Function

• A stock exchange is a corporation whose business is to facilitate the buying and selling of stocks and other securities. The exchange also sets the parameters for trading, notably instating circuit breaker-like curbs that halt extremely volatile trading, such as may occur at the announcement of major news. Stock exchanges keep records about their listed companies and maintain specialists who oversee individual transactions.
  
  

Features

• For a company to trade on an exchange it must be listed with the company and meet its listing requirements, which usually involve rules about share price, total market capitalization and, at least in the U.S., financial transparency. Exchanges derive their revenue from charging a fee for each transaction and have themselves, in most cases, issued public shares.
  
  

Significance

• The vast majority of stocks do not trade on an exchange. But because exchanges provide regularity and standards to stock trading, most volume occurs on the major exchanges, and most large companies list with them. Listing on a major exchange also affords companies access to much larger pools of capital when offering their shares.
  
  

Identification

• From the exterior, a stock exchange may appear like any other downtown edifice. Inside, however, the flurry of action in open-outcry trading pits and the large boards of lights flashing information on incoming bids and offers, as well as completed transactions, makes them unmistakable. The shift toward electronic has largely reduced the number of people physically present on the market and has eliminated some of the chaotic activity associated with exchanges in the past. The Nasdaq, on which many tech stocks are listed, uses an entirely electronic trading system that does not depend on a central location for trading, though the exchange operates a major center in the heart of New York City's Times Square.
  
  

Considerations

• The actual trading is exclusively conducted by members of the exchange, which is why traders must use a broker to effect their transactions. In the process of matching buyers with sellers, the exchange has some control over the flow of trading, though it's speculated that electronic systems, absent a human specialist to oversee the transactions, are given to more dramatic price fluctuations due to their remarkable efficiency.