The stock exchange is a necessary aspect of commerce world-wide. Without a stock exchange in which people could quickly and easily trade assets, the global economy would quickly grind to a halt.
Although a stock exchange is not in itself a source of new equity capital—of risk funds essential to developing new industries— it is true that the flow of new capital soon would slow to a trickle without it. If there were no stock exchange—no market place where people could sell their securities for cash—capital would soon become sluggish and the financing of new ventures, no matter how promising, would be heavily curtailed.
The investment-banking business has built up a highly efficient mechanism for the initial sale of securities issued by a new enterprise. The investment banker buys an entire issue of securities from the new company and it is his job to sell the securities to the investing public, both institutional and individual investors.
As a general rule, after the investment banker has made this primary distribution of securities, the number of investors in the company is still comparatively small. These are the investors willing to put their money into new enterprises, which have not yet developed a widespread public appeal. As new securities become seasoned, however, they may qualify for listing. That step makes the securities more attractive to more people and enables the holders, when and if they wish, to liquidate their investment in a market place and to put the proceeds into another enterprise.
How important are the 1,500 companies with stock listed on the NYSE? Some measure of their importance may be got from these figures: these 1,500 companies earn about half of all the net profits after taxes reported by all U. S. companies; they pay their stockholders half of all the dividends disbursed; about 90 percent of these companies paid cash dividends in the last 12 months and almost 300 have paid dividends every single quarter for 20 years or more. Corporations listed on the Exchange provide jobs for more than 11 million workers. These companies produce practically all the automobiles and trucks made in this country, ship about seven eights of all the finished steel, produce three quarters of all the electric power, refine 90 percent of all the oil produced, and handle 95 percent of our railroad traffic and air passenger travel.
The list of Stock Exchange securities has grown with the country. Up to 1869 listing on the Exchange was a highly informal action. In that year the Stock Exchange laid down its first requirement for listing—that it be notified of all stock issued and valid for trading. In the following years the Exchange added more requirements, including frequent earnings reports, full and prompt disclosure of changes in property or business, and maintenance of securities transfer offices.
The philosophy behind the Stock Exchange's listing requirements is simply this: The investor or trader who owns, buys or plans to purchase listed securities is entitled to information about the corporation which will help him to make his investment decisions intelligently. Without disclosure of financial information, no one would invest in stocks