Meaning of Stock Exchange
Stock exchanges refer to the market for trading of shares, bonds and other financial instruments of public listed companies. It is also termed as share market or stock market and is an important constituent of the capital market. Stock exchanges are the systematic market for sale-purchase of financial securities. The prices for the securities in the stock market are determined by rules of demand and supply.
Stock exchanges served as an intermediary between buyers and sellers who can be agents, brokers or individuals. Investors and borrowing companies are able to interact conveniently at one place through these stock markets. Stock exchanges work under the regulating body that is Security exchange board of India (SEBI) in India. SEBI issues rules and regulations for functioning of these stock exchanges which they are required to follow strictly.
Stock exchanges provide liquidity in the market and have an important role in industrial and economic development of the country. These are indispensable for the flexible and systematic working of the corporate sector in a free-market economy. Stock exchange ensures safe and profitable investments for investors. It saves investors from unethical practices like scams, speculation, anti-social or undesirable activities in trading of securities. Functions of Stock Exchange in India are described clearly as given below:
Functions of Stock Exchange in India
Helps in Raising Capital for Business
Stock exchange helps business in raising the required funds for their different activities. Business can easily borrow money by issuing their securities like shares, debentures, bonds in the stock market. It provides an organised market where they can easily find investors and acquire funds easily. Stock exchange support business in their expansion and diversification by providing them with the required funds.
Provides liquidity and Marketability
Stock exchange provides liquidity and marketability in the trading market. All securities can be easily brought and sold in stock exchange. The buyers and sellers are always available in ready market provided through these exchanges. People can easily convert their holdings into cash whenever they want. It always provides a continuous and ready platform for trading of securities which enables high liquidity.
Determines Securities Price
Determination of fair prices of securities is an essential role played by stock exchanges. Prices of securities in stock exchanges are determined by forces of demand and supply. These stock exchanges help in evaluating the real worth of securities and investors can easily evaluate their holdings worth. Investors can evaluate and invest in securities as per their requirements.
Ensures Fair and Profitable Trading
Stock exchanges develops fair and safe market for trading of securities. These exchanges work as per rules and regulations provided by the Securities Contract Regulation Act, 1956. All activities in these exchanges go in accordance with prescribed guidelines which avoids occurrence of all malpractices and unethical activities like scams, speculation or any other anti-social activities. Contracting parties trade in stock exchanges without any fear and develops confidence with regard to dealings.
Employment generation is another important function played by stock exchanges. Stock exchanges employ several peoples who facilitate the trading of securities between the borrowing companies and investors. Different peoples like stockbrokers, agents, sub-broker etc. work with these exchanges. These people work as an intermediary for helping and linking investors with their desired investment avenues.
Acts as Economic Barometer
Stock exchanges performance act as economic barometer of the country. Their performance indicates the prevailing economic conditions. Positive and upward trend in the stock market represents the economically strong government. Whereas, the downward trend in these exchanges represents the unstable government with large debts. Every government tries to perform in such a way so that these exchanges perform positively.
Promotes Economic Development
Stock market has an effective role in the overall economic development of the country. It arranges for fund requirements of different corporates. Companies are able to continue with their operations and the generation of more and more capital. Stock exchanges help in utilisation of surplus lying with people by providing them with different investor avenues. Idle lying funds are mobilized and channelized leading to capital formation thereby boosting the overall economy.