In the first instance, the purchase and sale of a security can be purely a private affair between two individuals. Theoretically, nothing legally stops the private sale of the Hungarian bond in the earlier example or the private sale of stock accompanied by a valid stock power.8

Trading markets emerged when people gathered to trade stocks and bonds, and soon buyers and sellers started employing agents (brokers) to buy and sell stock for them. The brokers themselves banded together to buy and sell, moved their operations out of the coffeehouses and alleyways, and created the exchanges.9 A principal feature of the new exchanges was that brokers would only trade with each other and they would charge specified fixed commissions.

Clearing and settlement is the good delivery securities in return for the good delivery of payment.


Markets in shares really burst onto the world stage in the early eighteenth century. As European governments looked to new ways to finance the debt of wars and extravagant kings, they granted exclusive charters to companies to exploit the New World in exchange for the new companies assuming government debt. The new companies issued securities to raise capital, which attracted investors who began to actively trade the securities. Thus were born the stock exchanges. Today these exchanges need not ...

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