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What Is Stock Exchange

A stock exchange is an organized market where securities like shares and bonds are bought and sold. It provides a platform for trading securities according to defined rules and regulations. Key features include only allowing transactions of listed securities through authorized brokers and members, and regulating trade to ensure a fair market.

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44 views

What Is Stock Exchange

A stock exchange is an organized market where securities like shares and bonds are bought and sold. It provides a platform for trading securities according to defined rules and regulations. Key features include only allowing transactions of listed securities through authorized brokers and members, and regulating trade to ensure a fair market.

Uploaded by

valli gotety
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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What is Stock Exchange?

Meaning
Stock Exchange also called Stock Market or Share Market is one
important constituent of capital market. Stock exchange is an organized
market for buying and selling corporate and other securities. Here,
securities are purchased and sold out as per certain well-defined rules and
regulations. It provides a convenient and secured mechanism or platform
for transactions in different securities Such as shares and debentures
issued by public companies, and bonds and debentures issued by
government, public corporations and municipal and port trust bodies.

Definitions of Stock Exchange


According to Husband and Dockerary ,

“Stock exchanges are privately organized markets which are used to


facilitate trading in securities.”

The Indian Securities Contracts (Regulation) Act of 1956, defines Stock


Exchange as,

“An association, organization or body of individuals, whether


incorporated or not, established for the purpose of assisting, regulating
and controlling business in buying, selling and dealing in securities.”

Features of Stock Exchange


1. Market for securities : Stock exchange is a market, where securities of
corporate bodies, government and semi-government bodies are bought and
sold.
2. Deals in second hand securities : It deals with shares, debentures bonds
and such securities already issued by the companies. In short it deals with
existing or second hand securities and hence it is called secondary market.
3. Regulates trade in securities : Stock exchange does not buy or sell any
securities on its own account. It merely provides the necessary
infrastructure and facilities for trade in securities to its members and
brokers who trade in securities. It regulates the trade activities so as to
ensure free and fair trade
4. Allows dealings only in listed securities : In fact, stock exchanges
maintain an official list of securities that could be purchased and sold on
its floor. Securities which do not figure in the official list of stock
exchange are called unlisted securities. Such unlisted securities cannot be
traded in the stock exchange.
5. Transactions effected only through members: All the transactions in
securities at the stock exchange are effected only through its authorized
brokers and members. Outsiders or direct investors are not allowed to
enter in the trading circles of the stock exchange. Investors have to buy or
sell the securities at the stock exchange through the authorized brokers
only.
6. Association of persons: A stock exchange is an association of persons or
body of individuals which may be registered or unregistered.
7. Recognition from Central Government : Stock exchange is an organized
market. It requires recognition from the Central Government.
8. Working as per rules : Buying and selling transactions in securities at
the stock exchange are governed by the rules and regulations of stock
exchange as well as SEBI Guidelines. No deviation from the rules and
guidelines is allowed in any case.
9. Specific location: Stock exchange is a particular market place where
authorized brokers come together daily (i.e. on working days) on the floor
of market called trading circles and conduct trading activities. The prices
of different securities traded are shown on electronic boards. After the
working hours market is closed. All the working of stock exchanges is
conducted and controlled through computers and electronic system.
10. Financial Barometers: Stock exchanges are the financial
barometers and development indicators of national economy of the
country. Industrial growth and stability is reflected in the index of stock
exchange.

Functions of Stock Exchange:

1. Continuous and ready market for securities :


Stock exchange provides a ready and continuous market for purchase and
sale of securities. It provides ready outlet for buying and selling of
securities. Stock exchange also acts as an outlet/counter for the sale of
listed securities.
2. Facilitates evaluation of securities :
Stock exchange is useful for the evaluation of industrial securities. This
enables investors to know the true worth of their holdings at any time.
Comparison of companies in the same industry is possible through stock
exchange quotations (i.e. price list).
3. Encourages capital formation:
Stock exchange accelerates the process of capital formation. It creates the
habit of saving, investing and risk taking among the investing class and
converts their savings into profitable investment. It acts as an instrument
of capital formation. In addition, it also acts as a channel for right (safe
and profitable) investment.
4. Provides safety and security in dealings :
Stock exchange provides safety, security and equity (justice) in dealings as
transactions are conducted as per well-defined rules and regulations. The
managing body of the exchange keeps control on the members. Fraudulent
practices are also checked effectively. Due to various rules and
regulations, stock exchange functions as the custodian of funds of genuine
investors.
5. Regulates company management :
Listed companies have to comply with rules and regulations of concerned
stock exchange and work under the vigilance (i.e. supervision) of stock
exchange authorities.
6. Facilitates public borrowing:
Stock exchange serves as a platform for marketing Government securities.
It enables government to raise public debt easily and quickly.
7. Provides clearing house facility:
Stock exchange provides a clearing house facility to members. It settles
the transactions among the members quickly and with ease. The members
have to pay or receive only the net dues (balance amounts) because of the
clearing house facility.
8. Facilitates healthy speculation :
Healthy speculation, keeps the exchange active. Normal speculation is not
dangerous but provides more business to the exchange. However,
excessive speculation is undesirable as it is dangerous to investors & the
growth of corporate sector.
9. Serves as Economic Barometer:
Stock exchange indicates the state of health of companies and the national
economy. It acts as a barometer of the economic situation / conditions.
10. Facilitates Bank Lending :
Banks easily know the prices of quoted securities. They offer loans to
customers against corporate securities. This gives convenience to the
owners of securities.

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