Sue Paschke, age 16, of St. Paul, Minn., for her question:
WHAT ARE THE STOCK EXCHANGES?
State and federal laws have been established to control all activities involved in the issuing and selling of stock. A share of stock, by the way, is a certificate that proves the holder is part owner of the business corporation which issued the stock. On the national scene, the Securities and Exchange Commission (SEC) handles the administration of federal laws regarding stocks.
A stock exchange, as the name clearly suggests, is a place where agents can both buy and sell stocks of various businesses. It actually is a market place.
The two largest markets for stocks and bonds are the New York Stock Exchange and the American Stock Exchange. The New York organization started in 1782, while one in London had been launched only a few years earlier in 1773. Before that, an exchange operated smoothly in Antwerp, Belgium, where it was established in 1531.
If one of the stock exchanges handles a company's stock, it is called a listed stock. To be included on the New York Stock Exchange's list, a company must have 2,000 stockholders who together hold at least 1 million shares, and the company must also have a yearly earning power of over $2.5 million before taxes. As you can see, only rather substantial companies can qualify for this type of listing.
Companies having stock that do not meet the requirements of the major exchanges can be sold in what is called over the counter trading.
Stocks fluctuate in value. If you want to buy several shares of a stock from a certain company, you contact a brokerage house where the current price or quotation can be obtained. If you agree on the price, the broker's partner on the floor of the exchange will buy the shares for you. Handling of the details is usually done by telephone or telegraph.
Memberships on the stock exchanges are sold to brokers. Strict requirements are made before a person can be included as a member, however. And the price is often extremely high because of the demand, although it can often go either up or down. A New York Stock Exchange seat sold from a low of $17,000 in 1942 during a business recession to a high of $625,000 for a seat in 1929. Memberships in some of the other exchanges may be worth from $1,500 to more than $275,000.
Billions of shares of stock are traded each year by the stock exchanges. If general business conditions are good, stock prices usually go up and create what is called a bull market. When conditions aren't too good prices of stocks go down and create what is called a bear market.