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Some countries have many stock exchanges. What is the purpose of having multiple stock exchanges instead of consolidating all trading onto a single stock exchange? When there is only one stock exchange, all buyers and sellers meet at a single marketplace, which makes it easier to find willing buyers/sellers, facilitating price discovery. When there are multiple stock exchanges, buyers and sellers meet at many different marketplaces, which means that some mutually advantageous transactions do not take place because the buyer and seller were not aware of the trading opportunities offered by each other.

Flux
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    Do you have an example of a stock that is currently dual listed on more than one stock exchange in the same country? – user662852 Dec 28 '21 at 05:07
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    @user662852 In the USA, many stocks trade (but not list) on multiple stock exchanges. – Flux Dec 28 '21 at 05:10
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    Why do some countries have more than one grocery store? – quid Dec 28 '21 at 16:32
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    @quid Not a good comparison, because a stock exchange is pretty much a virtual entity accessed over the Internet nowadays. You can't buy groceries remotely. – user253751 Dec 29 '21 at 00:14
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    @user253751, it's a rhetorical question. Competition. Replace "grocery store" with literally any other business. Why is there more than one music streaming service? – quid Dec 29 '21 at 01:01
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    @user253751 Yes you can. 85% of the time I buy groceries remotely on the internet – slebetman Dec 29 '21 at 11:07
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    @user253751 You mean there are other ways to buy groceries other than online? That's how I've always done it. – Pkmmte Dec 29 '21 at 20:40
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    Because free market has benefits over monopoly, that will inevitably try to dictate high prices to the traders. – user4035 Dec 30 '21 at 09:32

3 Answers3

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Consider times before the fast and efficient electronic communications. How would a trader from Chicago have an efficient access to an exchange in New York?

So historically many major cities had an exchange, some (like NYSE, LSE, etc) more popular than others (e.g.: Have you heard about the San Francisco stock exchange?). Over time, as communications and technology allowed for traders to easily access exchanges which were physically distant, the more popular ones started becoming the more prominent ones, with others merging into them (that same SF exchange ended up merging into NYSE eventually, after earlier mergers with other West-coast exchanges).

Some exchanges are specific to certain types of products (for example the Chicago Mercantile Exchange, or the Israeli diamond exchange), others target specific traders (for example Nasdaq, which has no physical trading floor. Its parent company owns several regional exchanges as well).

littleadv
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    It should be pointed out that proximity is still a factor because due the time it takes to transmit information across vast distances. – JimmyJames Dec 28 '21 at 17:32
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    @JimmyJames it should be pointed out that anyone who cares about that has paid the exchange good money to put their servers in the exchange's data center. – user253751 Dec 29 '21 at 00:15
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    @user253751 I'm pretty sure that's a logical consequence of my point. – JimmyJames Dec 29 '21 at 16:00
  • @JimmyJames the point is that since the invention of the telegraph and the telephone, the physical meeting was not required for trading, and since the invention of the internet you didn't even have to be on the same continent. Sure, the milliseconds you're saving by being colocated are important for HFT and other algo-trading, but that's a new concept that didn't exist when these exchanges were created. – littleadv Dec 30 '21 at 06:43
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    The telegraph was actually more of a revolutionary development than the internet, because it changed the scale of communication much more drastically. The internet greatly improved many things, but it was nowhere near as dramatic a shift as being able to communicate in seconds what previously took weeks. People today don't really understand what it was like to not have any idea what was happening thousands of miles away. Not knowing if your loved ones were alive or dead, for months at a time, was normal. – barbecue Dec 30 '21 at 14:46
  • @littleadv That seems pretty obvious. – JimmyJames Dec 30 '21 at 14:59
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There are a variety of reasons why multiple stock exchanges came into existence:

I would say that the primary reason for the existence of multiple stock exchanges is that they are businesses started by investors, whether they be actual traders or businessmen. For example, the NYSE was begun by a group of investors circa 1800 who met under a buttonwood tree on Wall Street.

The AMEX was originally created as an alternative to the NYSE, but that role has been supplanted by NASDAQ.

Another reason would be advances in technology. The NASDAQ is an electronic computerized stock market which was established in the early 70s.

Many exchanges arose because regional location provided local access. Some regional exchanges arose because they focused on a specific market (mutual funds, options, lower quality stocks, etc.).

Another major reason differentiation. The NYSE has more stringent listing requirements compared to the NASDAQ which is more stringent than regional exchanges. At the bottom of the heap is the OTC BB.

Bob Baerker
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  • IIRC, when NASDAQ started out they specialized in OTC stocks. – Barmar Dec 28 '21 at 14:23
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    In those days, the NASDAQ was only 4 and 5 letter OTC securities. Pink sheets OTC stocks goes back 100 years. I can't remember where I got them but I used to get the actual pink sheets print outs 40 years ago. Great reading! (zzzzz) – Bob Baerker Dec 28 '21 at 14:37
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From CQM, on a related question:

Stock exchanges are most often times private companies that compete with other exchanges, so that also promotes the existence of many exchanges.

Franck Dernoncourt
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