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Stock Indexes

Exchange. Shares of the merged company, to be known as BIBLIOGRAPHY
NYSE Group Inc., will trade on the exchange’s board Dalton, John (Ed.). (2001). How the stock exchange works. Para-
mus, NJ: New York Institute of Finance.
under the NYX symbol. There is uncertainty about what
Domowitz, Ian, and Stell, Benn (1999). Automation, trading
changes will be made in the traditional process of buying
costs, and the structure of the securities trading industry. In
and selling securities at the NYSE as a result of the merger.
Robert E. Litan and Anthony M. Santomero (Eds.),
Increased competition between exchanges forces the Brookings-Wharton Papers on financial services. Washington,
change in ownership structure. This is the view of the DC: Brookings Institution.
exchange services industry, as well. The industry argument Hart, Oliver, and Moore, John (1996). The governance of
is simply that a corporate structure with a profit motive exchanges: Members’ cooperatives versus outside ownership.
Oxford Review of Economic Policy 12, 53–69.
enables faster initiatives in response to competitive
Lee, Ruben (1998). What is an exchange?: The automation, man-
advances than a committee- and voting-oriented member-
agement, and regulation of financial markets. New York:
ship organization. Efforts for mergers and acquisitions
Oxford University Press.
among several stock exchanges throughout the globe were
Macey, Jonathan R., and O’Hara, Maureen (1999). Globaliza-
in process as of the end of 2005. tion, exchange governance, and the future of exchanges. In
Changes in the contractual relationship between Robert E. Litan and Anthony M. Santomero (Eds.),
Brookings-Wharton Papers on Financial Services. Washington,
exchanges and listing companies might outweigh compe-
DC: Brookings Institution.
tition as a force behind the shift from cooperative to cor-
Securities and Exchange Commission. (1998, December 8).
porate ownership arrangements. The long-term mutual
Final rules: Regulation of exchanges and alternative trading
dependency between companies and exchanges no longer systems (Release No. 34-40760, File No. S7-12-98).
exists, and market makers do not make firm-specific Retrieved March 3, 2006, from
investments that might be fostered under a cooperative http://pages.stern.nyu.edu/˜jhasbrou/Teaching/SEC/ATS/Reg
umbrella. %20ATS%20Summary.pdf
Stoll, Hans (1992). Principles of trading market structure. Jour-
The third view is that communications and comput-
nal of Financial Services Research, 6, 75–107.
erized execution technology permit and encourage the
Wyss, B. O’Neill (2001). Fundamentals of the stock market. New
change in governance structure. Traditional exchanges are
York: McGraw-Hill.
limited by floor space, and access is rationed through the
sale of limited memberships. In an automated auction,
there are no barriers to providing unlimited direct access Anand Shetty
with a transactions-fee pricing structure, which in turn Ian Domowitz
lends itself to corporate for-profit operations. All examples
of the change in governance begin with a conversion from
floor-trading technology to automated-trade execution. STOCK INDEXES
For trade-execution services with no prior history of coop-
erative governance structure, the mutual structure is rou- An understanding of the basic characteristics of the differ-
ent kinds of stocks will be helpful in considering the infor-
tinely avoided in favor of a for-profit joint-stock
mation in this article. An investor’s most important tool is
corporation.
information: information about stock prices, movement
One important aspect of the exchange’s governance in the market, and business trends. Without sound infor-
in the United States is the concept of self-regulation, a
mation, investment decisions are pure guesswork. The
concept that highlights the American approach to the reg-
first place to look for information about any stock is the
ulation of securities and futures markets. As a self- financial pages of a newspaper, and the best place to start
regulating organization it is subject to constraints with is with the columns listing the current stock prices on one
regard to its governance structure. The Securities or more of the major organized exchanges. Figure 1 shows
Exchange Act imposes four major obligations on a typical listing for a stock traded on one of the major
exchanges: a fair representation of its members in the exchanges. The following list explains the information
selection of directors; one or more directors representing and what it means for prospective investors:
issuers and investors who are not associated with members
of the exchange; subject to some exception, only brokers
SAMPLE STOCK LISTING
and dealers may become members; and its rules are
designed to protect investors and the public interest. 1. High and low. These are the highest and lowest
prices paid for the stock during the previous fifty-
SEE ALSO Stock Indexes; Stocks two weeks. This item shows that the highest price

702 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION