my own stock market

Suppose I want to set up a new market competing with Nasdaq. What are the specific government regulation problems? What registrations of transactions must happen? Is there an amount of capital/stock I’m required to maintain?

Why are there only a couple of major exchanges in the U.S.? I imagine the regs must be big.

On a smaller scale:

a. If a stock buyer and a stock seller sit down in a room and agree to sell, does the government regulate this transaction? i.e. must this transaction be registered with a government agency? with an exchange? with the company whose stock is traded? Other?

b. If there is a seller who allows a holder to hold his stock certificate, and a buyer who buys the certificate, but leaves the paper in the hands of the holder (so the holder is now holding it for the new owner), is there any government regulations on this? (same questions as above)

c. Do companies have some commitment to see their shares sold on a particular exchange? i.e. commitment to the government, to the exchange, etc.

References would be greatly appreciated.


A- Yes, but not with the company whose stock you’re selling.

B-Yes, the holder(clearinghouse) has to conform to The exchange, and the exchange has to conform to the SEC.

C-Yes, but they have to conform to the exchange’s requirements to be on that certain exchange(E.G.–Nasdaq is for tech stocks only, and they have a minimum dollar value over a certain time period that is must be valued at).

As far as references, I’ve got none, but try going to

Bill, my brother and I were just talking about your first question.

You would have to have very good reasons and such to get someone to move to your exchange. I.E.–"I have [x number] of companies valued at over 10 billion dollars.

So essentially, you’d have hash a strategy to get people of a certain vertical market, say networking.

So you go to Cisco, and you say that you have x companies that have all increased in growth in the last 10 quarters consecutively, Etc, Etc.

So, in short, It takes lots of capital, and lots of friends to do what you’re asking about.


You can set up and trade stocks in a lockerroom if you so desire and call it an exchange if you want. Nobody will stop you. Good luck competeing with the Nasdaq or NYSE though. You’ll probably have less respect than the Midwestern exchange.

Here are the correct answers:

A: Kinda. If you buy shares from Joe Blow the IRS is gonna wanna know what Joe bought them for to determine capitol gains and losses. You will eventually need to do the same thing.

B: If the company pays a dividend, it’s still going to go to Joe until you reregister the stock certificate in your name. Joe will also be responsible for the taxes, and if Joe dies that stock is going to go back into his estate no matter what you claim. You will not be able to deposit the certificate or realize any value or benefits until it’s reregistered. To do this, you notify the registrar.

C: Different exchanges have different requirements. Then NYSE would very much like to have Intel and and Microsoft list on their exchange. They have even gone so far as to reserve the “I” and “M” symbols for them. Both firms seem to be content on the NASDAQ.

The main difference between the NASDAQ and NYSE is that of Specialists and Market Makers. A Market Maker is somebody who is willing to buy or sell a stock simultaneously (I will buy INTC at 100 and sell at 101) If you are willing to pay enough, you too can be a market maker with the NASDAQ. The current price of a NASDAQ stock is determined by the highest bid and lowest offer of any and all market makers in the security. On the NYSE market making is the exclusive official privilege of the specialist in that stock. He looks at all the buy and sell offers ou there and determines where the stock is priced. If he chooses the price badly his bid or offer will be hit until he wises up or goes broke. This is supposed to provide a more orderly and less volatile market than the NASDAQ though that’s not always the case. To be a specialist you need a seat on the NYSE of which so many are only available, and are quite expensive.

Contrary to the previous posts the NASDAQ is not for Technology stocks only. There is no sector requirement to be listed there, and thousands of non tech stocks are.

As far as references go, I doubt the CEO of my firm will be willing to write you a letter, but I am currently employed in the industry. I maintain licenses in a dozen or so states, manage money professionally, and generally know what I’m talking about when I discourse on these issues.

Or I might be a janitor.

Thanks. I still need more info, though.

Scylla, I do trust that you’re in the industry.

Let me give some more specifics:

Scenario A
Let’s say I want to start my own exchange. Say people come over and sit around my living room and buy and sell stocks amongst themselves. This is strictly for their own portfolios, mind you. Let’s say there are no market makers, just the people in the living room. Can I do this? Will the government regulate me in any way?

Scenario B
Now, let’s take that a step further. Let’s say everyone who comes in to my little living room exchange drops their stock certificates off with me. I keep the certs in a safe in the garage. Now, when anyone buys stock from another person, they tell me and I make a mark in some book saying noting the new owner. Any regulation? What kind?

Scenario C
Now, what if this is bigger than my living room. What if I can do this on a big scale, possibly as big as Nasdaq. What will the government say my responsibilities are?

Note that in each of these scenarios, I am not a middleman in the transactions. I am just providing the market to introduce buyers and sellers.

I did follow in the above posts that the companies and the government needs to know about a change in ownership for tax reasons and to send dividends and shareholder reports. But what if I leave that up to the buyers and sellers? Do I (as the market) have any obligations to the company or government?

I know there are several people in our little SDMB community who are deep into this industry; I’d really appreciate specifics and pointers to sites.

Thanks, guys.

Some of what you are describing sounds similar to an investment club in which members have varying ownerships in a common pool of securities. They are not considered exchanges.

As you might guess, Starting up a new exchange doesn’t happen all that often.

You would need to be compliant with the Securities and exchange act of 1940. You should be able to find information on that at the Sec’s web site, or e-mail me your address and I’ll send you a book on either investment clubs or the SEC.

You may be misconstruing what constitutes a stock. The actual certificate has little meaning these days.

Today, many if not most securities are issued in electronic (book entry form) only.

When we receive physical securities at my firm, we eventually destroy them.

What is important is how the name is held at the registrar for the security. THAT is who owns it for all intents and purposes.

To make your exchange work, you wouldn’t necessarily hold certificates, so much as track transactions and provide “good execution” (a fair market.) You would eventually need to hook up with the DTC, the delivery transfer corporation which is a government corporation that tracks transactions on a daily basis. I have no idea how you go about doing that though. The NYSE is simply a place. The NASDAQ is simply a conglomeration of market makers. I’m not sure what functions of an exchange you are looking to emulate, but they do not serve as a repository for certificates, even in book entry form.

Think of owning a flea market. Every day people bring in tables and merchandise, sell it, and every day all those tables and merchandise is gone. All you own is the hall.


A: Yes. People can buy and sell stocks anywhere they want and frequently do. Nonexchange traded stocks change hands only in this fashion. An exchange though gives you a more liquid and continuous market. Will there be people in your living room 24/7?

B: Can’t do that. You are either a brokerage firm, investment club, or mutual fund (investment company) and must conduct yourself as such. You are not an exchange.

C: Not sure how to answer as per previous problems. The exchanges are self-regulating. You will most surely be held accountable to the SEC and must report your transactions to the DTC though. Again you might not be an exchange, but an investment co., club, or member firm.

I hope that helps.

Okay, I’ve done a bit of homework at the SEC and Nasdaq. I understand how Nasdaq works through Market Makers (and ECNs). I understand how specialists work on the NYSE. I understand a bit of how the government regulates things. (And I’m amused that one of the SEC Commisioners is named “Isaac Hunt”, only mildly painful since we share a last name. But I digress…)

Question 1
Say two private parties want to trade some stock for cash. Above responses indicated that this is fine; no broker or exchange is required. For this transaction, what paperwork must be done?
I assume that the Registrar, the IRS, and the DTC must all be notified. True? Are all of these notifications required to be done by the Buyer? Or Seller? Can they all be done online?

Question 2
Can an individual bypass a broker and go straight to Nasdaq to buy or sell stock? I assume not. What is required to do business directly with Nasdaq?

Question 3
The DTC was mentioned in a response above. I can’t find any info on them. Does anyone know if they have a web site? Or where I can find info on them?

Question 4
I’d like to learn more about Registrars. I’ve looked at the Bank of New York, who I believe to be a major registrar. Can anyone name some other registrars, or sites about registrars in general?