Exchange

What is an exchange?

An exchange is a marketplace—physical or electronic—where securities, commodities, derivatives, and other financial instruments are bought and sold. Its primary functions are to facilitate fair and orderly trading, provide liquidity, and disseminate transparent price information. Exchanges also give companies and governments a platform to raise capital by offering securities to the investing public.

Key points

• Exchanges can be physical trading floors or fully electronic platforms (often called a bourse).
• Major global exchanges include the New York Stock Exchange (NYSE), Nasdaq, London Stock Exchange (LSE), and Tokyo Stock Exchange (TSE).
• Exchanges set listing and reporting standards that issuers must meet to trade on the platform.
• Public listing via an exchange (an IPO) is a primary way for companies to raise capital while preserving more operational control than many private funding routes.
• The NYSE began trading in 1792 and conducts continuous trading weekdays from 9:30 a.m. to 4:00 p.m. ET; most NYSE trading is now electronic.

Types of exchanges

• Physical exchanges: Traditional trading floors where brokers and specialists historically executed trades in person. The NYSE is a notable example that still maintains a trading floor.
• Electronic exchanges: Platforms that match buy and sell orders digitally. Advances in technology and algorithmic matching have made many exchanges fully electronic, increasing speed and enabling high-frequency trading.

How exchanges operate

• Matching and execution: Orders are matched using price-time priority, order books, and increasingly sophisticated algorithms that ensure trades are executed efficiently and fairly.
• Networks and connectivity: Trading happens across multiple electronic networks and venues. Even exchanges with trading floors route much activity electronically.
• Regulation and transparency: Exchanges require listed issuers to provide regular, audited financial disclosures and comply with governance standards to protect investors.

Listing requirements

Each exchange defines its own listing criteria, which commonly include:

• Minimum shareholder equity or market capitalization (for example, the NYSE requires a minimum of around $4 million in shareholder’s equity for certain listings).
• Regular audited financial reporting.
• Corporate governance standards.

Listing requirements vary by exchange and by the type of listing (e.g., domestic vs. international, main board vs. secondary boards).

Exchanges and capital formation

• Initial public offering (IPO): When a private company sells shares to the public through an exchange, it gains access to broader capital, increased visibility, and potential business advantages (brand recognition, easier access to financing).
• Versus private funding: Private investors or venture capitalists often seek governance influence (board seats, control provisions). Public listings typically allow founders and management to retain more operational autonomy because public shareholders generally have more limited control over day-to-day decisions.

Example: The New York Stock Exchange

• History and status: The NYSE, established in 1792, is one of the world’s oldest and most prominent exchanges.
• Trading model: It operates a continuous auction during regular market hours (Monday–Friday, 9:30 a.m.–4:00 p.m. ET). While a trading floor remains, the vast majority of trades are executed electronically.
• Modernization: Automation began accelerating in the 1990s; by the 2000s most trading moved to electronic systems. Ownership and rights on the exchange have evolved—historical “seats” are now leased on fixed terms rather than privately owned tradable memberships.

Conclusion

Exchanges are central infrastructure for capital markets: they match buyers and sellers, provide transparent pricing, and enable companies to raise public capital under established rules. Whether physical or electronic, exchanges continue to evolve with technology and regulation to support efficient, fair markets.