A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. A stock exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public.
Role of stock exchanges: raising capital for businesses
Besides making use of borrowing capacity, there are four common forms of capital raising in use. Most of these available options might be achieved, directly or indirectly, through a stock exchange.
- Going public, which means a company is being listed for the first time on a stock exchange;
- Limited partnerships, for which the cash-on-cash return must be high enough to entice investors;
- Venture capital is a common source of capital for start-up companies;
- Corporate partners refers to situations in which usually established multinational companies may provide capital for mostly smaller companies in return for marketing rights, patent rights, or equity.
Stock exchanges often function as "continuous auction" markets, with buyers and sellers consummating transactions at a central location, such as the floor of the exchange. To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place.
Initial (Public) Offerings
The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets are driven by various factors that, as in all free markets, affect the price of stocks.
Increasingly, stock exchanges are part of a global market for securities. There is no compulsion to issue or trade stock via the stock exchange itself. Trading can also be off exchange or over-the-counter, the usual way in which derivatives and bonds are traded.
In recent years, various other trading venues, such as electronic communications networks, alternative trading systems and "dark pools" have taken much of the trading activity away from traditional stock exchanges.
Modern markets are often electronic networks, which has the advantage of increased speed and reduced cost of transactions.
Euronext was created in 2000 as the first pan-European exchange, spanning Belgium, France, the Netherlands, Portugal and the UK. Euronext operates regulated and transparent equity and derivatives markets, offering market participants a comprehensive range of services to meet their needs, including facilitating public offerings and providing trading facilities for equity and derivatives products. In 2013, through Euronext, more than €100bn was raised to finance the European economy, creating jobs and providing for growth.
NYSE Euronext, Inc. was a Euro-American multinational financial services corporation that operated multiple securities exchanges, including the New York Stock Exchange and Euronext. In 2007, NYSE Group, Inc. merged with Euronext N.V. to form the first global equities exchange.
NYSE Euronext was then acquired by IntercontinentalExchange Inc., and was spun off through an IPO in June 2014.
NYSE Euronext is part of the S&P 500 index and the only exchange operator in the S&P 100 index.