Financial Establishments

An Exchange is an organisation that facilitates the trading of assets. The aim of the exchange is to match buyers’ and sellers’ interest in acquiring and selling assets. In this way the exchange improves the liquidity of the market.

There are exchanges for many of the financial markets, such as Stock Exchanges for securities and Futures Exchanges for options and futures. You might also be familiar with some web-basedexchanges such as eBay (a goods exchange) and Betfair (a betting exchange). The exchanges act as central counterparties between traders to: Improve market liquidity,Guarantee fulfilment of contracts and payment, Allow trading parties to deal anonymously.

Attract investors Keep markets orderly,Trading on an exchange is by members only and there is a transaction fee associated with each trade.This is how exchanges themselves make money and run as profitable businesses. Some exchangesare even listed on the Stock Exchange and you can buy and sell shares in them just like any other business.Trading over-the-counter is much less restricted and unlike the highly standardised products listed on an exchange,


over-the-counter products can be highly tailored to meet the buyers’ and sellers’ needs.Over-the-counter trading has lower transaction costs than exchange-trading and can offer tradingoutside stock exchange hours.But anonymity is not preserved, participants are not safe guarded by the same rules governing theirconduct, transactions are not guaranteed and, being less regulated, prices can be less accurate.Like exchange-trading, over-the-counter trading depends increasingly on electronic networks.Investment Banks are financial institutions that perform many functions. Their activities can be divided up into three different categories: front, middle and back office.