Editing Stock exchange (section)

==Roles==
{{More citations needed section|date=March 2018}}
[[File:New_York_Stock_Exchange_August_2017_02.jpg|thumb|[[New York Stock Exchange]] in [[New York City]], US, is the largest stock exchange in the world.]]
[[File:NASDAQ_MarketWatch_(48105831361).jpg|thumb|[[Nasdaq]] in [[New York City]], US, is the second-largest stock exchange in the world.]]
[[File:Shanghaistockexchange.jpg|thumb|[[Shanghai Stock Exchange]] in [[Shanghai]], China, is third-largest stock exchange in the world.]]
[[File:Beursplein_5_(cropped_and_edited).jpg|thumb|Registered building of [[Euronext]] in [[Amsterdam]], Netherlands, for the [[European Union]] is the fourth-largest stock exchange in the world.]]
[[File:Korea exchange.JPG|thumb|[[Korea Exchange]] in [[Busan]], South Korea, is the fifth-largest stock exchange in the world and second-largest in Asia.]]
[[File:Shenzhen_Stock_Exchange_1-2014.jpg|thumb|[[Shenzhen Stock Exchange]] in [[Shenzhen]], China, is the seventh-largest stock exchange in the world, fourth-largest in Asia and second-largest in China.]]
[[File:Paternoster Square (1).jpg|thumb|[[London Stock Exchange]] in [[London]], UK, is the eighth-largest stock exchange in the world, largest non-EU European Stock Exchange and second largest in Europe.]]
[[File:BSE building at Dalal Street.JPG|thumb|upright=1.05|[[Bombay Stock Exchange]] in [[Mumbai]], India, is the ninth-largest stock exchange in the world, oldest and fifth-largest in Asia, largest in India. It is the fastest stock exchange in the world.{{citation needed|date=June 2024}}]]
[[File:National Stock exchange Mumbai.JPG|thumb|[[National Stock Exchange of India|National Stock Exchange]] in [[Mumbai]], India, is the tenth-largest stock exchange in the world, sixth-largest in Asia and second-largest in India.]]
[[File:Australian_Securities_Exchange_entrance_(cropped).jpg|thumb|[[Australian Securities Exchange]] in [[Sydney]], Australia, is the largest stock exchange in Oceania.]]
[[File:Sao_Paulo_Stock_Exchange.jpg|thumb|[[B3 (stock exchange)|B3]] in [[São Paulo]], Brazil, is the largest stock exchange in South America.]]
[[File:Johannesburg Stock Exchange.jpg|thumb|upright=1.05|The [[Johannesburg Stock Exchange]] in [[Johannesburg]], South Africa, is the largest stock exchange in Africa.]]

Stock exchanges have multiple roles in the economy. This may include the following:<ref>{{cite journal | last=Diamond | first=Peter A. | year=1967 | title=The Role of a Stock Market in a General Equilibrium Model with Technological Uncertainty | journal=[[American Economic Review]] | volume=57 | issue=4 | pages=759–776 | jstor=1815367}}</ref>

===Raising capital for businesses===
Besides the borrowing capacity provided to an individual or firm by the [[banking system]], in the form of [[credit (finance)|credit]] or a loan, a stock exchange provides [[company|companies]] with the facility to raise [[Financial capital|capital]] for expansion through selling [[Share (finance)|shares]] to the investing public.<ref>{{cite journal |last=Gilson |first=Ronald J. |author2=Black, Bernard S. |year=1998 |title=Venture Capital and the Structure of Capital Markets: Banks Versus Stock Markets |journal=Journal of Financial Economics |volume=47 |doi=10.2139/ssrn.46909 |s2cid=154673504 |url=https://scholarship.law.columbia.edu/cgi/viewcontent.cgi?article=2152&context=faculty_scholarship |access-date=16 December 2019 |archive-date=9 May 2023 |archive-url=https://web.archive.org/web/20230509225728/https://scholarship.law.columbia.edu/cgi/viewcontent.cgi?article=2152&context=faculty_scholarship |url-status=live }}</ref>

[[Capital intensive]] companies, particularly [[high tech]] companies, typically need to raise high volumes of capital in their early stages. For this reason, the public market provided by the stock exchanges has been one of the most important funding sources for many capital intensive [[Startup company|startup]]s. In the 1990s and early 2000s, hi-tech listed companies experienced a boom and bust in the world's major stock exchanges.<ref>{{Citation |last=White |first=Eugene N. |title=Bubbles and Busts: The 1990s in the Mirror of the 1920s |date=2006-04-01 |type=Working Paper |url=https://www.nber.org/papers/w12138 |access-date=2024-08-19 |series=Working Paper Series |doi=10.3386/w12138}}</ref> Since then, it has been much more demanding for the high-tech entrepreneur to take his/her company public, unless either the company is already generating sales and earnings, or the company has demonstrated credibility and potential from successful outcomes: clinical trials, market research, patent registrations, etc. This shift in market expectations has led to an increased reliance on private equity and venture capital funding in the early stages of high-tech companies.<ref>{{Cite journal |last1=Yuji |first1=Honjo |last2=Koki |first2=Kurihara |date=2023 |title=Graduation of initial public offering firms from junior stock markets: Evidence from the tokyo stock exchange |url=https://doi.org/10.1017/S0305741017000637 |journal=Small Business Economics |volume=60 |issue=2 |pages=813–841|doi=10.1017/S0305741017000637 }}</ref> This is quite different from the situation of the 1990s to early-2000s period, when a number of companies (particularly Internet boom and biotechnology companies) [[Initial public offering|went public]] in the most prominent stock exchanges around the world in the total absence of sales, earnings, or any type of well-documented promising outcome. Though it is not as common, it still happens that highly speculative and financially unpredictable hi-tech startups are listed for the first time in a major stock exchange. Additionally, there are smaller, specialized entry markets for these kind of companies with [[stock index]]es tracking their performance (examples include the [[Alternext]], [[CAC Small]], [[SDAX]], [[TecDAX]]).

====Alternatives to stock exchanges for raising capital====
Alternative investment funds refer to funds that include '''hedge funds, venture capital, private equity, angel funds, real estate, commodities, collectibles, structured products''', etc. Alternative investment funds are an alternative to traditional investment options (stocks, bonds, and cash).

===== Research and Development limited partnerships =====
Companies have also raised significant amounts of capital through [[R&D]] [[limited partnership]]s. Tax law changes that were enacted in 1987 in the United States changed the tax deductibility of investments in R&D limited partnerships.<ref>{{Cite web |last1=Fullerton |first1=Don |last2=Gillette |first2=Robert |last3=Mackie |first3=James |title=Investment incentives under the tax reform act of 1986 |url=https://home.treasury.gov/system/files/131/Report-Compendium-1987-Part5.pdf}}</ref> In order for a partnership to be of interest to investors today, the [[cash on cash return]] must be high enough to entice investors.

=====Venture capital=====
A general source of capital for startup companies has been [[venture capital]]. This source remains largely available today, but the maximum statistical amount that the venture company firms in aggregate will invest in any one company is not limitless (it was approximately $15 million in 2001 for a biotechnology company).<ref>{{Cite web |last1=Da Rin |first1=Marco |last2=Hellmann |first2=Thomas F. |last3=Puri |first3=Manju |date=October 2011 |title=A survey of venture capital research |url=https://www.nber.org/system/files/working_papers/w17523/w17523.pdf |publisher=National Bureau of Economic Research}}</ref>

=====Corporate partners=====
Another alternative source of cash for a private company is a corporate partner, usually an established multinational company, which provides capital for the smaller company in return for marketing rights, patent rights, or equity. Corporate partnerships have been used successfully in a large number of cases.

===Mobilizing savings for investment===
When people draw their savings and invest in shares (through an [[initial public offering]] or the [[seasoned equity offering]] of an already listed company), it usually leads to [[Rationality|rational]] allocation of resources because funds, which could have been consumed, or kept in idle [[Deposit (finance)|deposits]] with banks, are mobilized and redirected to help companies' management boards finance their organizations. This may promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher [[Productivity (economics)|productivity]] levels of firms.

===Facilitating acquisitions===
Companies view acquisitions as an opportunity to expand [[product line]]s, increase distribution channels, hedge against [[volatility (finance)|volatility]], increase their [[market share]], or acquire other necessary business [[asset]]s. A [[takeover bid]] or [[mergers and acquisitions]] through the [[stock market]] is one of the simplest and most common ways for a company to grow by acquisition or fusion.

=== Facilitating company growth ===
By going public and listing on a stock exchange, companies gain access to a broader pool of investors, which can provide the necessary funds for expansion, research and development, and other growth initiatives. Additionally, being listed on a stock exchange enhances a company's visibility and credibility, making it more attractive to potential partners, customers, and employees. According to a report by the [[World Federation of Exchanges|World Federation of Exchanges (WFE)]], stock exchanges contribute to economic growth by enabling companies to access long-term capital, thereby fostering innovation and job creation.<ref name=":0">{{Cite web |date=September 2017 |title=The Role of Stock Exchanges in Fostering Economic Growth and Sustainable Development |url=https://www.world-exchanges.org/our-work/articles/the-role-of-stock-exchanges-in-fostering-economic-growth-and-sustainable-development |website=World Federation of Exchanges}}</ref>

=== Redistribution of wealth ===
While stock exchanges are not designed to be platforms for the redistribution of wealth,<ref>{{Cite journal |last1=An |first1=Li |last2=Bian |first2=Jiangze |last3=Lou |first3=Dong |last4=Shi |first4=Donghui |date=2019 |title=Wealth Redistribution in Bubbles and Crashes |url=https://www.ssrn.com/abstract=3402254 |journal=SSRN Electronic Journal |language=en |doi=10.2139/ssrn.3402254 |issn=1556-5068}}</ref> they play a significant role in allowing both casual and professional stock investors to partake in the wealth generated by profitable businesses. This is achieved through the distribution of dividends and the potential for stock price increases leading to capital gains. As a result, individuals who invest in stocks have the opportunity to share in the prosperity of successful companies,<ref>{{Cite web |title=What are financial markets and why are they important? |url=https://www.bankofengland.co.uk/explainers/what-are-financial-markets-and-why-are-they-important |access-date=2024-08-19 |website=www.bankofengland.co.uk |language=en}}</ref> effectively participating in a form of wealth redistribution through their investment activities. Thus, while not the primary purpose of stock exchanges, the opportunity for individuals to benefit from the success of businesses can be seen as a form of wealth [[Redistribution of income and wealth|redistribution]] within the financial markets.

===Profit sharing===
Both casual and professional [[stock investor]]s, as large as [[institutional investor]]s or as small as an ordinary [[Middle class|middle-class family]], through [[dividend]]s and [[stock price]] increases that may result in [[capital gain]]s, share in the wealth of profitable businesses. Unprofitable and troubled businesses may result in [[capital loss]]es for shareholders.

===Corporate governance===
By having a wide and varied scope of owners, companies generally tend to improve management standards and [[Efficiency (economics)|efficiency]] to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. This improvement can be attributed in some cases to the price mechanism exerted through shares of stock, wherein the price of the stock falls when management is considered poor (making the firm vulnerable to a takeover by new management) or rises when management is doing well (making the firm less vulnerable to a takeover). In addition, publicly listed shares are subject to greater transparency so that investors can make informed decisions about a purchase. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than [[privately held company|privately held companies]] (those companies where shares are not publicly traded, often owned by the company founders, their families and heirs, or otherwise by a small group of investors).<ref>{{Cite book |last1=Courtney |first1=Thomas B. |title=The law of private companies |last2=Hutchinson |first2=G. Brian |date=2002 |publisher=Tottel |isbn=978-1-85475-265-9 |edition=2nd |location=Dublin}}</ref>

Despite this claim, some well-documented cases are known where it is alleged that there has been considerable slippage in [[corporate governance]] on the part of some public companies, particularly in the cases of [[accounting scandal]]s. The policies that led to the [[dot-com bubble]] in the late 1990s and the [[subprime mortgage crisis]] in 2007–08 are also examples of corporate mismanagement. The mismanagement of companies such as [[Pets.com]] (2000), [[Enron]] (2001), [[One.Tel]] (2001), [[Sunbeam Products]] (2001), [[Webvan]] (2001), [[Adelphia Communications Corporation]] (2002), [[MCI WorldCom]] (2002), [[Parmalat]] (2003), [[American International Group]] (2008), [[Bear Stearns]] (2008), [[Lehman Brothers]] (2008), [[General Motors Chapter 11 reorganization|General Motors]] (2009) and [[Satyam Computer Services]] (2009) all received plenty of media attention.

Many banks and companies worldwide utilize securities identification numbers ([[ISIN]]) to identify, uniquely, their stocks, bonds and other securities. Adding an ISIN code helps to distinctly identify securities and the ISIN system is used worldwide by funds, companies, and governments.

However, when poor financial, ethical or managerial records become public, [[stock investor]]s tend to lose money as the stock and the company tend to lose value. In the stock exchanges, shareholders of underperforming firms are often penalized by significant share price decline, and they tend as well to dismiss incompetent management teams.

===Creating 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 investors as minimum investment amounts are minimal. Therefore, the stock exchange provides the opportunity for small investors to own shares of the same companies as large investors.

===Government capital-raising for development projects===
Governments at various levels may decide to borrow money to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of [[Security (finance)|securities]] known as [[bond (finance)|bonds]]. These bonds can be raised through the stock exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate, in the short term, direct taxation of citizens to finance development—though by securing such bonds with the full faith and credit of the government instead of with collateral, the government must eventually tax citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.

===Barometer of the economy===
At the stock exchange, share prices rise and decreases depending, largely, on economic forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. A [[recession]], [[Depression (economics)|depression]], or [[financial crisis]] could eventually lead to a [[stock market crash]]. Therefore, the movement of share prices and in general of the [[stock index]]es can be an indicator of the general trend in the economy.

=== Employment opportunities ===
Stock exchanges offer employment opportunities to various individuals such as [[Jobber (merchandising)|jobbers]] and other members who perform activities within the stock exchange. This makes the stock exchange a source of employment, not only for investors but also for the members and their employees. The diverse range of roles within the stock exchange, including trading, analysis, compliance, and administrative functions, creates an ecosystem of employment opportunities that support the operations and functions of the exchange. Additionally, the stock exchange's role in facilitating capital formation and investment in businesses also indirectly contributes to job creation and economic growth, making it a significant player in the employment landscape.<ref>{{Cite web |title=2. Securities Domain |url=https://docs.oracle.com/cd/E74659_01/html/SE/SE02_Domain.htm |access-date=2024-08-19 |website=docs.oracle.com}}</ref>

=== Regulation of companies ===
The stock exchange plays a role in regulating companies by exerting a significant influence on their management practices.<ref>{{Cite web |date=2021-02-05 |title=Role of an Exchange: What Is a Stock Exchange? |url=https://www.nasdaq.com/articles/role-of-an-exchange%3A-what-is-a-stock-exchange-2021-02-05}}</ref><ref name=":0" /> To be listed on a stock exchange, a company is required to adhere to a set of rules and regulations established by the exchange itself. These regulations serve as a framework for corporate governance, financial transparency, and accountability, thereby ensuring that listed companies operate in a manner that is conducive to investor confidence and market stability. By imposing these standards, stock exchanges contribute to the overall integrity and reliability of the financial markets, fostering an environment where companies are held accountable for their actions and decisions, ultimately benefiting both investors and the broader economy.