Stock exchanges like the New York Stock Exchange, Nasdaq and others around the world enable companies around the world to raise money. Nowadays, they're mostly electronic markets where licensed stock brokerages, and the traders representing them, buy and sell shares. Through exchanges, private companies sell stock in the form of publicly traded shares. Those wishing to invest in stock place buy or sell orders through regulated brokerage firms. These firms act as intermediaries to the public, providing an efficient and well-regulated trading market.
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Capital Formation
The primary function of a stock exchange is to help companies raise money. To accomplish this task, ownership in a private corporation is sold to the public in the form of shares of stock. Funds received from the sale of stock contribute to the firm's capital formation. Companies plan to use the newly-raised funds to invest in productive business assets and grow revenues and profits. This positive business expansion then may be reflected in a higher stock trading price.
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Facilitate Trading
An organized and regulated stock exchange facilitates the efficient trading of stock and other investment vehicles. Without this highly controlled and coordinated stock exchange, the global trading of stock would not be possible. Through the stock exchange, any individual or company may buy or sell shares in another company. In fact at any one time, there are thousands of company shares being traded through millions of individual transactions. The stock exchange, particularly the high volume electronic computerized trading platform, serves as the infrastructure required to connect both buyers and sellers efficiently around the globe.
Security and Transparency
The legitimate sale of stock on any exchange requires reliable and accurate information. By requiring a high level of transparency from all trading companies, the stock exchange creates a more secure environment for investors, which helps them to determine the risks of investing.
Market Regulation
A stock exchange works in close cooperation with government agencies and officials. Unregulated markets can have a negative impact on capital formation. Close regulation of stock exchanges allows strangers from all parts of the world to honor contracts executed in the daily trading of shares. A goal of stock market regulations also is to prevent criminal activity in financial markets. By protecting investors, and fostering transparency, the stock market promotes capital formation.
The U.S. Securities and Exchange Commission handles oversight and regulation of all stock exchanges and investments within the United States. The SEC's long-term regulatory activity is focused on protecting investors and maintaining legitimate trading operations that in turn will promote capital formation. Similar agencies regulate stock markets around the world.