YOUR BUSINESS IS OUR BUSINESS: Stock exchanges: from NYSE to Dar bourse…

Historians – no doubt working through the ubiquitous Internet – never fail to remind the world that it was on a date like today’s (January 4) in 1865 that the New York Stock Exchange (NYSE) opened its permanent headquarters near Wall Street in the US city of New York.

While NYSE was founded in 1792, its very, very ‘distant cousin,’ the Dar es Salaam Stock Exchange (DSE), was founded in Tanzania on September 19, 1996 – some 204 years later!

Very briefly, a ‘stock exchange’ is a bourse, mart or marketplace where stock brokers and traders can buy and sell shares of stocks, bonds and other ‘securities’ – including ‘fungible, negotiable financial instruments that hold some type of monetary value.’

A ‘security’ in this context represents an ownership position in a publicly-traded corporation (via stock), a creditor relationship with a governmental body or a corporation (represented by owning that entity’s bond), or rights to ownership as represented by an option.

You don’t get it? Well… never mind that for now!

DSE was established a little more than 21 years ago in Dar es Salaam, Tanzania’s de facto capital and most important metropolis every which way you look at it.

‘Jointly owned’ by the government of Tanzania (70 per cent) and the public (30 per cent), DSE boasted a market capitalization of some Tsh23,721.49 trillion in June 2015 – and 26 listings of companies whose shares are traded on the local bourse.

By comparison, the world’s four biggest stock exchanges as of June 2015 (with their market capitalization shown in brackets) were the New York blockbuster (NYSE: $19.223 trillion); NASDAQ ($6.831 trillion); London Stock Exchange Group (LSE UK&Italy: $6.187 trillion), and the Japan Exchange Group ($4.485 trillion).

The term ‘market capitalization’ denotes the value of a company that’s traded on the stock market. It’s calculated by multiplying a company’s outstanding shares by the current market price of a share. For example: a company with 20 million shares selling at (say) Sh100 apiece would’ve a market capitalization of Sh2 billion…

… Easy as falling off a log rolling downslope on a dark, wet night, isn’t it?

The investment community uses market capitalization to determine a company’s size, as opposed to using sales or total asset figures.

This is important because the size of a given company is a basic determinant of various characteristics in which investors are interested, including especially the risk factor.

Usually, a stock market is split into a primary and secondary market.

The primary market is where new issues by companies ‘going public’ are first sold through an initial public offer (IPO) – with the worth of the company and the amount of shares being issued determining the opening stock price of the IPO.

Subsequent trading goes on in the secondary market, where participants include institutional and individual investors.

Noteworthy is the fact that listed companies are entitled to the money raised from their IPOs – but aren’t entitled to any money from the buying and selling of its shares thereafter!

So much, then, for stock exchanges – at least from the NYSE, founded in 1792, to DSE, a 1996 ‘sibling still in nappies’ businesswise!

Another January 4 development…? Well, the English mathematician-cum-physicist Isaac Newton was born on today’s date in 1643… And the French educator-cum-inventor of the ‘Braille’ for the blind, Louis Braille, was born on January 4, 1809… Cheers!