The exchanges are the forum where the daily securities trade takes place.  Some of them have physical locations, such as the NYSE, and others, like the NASDAQ, operate entirely through a computer network.  There are large exchanges where many different types of securities are traded, and there are smaller ones fewer, but often more complicated, securities.

Examples:

• The New York Stock Exchange

A stock and bond exchange

• The Chicago Mercantile Exchange

An exchange where derivatives (options, futures and the like) are traded.

• The New York Cotton Exchange

A market for cotton.

Clearing Houses

Securities and cash trade hands during trading at the exchanges.  The clearing houses handle the administrative work that is involved in transferring ownership.

In the past, certificates were printed which showed ownership of stocks and bonds.  Today, the majority of securities are issued virtually, through a system called Book-Entry.  In this system, physical certificates are not printed.  Rather, ownership of a security is listed electronically in the clearing house’s computer system.  All of the US government bonds are issued through book-entry.

The world’s largest clearing house is located in New York and is called:

The Depository Trust & Clearing Corporation – DTCC

In 2006, DTCC processed transactions valued at more than one quadrillion dollars. That’s 1,000 trillion!