What is a Stock Exchange?
A stock market, share market or bourse is a place where people meet to buy and sell shares of company stock. Some stock exchanges are real places, while others are virtual places.
The main function of a stock exchange is to facilitate the transactions associated with both buying and selling of securities. Buyers and sellers of shares and stocks can track the price changes of securities from the stock markets (derivatives, equity, etc.) in which they operate.
Problems Offered by Business Firms
Businesses are forced to list on their national stock exchange even if their main markets are somewhere else. They are forced to have costly dual or cross-listings if they want to make their shares available to shareholders in other jurisdictions. While the general concept of a share is globally very consistent, each stock exchange requires proprietary data exchange formats, making cross-national trade across stock exchanges a nightmare.
Only Big Companies Can Offer a Stable Platform for Stock Markets
As a lot of exchanges are owned by for-profit organizations, listing a business is an expensive endeavour. While most companies worldwide would like to get access to shares as a very established capital raising instrument, only 1% of companies are large or profitable enough to get listed. 1%! But does this mean that an investor can freely invest in all of these public companies? No, as this depends on which exchange the company is listed on and whether the shareholders’ broker or bank offers them that specific option. Buying shares from companies in Asia, Africa or South America? Unfortunately, not available to European retail shareholders. Trading directly at an exchange as a retail investor? Not possible in a lot of countries due to national regulations. Shareholders are forced to use a bank or a broker to trade shares of companies they would like to invest into. And have you ever considered why it takes days or weeks to settle a trade? Think of all the middlemen involved like the brokers, transaction banks, exchanges that work with outdated interfaces. This results in time delays as well as ridiculous fees.
Unavailability of Tools to Start a Stock Exchange
Stock exchanges also contribute to the unequal distribution of wealth across the globe. This is because the system excludes large parts of the world’s population by either not making shares available in their domestic market or by providing entrance barriers like a trading account. While professional investors have all the tools and privileges for high-frequency trading, many people don’t even get access to the stock market at all.
In the end, we can say that starting a stock market is an extremely gambling task. The possibility of failure is much higher as compared to the possibility of success due to the above factors as well as many other complications.
Content: Kaif Ahmed
Graphics: Shubham Saurav
Editor: Prachi Prafull