Purpose of Stock Exchanges: Some Notable Stock Exchanges in the World
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:
Below are some of the ways exchanges contribute:
1. 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.
2. 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.
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.
3. 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 on company shares, the stock exchange also encourages an efficient market by allowing investors to actively decide the value of companies through supply and demand.
In addition, exchanges also provide liquidity, as it is relatively easy to sell one’s holdings. By providing liquidity and real-time price information on company shares, the stock exchange also encourages an efficient market by allowing investors to actively decide the value of companies through supply and demand.
Services Provided by Stock Exchange to Investors and Companies
A stock exchange brings companies and investors together. A stock exchange helps companies raise capital or money by issuing equity shares to be sold to investors. The companies invest those funds back into their business, and investors, ideally, earn a profit from their investment in those companies.
Some Notable Stock Exchanges in the World
1. New York Stock Exchange (NYSE)
Founded in 1792, the New York Stock Exchange is by far the largest exchange in the world. As of March 2018, the NYSE’s market capitalization was US$23.12 trillion.
2. NASDAQ
Founded in 1971, NASDAQ is a US-based stock exchange. With a market capitalization of US$10.93 trillion as of March 2018, it is the second largest in the world by market capitalization. Many tech and growth firms choose to be listed on the NASDAQ.
3. Shanghai Stock Exchange (SSE)
Founded in November 1990, the Shanghai Stock Exchange is the fourth-largest exchange in the world. It reported a market capitalization of US$5.01 trillion in March 2018. There are two types of stocks listed on the SSE, ‘A shares’ and ‘B shares’. Shares are quoted in RMB, with trading in A shares historically restricted to domestic investors.
In July 2018, China announced additional plans to allow foreign investors to access A shares through domestic brokerages. B shares are quoted in USD and are open to domestic and foreign investors alike.
In July 2018, China announced additional plans to allow foreign investors to access A shares through domestic brokerages. B shares are quoted in USD and are open to domestic and foreign investors alike.
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