Stock Market

Author:Jeffrey Lehman, Shirelle Phelps

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The various organized stock exchanges and over-the-counter markets.

The trading of SECURITIES such as stocks and bonds is conducted in stock exchanges, which are grouped under the general term stock market. The stock market is an important institution for capitalist countries because it encourages investment in corporate securities,

The trading of stocks on the stock market involves millions of shares per day and has a direct effect on the U.S. economy. As a result, the stock market is closely regulated by the federal government.


providing capital for new businesses and income for investors. In the 1990s large numbers of ordinary persons came to own stock through PENSION funds, deferred employee savings plans, investment clubs, or mutual funds.

The New York Stock Exchange is the oldest (formed in 1792) and largest stock exchange in the United States, but other exchanges operate in many major U.S. cities. The activities of the stock market are closely monitored by the federal SECURITIES AND EXCHANGE COMMISSION to prevent the manipulation of stock prices and other activities that lessen investor confidence.

Stock exchanges are private organizations with a limited number of members. Stock brokerage houses generally cannot purchase seats on an exchange. Instead, a member of the firm holds a seat personally. In some cases several partners of a brokerage house will be members of an exchange. The price of a seat fluctuates depending on the state of the economy, but seats on the New York Stock Exchange have sold for more than $1 million.

Some exchange members are specialists in particular types of securities, while others act as agents for other brokers. A small number of brokers who pay an annual fee but are not members also have access to the trading floor.

A stock exchange is essentially a marketplace for stocks and bonds, with stockbrokers earning

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small commissions on each transaction they make. Stocks that are handled by one or more stock exchanges are called listed stocks. For a corporation's stock to be listed on an exchange, the company must meet certain exchange requirements. Each exchange has its own criteria and standards, but in general a company must show that it has sufficient capital and is in sound financial condition. Once a company is listed, trading in its stock will be suspended if the company's financial condition deteriorates to...

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