Series 6

By Investopedia AAA

Securities Markets - Exchange Markets

Worldwide, there are over 100 securities exchanges where buyers and sellers meet to exchange goods and services in an organized, orderly fashion.

Before we proceed, beginners should refer to the following article Getting to Know Stock Exchanges for a quick primer on the different exchanges, their relationships, and investor protection requirements.


Domestic Exchanges
The New York Stock Exchange (NYSE) is the biggest and most important of these exchanges. Known as the "Big Board", the NYSE is located at

11 Wall Street

in New York City and handles roughly three-fourths of all exchange transactions. Stocks listed on the NYSE can also be listed on the regional exchanges.

The other domestic exchange is the American Stock Exchange, also known as the AMEX (now owned by the NYSE). The American Stock Exchange handles about 1/5 of the daily total of listed securities trades in the United States. AMEX stocks cannot be listed on the NYSE, while stocks from the regional exchanges can list on the NYSE. These regional exchanges focus primarily on the securities of companies within their regions. These companies are usually the smallest and newest in their industries; otherwise, they would meet the listing requirements of the larger exchanges and trade at greater volumes.

Regional Exchanges
There are five primary regional exchanges:

  1. Boston Stock Exchange
  2. Chicago Stock Exchange
  3. Cincinnati Stock Exchange
  4. Pacific Stock Exchange
  5. Philadelphia Stock Exchange

The American Stock Exchange and the regional exchanges are modeled after the NYSE, although each exchange has its own rules and procedures and is responsible for regulating its members.

Exam Tips and Tricks
Make sure you know the different exchanges for the exam.
Remember that most exchanges are modeled after the New York Stock Exchange.

The New York Stock Exchange
The NYSE is the oldest and largest stock exchange in the U.S., founded in 1792 and handling over 3/4 of all security trades a day. Trading begins at

11 Wall St.

at 9:30a.m. and ends at 4:00p.m. (ET), Monday through Friday, except on exchange-recognized national holidays.

Only firms meeting the NYSE's stringent listing requirements may trade on the exchange. These rules include the requirement that at least 1.1 million shares of a company's stock be publicly held and 400 or more shareholders in the stock must own at least 100 shares. Total voting membership is at 1,366 seats, and these seats are owned by individuals from various securities firms. Close to 2,800 firms are represented on the New York Stock Exchange - roughly 5/6 of these are U.S. companies and the other 400+ represented firms are foreign companies.

Key Players

  • Specialists / Designated Market Maker / DMM
    • Trading on the floor of the NYSE occurs around a specialist who is the designated market maker for the security .
    • There are a large number of specialists/ DMMs, and each one provides a market for the stock of at least one of the 2,800 companies that has met the minimum financial and operational standards of the NYSE.
    • Bids and offers are placed at one of 17 horseshoe-shaped trading posts, where the specialist who has been assigned the stock maintains a fair and orderly market for the security.
    • In his or her primary role, the specialist acts as auctioneer for the security: he or she sets the opening bid for the stock at the beginning of trading, maintains a continuous auction for the security throughout the day, and makes sure that the best bid and offer prices are transmitted all over the world until the close of trading.
    • The specialist can also act as principal, agent or matchmaker when executing orders. In the agent's role, the specialist fills orders that cannot be immediately filled by floor brokers.
      • As principal, the specialist buys and sells from his or her own account.
      • As matchmaker, the specialist keeps track of interests in a particular stock and helps facilitate trades that might otherwise not be executed.
        Exam Tips and Tricks
        Make sure you know the different exchanges for the exam.
        Remember that most exchanges are modeled after the New York Stock Exchange.
  • Floor Broker
    • Execute orders for their member firms' client accounts.
    • There are two types of floor brokers: commission brokers and two-dollar brokers.
        • Commission brokers work for a particular member firm.
        • Two-dollar brokers are independent brokers who execute orders for firms that do not have their own full-time commission brokers.
        • Independent brokers also handle business for commission brokers when trading is particularly heavy and the commission brokers are too busy to execute all of their own orders.

International Exchanges
The stocks of foreign companies trade on major stock exchanges in London (London Stock Exchange), Frankfurt (Frankfurt Stock Exchange), Madrid, Tokyo (Tokyo Stock Exchange), Toronto and Montreal, along with other financial centers throughout Europe, Asia, Australia, South America, Canada and Mexico. Because of the increasing globalization of financial information and corporate business activities, events in these markets and on their exchanges can have a dramatic effect on U.S. markets.

Over-The-Counter (OTC) / Negotiated Markets

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