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Market Overview

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Market Overview


A stock exchange, securities exchange or bourse, is a facility where stock brokers and traders can buy and sell securities, such as shares of stock and bonds and other financial instruments. Stock exchanges may also provide for facilities the issue and redemption of such securities and instruments and capital events including the payment of income and dividends. 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.

PURPOSE OF STOCK EXCHANGES


Stock exchanges act as an agent for the economy by facilitating trade and disseminating information. Below are some of the ways exchanges contribute:

  • Raising Capital

    Through initial public offerings (IPO) or issuing of new shares, companies are able to raise capital to fund operations and expansion projects. This provides companies with avenues to increase growth.

  • Corporate Governance

    Companies that are publicly listed on a stock exchange must conform to reporting standards that are set by regulating bodies. This includes having to regularly and publicly report their financial statements and earnings to their shareholders.

    The actions of a company's management are constantly under public scrutiny and directly affect the value of the company. Public reporting helps ensure that management will make decisions that benefit the goals of the company and its shareholders, thereby acting efficiently.

  • Economic Efficiency

    In addition to encouraging management efficiency, exchanges also facilitate economic efficiency through the allocation of capital. Stock exchanges provide an avenue for individuals to invest their cash, as opposed to merely saving these funds. This means that the capital that would otherwise be untouched is utilized towards economic benefits, resulting in a more efficient economy.

    In addition, exchanges also provide liquidity, as it is relatively easy to sell one's holdings. By providing liquidity and real-time price information of company shares, the stock exchange also encourages an efficient market by allowing investors to actively decide the value of companies through supply and demand.

  • LISTING REQUIREMENTS


    All companies that wish to go public must satisfy certain reporting requirements as outlined by the securities commissions of their respective jurisdictions.

    In the United States, the Securities and Exchange Commission dictates that companies must discuss and publish their financial statements, as well as other disclosures. These are published in the form of quarterly and annual reports.

    On top of these requirements, in order to be listed on an exchange, a company must also satisfy the requirements of the stock exchange they wish to be listed on. Below are some examples of listing requirements by the three aforementioned exchanges. Listing requirements may also differ for initial public offerings (IPO).

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