Security Exchanges (Stock Markets) have become vital for the functioning of today’s globalized economy. Experts say that there are broadly two types of exchanges. Organised ones such as NYSE which occupy physical space and over-the-counter ones such as money markets. The business in an organized exchange is conducted by its members. Organized stock exchanges provide benefits to its members by providing a continuous market. They help businesses raise additional capital.
In order to obtain the benefits associated with an organized security exchange an organization needs to have its shares listed on the exchange. Most organized exchanges have rules governing the company size, cash flow, profits etc. For example NYSE has rules related to a firm’s profits, size, market value and level of listing needed. If a firm satisfies these requirements then its stock can be listed on NYSE after filing an application. There are similar rules at various stock exchanges across the world.
Smaller organizations may not have the cash muscle to satisfy the requirements of organized exchanges. They chose the over-the-counter market option to trade their stock. Most over-the-counter transactions are done through a system of informal trading between brokers. Experts argue that most corporate bonds and other bond instruments are traded in OTC exchanges. Generally upcoming companies use this option to get the initial working capital for their large scale expansion . Once they become big they then go on to list on one of the organized security exchanges.