18. Stock Exchange (definition)

NOTE: if you’re new to Ground-Up Governance, or are finding anything a bit strange or confusing, you might want to START HERE.

Remember that “store” where people can buy and sell your company’s shares once you’re publicly listed?  It’s called a “stock exchange.”  “Stock” is just another word meaning “share,” or, weirdly, also “shares.”  It’s one of those English words that makes you go “huh, I never realized it, but that word is kinda stupid.”  Anyway, owning stock in a corporation means the same thing as owning one or more of that corporation’s shares.  So, a stock exchange is a store where you can buy and sell stock in one or more corporations. Actually, a stock exchange might be even more like Tindr for buying and selling shares. If you have money and want to buy stock, the stock exchange will help to match you with Rupinder, who has the stock you want and is willing to sell it to you at the price you want to pay. 

Stock exchanges also have a whole bunch of rules that your corporation has to follow if it wants to sell its shares at the store. There are also rules about who can buy, and from whom, and who gets what information about whose New Brunswick-shaped moles (and when), and all sorts of other stuff.  It’s all because sometimes corporations, shareholders, and other stakeholders do things that are super irresponsible, unnecessarily risky, or completely stupid. Maybe on purpose, or maybe by accident.

Part of the problem is that the price of a share doesn’t always really reflect whether the corporation is good or not. All it reflects is whether people *believe* they will be able to sell their shares for more money in the future than what they spent to buy them. As a result, sometimes share prices just change because people are reacting to things that don’t really matter. Maybe NHL star William “Willy Styles” Nylander incorrectly assumes that Reallie Steilish is a tribute to him and then posts on TikTok about how excited he is, before retracting it later that day when he realizes his error. Meanwhile, Reallie Steilish share prices go up as demand from hockey fans skyrockets, then down as those same fans sell off their shares. And then maybe Willy Styles reveals that he’s a huge Eyelash and loves Reallie Steilish after all, causing yet another surge in share price. All that excitement was based on things that had nothing at all to do with anything Reallie Steilish did.

Since share prices are so vulnerable to manipulation – both benign and hostile – the rules that stock exchanges put in place are meant to control risk. The rules are mostly there to make it harder for people to do stupid things, but they also make it harder and more expensive for corporations and individuals who use the “store”. This newsletter isn’t really about those rules, but we’ll talk about them a LIIIITTTLE more eventually.