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A stock exchange is an organization of brokers and investment bankers which has the purpose of providing the facilities for trade of company stocks and other financial instruments--usually a central location and recordkeeping. Trade on an exchange is by members only; one is said to "have a seat" on the exchange. In Europe, stock exchanges are often called 'bourses'. The trading of stock on stock exchanges is called the stock market.
Companies have to meet the requirements of the exchange in order to have their offerings listed and traded there. To get/be/stay(?) listed on the NYSE (New York Stock Exchange), for example, a company must have issued at least a million shares of stock worth $16 mil and must have more than $2.5 million net income (1998 requirements).
Since the crash of 1929, brokers on American exchanges have had the obligation to assure an orderly and fair market by intervening when the price of a stock seems to be rising or falling too fast. See Stock market for practical discussion of what is bought and sold and how.
The NASDAQ (National Association of Securities Dealers Automated Quotation System) is not an exchange in this sense. It is an ongoing computer record of stock quotes (current buy and sell prices) for a large number of companies. Brokers can use these quotes to guide them in filling their clients' orders.
The NASD also has a quotation system for the stocks of smaller companies, which is called the OTC(Over the Counter) Bulletin Board. A company does not have to meet very high standards to be listed there, although the NASD has since January 1999 required that listees at least file current financial information with the SEC or other regulatory agencies. (The National Quotation Bureau publishes weekly "pink sheets" of trade information about stocks of 3,600 or so companies that do not even meet the listing requirements of the OTC Bulletin Board.) Now, many of the companies listed in these secondary sources are in fact failing and some of them have been used in price-manipulating frauds. But many are sound businesses with stocks that do not trade at high enough prices or in large enough volumes to require listing on major exchanges. In the tech-stock recession of spring 2001, some computer and internet companies were delisted by the NASDAQ and added to the OTC Bulletin Board because the price of their stocks fell to pennies on the dollar. Some may be relisted in the future.
AMEX, the American Stock Exchange, is now a subsidiary of the National Association of Security Dealers. It has specialists to process orders in 1000 or so stocks and bonds and also trades what are known as options and derivatives, various sales contracts conditioned on some future value of a stock or bond. Once known as "the curb exchange," it represents a broader spectrum of American business than the NYSE because it handles the offerings of companies that do not qualify for listing on "the big board."
Derivatives, currency, and commodities--that is, agricultural products and industrial raw materials--are handled by a number of specialized exchanges.
The Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange (CME) were both founded as grain markets. The CBOT now handles heavy trading in financial futures and options including those based on United States government and agency bonds. The Chicago Board of Trade has also created a separate exchange, CBOE (Chicago Board Options Exchange) which trades in a number of options but is best known as the primary marketplace for options based on market indices such as the Dow Jones.
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