Page 187 - Initial Public Offering - An Introduction to IPO on Wall Street

12.3.2 Exchange
Stock exchanges are secondary markets in which current shareholders may make trades with
prospective buyers. It is crucial to understand that businesses listed on an exchange do not
purchase and sell their shares daily.

Businesses may participate in stock buybacks or issue new securities, but these are not day-
to-day transactions and often happen outside the exchange framework. So you are not
purchasing it from the corporation when you buy a share of stock on the stock exchange, you
are purchasing it from some other existing shareholder.

Similarly, you’re not selling the shares back to the business when you sell them rather you’re
passing the shares onto some other investors. In the 16th and 17th centuries, the very first
stock markets appeared in Europe, mostly in port cities or trading centers like London,
Amsterdam, and Antwerp.

However, these early stock markets were more similar to bond exchanges since the limited
number of firms did not issue shares. Because they had to be chartered by their government
to run the business, most early companies were considered semi-public organizations.

Stock markets began to emerge in the U.S in the late 18th century, namely the New York
Stock Exchange (NYSE), which enabled the trading of equity shares. However, the
Philadelphia Stock Exchange (PHLX), which still operates today, has the distinction of being
the first stock exchange in the country.

The NYSE was established in 1792 by twenty-four New York City stockbrokers and
merchants with the signature of the Buttonwood Agreement. Before this formal
incorporation, traders and brokers would gather informally to trade shares under a
buttonwood tree on Wall Street.

The emergence of modern capital markets ushered in an era of regulation and
professionalization that now guarantees that securities buyers and sellers can have full

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