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Stock exchange

  1. 1. STOCK EXCHANGEA stock exchange is an entity that provides services for stock brokers and traders totrade stocks, bonds, and other securities. Stock exchanges also provide facilities forissue and redemption of securities and other financial instruments, and capital eventsincluding the payment of income and dividends. Securities traded on a stock exchangeinclude shares issued by companies, unit trusts, derivatives, pooled investmentproducts and bonds.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 increasinglyless linked to such a physical place, as modern markets are electronic networks, whichgives them advantages of increased speed and reduced cost of transactions. Trade onan exchange is by members only.The initial offering of stocks and bonds to investors is by definition done in theprimary market and subsequent trading is done in the secondary market. A stockexchange is often the most important component of a stock market. Supply anddemand in stock markets is driven by various factors that, as in all free markets, affectthe price of stocks (see stock valuation).There is usually no compulsion to issue stock via the stock exchange itself, nor muststock be subsequently traded on the exchange. Such trading is said to be off exchangeor over-the-counter. This is the usual way that derivatives and bonds are traded.Increasingly, stock exchanges are part of a global market for securities.The role of stock exchangesStock exchanges have multiple roles in the economy. This may include the following:[3]Raising capital for businessesThe Stock Exchange provide companies with the facility to raise capital for expansionthrough selling shares to the investing public.[4]Mobilizing savings for investmentWhen people draw their savings and invest in shares (through a IPO or the issuance ofnew company shares of an already listed company), it usually leads to rationalallocation of resources because funds, which could have been consumed, or kept inidle deposits with banks, are mobilized and redirected to help companiesmanagement boards finance their organizations. This may promote business activitywith benefits for several economic sectors such as agriculture, commerce andindustry, resulting in stronger economic growth and higher productivity levels offirms. Sometimes it is very difficult for the stock investor to determine whether or notthe allocation of those funds is in good faith and will be able to generate long-termcompany growth, without examination of a companys internal auditing.
  2. 2. Facilitating company growthCompanies view acquisitions as an opportunity to expand product lines, increasedistribution channels, hedge against volatility, increase its market share, or acquireother necessary business assets. A takeover bid or a merger agreement through thestock market is one of the simplest and most common ways for a company to grow byacquisition or fusion.Profit sharingBoth casual and professional stock investors, as large as institutional investors or assmall as an ordinary middle class family, through dividends and stock price increasesthat may result in capital gains, share in the wealth of profitable businesses.Unprofitable and troubled businesses may result in capital losses for shareholders.Corporate governanceBy having a wide and varied scope of owners, companies generally tend to improvemanagement standards and efficiency to satisfy the demands of these shareholders,and the more stringent rules for public corporations imposed by public stockexchanges and the government. Consequently, it is alleged that public companies(companies that are owned by shareholders who are members of the general publicand trade shares on public exchanges) tend to have better management records thanprivately held companies (those companies where shares are not publicly traded, oftenowned by the company founders and/or their families and heirs, or otherwise by asmall group of investors).Despite this claim, some well-documented cases are known where it is alleged thatthere has been considerable slippage in corporate governance on the part of somepublic companies. The dot-com bubble in the late 1990s, and the subprime mortgagecrisis in 2007-08, are classical examples of corporate mismanagement. Companieslike (2000), Enron Corporation (2001), One.Tel (2001), Sunbeam (2001),Webvan (2001), Adelphia (2002), MCI WorldCom (2002), Parmalat (2003),American International Group (2008), Bear Stearns (2008), Lehman Brothers (2008),General Motors (2009) and Satyam Computer Services (2009) were among the mostwidely scrutinized by the media.However, when poor financial, ethical or managerial records are known by the stockinvestors, the stock and the company tend to lose value. In the stock exchanges,shareholders of underperforming firms are often penalized by significant share pricedecline, and they tend as well to dismiss incompetent management teams.Creating investment opportunities for small investorsAs opposed to other businesses that require huge capital outlay, investing in shares isopen to both the large and small stock investors because a person buys the number ofshares they can afford. Therefore the Stock Exchange provides the opportunity forsmall investors to own shares of the same companies as large investors.
  3. 3. Government capital-raising for development projectsGovernments at various levels may decide to borrow money to finance infrastructureprojects such as sewage and water treatment works or housing estates by sellinganother category of securities known as bonds. These bonds can be raised through theStock Exchange whereby members of the public buy them, thus loaning money to thegovernment. The issuance of such bonds can obviate the need, in the short term, todirectly tax citizens to finance development—though by securing such bonds with thefull faith and credit of the government instead of with collateral, the government musteventually tax citizens or otherwise raise additional funds to make any regular couponpayments and refund the principal when the bonds mature.Barometer of the economyAt the stock exchange, share prices rise and fall depending, largely, on market forces.Share prices tend to rise or remain stable when companies and the economy in generalshow signs of stability and growth. An economic recession, depression, or financialcrisis could eventually lead to a stock market crash. Therefore the movement of shareprices and in general of the stock indexes can be an indicator of the general trend inthe economy.SpeculationMain article: SpeculationThe stock exchanges are also fashionable places for speculation. In a financialcontext, the terms "speculation" and "investment" are actually quite specific. Forinstance, although the word "investment" is typically used, in a general sense, to meanany act of placing money in a financial vehicle with the intent of producing returnsover a period of time, most ventured money—including funds placed in the worldsstock markets—is actually not investment but speculation.Major stock exchangesNew York Stock Exchange, New York City
  4. 4. London Stock Exchange, the City of LondonTokyo Stock Exchange, TokyoHong Kong Stock Exchange, Hong KongBolsa de Madrid, Madrid
  5. 5. Bombay Stock Exchange, MumbaiToronto Stock Exchange, TorontoSao Paulo Stock Exchange, Sao Paulo
  6. 6. Australian Securities Exchanges Sydney exchange centre, SydneyFrankfurt Stock Exchange, FrankfurtParis Stock Exchange, ParisSWX Swiss Exchange, Zurich
  7. 7. Mexican Stock Exchange, Mexico CityMajor Stock Exchanges : Year ended 31 December 2010 Market Trade ValueRank Economy Stock Exchange Capitalization (USD (USD Billions) Billions) United States1 NYSE Euronext 15,970 19,813 Europe United States2 NASDAQ OMX 4,931 13,439 Europe Tokyo Stock3 Japan 3,827 3,787 Exchange United London Stock4 3,613 2,741 Kingdom Exchange Shanghai Stock5 China 2,717 4,496 Exchange Hong Kong Stock6 Hong Kong 2,711 1,496 Exchange Toronto Stock7 Canada 2,170 1,368 Exchange Bombay Stock8 India 1,631 258 Exchange National Stock9 India 1,596 801 Exchange of India10 Brazil BM&F Bovespa 1,545 868 Australian Securities11 Australia 1,454 1,062 Exchange12 Germany Deutsche Börse 1,429 1,628 Shenzhen Stock13 China 1,311 3,572 Exchange14 Switzerland SIX Swiss Exchange 1,229 788 BME Spanish15 Spain 1,171 1,360 Exchanges16 South Korea Korea Exchange 1,091 1,60717 Russia MICEX 949 408
  8. 8. 18 South Africa JSE Limited 925 340The main stock exchanges:• American Stock Exchange• Australian Securities Exchange• Athens Stock Exchange• Belgrade Stock Exchange• Berliner Börse• Bermuda Stock Exchange• Bolsa Mexicana de Valores• Bolsa de Valores de Colombia• Bolsa de Valores de Lima• Bombay Stock Exchange• Bucharest Stock Exchange• Budapest Stock Exchange• Bulgarian Stock Exchange - Sofia• Canadian National Stock Exchange - CNSX• Cairo & Alexandria Stock Exchange• Casablanca Stock Exchange• Channel Islands Stock Exchange• Chicago Stock Exchange• Euronext Amsterdam• Euronext Brussels• Euronext Lisbon• Euronext Paris• Frankfurt Stock Exchange• Ghana Stock Exchange• Helsinki Stock Exchange• Hong Kong Stock Exchange• Indonesia Stock Exchange• Irish Stock Exchange• Istanbul Stock Exchange• Karachi Stock Exchange• Korea Stock Exchange• Kuwait Stock Exchange• London Stock Exchange• Luxembourg Stock Exchange• Madrid Stock Exchange• Malaysia Stock Exchange• Milan Stock Exchange• Montreal Stock Exchange• Moscow Interbank Currency Exchange• Nagoya Stock Exchange• National Stock Exchange of India• New York Stock Exchange• New Zealand Exchange• Nigerian Stock Exchange• Osaka Securities Exchange
  9. 9. • Philippine Stock Exchange• Prague Stock Exchange• Russian Trading System• Santiago Stock Exchange• São Paulo Stock Exchange (BOVESPA)• Shanghai Stock Exchange• Shenzhen Stock Exchange• Singapore Exchange• Stockholm Stock Exchange• Stock Exchange of Thailand• Taiwan Stock Exchange• Tehran Stock Exchange• Tel Aviv Stock Exchange• Tokyo Stock Exchange• Toronto Stock Exchange• Trinidad and Tobago Stock Exchange• Warsaw Stock Exchange• Zurich Stock ExchangeSee also: :Category:Stock exchangesListing requirementsListing requirements are the set of conditions imposed by a given stock exchangeupon companies that want to be listed on that exchange. Such conditions sometimesinclude minimum number of shares outstanding, minimum market capitalization, andminimum annual income.Requirements by stock exchangeCompanies must meet an exchanges requirements to have their stocks and shareslisted and traded there, but requirements vary by stock exchange:• Bombay Stock Exchange: Bombay Stock Exchange (BSE) has requirements for a minimum market capitalization of 25 crore and minimum public float equivalent to 10 crore.[5]• London Stock Exchange: The main market of the London Stock Exchange has requirements for a minimum market capitalization (£700,000), three years of audited financial statements, minimum public float (25 per cent) and sufficient working capital for at least 12 months from the date of listing.• NASDAQ Stock Exchange: To be listed on the NASDAQ a company must have issued at least 1.25 million shares of stock worth at least $70 million and must have earned more than $11 million over the last three years.[6]• New York Stock Exchange: To be listed on the New York Stock Exchange (NYSE) a company must have issued at least a million shares of stock worth $100 million and must have earned more than $10 million over the last three years.[7]Ownership
  10. 10. Stock exchanges originated as mutual organizations, owned by its member stockbrokers. There has been a recent trend for stock exchanges to demutualize, where themembers sell their shares in an initial public offering. In this way the mutualorganization becomes a corporation, with shares that are listed on a stock exchange.Examples are Australian Securities Exchange (1998), Euronext (merged with NewYork Stock Exchange), NASDAQ (2002), the New York Stock Exchange (2005),Bolsas y Mercados Españoles, and the São Paulo Stock Exchange (2007). TheShenzhen and Shanghai stock exchanges can been characterized as quasi-stateinstitutions insofar as they were created by government bodies in China and theirleading personnel are directly appointed by the China Securities RegulatoryCommission.Other types of exchangesIn the 19th century, exchanges were opened to trade forward contracts oncommodities. Exchange traded forward contracts are called futures contracts. Thesecommodity exchanges later started offering future contracts on other products, such asinterest rates and shares, as well as options contracts. They are now generally knownas futures exchanges.National Stock Exchange of IndiaThe National Stock Exchange (NSE) (Hindi: राषीय शेअर बाजार Rashtriya ŚhareBāzaār) is a stock exchange located at Mumbai, Maharashtra, India. It is the 9thlargest stock exchange in the world by market capitalization and largest in India bydaily turnover and number of trades, for both equities and derivative trading.[2] NSEhas a market capitalization of around US$1.59 trillion and over 1,552 listings as ofDecember 2010.[3] Though a number of other exchanges exist, NSE and the BombayStock Exchange are the two most significant stock exchanges in India, and betweenthem are responsible for the vast majority of share transactions. The NSEs key indexis the S&P CNX Nifty, known as the NSE NIFTY (National Stock Exchange Fifty),an index of fifty major stocks weighted by market capitalisation.NSE is mutually-owned by a set of leading financial institutions, banks, insurancecompanies and other financial intermediaries in India but its ownership andmanagement operate as separate entities.[4] There are at least 2 foreign investorsNYSE Euronext and Goldman Sachs who have taken a stake in the NSE.[5] As of2006, the NSE VSAT terminals, 2799 in total, cover more than 1500 cities acrossIndia.[6] NSE is the third largest Stock Exchange in the world in terms of the numberof trades in equities.[7] It is the second fastest growing stock exchange in the worldwith a recorded growth of 16.6%OriginsThe National Stock Exchange of India was promoted by leading Financial institutionsat the behest of the Government of India, and was incorporated in November 1992 asa tax-paying company. In April 1993, it was recognized as a stock exchange under theSecurities Contracts (Regulation) Act, 1956. NSE commenced operations in theWholesale Debt Market (WDM) segment in June 1994. The Capital market (Equities)
  11. 11. segment of the NSE commenced operations in November 1994, while operations inthe Derivatives segment commenced in June 2000.[edit] InnovationsNSE pioneering efforts include:• Being the first national, anonymous, electronic limit order book (LOB) exchange to trade securities in India. Since the success of the NSE, existent market and new market structures have followed the "NSE" model.• Setting up the first clearing corporation "National Securities Clearing Corporation Ltd." in India. NSCCL was a landmark in providing innovation on all spot equity market (and later, derivatives market) trades in India.• Co-promoting and setting up of National Securities Depository Limited, first depository in India [9]• Setting up of S&P CNX Nifty.• NSE pioneered commencement of Internet Trading in February 2000, which led to the wide popularization of the NSE in the broker community.• Being the first exchange that, in 1996, proposed exchange traded derivatives, particularly on an equity index, in India. After four years of policy and regulatory debate and formulation, the NSE was permitted to start trading equity derivatives• Being the first and the only exchange to trade GOLD ETFs (exchange traded funds) in India.• NSE has also launched the NSE-CNBC-TV18 media centre in association with CNBC-TV18.• NSE.IT Limited, setup in 1999 , is a 100% subsidiary of the National Stock Exchange of India. A Vertical Specialist Enterprise, NSE.IT offers end-to-end Information Technology (IT) products, solutions and services.• NSE (National Stock Exchange) was the first exchange in the world to use satellite communication technology for trading, using a client server based system called National Exchange for Automated Trading (NEAT). For all trades entered into NEAT system, there is uniform response time of less than one second.[edit] MarketsCurrently, NSE has the following major segments of the capital market:• Equity• Futures and Options• Retail Debt Market• Wholesale Debt Market• Currency futures• Mutual Fund• Stocks lending and borrowingAugust 2008 Currency derivatives were introduced in India with the launch ofCurrency Futures in USD INR by NSE. Currently it has also launched currencyfutures in EURO, POUND & YEN. Interest Rate Futures was introduced for the first
  12. 12. time in India by NSE on 31 August 2009, exactly after one year of the launch ofCurrency Futures.NSE became the first stock exchange to get approval for Interest rate futures asrecommended by SEBI-RBI committee, on 31 August 2009, a futures contract basedon 7% 10 Year GOI bond (NOTIONAL) was launched with quarterly maturities. [10][edit] HoursNSEs normal trading sessions are conducted from 9:15 am India Time to 3:30 pmIndia Time on all days of the week except Saturdays, Sundays and Official Holidaysdeclared by the Exchange (or by the Government of India) in advance.[11] Theexchange, in association with BSE (Bombay Stock Exchange Ltd.), is thinking ofrevising its timings from 9.00 am India Time to 5.00 pm India Time.There were System Testing going on and opinions, suggestions or feedback on theNew Proposed Timings are being invited from the brokers across India. And finallyon 18 November 2009 regulator decided to drop their ambitious goal of longest AsiaTrading Hours due to strong opposition from its members.On 16 December 2009, NSE announced that it would advance the market opening to9:00 am from 18 December 2009. So NSE trading hours will be from 9.00 am till 3:30pm India Time.However, on 17 December 2009, after strong protests from brokers, the Exchangedecided to postpone the change in trading hours till 4 Jan 2010.NSE new market timing from 4 Jan 2010 is 9:00 am till 3:30 pm India Time.[edit] Milestones• November 1992 Incorporation• April 1993 Recognition as a stock exchange• May 1993 Formulation of business plan• June 1994 Wholesale Debt Market segment goes live• November 1994 Capital Market (Equities) segment goes live• March 1995 Establishment of Investor Grievance Cell• April 1995 Establishment of NSCCL, the first Clearing Corporation• June 1995 Introduction of centralised insurance cover for all trading members• July 1995 Establishment of Investor Protection Fund• October 1995 Became largest stock exchange in the country• April 1996 Commencement of clearing and settlement by NSCCL• April 1996 Launch of S&P CNX Nifty• June 1996 Establishment of Settlement Guarantee Fund• November 1996 Setting up of National Securities Depository Limited, first depository in India, co-promoted by NSE• November 1996 Best IT Usage award by Computer Society of India• December 1996 Commencement of trading/settlement in dematerialised securities
  13. 13. • December 1996 Dataquest award for Top IT User• December 1996 Launch of CNX Nifty Junior• February 1997 Regional clearing facility goes live• November 1997 Best IT Usage award by Computer Society of India• May 1998 Promotion of joint venture, India Index Services & Products Limited (IISL)• May 1998 Launch of NSEs Web-site:• July 1998 Launch of NSEs Certification Programme in Financial Market• August 1998 CYBER CORPORATE OF THE YEAR 1998 award• February 1999 Launch of Automated Lending and Borrowing Mechanism• April 1999 CHIP Web Award by CHIP magazine• October 1999 Setting up of NSE.IT• January 2000 Launch of NSE Research Initiative• February 2000 Commencement of Internet Trading• June 2000 Commencement of Derivatives Trading (Index Futures)• September 2000 Launch of Zero Coupon Yield Curve• November 2000 Launch of Broker Plaza by Dotex International, a joint venture between NSE.IT Ltd. and i-flex Solutions Ltd.• December 2000 Commencement of WAP trading• June 2001 Commencement of trading in Index Options• July 2001 Commencement of trading in Options on Individual Securities• November 2001 Commencement of trading in Futures on Individual Securities• December 2001 Launch of NSE VaR for Government Securities• January 2002 Launch of Exchange Traded Funds (ETFs)• May 2002 NSE wins the Wharton-Infosys Business Transformation Award in the Organization-wide Transformation category• October 2002 Launch of NSE Government Securities Index• January 2003 Commencement of trading in Retail Debt Market• June 2003 Launch of Interest Rate Futures• August 2003 Launch of Futures & options in CNXIT Index• June 2004 Launch of STP Interoperability• August 2004 Launch of NSE’s electronic interface for listed companies• March 2005 ‘India Innovation Award’ by EMPI Business School, New Delhi• June 2005 Launch of Futures & options in BANK Nifty Index• December 2006 Derivative Exchange of the Year, by Asia Risk magazine• January 2007 Launch of NSE – CNBC TV 18 media centre• March 2007 NSE, CRISIL announce launch of• June 2007 NSE launches derivatives on Nifty Junior & CNX 100• October 2007 NSE launches derivatives on Nifty Midcap 50• January 2008 Introduction of Mini Nifty derivative contracts on 1 January 2008• March 2008 Introduction of long term option contracts on S&P CNX Nifty Index• April 2008 Launch of India VIX• April 2008 Launch of Securities Lending & Borrowing Scheme• August 2008 Launch of Currency Derivatives• August 2009 Launch of Interest Rate Futures• November 2009 Launch of Mutual Fund Service System• December 2009 Commencement of settlement of corporate bonds
  14. 14. • February 2010 Launch of Currency Futures on additional currency pairs• October 2010 Launch of 15-minute special pre-open trading session, a mechanism under which investors can bid for stocks before the market opens. [12][edit] IndicesGraph of S&P CNX Nifty from January 1997 to March 2011NSE also set up as index services firm known as India Index Services & ProductsLimited (IISL) and has launched several stock indices, including:[13]• S&P CNX Nifty(Standard & Poors CRISIL NSE Index)• CNX Nifty Junior• CNX 100 (= S&P CNX Nifty + CNX Nifty Junior)• S&P CNX 500 (= CNX 100 + 400 major players across 72 industries)• CNX Midcap (introduced on 18 July 2005 replacing CNX Midcap 200)[edit] Exchange Traded Funds on NSENSE has a number of exchange traded funds. These are typically index funds andGOLD ETFs. Some of the popular ETFs available for trading on NSE are:• NIFTYBEES - ETF based on NIFTY index Nifty BEES Live quote• GoldBees - ETF based on Gold prices. Tracks the price of Gold. Each unit is equivalent to 1 gm of gold and bears the price of 1gm of gold.• BankBees - ETF that tracks the CNX Bank Index.[edit] CertificationsNSE also conducts online examination and awards certification, under its programmesof NSEs Certification in Financial Markets (NCFM)[1]. Currently, certifications areavailable in 19 modules, covering different sectors of financial and capital markets.Branches of the NSE are located throughout India. NSE, in collaboration with reputedcolleges and institutes in India, has been offering a short-term course called NSECertified Capital Market Professional (NCCMP) since August 2009, in the campusesof the respective colleges/ institutes