<p>Retail investors asking why you cannot trade directly at an exchange are essentially the reason why it is not possible. If you knew how trading works, you would not ask such a question. If you do not, regulators step in and prevent retail investors from mistakes, thereby helping to maintain the integrity of the market itself</p>
<p>Actual trading is a complex task, with lots of regulation and mechanisms that need to be understood. Even legendary companies like Berkshire Hathaway (Warren Buffett) use <a href="https://www.youtube.com/watch?v=STkjF-YPHSM" rel="nofollow noreferrer">brokers</a>.</p>
<p>The reason there is so much regulation is that a properly functioning stock market is the backbone of any capitalist economy. After all, trust in the integrity of the stock market promotes high levels of savings and investment, which in turn helps the economy grow and prosper.</p>
<ul>
<li>If you want to own a car, you do not build it yourself. Neither do you buy it directly from the factory.</li>
<li>If you want to buy bananas, you do not buy the directly from the farmer (unless you happen to live near a farmer who sells the products directly)</li>
<li>You do not buy your gas from the refinery directly.</li>
</ul>
<p>The main reason you do not do these things is that it is very difficult to build cars, producers prefer to sell in bulk and do not want to have to deal with retail investors (and the associated regulation for selling to retail / uninformed people).</p>
<p>When you want to trade, you do want a fair and transparent price. To achieve this, regulators need to be able to &quot;see&quot; what is happening on the exchange. Therefore, anyone directly trading at the exchange needs to adhere to very stringent rules. For example, you need to</p>
<ul>
<li>maintain a Consolidated Audit Trail,</li>
<li>ensure clock synchronization (server clocks synchronisation needs to be within 100 microseconds of UTC),</li>
<li>keep time stamps,</li>
<li>ensure connectivity and data transmission,</li>
<li>conduct regular development and testing,</li>
<li>have proper recordkeeping,</li>
<li>transmit the required data in a timely fashion, while ensuring it is complete and accurate</li>
<li>periodically conduct “regular and rigorous” reviews of the execution quality ...</li>
</ul>
<p>From a technical perspective:</p>
<ul>
<li>how do you evidence that your trading systems clocks have been synchronized and how will you identify and self-report clock synchronization violations</li>
<li>how to route quantities, cancel orders, ...</li>
<li>address potential conflicts of interest in order routing decisions</li>
<li>publish accurate, properly formatted quarterly routing reports in PDF and XML format</li>
<li>how do you design risk-management controls</li>
<li>if you plan to use third-party vendor tools, how do you ensure to review whether the vendor can meet the obligations of the Market Access Rule</li>
<li>you need to set up appropriate pre trade &amp; post trade order controls and error handling procedures and pass an annual certification that attests these controls</li>
<li>how to handle BIN and / or FIX protocols: some details can be found <a href="https://www.nyse.com/pillar" rel="nofollow noreferrer">here</a> where it is explained how to handle message throttling if inbound messages from a given session are exceeding a rate of 500 messages per rolling 100 milliseconds. Or that each FIX tag has a specific data type and length which represent systemic limits enforced by the Pillar FIX Gateway and that you should not null pad a FIX tag to equal the systemic limit. For example, order and deal identifiers are unique unsigned Little Endian 8 byte integers.</li>
</ul>
<p>If all that does not seem like a big deal, how do you intend to pay for the fees?
For example, fees for gateways that provide for order entry, order receipt
(i.e. confirmation that an order has been received), receipt of drop copies and trade reporting (i.e.whether a trade is executed or cancelled), as well as for sending information to shared data services for clearing and settlement. can be found <a href="https://www.nyse.com/publicdocs/Wireless_Connectivity_Fees_and_Charges.pdf" rel="nofollow noreferrer">here</a>. There is USD15,000 initial charge per
connection to both the LCN and NMS Network plus USD22,000 monthly charge per
connection to both the LCN and NMS Network. Of course, that requires you to know if you need this connection or if this is the best available option for you.</p>
<p>This is really just scratching the surface of what it takes to have access to an exchange without somebody else doing the bulk of work for you. Just like a refinery does not want you to pop in with a small tank to ask for a few gallons of gas, an exchange does not want to have to deal with the additional task of being a broker either. The exchanges business is to provide the facilities that allow brokers to meet at a centralized place for trading. If you use a retail broker, you will get access to a decent Graphical User Interface, automated routing of your orders, the broker will do the record keeping ...
All you need to do is to decide when to buy / sell how much of what you want. The broker's duty is to figure out how to get you the best deal (just like they do for Warren Buffett).</p>

CC BY-SA 4.0
2023-05-17T22:46:33.587Z
2023-05-17T22:46:33.587Z
AKdemy
<p>Instead investors must use a stock brokerage as a middleman. Why is the stock brokerage necessary?</p>

CC BY-SA 4.0
2023-05-14T18:47:54.383Z
because law says so
1muflon1
CC BY-SA 4.0
2023-05-14T19:20:33.317Z
Do you know how to purchase a stock from the exchange? Rules, regulations (pre and post trade) how to get access, the required infrastructure... It's similar to asking why not just buy gasoline from the refinery?
AKdemy
CC BY-SA 4.0
2023-05-14T21:01:18.260Z
@AKdemy, of course I don't, that's why I'm asking. Where can I learn more about this? And yes, i also don't know why you can't buy directly from manufacturer
JobHunter69
CC BY-SA 4.0
2023-05-14T21:39:37.530Z
Do you really think a refinery would be happy if you showed up and asked for a few gallons? The entire reason wholesale and retail is separated is that it's not beneficial for any party to directly connect with each other. You can look at [NYSE](https://www.nyse.com/pillar) to see the Gateway details to connect. If that doesn't put you off, there are a lot of legal requirements. For short, just spare your time and trade with what is available for retail. There are plenty of cheap and simple offerings.
AKdemy
CC BY-SA 4.0
2023-05-14T21:47:03.100Z
@AKdemy Since it's all done electronically, I don't see how buying from nyse directly would be bothersome.
JobHunter69
CC BY-SA 4.0
2023-05-14T23:09:03.790Z
@JobHunter69 1. in virtually all western countries I can think of it is not legal to buy stocks from exchange without brokerage. 2. If you want to you need to become broker. 3. How to become broker differs from place to place. In the US you have to bachelor's degree and then pass FINRA exams (which is something like BAR exam for lawyers - or at least  thats closest analogy I can think of). However, unless you actually plan to work for a financial firm all this will be quite costly and probably not worth as you will pay more for this than for lifetime of using discount brokerage at your bank
1muflon1
CC BY-SA 4.0
2023-05-15T03:00:57.230Z
@1muflon1 The question is why is it illegal
JobHunter69
CC BY-SA 4.0
2023-05-15T07:30:13.833Z
I'm pretty sure it *could* be done, if all parties involved would agree to jointly work on a suitable platform. But those who would lose their business have no interest in doing so.
VARulle
CC BY-SA 4.0
2023-05-15T08:41:58.453Z
@JobHunter69 the question why is it illegal is question for politicians not economists. Why is it illegal to renovate house or add patio without permit from local government in many western countries?
1muflon1
CC BY-SA 4.0
2023-05-15T17:27:40.573Z
@1muflon1 the answer to that is because of safety issues. I see no issues on trading directly on the exchange rather than through a brokerage.
JobHunter69
CC BY-SA 4.0
2023-05-15T18:07:45.933Z
@JobHunter69 I see no significant safety issues with making small patio
1muflon1
<finance><stock-market>
Why can't retail investors directly purchase from a stock exchange?
JobHunter69
# Why can't retail investors directly purchase from a stock exchange?

(Asked by: username_0 on 2023-05-14)

Instead investors must use a stock brokerage as a middleman. Why is the stock brokerage necessary?

**Tags:** finance, stock-market
> **Comments:**
> **username_1**: because law says so  
> **username_2**: Do you know how to purchase a stock from the exchange? Rules, regulations (pre and post trade) how to get access, the required infrastructure... It's similar to asking why not just buy gasoline from the refinery?  
> **username_0**: @AKdemy, of course I don't, that's why I'm asking. Where can I learn more about this? And yes, i also don't know why you can't buy directly from manufacturer  
> **username_2**: Do you really think a refinery would be happy if you showed up and asked for a few gallons? The entire reason wholesale and retail is separated is that it's not beneficial for any party to directly connect with each other. You can look at [NYSE](https://www.nyse.com/pillar) to see the Gateway details to connect. If that doesn't put you off, there are a lot of legal requirements. For short, just spare your time and trade with what is available for retail. There are plenty of cheap and simple offerings.  
> **username_0**: @AKdemy Since it's all done electronically, I don't see how buying from nyse directly would be bothersome.  
> **username_1**: @JobHunter69 1. in virtually all western countries I can think of it is not legal to buy stocks from exchange without brokerage. 2. If you want to you need to become broker. 3. How to become broker differs from place to place. In the US you have to bachelor's degree and then pass FINRA exams (which is something like BAR exam for lawyers - or at least  thats closest analogy I can think of). However, unless you actually plan to work for a financial firm all this will be quite costly and probably not worth as you will pay more for this than for lifetime of using discount brokerage at your bank  
> **username_0**: @1muflon1 The question is why is it illegal  
> **username_3**: I'm pretty sure it *could* be done, if all parties involved would agree to jointly work on a suitable platform. But those who would lose their business have no interest in doing so.  
> **username_1**: @JobHunter69 the question why is it illegal is question for politicians not economists. Why is it illegal to renovate house or add patio without permit from local government in many western countries?  
> **username_0**: @1muflon1 the answer to that is because of safety issues. I see no issues on trading directly on the exchange rather than through a brokerage.  
> **username_1**: @JobHunter69 I see no significant safety issues with making small patio  

---

## 1 answers

### Answer by username_2 on 2023-05-17. Score: 3

Retail investors asking why you cannot trade directly at an exchange are essentially the reason why it is not possible. If you knew how trading works, you would not ask such a question. If you do not, regulators step in and prevent retail investors from mistakes, thereby helping to maintain the integrity of the market itself

Actual trading is a complex task, with lots of regulation and mechanisms that need to be understood. Even legendary companies like Berkshire Hathaway (Warren Buffett) use [brokers](https://www.youtube.com/watch?v=STkjF-YPHSM).

The reason there is so much regulation is that a properly functioning stock market is the backbone of any capitalist economy. After all, trust in the integrity of the stock market promotes high levels of savings and investment, which in turn helps the economy grow and prosper.

* If you want to own a car, you do not build it yourself. Neither do you buy it directly from the factory.
* If you want to buy bananas, you do not buy the directly from the farmer (unless you happen to live near a farmer who sells the products directly)
* You do not buy your gas from the refinery directly.

The main reason you do not do these things is that it is very difficult to build cars, producers prefer to sell in bulk and do not want to have to deal with retail investors (and the associated regulation for selling to retail / uninformed people).

When you want to trade, you do want a fair and transparent price. To achieve this, regulators need to be able to "see" what is happening on the exchange. Therefore, anyone directly trading at the exchange needs to adhere to very stringent rules. For example, you need to

* maintain a Consolidated Audit Trail,
* ensure clock synchronization (server clocks synchronisation needs to be within 100 microseconds of UTC),
* keep time stamps,
* ensure connectivity and data transmission,
* conduct regular development and testing,
* have proper recordkeeping,
* transmit the required data in a timely fashion, while ensuring it is complete and accurate
* periodically conduct “regular and rigorous” reviews of the execution quality ...

From a technical perspective:

* how do you evidence that your trading systems clocks have been synchronized and how will you identify and self-report clock synchronization violations
* how to route quantities, cancel orders, ...
* address potential conflicts of interest in order routing decisions
* publish accurate, properly formatted quarterly routing reports in PDF and XML format
* how do you design risk-management controls
* if you plan to use third-party vendor tools, how do you ensure to review whether the vendor can meet the obligations of the Market Access Rule
* you need to set up appropriate pre trade & post trade order controls and error handling procedures and pass an annual certification that attests these controls
* how to handle BIN and / or FIX protocols: some details can be found [here](https://www.nyse.com/pillar) where it is explained how to handle message throttling if inbound messages from a given session are exceeding a rate of 500 messages per rolling 100 milliseconds. Or that each FIX tag has a specific data type and length which represent systemic limits enforced by the Pillar FIX Gateway and that you should not null pad a FIX tag to equal the systemic limit. For example, order and deal identifiers are unique unsigned Little Endian 8 byte integers.

If all that does not seem like a big deal, how do you intend to pay for the fees?
For example, fees for gateways that provide for order entry, order receipt
(i.e. confirmation that an order has been received), receipt of drop copies and trade reporting (i.e.whether a trade is executed or cancelled), as well as for sending information to shared data services for clearing and settlement. can be found [here](https://www.nyse.com/publicdocs/Wireless_Connectivity_Fees_and_Charges.pdf). There is USD15,000 initial charge per
connection to both the LCN and NMS Network plus USD22,000 monthly charge per
connection to both the LCN and NMS Network. Of course, that requires you to know if you need this connection or if this is the best available option for you.

This is really just scratching the surface of what it takes to have access to an exchange without somebody else doing the bulk of work for you. Just like a refinery does not want you to pop in with a small tank to ask for a few gallons of gas, an exchange does not want to have to deal with the additional task of being a broker either. The exchanges business is to provide the facilities that allow brokers to meet at a centralized place for trading. If you use a retail broker, you will get access to a decent Graphical User Interface, automated routing of your orders, the broker will do the record keeping ...
All you need to do is to decide when to buy / sell how much of what you want. The broker's duty is to figure out how to get you the best deal (just like they do for Warren Buffett).


---

