What makes a stock exchange “private”?
<p>I’m trying to understand the difference between a public and a private stock exchange, or any exchange for that matter.</p>

<p>I guess that I and another 10 people made an agreement and started trading some stocks among ourselves, that would be a private exchange... and we could apply any trading/investment rules we decide, right ?</p>

<p>Now, if we allow more people on our platform (of course they would have to sign our agreement), would that still be a private exchange? I guess so... right? But it also feels like the line between public and private is quite blurred...</p>

<p>And am I allowed to promote/market the platform? Would that be investment advice? What about marketing specific investments on my platform?</p>

<p>Operationally, in the United States, a <strong>public stock exchange</strong> is a stock exchange which only conducts transactions involving securities in publicly held companies for members of the general public through brokers authorized to participate in the exchange, while a <strong>private stock exchange</strong> is a network that facilitates private placements of securities (i.e. transfers of securities that fall within a securities law exemption) in companies that are not publicly held, between accredited investors (basically affluent people, certain sophisticated people and institutional investors).</p>

<p>A company is publicly held if it has more than a certain amount of shareholders with a certain amount of market capitalization, if it is listed on a public stock exchange, or if its securities are marketed to the general public. In practice, there is very little middle ground. </p>

<p>Most companies either have just a handful of owners and investment debt holders (i.e. are closely held), or have a great many (typically thousands), while few are near the threshold between being closely held and public held. Typically, a company with enough securities holders to be publicly held has a net asset value that requires the company to comply with the obligations of a publicly held company.</p>

<p>A company that has securities that is publicly held is subject to much more strict disclosure requirements and liability for non-disclosure of material facts than a company that is not publicly held. Publicly held companies are also not allowed to be taxed as pass through entities. This is quite expensive (hundreds of thousands of dollars to single digit millions of dollars per year in a typical case, mostly for lawyers, accountants, printers and investment bankers).</p>

<p>There are many kinds of securities, but the most common are common stock, preferred stock, and bonds.</p>

<p>Almost all of the technical terms used in this answer have highly specific legal and regulatory definitions.</p>

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