What are the four requirements for an exchange to occur?
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An exchange is a marketplace where securities, commodities, derivatives and other financial instruments are traded. The core function of an exchange is to ensure fair and orderly trading and the efficient dissemination of price information for any securities trading on that exchange. Exchanges give companies, governments, and other groups a platform from which to sell securities to the investing public. Show
1:01 ExchangeKey Takeaways
Exchanges ExplainedAn exchange may be a physical location where traders meet to conduct business or an electronic platform. They also may be referred to as a share exchange or "bourse," depending on the geographical location. Exchanges are located in most countries worldwide. The more prominent exchanges include the New York Stock Exchange (NYSE), the Nasdaq, the London Stock Exchange (LSE), and the Tokyo Stock Exchange (TSE). Electronic ExchangesIn the most recent decade, trading has transitioned to fully electronic exchanges. Sophisticated algorithmic price matching can ensure fair trading without requiring all members to be physically present on a centralized trading floor. Day-to-day operations are normally performed over multiple exchange networks. Though some orders may be processed in a physical location like the NYSE, the great majority of trades are completed through electronic means without regard to a physical location. This process has resulted in a substantial increase in high-frequency trading programs and the use of complex algorithms by traders on exchanges. Listing RequirementsEach exchange has specific listing requirements for any company or group that wishes to offer securities for trading. Some exchanges are more rigid than others, but the basic requirements for stock exchanges include regular financial reports, audited earning reports, and minimum capital requirements. For example, the NYSE has a key listing requirement that stipulates a company must have a minimum of $4 million in shareholder’s equity (SE). Exchanges Provide Access to CapitalA stock exchange is used to raise capital for companies seeking to grow and expand their operations. The first sale of stock by a private company to the public is referred to as an initial public offering (IPO). Companies listed on the stock exchange typically have an enhanced profile. Having more visibility may attract new customers, talented employees, and suppliers who are eager to conduct business with a prominent industry leader. Private companies often rely on venture capitalists for investment, and this usually results in the loss of operational control. For example, a seed funding firm may require that a representative from the funding firm hold a prominent position on the board. Alternatively, companies listed on a stock exchange have more control and autonomy because investors who purchase shares have limited rights. Real-World Example of an ExchangeThe New York Stock Exchange is perhaps the most well-known of exchanges in the U.S. Located on Wall Street in Manhattan in New York, and it saw its first trade in 1792. The floor of the NYSE sees stock transactions taking place in a continuous auction format Mondays through Fridays from 9:30 a.m.-4 p.m. Historically, brokers employed by members of the NYSE would facilitate trades by auctioning off shares. The process started to become automated in the 1990s, and by 2007, nearly all stocks became available via an electronic market. The only exceptions are a few stocks with very high prices. Until 2005, only owners of seats on the exchange could trade directly on the exchange. Those seats now are leased on one-year terms. Listing requirements comprise the various criteria and minimum standards established by stock exchanges, such as the New York Stock Exchange (NYSE), that companies must meet to list their shares for trading. A company will be allowed to list shares for trading only if it meets initial as well as ongoing requirements. Companies that do not meet listing requirements on major exchanges may be able to offer their shares for trading over-the-counter (OTC). Key Takeaways
Understanding Listing RequirementsListing requirements are a set of conditions which a firm must meet before listing a security on one of the organized stock exchanges, such as the NYSE, the Nasdaq, the London Stock Exchange, or the Tokyo Stock Exchange. The requirements typically include a certain size and market share of the security to be listed. The underlying financial viability of the issuing firm is also a criterion. Exchanges establish these standards as a means of maintaining their own integrity, reputation, and visibility. When firms request listings, they have to prove to an exchange that they meet the listing requirements. The high visibility and liquidity that a listing supports is strong incentive for a company to meet listing requirements. Once a security is listed, the issuing firm usually must maintain a set of related but less stringent trading requirements. Otherwise, the company faces delisting. While no legal penalty is involved, being delisted can mean huge consequences for a company because its stock won't be traded on the exchange. Firms can cross-list a security on more than one exchange, and often do. Listing requirements are not barriers to trading altogether, as firms are always free to trade securities over-the-counter. However, OTC trading does not provide anywhere near the liquidity, regulatory oversight, prestige or visibility as trading on one of the major stock exchanges provides. Nasdaq's U.S. exchange had 3,767 companies listed as of January 2022. Canada's TMX exchange and the New York Stock Exchange followed with 3,546 companies and 2,529 companies, respectively. Listing Requirements in PracticeBasic RequirementsListing requirements vary by exchange but there are certain metrics which are almost always included. The two most important categories of requirements deal with the size of the firm (as defined by annual income or market capitalization) and the liquidity of the shares (a certain number of shares must already have been issued). For example, the NYSE requires firms to already have 1.1 million publicly-traded shares outstanding with a collective market value of at least $40 million ($100 million for worldwide trading). The Nasdaq requires firms to already have 1.25 million publicly-traded shares with a collective market value of $45 million. Both the NYSE and the Nasdaq require a minimum security listing price of $4 per share. FeesUsually, an initial listing fee as well as yearly listing fees are required. The annual fees can scale up depending on the number of shares being traded and can total hundreds of thousands of dollars. Nasdaq fees are considerably lower than those of the NYSE. This lower cost has made the Nasdaq a more popular choice of exchange for newer or smaller firms. Can a Company Be Delisted?Yes. If companies fail to pay annual fees or they can no longer meet the financial and liquidity requirements of an exchange, they can be delisted. Also, if share prices drop below a certain minimum, a company can be delisted. Once delisted from a particular exchange, investors won't be able to trade a company's stock on that exchange. What Listing Requirements Does Nasdaq Have?Nasdaq has three different tiers of listings: Nasdaq Global Select Market, Nasdaq Global Market, and Nasdaq Capital Market. Each tier has its specific listing requirements. In the instance of an IPO, all companies must have 1.25 million shares outstanding and 2200 total shareholders (or 450 shareholders with 100 shares each). The market value of unrestricted publicly held shares (or publicly held shares and shareholder equity) must be at least $45 million. Companies must meet one of four possible financial standards, as well. These involve earnings, cash flow and capitalization, capitalization and revenue, or assets and equity. What Are the Largest Stock Exchanges?By market capitalization, the largest stock exchanges are the New York Stock Exchange and the Nasdaq. Both are located in the New York. As of March 2022, the combined value of shares listed on both exchanges reached over $36 trillion. What are the four conditions for an exchange to occur?There must be at least two parties, each party has something that might be of value to the other party, each party is capable of communication and delivery, each party is free to accept or reject the exchange offer, each party believes it is appropriate or desirable to deal with the other party.
What are the four 4 exchange processes in the marketing?Marketing is composed of four activities centered on customer value: creating, communicating, delivering, and exchanging value.
Which of the following is a condition necessary for exchange to occur?Communication is an essential thing that is necessary to ensure exchange between individuals.
What consists of the exchange process?In marketing, the act of obtaining a desired object from someone by offering something of value in return is called the exchange process. The exchange involves: the customer (or buyer): a person or organization with a want or need who is willing to give money or some other personal resource to address this need.
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