Stock market bubble

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A stock market bubble is a type of economic bubble taking place in stock markets when marketparticipants drive stock prices above their value in relation to some system of stock valuation .

Behavioral finance theory attributes stock market bubbles to cognitive biases that lead togroupthink and herd behavior . Bubbles occur not only in real-world markets, with their inherentuncertainty and noise, but also in highly predictable experimental markets. [1] In the laboratory,uncertainty is eliminated and calculating the expected returns should be a simple mathematicalexercise, because participants are endowed with assets that are defined to have a finite lifespanand a known probability distribution of dividends. Other theoretical explanations of stock marketbubbles have suggested that they are rational, [2] intrinsic, [3] and contagious. [4]



C ontents

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y 1 Examples y 2 Whether rational or irrational y 3 Positive feedback y 4 Effect of incentives y 5 See also y 6 References y 7 External links

[edit ] Examples

Two famous early stock market bubbles were the Mississippi Scheme in France and the SouthSea bubble in England . Both bubbles came to an abrupt end in 1 7 20, bankrupting thousands of unfortunate investors. Those stories, and many others, are recounted in Charles Mackay 's 1841popular account, " Extraordinary Popular Delusions and the Madness of Crowds ".

The NASDAQ Composite index spiked in the late 90s and then fell sharply as a result of the dot-com bubble .

The Nikkei 22 5 .

The two most famous bubbles of the twentieth century, the bubble in American stocks in the1920s just before the Great Depression and the Dot-com bubble of the late 1990s were based onspeculative activity surrounding the development of new technologies. The 1920s saw thewidespread introduction of an amazing range of technological innovations including radio ,



automobiles , aviation and the deployment of electrical power grids . The 1990s was the decadewhen Internet and e-commerce technologies emerged.

Other stock market bubbles of note include the Nifty Fifty stocks in the early 19 7 0s, Taiwanese stocks in 198 7 and Japanese stocks in the late 1980s.

Stock market bubbles frequently produce hot markets in Initial Public Offerings , sinceinvestment bankers and their clients see opportunities to float new stock issues at inflated prices.These hot IPO markets misallocate investment funds to areas dictated by speculative trends,rather than to enterprises generating longstanding economic value. Typically when there is anover abundance of IPOs in a bubble market, a large portion of the IPO companies failcompletely, never achieve what is promised to the investors, or can even be vehicles for fraud.

[edit ] Whether rational or irrational

Emotional and cognitive biases (see behavioral finance ) seem to be the causes of bubbles, butoften, when the phenomenon appears, pundits try to find a rationale, so as not to be against thecrowd. Thus, sometimes, people will dismiss concerns about overpriced markets by citing a neweconomy where the old stock valuation rules may no longer apply. This type of thinking helps tofurther propagate the bubble whereby everyone is investing with the intent of finding a greater fool. Still, some analysts cite the wisdom of crowds and say that price movements really doreflect rational expectations of fundamental returns. Large traders become powerful enough torock the boat, generate stock market bubbles. [5 ]

To sort out the competing claims between behavioral finance and efficient markets theorists,observers need to find bubbles that occur when a readily-available measure of fundamental valueis also observable. The bubble in closed-end country funds in the late 1980s is instructive here,as are the bubbles that occur in experimental asset markets. For closed-end country funds,observers can compare the stock prices to the net asset value per share (the net value of the fund'stotal holdings divided by the number of shares outstanding). For experimental asset markets,observers can compare the stock prices to the expected returns from holding the stock (which theexperimenter determines and communicates to the traders).

In both instances, closed-end country funds and experimental markets, stock prices clearlydiverge from fundamental values. Nobel laureate Dr. Vernon Smith has illustrated the closed-endcountry fund phenomenon with a chart showing prices and net asset values of the Spain Fund in1989 and 1990 in his work on price bubbles. At its peak, the Spain Fund traded near $3 5 , nearlytriple its Net Asset Value of about $12 per share. At the same time the Spain Fund and other

closed-end country funds were trading at very substantial premiums, the number of closed-endcountry funds available exploded thanks to many issuers creating new country funds and sellingthe IPOs at high premiums.

It only took a few months for the premiums in closed-end country funds to fade back to the moretypical discounts at which closed-end funds trade. Those who had bought them at premiums hadrun out of "greater fools". For a while, though, the supply of "greater fools" had beenoutstanding.



[edit ] Positive feedback

A rising price on any share will attract the attention of investors. Not all of those investors arewilling or interested in studying the intrinsics of the share and for such people the rising priceitself is reason enough to invest. In turn, the additional investment will provide buoyancy to theprice, thus completing a positive feedback loop.

Like all dynamic systems, financial markets operate in an ever changing equilibrium, whichtranslates into price volatility . However, a self-adjustment ( negative feedback ) takes placenormally: when prices rise more people are encouraged to sell, while fewer are encouraged tobuy. This puts a limit on volatility. However, once positive feedback takes over, the market, likeall systems with positive feedback, enters a state of increasing disequilibrium . This can be seenin financial bubbles where asset prices rapidly spike upwards far beyond what could beconsidered the rational "economic value", only to fall rapidly afterwards.

[edit ] Effect of incentivesInvestment managers, such as stock mutual fund managers, are compensated and retained in partdue to their performance relative to peers. Taking a conservative or contrarian position as abubble builds results in performance unfavorable to peers. This may cause customers to goelsewhere and can affect the investment manager's own employment or compensation. Thetypical short-term focus of U.S. equity markets exacerbates the risk for investment managers thatdo not participate during the building phase of a bubble, particularly one that builds over a longer period of time. In attempting to maximize returns for clients and maintain their employment,they may rationally participate in a bubble they believe to be forming, as the risks of not doing sooutweigh the benefits.

SHARETIPSINFO >> Articles Directory >>Importance of stock market and How stock market is important for countries economy

Stock market is an important part of the economy of a country. The stock market plays a play apivotal role in the growth of the industry and commerce of the country that eventually affects theeconomy of the country to a great extent. That is reason that the government, industry and eventhe central banks of the country keep a close watch on the happenings of the stock market. Thestock market is important from both the industry¶s point of view as well as the investor¶s point of view.

Whenever a company wants to raise funds for further expansion or settling up a new businessventure, they have to either take a loan from a financial organization or they have to issue sharesthrough the stock market. In fact the stock market is the primary source for any company to raisefunds for business expansions. If a company wants to raise some capital for the business it can



issue shares of the company that is basically part ownership of the company. To issue shares for the investors to invest in the stocks a company needs to get listed to a stocks exchange andthrough the primary market of the stock exchange they can issue the shares and get the funds for business requirements. There are certain rules and regulations for getting listed at a stock exchange and they need to fulfill some criteria to issue stocks and go public. The stock market is

primarily the place where these companies get listed to issue the shares and raise the fund. Incase of an already listed public company, they issue more shares to the market for collectingmore funds for business expansion. For the companies which are going public for the first time,they need to start with the Initial Public Offering or the IPO. In both the cases these companieshave to go through the stock market.

This is the primary function of the stock exchange and thus they play the most important role of supporting the growth of the industry and commerce in the country. That is the reason that arising stock market is the sign of a developing industrial sector and a growing economy of thecountry.

Of course this is just the primary function of the stock market and just an half of the role that thestock market plays. The secondary function of the stock market is that the market plays the roleof a common platform for the buyers and sellers of these stocks that are listed at the stock market. It is the secondary market of the stock exchange where retail investors and institutionalinvestors buy and sell the stocks. In fact it is these stock market traders who raise the fund for thebusinesses by investing in the stocks.

For investing in the stocks or to trade in the stock the investors have to go through the brokers of the stock market. Brokers actually execute the buy and sell orders of the investors and settle thedeals to keep the stock trading alive. The brokers basically act as a middle man between thebuyers and sellers. Once the buyer places a buy order in the stock market the brokers finds a

seller of the stock and thus the deal is closed. All these take place at the stock market and it is thedemand and supply of the stock of a company that determines the price of the stock of thatparticular company.

So the stock market is not only providing the much required funds for boosting the business, butalso providing a common place for stock trading. It is the stock market that makes the stocks aliquid asset unlike the real estate investment. It is the stock market that makes it possible to sellthe stocks at any point of time and get back the investment along with the profit. This makes thestocks much more liquid in nature and thereby attracting investors to invest in the stock market.

Stock market importance

Stock market research is essential to good financial and investment decision making. Theimportance of this research means that it should be a priority before you consider putting your money into a stock. You wouldn't likely buy a product that you did not understand. Your stock investments should be looked at in the same way. Stock market research can reveal a lot about astock and its company. By doing research you will be able to determine the market price andtrading volume for the stock, the strengths and weaknesses of the underlying company, the highand low prices for the stock over both short and extended time frames, the profits and earnings



for the company, and so much more.

Stock market research may be called fundamental stock analysis by some traders and investors,but it is the same concept. This involves locating stocks that you are interested in and finding allthe information available to you, even if it means going back several years or until the company

was first started. Stock market research can help you determine what stocks and industries to buyinto, and what stocks and industries are falling currently. Determine the types of industries andwhat their average risk and return rates are. You must decide what industries you are comfortablebuying stock in. Try and stay with industries that you understand, or at least have a basicknowledge of. If you do not understand an industry, even with all the stock market research youdo, you may still end up making bad investment decisions based on events or conditions you didnot realize would affect your investment.

Adequate stock market research will prepare you for critical and important stock investingdecisions. To determine what stocks are right for you and your portfolio, you must know thelevel of risk that the stock carries, information on the current financial statements, profit and loss

information for the company, performance of the stock on the market (both past and current),and any market conditions or information that would affect the value of the stock, either negatively or positively. The point of investing in the stock market is to maximize potentialreturns, but risk management should also play an important part in any investment strategy.Stock market research will allow you to weigh the possible risks of a stock against the possiblerewards the stock may offer.

Investing in stocks without doing the important stock market research first would be likethrowing your money away on lottery tickets with the hope that you might get lucky. Smart stock investors and traders know the importance of stock market research. It helps you avoid taking

huge risks and facing huge losses because of unknown facts and information that was readilyavailable. Stock market research can also help you identify trends in the market from the verybeginning so you can get in on great investments at the start before the price quickly climbs,bypassing a missed opportunity.

Doing the stock market research is important because this research will allow you to locate hotstocks, which are great investment opportunities. It will also allow you to weed out stocks that



are not performing well. Doing the proper research is one of the three most important things youcan do in being a wise stock investor. It's also important to make sure that your stock portfolio isdiverse and to always follow your trading strategies.

August 21 2003

The Importance of Financial Markets in Economic GrowthStanley Fischer 1

CitigroupIt is always a pleasure for me to be in Brazil. It is especially a pleasure tobe here at a time when Brazil appears successfully to have surmounted the crisisof last year, and to be on a path that will lead to renewed growth with lowinflation. And I am honored to have the opportunity to speak at this firstInternational Derivatives and Financial Market Conference of the BrazilianMercantile and Futures Exchange.I will be talking today about the importance of financial markets ineconomic growth. During the financial crises of the last decade, we all saw that aweak financial system not only makes a country open to international capitalflows more vulnerable to crisis, but also exacerbates the costs of any financialcrisis that does occur. The Asian crisis countries, Thailand, Indonesia, and Korea,vividly demonstrated that.Among all the recessions associated with the financial crises of the pastdecade, Brazil¶s were the shallowest. That was in part the result after 1999 of thevery skilled management of the economy ± fiscal and monetary policy ± not leastduring the pre-election financial crisis last year. It was also the result of Brazil¶swillingness to use its reserves and debt management policy actively to influencethe exchange rate. Brazil¶s superior information system about capital flows hasbeen very useful for policymakers. But we should not overlook the paradoxicalfact that although Brazil¶s financial markets are in many respects highlysophisticated ± as the success of the BM&F Exchanges illustrates ± Brazil washelped during the crises by having a financial system that is much smaller,relative to the economy, than those in Asia. 2

1 Vice Chairman, Citigroup, and President, Citigroup International. This lecture was prepared for presentation at the first International Derivatives and Financial Market Conference of the BrazilianMercantile & Futures Exchange conference in Campos do Jordao, Brazil, August 20-23, 2003. Iam grateful to Andrew Balls and Ari Barkan for their assistance. Views expressed are those of theauthor, not necessarily of Citigroup.2

M3, % of Nominal GDP*Indonesia** Malaysia South Korea Thailand Brazil1994 40. 5 108.1 120.9 102.8 21.11995 42.5 104.1 124.2 9 7 .1 20.8- 2 -Importantly, the strength of the financial system also helped Brazil toweather the recent financial storms. Brazil¶s financial system has beenstrengthened both by the policymakers, who cleaned up and privatized most of thestate banks, and who instit uted an effective supervisory system, and by the



managers of the leading private institutions who have built sound banks and other financial institutions and markets. This meant that when the economy was under maximum pressure, in the devaluation of early 1999, and again in the fall of 2002,the financial sector maintained its strength (to be sure, in 1999, in part because thedevaluation was widely anticipated, giving private institutions time to hedge the

risks of the coming crisis).Nor should we forget the willingness of the international community,through the IMF, to provide support to Brazil at several critical moments ± notonly because Brazil has such a large and important economy, but also becauseBrazil was at every stage willing to take the lead in dealing with the crises itfaced. There was never any doubt that Brazil owned the economic programs itwas implementing.But my theme today is not the importance of a strong financial systemduring periods of crisis. Nor, much as I would like to talk about it, is the topic theprogress that Brazil has made in recent years, and the challenges that remain.Rather, taking my lead from Joseph Schumpeter, I will talk about the relationship

between financial development and economic development.I. The Role of the Financial SystemThe textbooks tell us that the role of the financial system is to intermediatebetween lenders and borrowers, providing a menu of saving vehicles withdiffering risk and return characteristics, and helping investors find the financingthey need, taking into account the returns and risks on the projects they wish toundertake. In carrying out their functions, financial intermediaries reducetransactions costs for savers and investors and help reduce problems of asymmetric information that are inherent in the relationships between investors1996 46 .2 11 6 .7 133. 5 103.1 2 5 .5 1997 49.7 127 .7 143.8 10 6 .6 31.11998 49.4 13 7 .9 167 .4 11 6 .7 35 .5

1999 56 .5 138.1 1 7 2.2 121. 7 41.32000 5 2.9 12 7 .7 16 8.2 11 7 .8 45 .92001 5 3.8 13 7 .4 17 3.6 119. 5 49.12002 5 2.6 134.2 181. 5 116 .4 48.9*M3 levels are averages for the year.** M2 is used for Indonesia.Source: Bloombeg and Haver Analytics.- 3 -and entrepreneurs. And to an important and increasing extent, the development of sophisticated derivative instruments has helped improve the allocation of risk inthe economy, and increase the efficiency of the saving- investment process.For a given level of saving, more efficient financial intermediation

increases the productivity of investment. It thus seems obvious that the moreefficient the financial system, the more rapid the growth rate. 3

In practice, there are two views on the importance of the financial systemduring development. The first view is that the financial sector does not matter very much, and that any correlation between financial development and growth isa result of growth leading development. This is a view I used to hold in the1980s. 4 So did Robert Lucas, who in his celebrated 1988 paper on developmentsaid:



³ I will« be abstracting from all monetary matters, treating all exchange asthough it involved goods-for-goods. In general, I believe that the importance of financial matters is very badly over-stressed in popular and even much moreprofessional discussion and so am not inclined to be apologetic for going to theother extreme.´ 5

The second view is that an efficient financial system is key to

development. In his classic, L ombard Street, published in 18 7 3, Walter Bagehotargued that it was England¶s efficient capital markets that made the industrialrevolution possible. However, the most important and thorough earlycontribution on financial development and economic development came fromJoseph Schumpeter, whose 1912 German book on the subject was published inEnglish only in 1934, as The Theory of Economic Development.Schumpeter contended that financial development causes economicdevelopment ± that financial markets promote economic growth by fundingentrepreneurs and in particular by channeling capital to the entrepreneurs withhigh return projects. He developed his case in vivid language:³ The banker« is not so much primarily a middleman in the commodityµpurchasing power¶ as a producer of this commodity« He stands between thosewho wish to form new combinations and the possessors of productive means. Heis essentially a phenomenon of development, though only when no centralauthority directs the social process. He makes possible the carrying out of new3 It could also be that a more efficient financial system increases the rate of saving. But the impacton saving of an increase in the rate of return is theoretically ambiguous, and has been difficult topin down empirically. In addition, there is the question of whether increases in saving or theefficiency of investment should have a level (possibly to be reached only after a lengthyadjustment period) or ± through mechanisms introduced via endogenous growth theory ± rate of growth impact on output.4 I believed that if someone had a good business proposition, they would find the financing oneway or another.5 Lucas (1998) p 6 .- 4 -combinations, authorizes people, in the name of society as it were, to form them.He is the ephor [overseer] of the exchange economy.´ 6

II. Empirical Evidence on the Finance-Growth RelationshipAs a banker I find this passage from Schumpeter compelling. As aneconomist, I have to ask how plausible it is. In the 19 6 0s Raymond Goldsmithconducted a massive cross-country empirical study examining the relationshipbetween financial development and growth, 7 looking at data for 3 5 countries, over 100 years. He demonstrated a positive correlation between financial development(measured by the value of financial intermediary assets relative to GNP) andeconomic growth.Following Goldsmith, Ronald McKinnon and Edward Shaw both

published books in 19 7 3 showing that financial repression ± which was then acommon policy ± affects the quantity and quality of investment. The rationale for financial repression is that holding interest rates down boosts investment andsavings and hence growth. There is also a fiscal policy rationale, for with lower interest rates the government reduces its own borrowing costs 8 and by forcingfinancial institutions to hold liquid deposits increases the benefits it derives fromseigniorage.In their respective books, McKinnon and Shaw showed that countries that



are financially repressed are characterized by credit rationing and artificially lowreal interest rates, and that in the 19 6 0s financial repression and inflation shrunk the deposit base for domestic bank lending in the developing world. In addition,the evidence showed that financial repression leads to lower savings and alsocreated a bias in favor of capital- intensive investment. 9

However, these contributions did not demonstrate that financialdevelopment causes economic development rather than the reverse. Indeed,Goldsmith concluded his 19 6 9 study by saying that economists will never be ableto settle the question of causation one way or the other.This has not prevented a major research effort since. In papers publishedin 1993, Robert King and Ross Levine reported results based on a study of 80countries from 19 6 0-89 using measures of economic and financial development6 Schumpeter (1934) p 7 4.7 Goldsmith (19 6 9). Goldsmith¶s work in the 19 5 0s helped stimulate the classic book by Gurleyand Shaw (19 6 0).8 Financial repression is associated with negative real interest rates9 Based on this and later work, Fry (199 5 ) notes that arguments that financial repression can

improve the average quality of the pool of loan applicants, increase firm equity, reward goodperformance and encourage lending to sectors with high technological spillovers are open toquestion and that ³ there is no evidence that [directed credit policies] improve the economicefficiency of resource allocation.´ (Fry, 199 5 , p45 1).- 5 -respectively. They found a positive, statistically signicant correlation betweenGDP per head and proxies of financial development.Addressing the question of causation they showed that the level of financial development in 19 6 0 ³ predicted´ the economic growth rate of the nextthirty years across countries. 10 In another paper 11 they argue for causation on thegrounds we discussed earlier ± that financial markets not only allow risk diversification on the part of savers, they also facilitate risk diversification that

affects technological change. By making it possible to hold a diversified portfolioof investments in risky technology projects, the markets enhance investment ingrowth-enhancing R&D. Further, financial institutions play a role in evaluatingentrepreneurs and projects. Better financial systems improve the probability of successful innovation and thereby accelerate economic growth. FollowingSchumpeter they stress that financial institutions play an active role in evaluating,managing, and funding the entrepreneurial activity that leads to productivitygrowth.Subsequent research has generally but not fully supported the conclusionof a positive association between financial and economic development, but it hasnot established causation. 12

III. Growth and the Financial SystemDrawing the historical and empirical evidence together, it is sensible tocome to an intermediate position. It is obvious that financial development is atleast correlated with economic development and that a sound and sophisticatedfinancial system promotes the efficiency of investment and economic growth in amarket economy. It is also obvious that a poorly functioning financial system canhamper economic growth and development.I am often asked what surprises me about my (relatively) new private



sector job. One of the surprises is that banking is a highly technological industry,not only in the technology for payments and assets transfers, not only incalculating the pricing of complex financial ins truments, not only in theprocessing of data and their application to market transactions, but also in risk management. That comes as no surprise to any of you in this audience, for 10 King and Levine (1993a).11 King and Levine (1993b).12 Levine (199 7 ) provides a very useful review of the empirical literature. Many of the studiesfocus only on measures of the development of the banking system. Beck and Levine (2002) findthat stock markets and banks positively influence growth. Beck, Levine, and Loayza (2000)present a pooled-cross country study that is re-examined by Favara (2003). Favara, using a larger sample and a longer time period finds that the relationship between financial development andeconomic growth is weak and that the exogenous component of financial development does notspur economic growth. He also finds that the link between financial development and economicdevelopment is non-linear (being strongest for middle income countries).- 6 -Brazil¶s top financial institutions, including the BM&F, operate at globalstandards.

The development of this sophisticated technical capacity has beenessential to the growth of national financial systems and indeed the globalfinancial system. It is also essential to the capacity of the financial system toallocate risk efficiently, an area of rapid technical progress. As is well known, thederivatives markets have grown at an explosive rate. By now the notional valueof outstanding OTC derivative contracts is around $1 5 0 trillion, with the nominalamount of exchange traded contracts adding about another $2 5 trillion ± for atotal about four times the volume of annual global GDP. However it is also wellknown that these spectacular numbers are highly misleading, for the market valueof these contracts is probably only about 5 percent of their nominal value, and ± taking into account legal netting ± their net value is smaller yet.

Still, the existence of these instruments does make a major contribution toreallocating risk in the economy towards those most prepared to bear it, for aprice. And that does increase market stability. Consider for instance theexperience of the US in the last recession compared with the early 1990s. Thevalue of U.S. stock market assets peaked early in 2001 at about $18 trillion. Thesubsequent collapse of stock prices wiped out about $8 trillion or over 40 percentof that part of wealth. Yet despite that, despite the recession, despite 9/11 and thecorporate scandals, there has ± fortunately ± been no failure of a major U.S.financial institution, or indeed any major European financial institution duringthat period. 13 This could not have happened without the development of modernmethods of risk allocation, especially through the growing sophistication of

derivative instruments.Warren Buffet and others have expressed concerns about the explosion inthe use of derivatives. There is a great potential for abuse in markets of suchspeed, volume and complexity. They place exacting demands on both internalrisk control mechanisms and on the official regulatory systems. We should worryabout transactions that can be kept off balance sheet, and applaud the progressthat is being made in doing the right accounting for these instruments, difficult asthe distinction between net and gross positions makes that. We should also worry



about where the risks that are being hedged are ultimately held ± for generallythese risks are reallocated, not eliminated from the system.Regulators, internal and external, should never relax their concerns aboutderivative transactions and the potential damage they can do ± and if they dorelax, they should reflect on the failure of LTCM. For all that, derivative and

swap markets make a major contribution to the efficiency of the financial marketsin allocating risk.13 See Greenspan (2003). No doubt the Fed¶s monetary policy helped moderate the impact of therecession on the financial system.- 7 -To be sure, financial markets are far from perfect. For centuries they haveexperienced bouts of irrational exuberance, the most recent during the final yearsof the last century. The exuberance is all the more difficult to deal with becauseeveryone is having such a good time. Policymakers who are virtually sure marketlevels are not sustainable find it very difficult to take actions to burst the bubble,for fear that in doing so they may bring on a massive overreaction on thedownside. But despite their imperfections, well-regulated competitive financialmarkets are the best mechanism we know for allocating saving to investment.The best way to make them more efficient and less prone to overreaction is toimprove both the information base available to market participants and theregulatory systems in which they operate. The extensive work now going on toimprove accounting frameworks should help improve the information base. Andthe new Basel II framework, now in the process of development, could be a major step forward as it seeks to align the supervisory framework with the internal risk control systems of the major banks that account for the bulk of banking sector transactions.None of this means that development of the financial system is a magicbullet that will lead to growth. At an early stage of development a country canfunction with a relatively unsophisticated financial system ± particularly if it hasdecent banks. Building a gleaming stock exchange in a poor country with aninadequate legal framework and accounting practices is not going to increase thegrowth rate. But no financial system in which investors and savers are differentpeople will function well without a reasonable legal system and accountinginformation.As the economy develops, the financial system can become moresophisticated with it. At what rate? One answer ± the financial repressionargument ± is that the development of the financial system should be held back byregulation. Another, the answer I prefer, is that the financial system should beallowed to develop more rapidly relative to per capita GDP than has been thehistorical norm ± that a modern financial system can increase the efficiency of investment and contribute to growth both by reducing the costs of intermediationand by improving the allocation of risk. Such a system makes it possible for somefirms that cannot self- finance to carry out projects that otherwise would not havetaken place, and this increases output. Thus the financial sector should be a leader in the development process ± but it should always remain relevant to the economyin which it operates. This is essentially the approach that Brazil has taken, and Ibelieve it is the right approach.



In any country, but especially in a developing country, economic policyhas a special obligation to help the poorest. There is some evidence that financialdevelopment directly benefits the poorer segments of society, 14 as does low14 Li, Squire and Zou (199 7 ) show that financial development is associated with improvements inincome distribution. Dollar and Kraay (2000) show that measures of financial development are- 8 -inflation. The development of microfinance, which makes small loans to poor people, also holds out promise of making a difference to the lives of the poor. Bysome estimates, microfinance now reaches over 5 0 million people worldwide, andin some countries microfinance is beginning to move into the more formalfinancial sector. The future of microfinance will be assured if it can become aviable commercial proposition ± and this is well recognized by some of theleaders of the microfinance movement.IV. C apital Account LiberalizationI turn next to the question of controls on international capital flows. Inprinciple, capital account liberalization is not essential for the development of astrong financial system. What is essential is to permit foreign competition for domestic financial institutions by allowing foreign firms to operate in thedomestic markets ± for such competition raises the standards of the domesticinstitutions. And foreign entry can take place even if there are controls on capitaloutflows.Capital account liberalization as part of a growth strategy remainscontroversial. That is not surprising in light of the capital account financial crisesof the last decade, which took a heavy toll on almost all of the crisis countries aswell as on other countries affected by the contagion. 15

As an economy develops, there are great benefits of having access toglobal capital markets ± and disadvantages only insofar as domestic financialinstitutions are weak, or the macroeconomic situation is unstable. In consideringcapital account liberalization, I assume that countries will and should at somestage in the course of their development want to liberalize the capital account andintegrate into global capital markets. This view is based in part on the fact thatthe most advanced economies all have open capital accounts.At present most developing countries maintain capital controls.Experience suggests they should only be removed gradually, at a time when theexchange rate is not under pressure, 16 and as the necessary infrastructure ± in theform of strong domestic financial institutions, a sound macroeconomicframework, a market-based monetary policy, an appropriate exchange ratesystem, and the information base necessary for the markets to operate efficiently ± is put in place. 17 Prudential controls that have a similar effect to some capitalpositively and significantly correlated with the share of income of the bottom quintile of theincome distribution.15 In this section I draw on Fischer (2003), where the argument is developed in more detail.16 The removal of controls on outflows sometimes results in a capital inflow, a result of either foreigners and/or domestic residents bringing capital into the country in light of the greater assurance it can be removed when desired.17 Some countries have attempted to impose controls on outflows once a foreign exchange crisis isalready under way. This use of controls has generally been ineffective. (See Ariyoshi et al (2000),- 9 -



controls, for instance limits on the open foreign exchange positions that domesticinstitutions can take, should also be put in place as direct controls are removed. 18

Both theory and bitter experience have established the difficulty of combining capital account liberalization with a pegged exchange rate. Countrieswith open capital accounts should have a flexible exchange rate. 19 This does not

rule out foreign exchange market intervention, but it does rule out attemp ting tomaintain the exchange rate within a narrow band over any sustained period. Inchoosing a new nominal anchor to replace the exchange rate, most countries have± wisely I believe ± opted for inflation targeting. And of course Brazil isprominent among such countries.Any country using capital controls builds up an information system oncapital flows. It may be useful to maintain an information base for some timeeven after the removal of controls, as in the Brazilian case, for such informationcan be useful in managing a crisis.Excessive indebtedness of domestic financial and non- financialinstitutions arises not from capital outflows, but from inflows, especially shortterm

inflows. Market-based capital inflow controls, Chilean style, could behelpful for a country seeking to avoid the difficulties posed for domestic policy bycapital inflows. Evidence from the Chilean experience implies that controls werefor some time successful in allowing some monetary policy independence, andalso in shifting the composition of capital inflows towards the long end. Empiricalevidence suggests that the Chilean controls lost their effectiveness after 1998 20

and they have been removed. It is in the nature of such controls that theygradually lose their effectiveness.I conclude that the potential benefits of well-phased and well-sequencedintegration into the global capital markets outweigh the costs. 21 22 This conclusionis buttressed by the remarkable fact that that despite the crises of the last decade,and despite the arguments of many critics of globalization, almost no country haspp 18-29, and Edwards (1999), pp 6 8-7 1.) It has also to be considered that the imposition of controls for this purpose in a crisis is likely to have a longer-term effect on the country¶s access tointernational capital. For the record, I should note here that there is very little information aboutsuch use of controls in the Malaysian case of 1998, for the controls were imposed when exchangerates in the region were at their most depreciated, and as capital flows in all the crisis countrieswere reversing.18 Goldstein (2002) recommends a ³ managed floating plus´ regime, where the plus consists of measures to discourage currency mismatching by domestic institutions.19 However exchange rate flexibility is not sufficient to prevent crises, for a country maynonetheless get into trouble because of market doubts about its ability to service its debt. This isthe main cause of the 2002 crisis in Brazil.20 De Gregorio et al (2000)21 The argument is developed at greater length in Fischer (1998). The point has been muchdisputed, including by Bhagwati (1998).22 It is also based on the views that in practice capital controls are often discriminatory, a standinginvitation to corruption, and grow progressively less effective over time.- 10 -cut itself off from international capital flows. 23 The revealed preference of theemerging market countries is to stay involved with the international financialsystem.V. C oncluding C omments



Let me conclude with brief comments on what countries can do topromote a positive relationship between financial development and economicgrowth and to reduce their vulnerability to financial crises. One part of theanswer is completely familiar ± a stable macroeconomic framework. Familiar asit is, the statement bears repeating, for it is astonishing how quickly unstable

government finances and high inflation can destroy a financial system, as we havesadly seen recently in Arge ntina. Other elements include: the development of asound regulatory framework; the reform of inefficient financial institutions,whether through privatization or by allowing competition ± including fromforeign firms ± to restructure the financial system; the removal of discriminatorytaxes and other elements of financial repression; and strong corporate governanceand the adoption of sound accounting practices.This is of course a list of measures that are necessary for economicstability and growth in any case. Which is to say, that the financial system willwork best in an economy with strong macroeconomic policies and a stronginstitutional structure. And beyond that, the financial sector can contribute to

growth through financial innovation of the type that is represented by thedevelopment of the BM&F.Thank you.23 Even Malaysia, which imposed capital controls in 1998, removed most of them within one totwo years.- 11 -ReferencesAriyoshi, Akira, et al (2000). Capital Controls: Country Experiences with their Use and L iberalization. IMF Occasional Paper 190.Bagehot, Walter. 18 7 3. L ombard Street.Barro, Robert and Xavier Sala-i-Martin (199 5 ). Economic Growth. Cambridge, MA: MIT Press.Beck, Thorsten, Ross Levine and Norman Loayza (2000). ³ Finance and Sources of Growth,´Journal of Financial Economics.Beck, Thorsten and Ross Levine (2002). ³ Stock Markets, Banks, and Growth: Panel Evidence,´Cambridge, MA, NBER Working Paper 9082 .Bhagwati, Jagidsh (1998). ³ The Capital Myth´, Foreign Affairs (May/June), 7 -12.De Gregorio, Jose, Sebastian Edwards and Rodrigo Valdés (2000). ³ Controls on Capital Inflows:Do they Work?´ Journal of Development Economics (6 3): 5 9-83.Dollar, David and Aart Kraay. 2000. ³ Growth is Good for the Poor.´ IMF Seminar Series(International) 2000-3 5 : 1-44.Edison, Hali, Ross Levine, Luca Ricci and Torsten Slok (2002). ³ International FinancialIntegration and Economic Growth,´ Washington, DC, IMF Working Paper 02/14 5 .Edwards, Sebastian (1999). ³ How Effective are Capital Controls?´ NBER Working Paper 7 413.Eichengreen, Barry and Favara, Giovanni (2003).´An Empirical Reassessment of the RelationshipBetween Finance and Growth,´ Washington, DC, IMF Working Paper WP/03/123.Fischer, Stanley (1998). Capital Account L iberalization and the Role of the IMF ,

Princeton Essays in International Finance (20 7 ): 1-10.----------- 2003. Globalization and Its Challenges", American Economic Review Papers andProceedings, (May 2003), 1-32.Fry, Maxwell. 199 5 . Money, Interest, and Banking in Economic Development ± 2nd ed. Baltimore:The Johns Hopkins University Press.Goldstein, Morris (2002). Managed Floating Plus . Policy Analyses in International Economics 66 .Washington, DC: Institute for International Economics.Greenspan, Alan (2002). Remarks on World Finance and Risk Management , Lancaster House,London, September 2 5 , 2002.Gurley, John and Edward Shaw (19 6 0). Money in a Theory of Finance . Washington, DC:



Brookings Institution.King, Robert and Ross (1993a), ³ Finance and Growth: Schumpeter May Be Right,´ QuarterlyJournal of Economics, August, pp. 7 17 -7 37 .----------- (1993b). ³ Finance, Entrepreneurship, and Growth: Theory and Evidence,´ Journal of Monetary Economics 32: 5 13±42.- 12 -

Levine, Ross (1997

).³Financial Development and Economic Growth: Views and Agenda,´Journal of Economic L iterature , Vol. XXXV 6 88-7 26 .

----------- (2002). ³ International Financial Liberalization and Economic Growth.´ Review of International Economics , 2001, vol. 9, issue 4, pages 6 88-7 02.Li, Hongyi, Lyn Squire and Heng-fu Zou. 199 7 . ³ Explaining International and IntertemporalVariations in Income Inequality.´ Economic Journal , 108 (January) 1-18Lucas, Robert (1988). ³ On the Mechanics of Economic Development.´ Journal of MonetaryEconomics 22, 3-42.McKinnon, Ronald (19 7 3). Money and Capital in Economic Development. Washington, DC:Brookings Institution.Schumpeter, Joseph (1912). Theorie der Wirtschaftlichen Entwicklung. Leipzig: Dunker &Humblot, 1912. (In English: A Theory of Economic Development , Translated by Redvers Opie ,Cambridge, MA: Harvard University Press, 1934.Shaw, Edward (19 7 3). Financial Deepening in Economic Development. New York: OxfordUniversity Press.World Bank. 2002: World Development Report 2002, Building Institutions for Markets . New

York: Oxford University Press. Stock exchangessFrom Wikipedia, the free encyclopedia

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This a rticle is ab out the tr ad i ng entity. For the so ng by Miss Kitti n & The H a cker , see Stock Exch ang e( so ng ).

A stock exchange is an entity that 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 incomeand dividends . Securities traded on a stock exchange include shares issued by companies, unittrusts , derivatives , pooled investment products and bonds .



To be able to trade a security on a certain stock exchange, it must be listed there. Usually, thereis a central location at least for record keeping, but trade is increasingly less linked to such aphysical place, as modern markets are electronic networks , which gives them advantages of increased speed and reduced 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 mostimportant component of a stock market . Supply and demand in stock markets is driven byvarious factors that, 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 besubsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter .This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges arepart of a global market for securities.

Look upbourse or stock exchange in Wiktionary, the free dictionary.

C ontents

[hide]

y 1 History y 2 The role of stock exchanges

o 2.1 Raising capital for businesses o 2.2 Mobilizing savings for investment o 2.3 Facilitating company growth o 2.4 Profit sharing o 2.5 Corporate governance o 2.6 Creating investment opportunities for small investors o 2.7 Government capital-raising for development projects o 2.8 Barometer of the economy

y 3 Speculation y 4 Major stock exchanges y 5 Listing requirements

o 5.1 Requirements by stock exchange y 6 Ownership y 7 Other types of exchanges y 8 Gallery y 9 See also y 10 Notes y 11 External links

[edit ] History



Among many other things, the Code of Hammurabi recorded interest-bearing loans.

Securities markets took centuries to develop. The idea of debt dates back to the ancient world , asevidenced for example by ancient Mesopotamian clay tablets recording interest-bearing loans.There is little consensus among scholars as to when corporate stock was first traded . Some seethe key event as the Dutch East India Company 's founding in 1 6 02, while others point to earlier developments. Economist Ulrike Malmendier of the University of California at Berkeley arguesthat a share market existed as far back as ancient Rome .

In the Roman Republic , which existed for centuries before the Empire was founded, there were

societas publicanorum , organizations of contractors or leaseholders who performed temple-building and other services for the government. One such service was the feeding of geese on theCapitoline Hill as a reward to the birds after their honking warned of a Gallic invasion in 390B.C. Participants in such organizations had partes or shares, a concept mentioned various timesby the statesman and orator Cicero . In one speech, Cicero mentions "shares that had a very highprice at the time." Such evidence, in Malmendier's view, suggests the instruments were tradable,with fluctuating values based on an organization's success. The societas declined into obscurityin the time of the emperors, as most of their services were taken over by direct agents of thestate.

Tradable bonds as a commonly used type of security were a more recent innovation, spearheaded

by the Italian city-states of the late medieval and early Renaissance periods.

In 11 7 1, the authorities of the Republic of Venice , concerned about their war-depleted treasury,drew a forced loan from the citizenry. Such debt, known as prestiti , paid 5 percent interest per year and had an indefinite maturity date. Initially regarded with suspicion, it came to be seen as avaluable investment that could be bought and sold. The bond market had begun.



From 12 6 2 to 13 7 9, Venice never missed an interest payment, solidifying the credibility of thenew instruments. Other Italian city-states such as Florence and Genoa became bond issuers aswell, often as a means of paying for warfare. Bonds were traded widely in Italy and beyond, abusiness facilitated by bankers such as the Medicis .

War between Venice and Genoa resulted in suspension of prestiti interest payments in the early1380s, and when the market was restored, it was at a lower interest rate. Venice's bonds traded atsteep discounts for decades thereafter. Other blows to financial stability resulted from theHundred Years War , which caused monarchs of France and England to default on debts to Italianbanks, and the Black Death , which ravaged much of Europe. Still, the idea of debt as a tradableinvestment endured.

As with bonds, the concept of stock developed gradually. Some scholars place its origins as far back as ancient Rome. Partnership agreements dividing ownership into shares date back at leastto the 13th century, again with Italian city-states in the vanguard. Such arrangements, however,typically extended only to a handful of people and were of limited duration, as with shipping

partnerships that applied only to a single sea voyage.

House Ter Be urze in Bruges, Belgium.

The forefront of commercial innovation eventually shifted from Italy to northern Europe. TheHanseatic League , an alliance of mercantile towns such as Bruges and Antwerp , operatedcounting houses to expedite trade. The term "bourse," which has become synonymous with"stock market," arose in Bruges, either from a sign outside a trading center showing one or a fewpurses (bursa is Latin for bag) or because merchants gathered at the house of a man named Vander Burse; nobody's quite sure.

By the late 1 5 00s, British merchants were experimenting with joint-stock companies intended tooperate on an ongoing basis; one such was the Muscovy Company , which sought to wrest tradewith Russia away from Hanseatic dominance. The next big step was in Amsterdam . In 1 6 02, theDutch East India Company was formed as a joint-stock company with shares that were readilytradable. The stock market had begun.



Abond issued by the Dutch East India Company, dating from 7 November 1623, for the amount of 2,400 florins.

The Dutch East India Company, formed to build up the spice trade, operated as a colonial ruler in what's now Indonesia and beyond, a purview that included conducting military operationsagainst recalcitrant natives and competing colonial powers. Control of the company was heldtightly by its directors, with ordinary shareholders not having much influence on management or even access to the company's accounting statements.

However, shareholders were rewarded well for their investment. The company paid an averagedividend of over 1 6 percent per year from 1 6 02 to 1 65 0. Financial innovation in Amsterdam took many forms. In 1 6 09, investors led by one Isaac Le Maire formed history's first bear syndicate,but their coordinated trading had only a modest impact in driving down share prices, which

tended to be robust throughout the 17

th century. By the 16

20s, the company was expanding itssecurities issuance with the first use of corporate bonds.

The Dutch West India Company was formed in 1 6 21, bringing a new issuer to the burgeoningsecurities market. Amsterdam's growth as a financial center survived the tulip mania of the16 30s, in which contracts for the delivery of flower bulbs soared wildly and then crashed. Newtechniques and instruments proliferated for securities as well as commodities, including options,repos and margin trading. [1]

Joseph de la Vega , also known as Joseph Penso de la Vega and by other variations of his name,was an Amsterdam trader from a Spanish Jewish family and a prolific writer as well as a

successful businessman in 17

th-century Amsterdam. His 16

88 book Confusion of Confusionsexplained the workings of the city's stock market. It was the earliest book about stock trading ,taking the form of a dialogue between a merchant, a shareholder and a philosopher, the book described a market that was sophisticated but also prone to excesses, and de la Vega offeredadvice to his readers on such topics as the unpredictability of market shifts and the importance of patience in investment.



The year that de la Vega published also brought an event that helped spread financial techniquesand talent from Amsterdam to London . This was the "glorious revolution," in which Dutch ruler William of Orange also ascended to England's throne. William sought to modernize England'sfinances to pay for its wars, and thus the kingdom's first government bonds were issued in 1 6 93and the Bank of England was set up the following year. Soon thereafter, English joint-stock

companies began going public.

NASDAQ was the first electronic stock exchange.

London's first stockbrokers, however, were barred from the old commercial center known as theRoyal Exchange, reportedly because of their rude manners. Instead, the new trade was conductedfrom coffee houses along Exchange Alley . By 1 6 98, a broker named John Castaing, operatingout of Jonathan's Coffee House , was posting regular lists of stock and commodity prices. Thoselists mark the beginning of the London Stock Exchange .

One of history's greatest financial bubbles occurred in the next few decades. At the center of itwere the South Sea Company , set up in 1 7 11 to conduct English trade with South America , andthe Mississippi Company , focused on commerce with France's Louisiana colony and touted bytransplanted Scottish financier John Law , who was acting in effect as France's central banker.

Investors snapped up shares in both, and whatever else was available. In 17

20, at the height of the mania, there was even an offering of "a company for carrying out an undertaking of greatadvantage, but nobody to know what it is."

By the end of that same year, share prices were collapsing, as it became clear that expectations of imminent wealth from the Americas were overblown. In London, Parliament passed the BubbleAct, which stated that only royally chartered companies could issue public shares. In Paris , Lawwas stripped of office and fled the country. Stock trading was more limited and subdued in



subsequent decades. Yet the market survived, and by the 1 7 90s shares were being traded in theyoung United States .

On February 8, 19 7 1, NASDAQ , the world's first electronic stock exchange, started itsoperations.

[edit ] The role of stock exchanges

Stock exchanges have multiple roles in the economy . This may include the following: [2]

[edit ] Raising capital for businesses

The Stock Exchange provide companies with the facility to raise capital for expansion throughselling shares to the investing public. [3]

[edit ] Mobilizing savings for investment

When people draw their savings and invest in shares (through a IPO or the issuance of newcompany shares of an already listed company), it usually leads to rational allocation of resourcesbecause funds, which could have been consumed, or kept in idle deposits with banks , aremobilized and redirected to help companies' management boards finance their organizations.This may promote business activity with benefits for several economic sectors such asagriculture , commerce and industry , resulting in stronger economic growth and higher productivity levels of firms. Sometimes it is very difficult for the stock investor to determinewhether or not the allocation of those funds is in good faith and will be able to generate long-term company growth, without examination of a company's internal auditing .

[edit ] Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines , increase distributionchannels, hedge against volatility, increase its market share , or acquire other necessary businessassets . A takeover bid or a merger agreement through the stock market is one of the simplest andmost common ways for a company to grow by acquisition or fusion.

[edit ] Profit sharing

Both casual and professional stock investors , through dividends and stock price increases thatmay result in capital gains , share in the wealth of profitable businesses. Unprofitable andtroubled businesses may result in capital losses for shareholders.

[edit ] Corporate governance

By having a wide and varied scope of owners, companies generally tend to improve management standards and efficiency to satisfy the demands of these shareholders, and the more stringentrules for public corporations imposed by public stock exchanges and the government.



Consequently, it is alleged that public companies (companies that are owned by shareholderswho are members of the general public and trade shares on public exchanges) tend to have better management records than privately held companies (those companies where shares are notpublicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors).

Despite this claim, some well-documented cases are known where it is alleged that there hasbeen considerable slippage in corporate governance on the part of some public companies. Thedot-com bubble in the late 1990's, and the subprime mortgage crisis in 200 7 -08, are classicalexamples of corporate mismanagement. Companies like Pets.com (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), LehmanBrothers (2008), General Motors (2009) and Satyam Computer Services (2009) were among themost widely scrutinized by the media.

However, when poor financial, ethical or managerial records are known by the stock investors ,

the stock and the company tend to lose value. In the stock exchanges, shareholders of underperforming firms are often penalized by significant share price decline, and they tend aswell to dismiss incompetent management teams.

[edit ] Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares is open toboth the large and small stock investors because a person buys the number of shares they canafford. Therefore the Stock Exchange provides the opportunity for small investors to own sharesof the same companies as large investors.

[edit ] Government capital-raising for development projects

Governments at various levels may decide to borrow money to finance infrastructure projectssuch as sewage and water treatment works or housing estates by selling another category of securities known as bonds . These bonds can be raised through the Stock Exchange wherebymembers of the public buy them, thus loaning money to the government. The issuance of suchbonds can obviate the need, in the short term, to directly tax citizens to finance development² though by securing such bonds with the full faith and credit of the government instead of withcollateral, the government must eventually tax citizens or otherwise raise additional funds tomake any regular coupon payments and refund the principal when the bonds mature.

[edit ] Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on market forces. Shareprices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession , depression, or financial crisis could eventually leadto a stock market crash . Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.



[edit ] Speculation

Ma i n a rticle: Spec ul a tio n

The stock exchanges are also fashionable places for speculation . In a financial context, the terms"speculation" and "investment" are actually quite specific. For instance, although the word"investment" is typically used, in a general sense, to mean any act of placing money in afinancial vehicle with the intent of producing returns over a period of time, most venturedmoney²including funds placed in the world's stock markets²is actually not investment, butspeculation.

[edit ] Major stock exchanges

New York Stock Exchange, New York City

London Stock Exchange, the City of London



Tokyo Stock Exchange, Tokyo

Toronto Stock Exchange, Toronto



Sao Paulo Stock Exchange, Sao Paulo

Australian Securities Exchange's Sydney exchange centre, Sydney

Borsa Italiana, Milan Stock Exchange



Frankfurt Stock Exchange, Frankfurt

Paris Stock Exchange, Paris

SWX Swiss Exchange, Zurich

Mexican Stock Exchange, Mexico City

Major Stock Exchanges : Year ended 31 December 2010

Rank

Economy Stock Exchange Market

CapitalizationTrade Value

(USD Billions)



(USD Billions)

1 United States Europe

NYSE Euronext 15970 19 813

2 United States Europe

NASDAQ OMX 4931 13439

3 Japan Tokyo Stock Exchange 3827 3787

4 United Kingdom London Stock Exchange 3613 2741

5 China Shanghai Stock Exchange 2717 4496

6 Hong Kong Hong Kong Stock Exchange 2711 1496

7 Canada Toronto Stock Exchange 21 70 1368

8 India Bombay Stock Exchange 1631 258

9 India National Stock Exchange of India

1596 801

10 Brazil BM&F Bovespa 1545 868

11 Australia Australian SecuritiesExchange 1454 10 62

12 Germany Deutsche Börse 1429 1628

13 China Shenzhen Stock Exchange 1311 3572

14 Switzerland SIX Swiss Exchange 1229 788

15 Spain BME Spanish Exchanges 11 71 1360

16 South Korea Korea Exchange 1091 1607

17 Russia MICEX 09 49 408

18 South Africa JSE Limited 092 5 340

The main stock exchanges:



y American Stock Exchange y Australian Securities Exchange y Athens Stock Exchange y Belgrade Stock Exchange y Berliner Börse y Bermuda Stock Exchange y Bolsa Mexicana de Valores y Bolsa de Valores de Colombia y Bolsa de Valores de Lima y Bombay Stock Exchange y Bucharest Stock Exchange y Budapest Stock Exchange y Bulgarian Stock Exchange - Sofia y Canadian National Stock Exchange - CNSX y Cairo & Alexandria Stock Exchange y Casablanca Stock Exchange y Channel Islands Stock Exchange y Chicago Stock Exchange y Czech Stock Exchange - RM-SYSTÉM y Euronext Amsterdam y Euronext Brussels y Euronext Lisbon y Euronext Paris y Frankfurt Stock Exchange y Ghana Stock Exchange y Helsinki Stock Exchange y Hong Kong Stock Exchange y Indonesia Stock Exchange y

Irish Stock Exchange y Istanbul Stock Exchange y JASDAQ y JSE Securities Exchange y Karachi Stock Exchange y Korea Stock Exchange y Kuwait Stock Exchange y London Stock Exchange y Madrid Stock Exchange y Malaysia Stock Exchange y Milan Stock Exchange y Montreal Stock Exchange y Moscow Interbank Currency Exchange y Nagoya Stock Exchange y National Stock Exchange of India y New York Stock Exchange y New Zealand Exchange y Nigerian Stock Exchange y Osaka Securities Exchange y Philippine Stock Exchange



y Russian Trading System y Santiago Stock Exchange y São Paulo Stock Exchange(BOVESPA) y Shanghai Stock Exchange y Shenzhen Stock Exchange y Singapore Exchange y Stockholm Stock Exchange y Stock Exchange of Thailand y Taiwan Stock Exchange y Tehran Stock Exchange y Tel Aviv Stock Exchange y Tokyo Stock Exchange y Toronto Stock Exchange y Trinidad and Tobago Stock Exchange y Warsaw Stock Exchange y Zurich Stock Exchange

See also: Category:Stock exchanges

[edit ] Listing requirements

Listing requirements are the set of conditions imposed by a given stock exchange uponcompanies that want to be listed on that exchange. Such conditions sometimes include minimumnumber of shares outstanding, minimum market capitalization, and minimum annual income.

[edit ] Requirements by stock exchange

Companies must meet an exchange's requirements to have their stocks and shares listed andtraded there, but requirements vary by stock exchange:

y Bombay Stock Exchange: Bombay Stock Exchange(BSE) has requirements for a minimummarket capitalization of Rs.250 Million and minimum public float equivalent to Rs.100 Million.[4]

y London Stock Exchange: The main market of the London Stock Exchangehas requirements for aminimum 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 fromthe date of listing.

y NA SDAQ Stock Exchange: To be listed on the NASDAQ a company must have issued at least 1.25million shares of stock worth at least $70 million and must have earned more than $ 11 millionover the last three years. [5]

y New York Stock Exchange: To be listed on the New York Stock Exchange(NYSE) a company musthave issued at least a million shares of stock worth $ 100 million and must have earned morethan $10 million over the last three years. [6]

[edit ] Ownership



Stock exchanges originated as mutual organizations , owned by its member stock brokers. Therehas been a recent trend for stock exchanges to demutualize , where the members sell their sharesin an initial public offering . In this way the mutual organization becomes a corporation, withshares that are listed on a stock exchange. Examples are Australian Securities Exchange (1998),Euronext (merged with New York 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-state institutionsinsofar as they were created by government bodies in China and their leading personnel aredirectly appointed by the China Securities Regulatory Commission .

[edit ] Other types of exchanges

In the 19th century, exchanges were opened to trade forward contracts on commodities .Exchange traded forward contracts are called futures contracts . These commodity exchanges later started offering future contracts on other products, such as interest rates and shares, as well asoptions contracts. They are now generally known as futures exchanges .

[edit ] Gallery

y

Bombay Stock Exchange

y

Frankfurt Stock Exchange

y

Hong Kong Stock Exchange



y

London Stock Exchange

y

Madrid Stock Exchange

y

Milan Stock Exchange

y

New York Stock Exchange

y

Osaka Securities Exchange





y

Australian Securities exchange

y

Taiwan Stock Exchange

y

Toronto Stock Exchange

Documents

Stock market bubble