Meaning of Stock Exchange The capital market relies heavily on the stock exchange. It is a safe location where systematic trading takes place. Securities are bought and sold here in accordance with well-organized rules and regulations. The debenture and shares issued by a public company that is correctly listed on the stock exchange, as well as the bonds and debentures issued by the government, municipal, and public bodies, are all included in this category of securities.
While some corporate bonds are sold on a stock exchange, most bonds are traded over Over-the-Counter (OTC). It has the authority to impose regulations on brokers and businesses that are enrolled with them. To put it another way, a stock exchange is a place where people buy and sell stocks and bonds. This could be a physical location or an online trading platform.
Functions of the Stock Exchange The following are some of the stock exchange’s most crucial functions:
An Economic Barometer’s Function: The stock market is an economic gauge that tells you how the economy is doing. It keeps track of all major and minor shifts in share prices. It is accurate to say that it is the economy’s pulse, which indicates the state of the economy.
Securities Valuation: The stock market aids in the supply-and-demand-based valuation of securities. The securities offered by profitable and growth-oriented businesses typically command a higher price. Securities valuation aids creditors, investors, and the government in carrying out their respective responsibilities.
Secure Transactions: The securities that are traded on the stock exchange are listed, and the securities are listed after the company’s position has been verified. This ensures transactional safety. The governing body has established rules and regulations that must be followed by all listed businesses.
Growth Factor in the Economy: A trading platform for the various companies’ securities is provided by the stock exchange. The continuous disinvestment and reinvestment that this trading process involves provides opportunities for capital formation and, consequently, economic expansion.
Making equity investment more widely known: By releasing new issues to encourage people to invest in securities, the stock exchange assists in providing information about investing in equity markets.
gives reason to speculate: The stock exchange ensures both the supply and demand for securities as well as liquidity by allowing healthy speculation on traded securities.
enables liquidity: The provision of a ready platform for the sale and purchase of securities is the stock exchange’s most crucial function. In other words, the stock exchange offers investment liquidity, giving investors confidence that existing investments can be cashed out.
Improved Financial Allocation: Companies that make money will have their shares traded frequently, allowing them to obtain new capital from the equity market. The stock market helps investors make better use of their capital to maximize profits.
encourages savings and investment: The stock market is a good place to invest in various securities that offer higher returns. Compared to gold and silver, the stock market is a better investment option.
The Stock Exchange’s Features:
A healthy market for securities is one in which government, corporate, and semi-government securities are bought and sold.
Second-hand securities include bonds and shares that have been previously announced by the company.
Regulate securities trade: The exchange does not independently sell or buy shares or bonds. The trade is made on the company’s behalf by the members of the broker or exchange.
Trading only registered securities: Trading is restricted to listed securities that are recorded in the exchange office.
Transaction: Securities transactions can only be conducted through members and authorized brokers.
Recognition: The central government must acknowledge it.
Measuring instrument: It develops and displays a company’s growth and safety in the stock exchange index.
follows the rules: The exchange’s rules and SEBI guidelines govern all security transactions at the stock exchange.