The fall in equity prices will make some companies very vulnerable to absorption by stronger competitors. Companies “predators” have free capital and want to buy cheap shares. Therefore scared of the exchange crisis in 1987, fearing that their shares will be bought by competitors, many U.S. companies, whose share price has fallen, began a massive stock market repurchase of their own shares to preserve their independence. Among them were found even such giants as General Motors, Ford, Coca-Cola, IBM, etc. For many companies, a sharp devaluation of their shares meant bankruptcy.

Historically, two methods of regulation of the securities market were formed, by the State and by the dealers themselves. Prior to the crisis of 1929-33 the state practically did not interfere with the activities of stock exchanges. The crisis and the depression which followed it precipitated the formulation of government regulation of the stock market activities. So far, the law on securities in 1933 and a law on stock exchanges in 1934, remain the basic a document on which rests the state regulation of operations with securities.

The key idea, which was the basis of the state interference in the activities of stock exchanges, has been to maximize non-interference in the process of buying and selling stocks and bonds. A specific embodiment of this idea is found in the principle of “providing information”, on which post-crisis legislative acts are based. Their authors proceeded from the idea that, if the corporation will provide shareholders with detailed and reliable information about the activities of the company, it will automatically lead to the disappearance of the source of all evils on securities market, since the true value of stocks and bonds can be easily identified and their manipulation becomes impossible.

But from the perspective of the society as a whole, stock crisis is only a return to a level that reflects the real situation in the economy. An exchange collapse normally gives rise to the coordination of all economic policy. As a result of a crisis is temporarily restored the relative compliance of processes, occurring in the real economy and in capital formation. However strange it may seem, but in this respect, exchange crises, destroying the “excess” of financial capital, perform a constructive function. Exchange crises have accelerated the development of joint-stock form of property; increasing the concentration of financial capital in the hands of a growing part of the securities, exacerbating the competition between the holders of the shares “for survival,” lead to the bankruptcy of enterprises and banks.

Nevertheless, one can not help seeing that despite all their undeniable negative sides the crises are a prerequisite for the subsequent recovery of the economy. Stock crises, for example, lead to the replacement of backward corporations by advanced, more competitive, beat down the confusing demand for securities, remove from the securities market dealers who are prone to excessive risk, force to seek and introduce new forms and methods of operation of the exchange. (In particular, the stock market crisis of 1987, divided the western economists into supporters of two opposing points of view: some had the notion that stock markets are in need of strengthening the public management, the others remained confident that the market stabilization of the share capital may occur “naturally”, i.e. based on the natural mechanism of action within the exchange).

For small shareholders stock market crises, of course, represent a formidable threat. But rejection of the stock market on the grounds that it is inseparable from speculation and crisis, would deny the economic mechanism a flexible and effective system of capital formation, making the investment process extremely difficult. The availability of the securities market contributes to the capitalization of the income of the members of society, greatly increasing the investment resources of the economy. At the same time, which is very important, there is a real decentralization of the investment process, which gives it the flexibility and dynamism necessary for restructuring of investments.

Finally, the stock market is able to divert a significant portion of cash income of the population, thus reducing the demand for goods and services. This circumstance, which has a very mixed impact on the course of reproduction in developed capitalist countries, may have an important positive value in conditions of a scarce economy.

In practice, the term “exchange” refers primarily to the building, then to the time (Exchange continues from twelve to three), and finally, to a special kind of market. Exclusively with the latter definition, we will deal in the future.

First, one might argue that any stock exchange trade is a trade of replaceable values, and that in exchange hall there are no goods or money. However, markets are not limited to the valuables; there are exchanges, which make their operation in freight (such as the ship-exchange in Ruhrort). In addition, there is also a question related to whether the sale of samples, very often occurring at all stock exchanges, is related to the trade of replaceable values. Secondly, speculation can be described as a characteristic feature of Exchange. However, there is also speculation outside the Exchange. Then we can say that the Exchange is committed to facilitating the trade of goods and securities. This is certainly true, but railroads and many other institutions also serve these purposes, but are not stock exchanges. It is necessary to find other characteristic features of exchanges, distinguishing their traits in comparison with markets.

When people talk about a market, developed before exchange, first and foremost a regular meeting of parties with the purpose of transacting business, happening in a certain place and at certain times, is meant. Place and time – are constant, the parties and operations may vary. Anywhere, where there are no such meetings in a certain place and at a certain time, there can be no question of exchange. The difference between the exchange and the market is mainly in the following three points:

1. In the convertibility of listed on the stock exchange, but absent items

2. The existence of organization in the exchange, in contrast to the free market

3. The existence of formal fixed rates and quotations in the exchange.

Everywhere, where one of these features is missing, it is not an exchange in the stated sense, but rather a market or intermediate levels. Let us analyze in detail the three distinctive traits.

The essence of the Exchange is that it is a special kind of market where trade replaceable values is carried out, while these values and charges for them are not present. What is a replaceable value? This quality is due to the nature of the goods comprising the subject of trade. For example, in the market you buy a particular horse, some flowers, a piece of meat. A hostess buys products of certain quality and class. All these things are there, to examine them in detail. No one buys a pig in a poke. This is followed by the payment and transfer. The characteristic feature of the market is, therefore, in the presence of buyers and sellers, money and goods. At the stock exchange others are often presented, mostly traders. Initially, there were producers and consumers, but they were gradually superseded by merchants. Trading on the stock exchange is not on a physically presented particular product i.e. on the kind of a product, when a bag of rye can be replaced by another of equal quality. Hence the conclusion, that all the goods on the market can be substituted or replaced. The convertibility of goods traded on the exchange leads to one very important consequence: the securities or commodities circulating, i.e., sold or bought on the market may be missing. This fact creates a huge advantage for trade and exchange. The presence of the goods would bring the exchange back into a state of market and the transactions would have been brought up to its size.

Of the convertibility of goods and values, derives the second investigation. Securities or commodities should not be there at the time of purchase, they should not even be available to the owner. These operations form the basis of a stock market speculation. It is based on the fact that each purchase can be compensated with the sale and every sale with a purchase. Or, for example, on the sugar market, the transactions may be concluded for the delivery of sugar supply, when the beets, from which this sugar would be received, were still sown.

The second distinguishing feature of Exchange is the organization. The Exchange is an organized market, i.e. there are bodies for certain functions related to the management, maintenance of order, bringing the exchange transactions to norms, etc. Market does not know such a device. The only body that has the market is the maintenance of order. Sellers and buyers in the market represent a great unorganized mass. But wherever the market rises to the level of exchanges, there appear bodies. However, these bodies are not always the same. Each market has its own organizational structure, but all have at least the stock exchange committee – the chief and the supreme body of the Exchange.

Apart from a clear organizational structure each market also uses the principle of self-regulation, i.e. has inner-Exchange regulations, which are the basis of exchange activity of a specific exchange. These include the Memorandum, Articles of Association and Rules of the trading process.

In the Memorandum are listed the founders of the Exchange, the purpose of its creation and the means of achieving the stated objectives is determined; it is responsible for the obligations of the founders of the Exchange, the initial size of the  statutory fund, its division into shares and how they distributed between the founders, the rights and responsibilities of the founders, the allocation of profits and the establishment of contingency fund, sets out the terms of the termination of the Exchange, indicating the location and details of the Exchange.

As a rule, the Charter of the Exchange includes the following sections:

1. general provisions;

2. creating exchanges;

3. activities of stock exchanges;

4. size, order of formation and change of the authorized capital, funds and profit exchanges;

5. rights and duties of members of the Exchange;

6. management of exchange;

7. accounting and reporting exchanges;

8. termination of the Exchange.

The Rules of the auction reflect the issues such as the participants of exchange trading, and their order, exchange of goods, the order of their setting out and withdrawal from trades; stock transactions, their types, the order of registration, legalization, dissolution, and the recognition of their invalidity; settlement of disputes and sanctions for the violation of the rules of exchange trade.

Stock exchange is an organization with the aim not only to trade in replaceable values, but also the pricing. Pricing on the exchange takes place regularly, and under common control, i.e. behind the authority of the whole assembly or the executive committee. Where there is no such official quotation of prices, there is no exchange.

Now we can define the notion of stock exchange. Stock exchange is an organized market to trade in convertible values on which the process of pricing runs under public control. The objectives of the Exchange are not to supply the economy with raw materials, capital, currency, but the organization, regulation, standardization of commodity, capital and currency markets.