Chapter: 3 How Securities are Traded?

Section: 2 Stock Exchange

Like any other market, a stock exchange or securities exchange is an arrangement where buyers and sellers meet to acquire and dispose shares of public companies. A market does not need a physical place or building; as long as the buyer and the seller can communicate, that arrangement can be defined as a market. In traditional markets, the buyers and sellers or the agents of buyers and sellers meet physically to trade in securities and the market floor is used for trade. This is similar to an auction. Corporations are allowed to offer their shares for trading based on set of regulations issued by the stock exchange. The stock prices are determined by the market forces i.e. demand and supply.


Stock markets operate under well-drafted rules and regulations, which are carefully developed by the relevant governing bodies. Once a company is allowed to trade its shares on the stock exchange, any member of the public or a company can buy and sell its shares within the rules stipulated by the exchange. Each exchange has its own set of listing requirements to ensure that firms are of significant trading interest before the exchange will allocate facilities for it to be traded on the floor of the exchange. If a listed company suffers a decline and fails to meet the criteria, it may be de-listed. Regional exchanges provide a market for the trading of shares of local firms that do not meet the listing requirements of the national exchanges.


There are several stock exchanges in major cities around the world. In many countries, in addition to a major national exchange, there are also a number of local exchanges. In US, the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX) are national in scope and located in New York. Other major exchanges around the world include the stock exchanges at London, Tokyo, Frankfurt, Paris, Honk Kong, Singapore, Sydney, etc. In addition to the stock exchanges, there also are several exchanges for the trading of options and futures contracts around the world in many major cities.