If you read our previous articles on the introduction of stock exchanges, you will see that we made mention of the New York Stock Exchange.
This is the biggest stock exchange market in the world, and the companies listed here are some of the biggest.
They are also companies with enough credibility because it is not just any company that can get listed on the NYSE.
Companies must pass some requirements before they are allowed to list on the exchange.
We also saw that a stock exchange is a platform where buyers and sellers are brought together.
In today’s article, however, we will look at the different types of exchanges we have. First, let us start with electronic businesses.
The advancement of technology has allowed the stock exchange markets to move their business onto the internet just like the rest of the other markets.
As the name implies, electronic exchanges conduct their business over the internet.
There is no trading physically as everything is done on the internet through an app or website.
This means that the trading does not need a centralised location.
Electronic exchanges are deemed to be more efficient and faster than traditional exchanges.
They can also carry out billions of dollars worth of daily trades.
An example of an electronic exchange is the NASDAQ, one of the world’s biggest electronic exchanges.
Also sometimes known as screen-based because computers only connect the buyers and sellers over a telecommunications network.
The Nasdaq is one of the biggest electronic exchanges in the world.
The market makers, also known as the dealers, have their inventory of stocks on the Nasdaq.
They are required to post both the bid and ask prices.
The Nasdaq has governance and listing requirements similar to the New York Stock Exchange.
There are some requirements that a company must maintain; otherwise, they would be delisted from the Nasdaq and end up at an Over Counter Exchange (OTC).
An example of where you can initiate a delisting process is when the price of a security gets closed below maybe $1.00 continuously for30 trading days.
This refers to the stock market other than the organised exchanges like the Nasdaq or NYSE.
The OTC markets are where the smaller companies usually are listed.
Most of these companies are companies that got delisted from Nasdaq and ended up in the OTC markets. The most prominent OTC markets are:
Over-The-Counter Bulletin Board (OTCBB)
The OTCBB is an electronic community of market makers. This is where most of the companies that fall from Nasdaq end up.
Here, no quantitative minimum, as well as no annual sales or assets, are required by the companies before they can get listed.
The ‘pink sheets’ is the second over-the-counter market where listed companies are not required to register with the Securities and Exchange Commission.
The companies also do not need to submit any quarterly 10Qs.
The Risk Associated With OTCs
There are some risks involved when trading with OTC.
Some big companies are known to intentionally avoid the more extensive stock exchange listing on the OTCs to avoid the costly fees and administrative requirements that come with listing on these exchanges.
As an investor, you should exercise extra caution when you decide to invest in the OTC market, especially if you do not have any experience with it.
There are some other exchanges all around the world that are not well known, like the ones listed above in the article.
Some of these exchanges are the Tokyo Stock Exchange, the Shanghai Stock exchange, and the Shenzhen stock exchange, based in Asia.
Euronext is Europe’s biggest stock exchange platform, alongside the London Stock Exchange.
There are also digital exchanges like Coinbase, Binance, and Kraken.