An exchange generally occurs when one company acquires another. The shareholders of the acquired company are often given the option to sell their shares to the acquiring company or exchange their existing stock for stock of the acquiring company. When a filer exchanges his/her stock, they must specify both the stock tendered and the stock acquired in its place. For example, ABC Corporation recently acquired XYZ Corporation. ABC gave its shares to the shareholders of XYZ in exchange for their XYZ shares.
Traditionally, an exchange has been a physical location for trading securities. Trading is handled, at least in part, by an open outcry or dual auction system.
Two examples in the United States are the New York Stock Exchange (NYSE), which has the largest trading floor in the world, and the Chicago Board Options Exchange (CBOE).
However, the definition is evolving. Traditional exchanges handle an increasing number of trades electronically, off the floor. NASDAQ and other totally electronic securities markets, without trading floors, have exchange status.
As a result, the terms exhange and market are being used interchangeably to mean any environment in which listed products are traded.
The term exchange also refers to the act of moving assets from one fund to another in the same fund family or from one variable annuity subaccount to another offered through the same contract.
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