Stock exchanges are secondary markets, where present owners of shares can transact with possible buyers. It is essential to understand that the corporations listed on stock markets do now not purchase and sell their own shares on a regular basis (companies can also engage in stock buybacks8 or issue new shares, however these are not everyday operations and frequently happen outside of the framework of an exchange). So when you purchase a share of stock on the stock market, you are now not buying it from the company, you are buying it from some other existing shareholder. Likewise, when you sell your shares, you do not sell them back to the company—rather you sell them to some other investor.

The first stock markets appeared in Europe in the sixteenth and seventeenth centuries, mainly in port cities or trading hubs such as Antwerp, Amsterdam, and London. These early stock exchanges, however, were more akin to bond exchanges as the small number of businesses did not issue equity. In fact, most early corporations were considered semi-public organizations since they had to be chartered by their government in order to conduct business.

In the late 18th century, stock markets began appearing in America, noticeably the New York Stock Exchange (NYSE), which allowed for equity shares to trade. The honor of the first stock exchange in America goes to the Philadelphia Stock Exchange (PHLX), which still exists today. The NYSE was founded in 1792 with the signing of the Buttonwood Agreement by 24 New York City stockbrokers and merchants. Prior to this legitimate incorporation, traders and brokers would meet unofficially below a buttonwood tree on Wall Street to purchase and sell shares.

The advent of contemporary stock markets ushered in an age of regulation and professionalization that now ensures buyers and sellers of shares can trust that their transactions will go through at fair expenditures and within a reasonable period of time. Today, there are many stock exchanges in the U.S. and throughout the world, many of which are linked together electronically. This in turn means markets are more efficient and more liquid.

There also exists a quantity of loosely regulated over-the-counter exchanges, on occasion regarded as bulletin boards, that go by the acronym OTCBB. OTCBB shares tend to be greater risky since they list businesses that fail to meet the greater strict listing standards of bigger exchanges. For example, bigger exchanges may require that a company has been in operation for a certain quantity of time before being listed, and that it meets certain stipulations regarding company value and profitability. In most developed countries, stock exchanges are self-regulatory companies (SROs), non-governmental organizations that have the power to create and enforce industry policies and standards. The priority for stock exchanges is to shield investors through the establishment of rules that promote ethics and equality. Examples of such SRO’s in the U.S. include individual stock exchanges, as well as the National Association of Securities Dealers (NASD) and the Financial Industry Regulatory Authority (FINRA).