TRADING IN OTHER SECURITIES

Exchanges trade in all forms of securities. Although the general operations of exchanges apply to all securities trading, there are some differences. In particular, trades in nonstock securities, such as bonds and options, are often managed by financial intermediaries other than brokers.

Bonds
 

Bonds provide a way for companies to borrow money. Companies obtain funds when they initially issue bonds. As with the initial issue of stocks, companies use the services of investment banks in primary market transactions for bonds. Once issued the bonds are then traded in secondary markets or on exchanges and the company is no longer directly involved.

Options are traded on many U.S. stock exchanges, as well as over the counter. Options writers offer investors the rights to buy or sell, at fixed prices and over fixed time periods, specified numbers of shares or amounts of financial or real assets. Writers give call options to people who want options to buy. A call option is the right to buy shares or amounts at a fixed price, within a fixed time span. Conversely, writers give put options to people who want options to sell. A put option is the right to sell shares or amounts at a fixed price, within a fixed time span. Buyers may or may not opt to buy, or sellers to sell, and they may profit or lose on their transactions, depending on how the market moves. In any case, options traders must pay premiums to writers for making contracts. Traders must also pay commissions to brokers for buying and selling stocks on exchanges. Options trading is also handled by options clearing corporations, or clearinghouses, which are owned by exchanges.