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A stock exchange, share market or bourse
is a corporation or mutual organization which provides
facilities for stock brokers and traders, to trade company
stocks and other securities. Stock exchanges also provide
facilities for the issue and redemption of securities,
as well as, other financial instruments and capital
events including the payment of income and dividends.
The securities traded on a stock exchange include: shares
issued by companies, unit trusts and other pooled investment
products and bonds. To be able to trade a security on
a certain stock exchange, it has to be listed there.
Usually there is a central location at least for recordkeeping,
but trade is less and less linked to such a physical
place, as modern markets are electronic networks, which
gives them advantages of speed and cost of transactions.
Trade on an exchange is by members only. 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 is driven by various factors
which, as in all free markets, affect the price of stocks
(see stock valuation). |
There
is usually no compulsion to issue stock via the stock
exchange itself, nor must stock be subsequently traded
on the exchange. Such trading is said to be off exchange
or over-the-counter. This is the usual way that bonds
are traded. Increasingly, stock exchanges are part
of a global market for securities.
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History
of Stock Exchanges
In 12th century France the courratiers de change were
concerned with managing and regulating the debts of
agricultural communities on behalf of the banks. As
these men also traded in debts, they could be called
the first brokers. |
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Some
stories suggest that the origins of the term "bourse"
come from the Latin bursa meaning a bag because, in
13th century Bruges, the sign of a purse (or perhaps
three purses), hung on the front of the house where
merchants met. |
| However, it is more likely
that in the late 13th century commodity traders in Bruges
gathered inside the house of a man called Van der Burse,
and in 1309 they institutionalized this until now informal
meeting and became the "Bruges Bourse". The
idea spread quickly around Flanders and neighbouring counties
and "Bourses" soon opened in Ghent and Amsterdam. |
| In the middle of the 13th
century, Venetian bankers began to trade in government
securities. In 1351, the Venetian Government outlawed
spreading rumors intended to lower the price of government
funds. There were people in Pisa, Verona, Genoa and Florence
who also began trading in government securities during
the 14th century. This was only possible because these
were independent city states ruled by a council of influential
citizens, not by a duke. |
| The Dutch later started joint
stock companies, which let shareholders invest in business
ventures and get a share of their profits - or losses.
In 1602, the Dutch East India Company issued the first
shares on the Amsterdam Stock Exchange. It was the first
company to issue stocks and bonds. In 1688, the trading
of stocks began on a stock exchange in London. |
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