Mention the words "Wall Street" and images of the bustling New York Stock Exchange (NYSE) or American Stock Exchange (AMEX) come to mind. However, the NYSE and the AMEX certainly aren't the only exchanges. In fact, there are a dozen national and regional stock exchanges conducting business daily in the United States, and that doesn't include the enormous number of shares traded over the counter (OTC) on the National Association of Securities Dealers Automated Quotations (NASDAQ).
An exchange is a place where buyers and sellers get together, either in person or electronically, to trade stocks, bonds, commodities, options, futures contracts and other securities. Exchanges provide liquidity; that is, they offer investors the opportunity to buy and sell shares, at their fair market value.
In effect, the market for stocks and other securities is virtually identical in concept to a traditional public market where growers display produce on counters and consumers come to buy. Only the products are different.
The New York Stock Exchange, sometimes called the "Big Board," is the dominant market for stocks in the U.S. for two reasons:
- A vast majority of the share volume handled by exchanges is traded here.
- Many of the oldest and largest corporations trade on it.
Founded in 1792 as the New York Stock & Exchange Board, the NYSE lists more than 1,700 companies whose securities are traded under its rules and regulations. Member firms, brokerages and securities dealers own the NYSE. Memberships, or seats, on the exchange trade at auction like the shares of other corporations. These seats, which can cost in the hundreds of thousands of dollars, permit their owners to buy or sell shares on the trading floor, either for themselves or for their clients.
The other national exchange is the American Stock Exchange. As of February 2001, 783 companies were listed on the AMEX; however, that number constantly changes as companies move to the NYSE or are "delisted" for failing to meet qualifications.
The remaining exchanges are regional. They are smaller and may trade the stocks of companies located in their regions, plus commodities, futures or options unique to their exchange. Some of them participate in the Intermarket Trading System (ITS), which enables brokers and specialists to represent clients and interact with other markets to gain the best prices available.
Varying widely in trading volume, technology and investment philosophy, the regional exchanges help increase the overall liquidity of the marketplace. The regional exchanges are the:
- Boston Stock Exchange
- Pacific Stock Exchange
- Midwest Stock Exchange
- Philadelphia Stock Exchange
- Cincinnati Stock Exchange
- Spokane Stock Exchange
Bull and Bear Market Cycles
Bull markets are markets in which prices are rising and the consensus is that prices will continue moving upward. During this time, economic production is high, jobs are plentiful and inflation is low. Bear markets are the opposite - stock prices are falling, and the view is that they will continue falling. The economy will slow down, coupled with a rise in unemployment and inflation. In either scenario, people invest as though the trend will continue. Investors who think and act as though the market will continue to rise are bullish, while those who think it will keep falling are bearish.To qualify as a bull or bear market, a market must have been moving in its current direction (by about 20% of its value) for a sustained period. Small, short-term movements lasting days do not qualify; they may only indicate corrections or short-lived movements. Bull and bear markets signify long movements of significant proportion.
Bull and bear markets are partly a result of the supply and demand for securities. Investor psychology, government involvement in the economy and changes in economic activity also drive the market up or down. These forces combine to make investors bid higher or lower prices for stocks.