What are Stock Exchanges?

What are Stock Exchanges?

Although some stocks and other investments – such as bonds – can be bought and sold without going through an exchange, most stocks are listed and traded on stock exchanges. These are entities of a corporation or mutual organisation specialised in the business of bringing together buyers and sellers of the organisations to a listing of stocks and securities.

In every time zone in the world there are major international stock exchanges which reflect the growth of their countries, from North America to Asia to Australia and Europe. The stock market in Australia is the first to open, followed by the Tokyo and other Asian stock markets. As these markets close, the European stock markets open, finally followed by the American stock markets. The importance of various stock markets is reflected in the size of the market, their use of modern technology and the countries growth. Economic growth normally correlates to a growth in the capital markets.

The largest stock market in the United States, by market capitalisation, is the New York Stock Exchange (NYSE). In Canada, the largest stock market is the Toronto Stock Exchange. Major European examples of stock exchanges include the Amsterdam Stock Exchange, London Stock Exchange, Paris Bourse, and the Deutsche Börse (Frankfurt Stock Exchange). In Africa, examples include Nigerian Stock Exchange and JSE Limited. Asian examples include the Philippine Stock Exchange, the Singapore Exchange, the Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV. Australia has a national stock exchange, the Australian Securities Exchange, due to the size of its population. Some of the most widely recognised stock exchanges in the world are the Bombay, Tokyo, Hang Seng, London, New York and Nasdaq.

Perfomance of these exchanges is tracked by indices (plural of index); these are usually free-float, market capitalisation-weighted indices. A free floating index includes only shares that are readily available for trading in the marketplace. Market-capitalisation weighted indices weigh individual components according to their market capitalisation. Under this methodology, larger companies carry a larger percentage weighting. The value of a capitalisation-weighted index can be computed by adding up the collective market capitalisations of its members and dividing it by the number of securities in the index.

For example, if a company’s market capitalisation is $1 million and the market capitalisation of all stocks in the index is $100 million, then the company would be worth 1% of the index. The alternative to weighting by market cap is a price-weighted index such as the Dow Jones Industrial Average.

While stock exchanges all share the common goal of providing a marketplace where investors can buy and sell stocks, each exchange has its own unique characteristics, niche and history. An overview of the major exchanges provides insight into the diverse global marketplace.

Where are the Major Stock Exchanges?

Established in 1875, the Bombay Stock Exchange (BSE) is the oldest stock exchange in Asia. With more than 5,000 listed companies, the BSE has the highest number of listings on any exchange in the world. It includes large, mid-size and small companies. Performance of the BSE is tracked using the Bombay Exchange Sensitive Index, commonly referred to as “Sensex.” Similar to the Dow Jones Industrial Average in the United States, Sensex is made up of 30 large companies across a variety of major industries.

The Tokyo Stock Exchange (TSE) was established in 1878. It is one of the most influential exchanges in the world and has been trading electronically since 1999. Performance of the TSE is tracked using the Tokyo Stock Price Index (TOPIX), which tracks approximately 1,700 domestic companies. These companies represent what is known as the First Section, which makes up the bulk of the exchange’s constituents and consists of large-capitalization companies. The TOPIX has a second section that represents approximately 450 mid-cap companies and a Mothers section representing around 200 firms.

Hong Kong
Hong Kong’s first formal stock market, the Association of Stockbrokers in Hong Kong, was established in 1891, officially took the name Hong Kong Stock Exchange in 1914 and is now among the largest exchanges in Asia. Trades have taken place electronically since 1986, and today approximately 1,450 companies are listed on the exchange. The Hong Stock exchange is represented by the Hong Kong Stock Exchange Hang Seng Index, which tracks approximately 40 companies, and covers approximately 65% of its total market capitalisation.

The London Stock Exchange, which began formal operation in 1773, is today the largest stock exchange in Europe. It is also the most international of all stock exchanges offering investors the ability to purchase securities from more than 50 countries – which is why it is often referred to as The International Stock Exchange. The exchange moved to electronic trading in 2007. Stocks that trade on the London Stock Exchange are represented by the Financial Times Stock Exchange (FTSE) 100 Share Index, also known as the “Footsie.” The FTSE’s contains the 100 top blue-chips stocks that trade on the exchange. Like most of its peers, the FTSE is a free-float, market capitalisation weighted index.  The ISE has a bigger listing of stocks than the New York Stock Exchange including many international shares in which it is an international leader. Interestingly the exchange applies the word ‘shares’ to common stocks and the word ‘stock’ to securities which have a fixed income and bonds.

New York
The New York Stock Exchange (NYSE), also known as the “Big Board”, is the world’s largest stock exchange in terms of market capitalisation, coming in at more than $12 trillion dollars. The NYSE is a blend of trading room / modern electronic trade execution. Each stock on the exchange has a specialist who oversees and facilitates all trades of that stock, and trades can be made either by shouting orders or electronic orders. Performance of the NYSE is tracked using the NYSE Composite Index, which includes some 1,600 U.S.-based firms and more than 350 foreign companies.

Developed in 1971, the National Association of Securities Dealers Automated Quotations (Nasdaq) is the world’s first electronic stock market. What began as a forum to trade smaller stocks has grown to become the highest volume stock exchange in the world. Stocks that trade on the Nasdaq exchange are represented by the Nasdaq Composite Index. One of the index’s key characteristics is its volatility, which has a direct relationship to the significant number of technology companies traded through the exchange.


The Australian Securities Exchange (ASX) is one of the largest on the planet and has a total market capitalisation of $1.4 trillion. The ASX is multi-functional and acts as a clearing house, payments processor and a market operator. It also has multiple roles in that it educates retail clients, develops educational material which can be accessed on-line and promotes corporate governance for the companies listed on its books. 


The China Share Market is made up of two stock markets: the Shanghai Stock Exchange and the Shenzhen Stock Exchange. The total capitalisation of the China Share market is more than $2.3 trillion and it is the second largest stock market in Asia behind the Tokyo Stock Exchange. There are two types of stocks traded on the China Share Market: ‘A shares’ priced in Rinminbi Yuan, which started out as being solely for Chinese investors, but now certain foreign institutional investors are allowed to trade them as well. Then there are ‘B shares’ which are priced in dollars and were originally for foreign investors, however since 2001 Chinese investors can also trade in these shares. The China Share Market also trades in bonds and index funds.