Union (EU).
Stock exchange transactions involve the activities of brokers and dealers. These individuals facilitate the buying and selling of financial assets. Brokers execute trades on behalf of clients and receive commissions and fees in exchange for matching buyers and sellers. Dealers, on the other hand, buy and sell from their own portfolios (inventories of securities). Dealers earn income by selling a financial instrument at a price that is greater than the price the dealer paid for the instrument. Some exchange participants perform both roles. These dealer-brokers sometimes act purely as a client's agent and at other times buy and sell from their own inventory of financial assets
The Importance of Stock Exchanges
Stock exchanges perform important roles in national economies. Most importantly, they encourage investment by providing places for buyers and sellers to trade securities. This investment, in turn, enables corporations to obtain funds to expand their businesses.
Corporations issue new securities in what is known as the primary market, usually with the help of investment bankers (Investment Banking).
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Although corporations do not directly benefit from secondary market transactions, the managers of a corporation closely monitor the price of the corporation's stock in secondary markets. One reason for this concern involves the cost of raising new funds for further business expansion. The price of a company's stock in the secondary market influences the amount of funds that can be raised by issuing additional stock in the primary market.
Corporate managers also pay attention to the price of the company's stock in secondary markets because it affects the financial wealth of the corporation's ownersthe stockholders. If the price of the stock rises, then the stockholders become wealthier. This is likely to make them happy with the company's management. Typically, managers own only small amounts of a corporation's outstanding shares. If the price of the stock declines, the shareholders become less wealthy and are likely to be unhappy with management. If enough shareholders become unhappy, they may move to replace the corporation's managers. Most corporate managers also receive options to buy company stock at a selected price, so they are motivated to increase the value of the stock in the secondary market.
Stock exchanges encourage investment by providing this secondary market. Stock exchanges also encourage investment in other ways. They protect investors by upholding rules and regulations that ensure buyers will be treated fairly and receive exactly what they pay for. Exchanges also support state-of-the-art technology and the business of brokering. This support helps traders buy and sell securities quickly and efficiently. Of course, being able to sell a security in the secondary market increases the relative safety of investing because investors can unload a stock that may be on the decline or that faces an uncertain future