The exchange: what it does and what it does not

"The exchange bought", "the exchange crashed", "the exchange is holding my money" — the word means something different in each phrase, and in none of them does it mean what an exchange actually is.

The exchange organises trading

Its job is to bring buyer and seller together under transparent rules: collect orders, establish a price, record the trade. The exchange is not a party to the trade and holds no opinion about whether a security is cheap or dear.

The central counterparty guarantees settlement

A separate organisation steps between the two sides and guarantees the trade settles even if one side fails to pay. That is what makes trading with a stranger possible without knowing anything about them.

The depository keeps the record of rights

It holds the records of who owns what. That record is the ownership.

What trades in Russia

The main venue is the Moscow Exchange: equities, bonds, currency and derivatives. SPB Exchange operates separately and historically specialised in foreign securities. The comparison is in Moscow Exchange and SPB Exchange: two venues, two histories.

Trading modes

The same security can trade in several modes with different settlement rules. That is why the price "on the exchange" is sometimes not a single number — see Trading modes: why one security has several prices.

What the exchange does not do

It does not guarantee returns, it does not check the quality of an issuer's business on your behalf, and it does not protect you from a falling price. Admitting a security to trading means it meets formal listing requirements, not that anyone judged it attractive.