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A stock exchange or '''bourse''' is a Corporation or Mutual Organization which provides facilities for Stock Brokers to trade company Stock s and other Securities . Stock exchanges also provide facilities for the issue and redemption of securities, as well as, other financial instruments and Capital Event s including the payment of income and Dividend s. The securities traded on a stock exchange include: Shares issued by companies, Unit Trust s and other pooled investment products and Bond s. 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. A stock exchange is often the most important component of a Stock Market . 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 Bond s are traded. The initial offering of stocks and bonds to Investor s is by definition done in the Primary Market and subsequent trading is done in the Secondary Market . Increasingly all stock exchanges are part of a global market for securities. Supply and demand in stock markets is driven by various factors which, as in all Free Market s, affect the price of stocks (see Stock Valuation ). HISTORY OF THE STOCK EXCHANGE , Russia ]] 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. Some stories suggest that the origins of the term "bourse" come from the latin ''bursa'' meaning ''a bag'' because, in 13c. 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 not ruled by a duke but a council of influential citizens. The Dutch later started Joint Stock Companies , which let Shareholder s 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. THE ROLE OF THE STOCK EXCHANGE ]] ]] ]] ]] ]] Raising Capital for Businesses The Stock Exchange provides Companies with the facility to raise Capital for expansion through selling Shares to the Investing public. Mobilizing Savings for Investment When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle Deposit s with Bank s, are mobilized and redirected to promote Business activity with benefits for several economic sectors such as Agriculture , Commerce and Industry , resulting in a stronger Economic Growth and higher Productivity levels. Facilitate Company Growth Companies view acquisitions as an opportunity to expand Product Line s, increase distribution channels, hedge against volatility, increase its Market Share , or acquire other necessary business Asset s. A Takeover bid or a Merger agreement through the Stock Market is the simplest and most common way to company growing by acquisition or fusion. Redistribution of Wealth By giving a wide spectrum of people a chance to buy shares and therefore become part-owners ( Shareholder s) of Profit able Enterprise s, the stock market helps to reduce large income inequalities. Both casual and professional Stock Investor s through Stock Price rise and Dividend s get a chance to share in the profits of promising business that were set up by other people. Improving Corporate Governance By having a wide and varied scope of owners, companies generally tend to improve on their Management standards and Efficiency in order to satisfy the demands of these shareholders. It is evident that generally, Public Companies (companies that are owned by shareholders who are members of the general public and trade shares publicly) tend to have better management records than Privately-held Companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or by a small group of investors). Creates Investment Opportunities for Small Investors As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small Stock Investor s because a person buys the number of shares they can afford. Therefore the Stock Exchange provides an extra source of income to small savers. Government Raises Capital for Development Projects The Government and even local authorities like municipalities may decide to borrow money in order to finance huge infrastructure projects such as sewerage and water treatment works or housing estates by selling another category of Securities known as Bond s. These bonds can be raised through the Stock Exchange whereby members of the public buy them. When the Government or Municipal Council gets this alternative source of funds, it no longer has the need to overtax the people in order to finance development. Barometer of the Economy At the Stock Exchange, share prices rise and fall depending, largely, on Market . Share prices tend to rise or remain stable when companies and the Economy in general show signs of stability. Therefore the movement of share prices can be an indicator of the general trend in the economy. LISTING REQUIREMENTS Companies have to meet the requirements of the exchange in order to have their stocks and shares listed and traded there. To be listed on the New York Stock Exchange (NYSE), for example, a company must have issued at least a million shares of stock worth $100 million and must have earned more than $10 million over the last three years ( {Link without Title} ). OWNERSHIP Stock exchanges originated as Mutual Organization s, owned by its member stock brokers. There has been a recent trend for stock exchanges to ''demutualize'', where the members sell their shares in an Initial Public Offering . In this way the mutual organization becomes a corporation, with shares that are listed on a stock exchange. Examples are Australian Stock Exchange (1998), Euronext (2000), NASDAQ (2002) and the New York Stock Exchange (2005). OTHER TYPES OF EXCHANGE In the 19th century, exchanges were opened to trade Forward Contract s on Commodities . Exchange traded forward contracts are called Futures Contract s. These ''commodity exchanges'' later started offering future contracts on other products, such as interest rates and shares, as well as Option s contracts. They are now generally known as Futures Exchange s. SEE ALSO
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