Stock Exchanges Around the World and How an IPO Works

A stock exchange is a regulated marketplace where buyers and sellers come together to trade shares of publicly listed companies, as well as other securities like bonds and derivatives. Exchanges provide price transparency, liquidity (the ability to buy or sell quickly at a known price), and regulatory oversight that protects both investors and companies.

Modern stock exchanges no longer have the famous trading floors where people in colored jackets shouted orders at each other. The New York Stock Exchange still maintains a largely ceremonial trading floor used primarily for listing day events and media appearances. The vast majority of trading today happens electronically, through sophisticated matching engines that pair buy and sell orders in microseconds.

Exchanges earn revenue primarily by charging listing fees (companies pay to be listed), transaction fees (a tiny fraction of every trade), and data fees (selling real-time price feeds to financial institutions and data vendors). They are themselves listed companies in many cases — the NYSE is owned by Intercontinental Exchange (ICE), which is itself listed on the NYSE. The London Stock Exchange Group (LSEG) is a FTSE 100 company. The businesses of providing market infrastructure have become businesses like any other.

How a price is actually made. Inside every matching engine sits an order book: the live list of all unfilled limit orders, each an instruction to buy or sell a stated quantity only at a stated price or better. The highest price any buyer is bidding (the best bid) and the lowest price any seller is asking (the best ask) frame the market, and the gap between them is the bid-ask spread. A market order, an instruction to trade at once at the best available price, does not wait in the book: it trades against the resting orders, starting at the best price and working outward. Market makers are firms that keep posting both bids and asks through the day; they earn the spread on round trips and carry the risk of holding inventory while prices move.

In this illustrative book the spread is $100.02 − $100.00 = $0.02, the midpoint is ($100.00 + $100.02) ÷ 2 = $100.01, and $0.02 ÷ $100.01 ≈ 0.02%, or 2 basis points. A market order to buy 600 shares takes all 300 at $100.02 and 300 of the 700 at $100.03: average price (300 × $100.02 + 300 × $100.03) ÷ 600 = $100.025, so the buyer pays ($100.025 − $100.01) × 600 = $9 more than the midpoint. That $9 is the price of immediacy. It grows when the book is thin, because a large order has to reach further down the list, which is why spreads widen when market makers step back in a panic. Once matched, the trade leaves the exchange for clearing and settlement (Section 8.2: Capital Markets Operations — The Trade Lifecycle).

An exchange is a business with three main revenue lines: listing fees paid by companies to be quoted, transaction fees paid by traders, and fees for selling market data. The mix differs from one exchange to the next and explains why exchanges compete for listings as hard as for trading volume.

Stock markets individually are open only during specific hours — typically six to eight hours on weekdays. But because exchanges are spread across the world’s time zones, trading in equity and related markets is effectively continuous. Events in one session flow directly into the next: if US markets fall sharply on a Thursday afternoon, Asian markets typically open lower on Friday morning, responding to the overnight news. European markets then open reflecting both the prior day’s US close and early Asian trading.

Exchanges are deeply interconnected through index correlations (a global risk-off event causes simultaneous selling everywhere), cross-listings (major companies listed on multiple exchanges simultaneously), ADRs and GDRs (allowing foreign companies to trade on US exchanges and vice versa — Infosys, Wipro, and HDFC have all traded as ADRs on NYSE), algorithmic arbitrage (keeping prices aligned across markets in microseconds), and 24-hour futures markets (providing continuous price signals even when cash equity markets are closed).

When markets fall too fast, circuit breakers automatically pause trading — giving participants time to process information and preventing panic from becoming a self-reinforcing cascade. The US market-wide circuit breakers (triggered by S&P 500 declines of 7%, 13%, and 20%) were activated multiple times during the COVID crash in March 2020 — the most activations in any single month since their introduction.

An Initial Public Offering (IPO) is the process by which a privately owned company first sells shares to the general public, transitioning from private ownership to being publicly listed on a stock exchange. It is one of the most significant events in a company’s lifecycle: a source of capital, a liquidity event for early investors, and a transformation in governance and transparency obligations.

Companies go public primarily to raise capital for expansion or debt repayment, to provide liquidity for founders and early investors, to use listed shares as currency for acquisitions, and to gain the brand credibility of a major exchange listing.

Investment banks play a central role in every IPO as underwriters. In a firm commitment underwriting (the most common structure), the investment bank agrees to buy all the shares from the company at the agreed IPO price and then resell them to investors. If demand is weaker than expected and they cannot sell all shares at that price, the bank absorbs the difference. This financial commitment gives the bank a powerful incentive to price the IPO accurately. After listing, a lock-up period (typically 90 to 180 days, shown in the figure above) bars insiders and early investors from selling, so a flood of their shares does not hit the market just after the IPO.

Major IPOs typically have a lead underwriter (called the bookrunner or lead manager) and a syndicate of co-underwriters. For very large IPOs, there may be dozens of banks in the syndicate, each responsible for selling a portion. In India, these roles are performed by SEBI-registered Book Running Lead Managers (BRLMs).