The purpose of a financial exchange is to facilitate trading in the securities for which it was created, and this it does by establishing a secure environment for the participants in the market, i.e. the issuers, investors, speculators and members / authorized users (the broker-dealers). By secure environment is meant that the trading and settlement of deals are achieved in an efficient and risk-free manner. In fad, an exchange can be seen as an institution that risk manages the process of dealing, clearing and settlement on behalf on the participants, saving them the expensive process of specific risk management.
Essentially, the advantages of exchange-driven markets are:
- Elimination or lessening of the risk of trading.
- Efficiency of trading.