stock exchange

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Stock Exchange

A place, whether physical or electronic, where stocks, bonds, and/or derivatives in listed companies are bought and sold. A stock exchange may be a private company, a non-profit, or a publicly-traded company (some exchanges have shares that trade on their own floors). A stock exchange provides a regulated place where brokers and companies may meet in order to make investments on neutral ground. The concept traces its roots back to medieval France and the Low Countries, where agricultural goods were traded for cash or debt. Most countries have a main exchange and many also have smaller, regional exchanges. A stock exchange is also called a bourse or simply an exchange.

stock exchange

stock exchange

a MARKET which deals in the buying and selling of company stocks and shares and government bonds. See STOCK MARKET entry for fuller discussion.

stock exchange

or

stock market

A MARKET that deals in the buying and selling of company STOCKS and SHARES and government BONDS. The stock exchange and the MONEY MARKET (which deals in short-term company and government securities) are the main source of external capital to industry and the government.

Institutions that are involved in the UK stock exchange include MARKET MAKERS (who act as JOBBERS and STOCKBROKERS), specialist stockbrokers, ISSUING HOUSES, MERCHANT BANKS and, as general buyers and sellers of securities, the CENTRAL BANK, COMMERCIAL BANKS, PENSION FUNDS, INSURANCE COMPANIES, UNIT TRUSTS and INVESTMENT TRUST COMPANIES, together with private individuals, industrial companies and overseas investors and institutions.

The stock exchange performs two principal functions. It provides:

  1. a primary or ‘new issue’ market where capital for investment and other purposes can be raised by the issue of new stocks, shares and bonds (see SHARE ISSUE), and;
  2. a ‘secondary’ market for dealings in existing securities, including forward dealings (see FUTURES MARKET), which facilitates the easy transferability of securities from sellers to buyers.

Day-to-day movements in the prices of shares (and other securities) are recorded by various SHARE PRICE INDICES (for example, the FTSE-100 share index).

The stock exchange thus occupies an important position in a country's FINANCIAL SYSTEM by providing a mechanism for channelling savings into physical and portfolio investment.

In the UK, the London Stock Exchange is the country's centre for dealings in securities, and the LONDON INTERNATIONAL FINANCIAL FUTURES EXCHANGE provides a market for commodities, currencies, etc.

In order to obtain a full listing or quotation on the London Stock Exchange for their shares, companies must satisfy various requirements, including proof of their financial standing and previous business history, and be prepared to issue at least 25% of their shares to the investing public. Additionally, more flexible arrangements have been introduced to allow smaller companies to raise capital without obtaining a full listing (see UNLISTED SECURITIES MARKET).

In recent years, stock markets worldwide, such as those based in London, New York, Tokyo, Zurich and Paris, have become increasingly interdependent with the growth of multinational companies, whose shares are traded on a number of exchanges, while financial institutions and securities firms themselves have become more internationally based. This has led to an increase in competitive pressures, which has brought about a number of important changes, particularly in the case of the UK stock exchange, including:

  1. the so-called ‘big bang’ - the termination (under the prodding of the OFFICE OF FAIR TRADING) of the cartel arrangements for fixing minimum commissions on securities transactions and the ending of the traditional division between the stockbroking and jobbing functions;
  2. various mergers and joint ventures between UK securities firms and international securities and banking groups so as to provide clients with a more diversified range of financial services and geographical spread;
  3. the computerization of dealing systems, using the Stock Exchange Automatic Quotations System (SEAQ), which provides a mechanism for linking buying and selling transactions on a global basis. This has largely transferred day-to-day business from a physical presence on the stock-exchange floor to telephone exchanges and the use of VDU computer terminals in dealing rooms.

In recognition of the growth in international dealings, the London Stock Exchange merged in the 1990s with the International Securities Regulatory Organization (ISRO), which represented the big international securities firms. In November 1999, a new competitive stimulus emerged when the London Stock Exchange set up a new sub-exchange (Techmark) for the listing of shares in high-tech companies, only to be followed days later by NASDAQ (the US high-tech stock exchange) setting up a rival exchange in London as part of its plan to build up a pan-European operation. In addition, the London Stock Exchange has faced competition from Tradepoint, an electronic stock exchange based in London and owned by a consortium headed by Reuters and a number of American investment banks and fund management groups. Like Nasdaq, Tradepoint aims to build a pan-European trading system.

In 2000 the Paris, Amsterdam and Brussels stock exchanges merged to form the ‘Euronext’ exchange, and SWX, the Swiss stock exchange, joined up with Tradepoint to form the Virt-X exchange. Also in 2000, a proposed plan to merge the London Stock Exchange and the Frankfurt Deutsche Bourse to form the ‘iX’ exchange fell through following a hostile takeover bid for the London Stock Exchange by the OM group, which also fell through. In 2005, however, the Deutsche Bourse put in a further bid for the LSE, with Euronext also putting in a hostile bid (watch this space!).

The UK stock market is regulated by the Financial Services Authority in accordance with various standards of good practice laid down by the FINANCIAL SERVICES ACT 1986. See CAPITAL MARKET, CITY CODE, SPECULATOR, SHARE PURCHASE/SALE, SHARE PRICE INDEX, INSIDER TRADING, PORTFOLIO, TRACKER FUND, INDIVIDUAL SAVINGS ACCOUNT (ISA).

References in periodicals archive ?
Even after the delisting of shares of SANYO, shares of Panasonic that will be allotted to each of the shareholders of SANYO upon the Share Exchange will remain listed on the Tokyo Stock Exchange, the Osaka Securities Exchange and the Nagoya Stock Exchange, and they will be tradable on the financial instruments exchange markets on and after the effective date of the Share Exchange.
For the details of the treatment of any fractions in the case where the number of shares of Panasonic to be delivered upon the Share Exchange includes any fractions of less than one share, see (Note 4) "Treatment of fractions of less than one share" in 2.
77% of the number of issued shares of SANYO, in implementing the Share Exchange, it requested Nomura Securities, acting as a third-party valuation institution, to calculate the share exchange ratio in order to ensure the fairness of the share exchange ratio in the Share Exchange.
Panasonic received the written opinion (fairness opinion) dated December 21, 2010, from Nomura Securities, stating that the Share Exchange Ratio is proper for Panasonic from a financial viewpoint.
On the other hand, SANYO, in implementing the Share Exchange, requested ABeam M&A Consulting and Mitsubishi UFJ Morgan Stanley separately, acting as third-party valuation institutions, to calculate the share exchange ratio, in order to ensure the fairness of the share exchange ratio in the Share Exchange.
The Board of Directors of SANYO consulted with the Independent Committee on (i) whether fairness of the process used to determine the share exchange ratio etc.
Upon such review, the Independent Committee received an explanation from SANYO on the contents of the proposal made by Panasonic to SANYO, the background leading up to the Share Exchange, the opinion of SANYO about the Share Exchange, and the negotiation process of, and the process used to determine, various conditions of the Share Exchange including the share exchange ratio.
Under such process, as a result of the careful discussion and review on the matters in reference to which consultation took place above, the Independent Committee submitted a report to the Board of Directors of SANYO on December 20, 2010, stating that (i) it is believed that fairness of the process used to determine the share exchange ratio etc.
At the Board of Directors meeting of SANYO held today (5 directors in attendance out of 8 directors, and 4 auditors in attendance out of 5 auditors (including 3 outside auditors)), a resolution was adopted with the approval of all of the directors in attendance to execute the Share Exchange Agreement.
Therefore, in order to ensure the fairness and neutrality of making decisions at SANYO, these 3 directors have not participated in any deliberations or resolutions regarding the share exchange ratio and the execution of the Share Exchange Agreement , and they have not participated in any discussions or negotiations with Panasonic on behalf of SANYO.
Outline of the Parties Involved in the Share Exchange
With respect to Panasonic, the Share Exchange is expected to be treated as a capital transaction in accordance with U.