- Last Updated: Saturday, 26 December 2020
Investors that trade stocks will understand the concept of a stock exchange, but novice investors may not understand the subtle differences between the major exchanges. For example, why is it that some companies choose to be listed on the New York Stock Exchange while others are traded on the NASDAQ?
The Role of Stock Exchanges
When a company makes a decision to raise capital by issuing stock, it is competing with other companies for investors’ money. To maximize demand for its stock, each company needs to decide which stock exchange it will use to offer its shares to investors. In general, larger exchanges mean more market activity, which means a company wants to be included in the largest stock exchange possible.
More prestigious stock exchanges set high standards that a company needs to meet before they will carry the stock. This presents a smaller number of exchanges with the opportunity to be niche players, often being less selective when listing a company. For example, not all companies will pass the requirements of the NYSE Euronext, but other exchanges will help fill that void.
International Stock Exchanges
The sections that follow provide a listing of the largest stock exchanges in America and throughout the world. Some of these exchanges have physical trading floors, while others operate as a virtual stock exchange; relying heavily on sophisticated computer networks to conduct business.
New York Stock Exchange Euronext
The New York Stock Exchange, or NYSE, was formed in 1792 by twenty-four New York City stockbrokers. The NYSE is arguably the most prestigious stock exchange in the world, and trades still take place on the exchange floor. On an average day, nearly $93 billion are traded on this exchange and 1.6 billion shares exchange hands. There are currently around 2,873 companies listed on the NYSE Euronext worth roughly $22.4 trillion (November 2020).
To be listed on the New York Stock Exchange, the company must have in excess of 2,200 shareholders, with an average daily trading volume of at least 100,000 shares. Generally, the company must have a total capitalization of at least $750 million or pretax earnings in excess of $10 million. There are several combinations of these requirements, but the bottom line is that a company needs to be either very big or very profitable to be listed.
Until recently, every company’s goal was to have its stock listed on the New York Stock Exchange. That changed about ten years ago when NASDAQ became recognized as the most technologically-savvy stock exchange in the world. Many of the largest companies in the world, such as Microsoft, now trade on the NASDAQ, and for good reason.
Unlike the floor of the NYSE, NASDAQ’s network of computers allow for extremely efficient trading. It’s a virtual stock exchange. In October 2004, the NASDAQ surpassed the average trading volume of the NYSE for the first time, with an average volume of 1.6 billion shares.
Like the NYSE, the NASDAQ has a matrix approach to its listing standards. Generally, a company must have issued around 1,000,000 shares of stock valued at $10 million or more.
American Stock Exchange
At one time, the American Stock Exchange, or Amex, was the third largest stock exchange in the world. From the very beginning, the Amex filled a niche roll, as it was the original exchange for companies that did not meet the high standards of the NYSE. Today, the NASDAQ fills that role, and in 1998 the owners of NASDAQ purchased the American Stock Exchange.
The niche role of the American Stock Exchange has evolved, and today it specializes in derivatives and options. In January 2008, NYSE Euronext announced it was acquiring the American Stock Exchange for $260 million in stock. The deal was completed on October 1, 2008, and the exchange was re-branded as the NYSE Amex Equities, then NYSE MKT.
London Stock Exchange
The London Stock Exchange, or LSE, was formed around 300 years ago, and today lists about 2,339 companies from 70 countries. Many large U.S. companies listed on American exchanges also list on the London Stock Exchange. General Electric is one example. The London Stock Exchange is much smaller than its American counterparts, with an average daily volume of around 842,000 trades. In November 2020, there were roughly 32.3 million trades, involving $213.0 billion (USD).
Toronto Stock Exchange
The Toronto Stock Exchange, or TSX, is owned by TSX group, which also owns the TSX Venture Exchange, an important exchange for electricity and natural gas contracts. The Toronto Stock Exchange is thought to have grown from an association of brokers back in 1852. Unfortunately, there are no official records of this group’s transactions.
In 1934, the Toronto Stock Exchange merged with the Standard Stock and Mining Exchange, and the merged markets adopted the Toronto Stock Exchange name. In 1997, the TSX closed its trading floor, making it the largest stock exchange in North America to choose a floorless, electronic / virtual trading environment.
Australian Stock Exchange
The history of the Australian Stock Exchange, or ASX, starts with the six capital city exchanges that were established in the late 1800s. From 1903 until 1937, these state stock exchanges began meeting on an informal basis. By 1936, Sydney had taken the lead in formalizing the association, and in 1937 the Australian Associated Stock Exchanges (AASE) was established.
On April 1, 1987, the Australian Parliament passed legislation forming the Australian Stock Exchange Limited (ASX). Forming a national stock exchange officially brought together the six independent stock exchanges operating in the capital cities.
Bombay Stock Exchange
The Bombay Stock Exchange (BSE), also known as the Stock Exchange Mumbai, is one of the oldest stock exchanges in all of Asia. The exchange dates back to 1875, when it was known as the Native Share and Stock Brokers Association.
The exchange is home to about 5,133 listed companies, with a total market capitalization of around $2.25 trillion USD as of May 2020. The BSE is also one of the busiest stock exchanges in the world, currently ranking around number five in terms of annual transactions.
Tokyo Stock Exchange
The history of the Tokyo Stock Exchange, or TSE, dates back to the 1870’s when a securities system was established in Japan, and public negotiating for bonds first began. The Tokyo Stock Exchange Co., LTD was established on May 15, 1878, and trading on the exchange began in June of that same year.
The Tokyo Stock Exchange is one of the largest exchanges in all of Asia, with over 1.9 billion shares exchanging hands each trading day. There are approximately 3,734 listed companies on the exchange, with a total market capitalization of $6.59 trillion (USD). Approximately 1 billion trades of stock occur annually on the TSE.
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