What Is the Purpose of the New York Stock Exchange?

by Gilberto Fuentes; Updated September 26, 2017
The New York Stock Exchange.

The New York Stock Exchange (NYSE) is a collection of domestic and foreign securities, including stocks, bonds and other investments traded in a public market for investors to buy and sell. By organizing the securities markets into a central location, the NYSE helps the economy channel money from investors into different areas of the market place to fuel economic growth. As a result, businesses and governments access the money they need in order to finance their projects and grow.

The Economy

The NYSE helps promote economic efficiency by encouraging the transfer of money from low-yield investments, such as savings accounts, into potentially higher yield investment opportunities. The mechanism that encourages this flow of money in the marketplace is the prospect of increasing the returns derived from the value of sums invested in securities listed on the NYSE. Therefore, investor money gives companies listed on the NYSE the resources to fund their growth. On a large scale, this process helps fuel national economic activity.

Business

The relationship between a business and the NYSE accomplishes two general objectives: promote corporate governance and raise money. When a company sells stock, it is said to go public, meaning that the company will fall under the ownership of its stock holders. By being a public company, the the company's leadership is held accountable to its shareholders who have a say in what a company does and how it operates. This accountability relationship encourages an improvement in corporate management since shareholders do not want to lose the money invested in the company. In return for selling stock and being accountable to its shareholders, a company receives the money necessary to fund expansion.

Government

Similarly, local, state, and federal government agencies need money to fund public works projects and expand services. To raise money without necessarily raising taxes, government agencies may decide to issue bonds which are then sold to investors. The money raised from the bond issue is channeled back to the issuing government agency to use on the project at hand. As with company stocks, the NYSE also facilitates the buying and selling of government bonds in an organized way so government can fulfill its obligations.

Individual Investors

A key part of funding business and government operations is a willing body of investors. Investors can be individuals, other companies, hedge funds, as well as the wealthy. With the virtually constant need for money to fuel economic growth, individual investors are able to participate in the trading activity of the NYSE. Although the actual trading is only done by special brokers and specialists, investors of all kinds participate in the market activity that takes place on the NYSE.

Economic Indicator

As the largest stock exchange in the world, the NYSE includes companies from the United States and around the world. The combined activity of the collection of U.S. and foreign stocks in the NYSE is illustrated with the New York Stock Exchange Composite index. The NYSE Composite helps gauge a general performance of the economy, investor expectations and market conditions based on the buying and selling activity that takes place in NYSE.

About the Author

Gilberto Fuentes draws on his experience in financial services to develop copy for websites in the United States, United Kingdom and Latin America. His work has been published in the online editions of the "San Francisco Chronicle" and the "Houston Chronicle." Fuentes lives in New York and holds a dual Bachelor of Arts in English and economics.

Photo Credits

  • Image by Flickr.com, courtesy of Ernst Moeksis