The stock market refers to the exchanges on which regular shares are traded of publicly owned companies. Such operations shall be carried out by stock exchanges which are structured and institutionalized or OTCs working under a prescribed set of regulations.
In a country/region or territory, several stock trading venues can be opened that allow stocks and other securities to be transacted. Stock exchanges provide a safe environment for trading.
Briefly, capital markets offer a safe and controlled atmosphere in which market players can trust to have zero or low risk with respect to operations in their securities and other financial instruments.
The shares market can be divided into primary and secondary market and work according to the rules and regulations established by the authorities.
The top 10 stock exchanges in the world in order of market cap are as follows;
- NYSE, US
- NASDAQ, US
- Hong Kong Exchanges
- Shanghai SE, China
- Japan Exchange Group
- Euronext, Europe
- Shenzhen SE, China
- LSE Group, UK and Italy
- TMX Group, Canada
- National Stock Exchange of India
The NYSE is currently the largest stock exchange in the world with a 25.62 trillion dollars market cap.
The next discussion will be based on NYSE which will be used to describe the revenue streams of stock exchanges.
Some stock exchanges will follow this same revenue model while other may have some more or less revenue streams.
The New York Stock Exchange – How Does it Make Money
The NYSE is one of the biggest financial markets in the world. These markets make money by offering investors and brokers a market place for buying and selling stocks of different companies.
They also allow businesses to collect money by listing various types of securities. Exchanges receive transaction fees from industry players and enterprises in order to provide these markets and market positions.
There are also several exchanges that sell various facilities and goods used for trade and related operations.
Following are the revenue streams of NYSE through which the exchange makes most of its money;
Revenue from Transactions
People arrive at NYSE because it retains an open market with a reasonable price discovery and guarantees enough liquidity on the market.
These market players are charged fees in different ways by the NYSE. Any exchange in NYSE will be charged a trading fee by the trading parties.
Both businesses are carried out by licensed market players, including courier agencies, trading companies and fund managers.
These applicants also pay a one-time registration charge and a recurring yearly membership fee for the NYSE in addition to the transaction fee.
Revenue from Listed Companies
Companies in need of equity may raise money after satisfying the qualifying requirements by listing their shares on NYSE.
They would pay an annual charge for listing and trading facilities on the NYSE platform and then pay a monthly fee too.
Equities are the most common listed securities but NYSE makes the listing of other instruments, including preferred inventories, bonds, funds, options, structured assets, capital stocks, obligatory convertibles, and repackaged securities.
The initial one-time fee will typically be determined by the total number of shares to be listed. The NYSE would then charge private equity payments including issuing new shares through the issue of ownership, the issue of bonuses, the share split and so forth.
More than 2,400 firms are currently listed in the NYSE. In 2014, 195 issuers listed their shares on NYSE, enabling more than 183 billion dollars to be raised. This comprises 129, $70.3 billion publicly funded initial offerings (IPOs).
Revenue from Data
Market statistics — real-time statistical data, description and comparison data — are a significant part of the NYSE’s sales.
For research and analysis, the market participants require historical data, in-house trade and acquisition data for real-time operations, summary reporting, audit data, and security reference data, such as symbols and corporate behavior.
The NYSE provides all of these data through different data feeds, end of day reports and data software items, based on its proprietary data.
For e.g., a trader eager to back test its current high frequency algorithm will need a NYSE data feed, while the researcher would like to monitor the historical data by reviewing the output of a stock listed in NYSE before declaring a dividend.
Revenue from Providing Software and Tech
The NYSE sells its numerous infrastructure platforms and applications for major institutional customers such as mutual funds and wealth managers.
Such companies need faster data and speedier exchange by providing specific goods and services that are sold via the NYSE trading software and application suite of technology. This includes the co-location, where NYSE places and manages the machines of an extensive trading company on the premises of NYSE and offers dedicated facilities close to the market to speed up trading and entry.
Revenue from Fees
Registration fees and regulatory fees for their NYSE membership must be paid by market owners, market makers and traders in NYSE. The NYSE also provides trade permits for facilitation. Both these fees include the one-time application fee and repeated annual costs.
Revenue from Governance Services
The NYSE provides its diversified client base with corporate governance, risk and regulatory services.
The acquisition of NYSE took place on 13 November 2013 by Intercontinental Exchange, Inc. (ICE). As the annual reports from ICE now aggregate all of the data across various ICE exchanges, NYSE-specific sales data are not available.
A healthy revenue number from different business streams is indicated in the 2012 annual NYSE report, the year prior to acquisition.
Transaction fees accounted for 63% of gross sales, 12% of listing fees, 9.2% of industry data, while technology and other industries accounted for the remainder.
The stock exchange market is evidently lucrative, as the sound historical revenue of leading stock exchanges like the NYSE suggest.
The NYSE must remain ambitious, delivering new goods and services across all its various strata, to maintain its lead as the world’s leading stock exchange.
Investors who are prepared to invest in stocks in those markets have to pay careful attention to industry trends and restructuring.