New on FinoLib · Volume I: Global Economy
New on FinoLib, my finance education website: I have published an article called Stock Exchanges Around the World and How an IPO Works, from Volume I: Global Economy. Here is what the article explains, written as a short expert briefing; the full piece, with every worked example, is one click away.
4.1 What a Stock Exchange Actually Is
The idea in plain words
A stock exchange is a regulated, mostly electronic marketplace funded by listing, transaction and data fees. Its price-making core is the order book: the best bid and best ask frame the market, the gap between them is the spread, and a market order pays that spread for immediacy.
Key points
■In the illustrative book the spread is $0.02 on a $100.01 midpoint, about 2 basis points.
■A market order to buy 600 shares averages $100.025, so the buyer pays $9 more than the midpoint, the price of immediacy.
A closer look
A stock exchange is a regulated marketplace where buyers and sellers come together to trade shares of publicly listed companies, as well as other securities like bonds and derivatives. Exchanges provide price transparency, liquidity (the ability to buy or sell quickly at a known price), and regulatory oversight that protects both investors and companies.
4.2 Major Stock Exchanges — The World’s Financial Hubs
The idea in plain words
The world’s major exchanges differ in size and role. NYSE and NASDAQ in New York are the largest, while Asia’s hubs include Shanghai, Tokyo, Hong Kong and India’s BSE and NSE.
Key points
■NYSE is the world’s largest by market cap ($25T+) and NASDAQ is primarily electronic ($23T+); the NASDAQ exchange is not the same as the NASDAQ index.
■BSE, founded in 1875, has about 5,000 listed companies, the most in the world, while NSE is India’s largest by trading volume.
A closer look
An exchange is a business with three main revenue lines: listing fees paid by companies to be quoted, transaction fees paid by traders, and fees for selling market data. The mix differs from one exchange to the next and explains why exchanges compete for listings as hard as for trading volume.
A worked example
Worked Example — An Exchange’s Revenue Mix (Illustrative)
An exchange earns $120m from listings, $380m from trading and $150m from market data in a year. Revenue line Amount Share of total Listing fees $120m 18.5% Trading fees $380m 58.5% Market data $150m 23.1% Total $650m 100.0% Result: trading is 58.5% of revenue, so a fall of 20% in trading volume cuts total revenue by 11.7%, while a loss of listings or data revenue changes it far less. That is why exchanges diversify.
4.3 How Global Exchanges Work Together — The 24-Hour Market
The idea in plain words
Because exchanges span the world’s time zones, equity and related trading is effectively continuous, and events in one session flow into the next. Circuit breakers pause trading when markets fall too fast.
Key points
■Individual stock markets are open only about six to eight hours on weekdays, so a sharp US fall on a Thursday afternoon typically means lower Asian opens on Friday morning.
■Exchanges are linked through index correlations, cross-listings, ADRs and GDRs (Infosys, Wipro and HDFC have all traded as ADRs on NYSE), algorithmic arbitrage and 24-hour futures markets.
A closer look
Stock markets individually are open only during specific hours — typically six to eight hours on weekdays. But because exchanges are spread across the world’s time zones, trading in equity and related markets is effectively continuous. Events in one session flow directly into the next: if US markets fall sharply on a Thursday afternoon, Asian markets typically open lower on Friday morning, responding to the overnight news. European markets then open reflecting both the prior day’s US close and early Asian trading.
4.4 The IPO Process — How a Company Goes Public
The idea in plain words
An IPO is the process by which a private company first sells shares to the public. It raises capital, lets early investors cash out and changes a company’s governance and transparency. Investment banks underwrite it, and a lock-up bars insiders from selling afterward.
Key points
■Companies go public to raise capital for expansion or debt repayment, give founders and early investors liquidity, use listed shares as currency for acquisitions and gain the credibility of a major listing.
■In a firm commitment underwriting, the most common structure, the bank buys all the shares at the IPO price and resells them, absorbing the difference if demand is weak.
A closer look
An Initial Public Offering (IPO) is the process by which a privately owned company first sells shares to the general public, transitioning from private ownership to being publicly listed on a stock exchange. It is one of the most significant events in a company’s lifecycle: a source of capital, a liquidity event for early investors, and a transformation in governance and transparency obligations.
What the full article covers
In the full article I take you through these sections:
■4.1 What a Stock Exchange Actually Is
■4.2 Major Stock Exchanges — The World’s Financial Hubs
■4.3 How Global Exchanges Work Together — The 24-Hour Market
■4.4 The IPO Process — How a Company Goes Public
It includes worked examples, a recap, a reveal-on-click quiz and the official sources behind every figure.
Volume I: Global Economy
Read the full article on FinoLib
The complete article, Stock Exchanges Around the World and How an IPO Works, with every worked example, diagram, quiz and source, is free to read in Volume I, Global Economy on finolib.com.
Explore the Finance Education Series: Vol. II — Capital Markets · Vol. I — Global Economy · Vol. III — Finance Encyclopedia · Vol. IV — Finance Careers · Vol. V — Personal Finance