Owners of companies have been raising capital via the sale of equity interests for several thousand years. But the sale of equity interests via a public market dates back closer to 400 years.
Back in the early 1600s, a Dutch shipping company sold shares of itself to raise the capital it needed to expand the business operations. Other companies began offering portions of themselves for sale, and creative entrepreneurs began trading commodities, stocks, and other financial instruments in private markets. A stock exchange opened in Amsterdam in 1611 in response to the increase in the trading of commodities and financial
securities. Over the next few centuries, other markets opened throughout Europe. In 1792, stockbrokers gathered under a buttonwood tree on Wall Street to create a set of rules for buying and selling stocks and bonds—the precursor to the New York Stock Exchange. Today, stocks trade in the United States primarily on three exchanges—the New York Stock Exchange (NYSE), the National Association of Securities Dealers Automated Quotation System (NASDAQ), and the American Stock Exchange (AMEX). Mergers have connected many of the largest exchanges in the United States and overseas. Regional markets also abound, in addition to specialized exchanges that deal in commodities futures, options, and other derivative securities.
The following bullet points will tell you just enough about the most important exchanges so everyone won’t assume you’re visiting Wall Street
for the first time.
American Stock Exchange (AMEX): For decades the smallest of the three chief U.S. stock exchanges. The American Stock Exchange, often called Amex, sold itself to NYSE Euronext in 2008. While the parent company changed Amex’s name to NYSE MKT, the old name has stuck around. This exchange focuses on small-cap stocks, exchange-traded funds, and derivatives.
Chicago Board Options Exchange (CBOE): The world’s largest market for options on stocks, indexes, and interest rates. Chicago Mercantile Exchange (CME) – The country’s largest futures exchange, and the second largest in the world.
Nasdaq Stock Market (NASDAQ): Commonly called just the Nasdaq, this market is a subsidiary of Nasdaq OMX Group, which operates 24 markets on six continents.
New York Stock Exchange (NYSE): The oldest, and some say still the most prestigious, stock exchange in the United States. The NYSE is now a subsidiary of NYSE Euronext, a global conglomerate that operate markets that trade more than 8,000 equities and account for nearly 40% of the world’s stock trading.
Most large companies and many small ones trade on exchanges to make it easier for investors to purchase their shares. Exchanges require companies to satisfy certain criteria—such as the number of shares available, market cap, share price, and financial benchmarks—before they will list the stock for trading. However, thousands of companies don’t list their stocks on exchanges either because they can’t satisfy the listing
requirements or simply choose not to pay the exchanges’ fees. Those stocks trade via networks of securities dealers who negotiate transactions among
themselves. Such stocks are said to trade over-the-counter, or OTC.
As OTC stocks tend to be small and less well known than those that trade on exchanges, they have acquired a reputation for risk. Of course, plenty of
OTC stocks make fine investments, and many large foreign companies trade over-the-counter. Beginners, however, may wish to steer clear of OTC stocks, particularly penny stocks—stocks that trade at very low prices. Both the exchanges and OTC markets welcome foreign companies. Firms located outside the United States can register American depositary receipts (ADRs) or other specialized securities that allow their stocks to trade on U.S. exchanges. Many U.S. companies take advantage of similar systems to trade on markets in Canada, Europe, or Asia. Never before have
investors enjoyed such flexibility to buy and sell securities.
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