What is the Stock Exchange?

Stock Exchange
The main objective of this section is for the reader to acquire a general vision of the stock exchange. As a starting point a description of the stock market is offered, it’s functioning, and the type of assets that are negotiated in it and the agents that intervene immediately after the multiple functions of the stock exchange are resumed in a global way and after by classifying them according to the way it affects each of the participants on the market. After this classification the fundamental characteristics of the stock exchanges are presented and for last the history of its origins in the world is introduced, as also is its participation in the general structure of the stock exchange markets.

The Stock Exchange and the Financial System
The stock exchange, also denominated as the stock market, is one of the markets of the financial system were in an organized way professionals gather periodically to negotiate public or private securities.

A financial system is that which puts in contact, through a market, two types of economic agents: Those economic agents with a surplus of funds (money suppliers) and those economic agents with a shortage of funds (money requesters), being the financial assets the merchandise which is object of the exchange. So then, a financial system s composed of markets, assets and of contact all those participants in the market. The financial assets money and it constitutes for them a liability. It is a way to maintain wealth for those who posses it. Therefore, financial assets and liabilities are the two sides of a same coin (investment-financing). According to the source of emission of these securities we will talk about public securities (issued by public institutions or private (issued by private institutions).

The financial markets are object of multiple criterions of classification. If we observe the phase of negotiation of the assets, we will distinguish two types: primary markets and secondary markets:

  • The primary market, also called the emission market, that in which the distribution of primary assets (shares, debentures, etc.) takes place between the issuer and investor in change of the money with which the first can finance itself. So then, a financial asset is the object of one only negotiation in the primary market. Once these assets have been issued, they can be object of dealings in the secondary market always that they fulfill the conditions of being traded legally (the institutions must be accepted to be quoted in the stock market).
  • The secondary market, also denominated stock exchange market, is that in which the acquirers of the assets buy them from its owners, that since now don’t have to coincide with the issuer of the same, as in the case on the primary market. The traded assets are called then, secondary financial assets, defined as those that have been issued previously. In this market there doesn’t exist any kind of financing, there is no transfer of resources to the productive investment, as happens in the primary market, were the accepted institutions for quoting are those that directly receive the funds from the suppliers of capital.
  • Both markets are totally related and it is necessary a precise development of them for the stock exchange market to function at its best

We could say that the secondary market does a series of functions that supports the primary market.

The secondary market is worth of being emphasized:

  • It helps the companies to mark a reference prize in the case that they decide to issue a new financial asset emission, with the finality of obtaining more financing.
  • It gives liquidness to the primary market by the possibility of the disinvesting that it offers.