What is a stock exchange market?
A market is said to be an arrangement between buyers and sellers to exchange goods or services for money.
A stock exchange is a highly organised market ,where listed securities are bought and sold under a code of rules and regulations.
A stock exchange Market is also known as a ‘security exchange or ‘, ‘security market ‘ or ‘share bazar ‘.
It is an organised market for the purchases and sale of industrial and financial securities or where financial instruments like stocks, bonds and commodities are traded.
It is a platform where buyers and sellers come together to trade financial tools or securities , adhering to SEBI’s well-defined guidelines. SEBI’s responsibility is to ensure that the securities market in India functions in an orderly manner.
( About SEBI )
” A stock exchange is an association of persons engaged in buying and selling of shares , stocks , debentures and bonds for public on commission and are guided by certain Rules and usages “
…….. Dr. K.L Garg
” A stock exchange is an organised auction market where buyers and sellers come together through their brokers ,to effect transactions in securities admitted to listing on the exchange and unlisted securities for which a market is maintained “
……… Charles W. Gerstenberg .
” A stock exchange is a marketplace where securities that have been listed thereon ,may be bought and sold for either investment or speculation “
…….. W.Pyle .
” Stock exchange means a body of individuals ,whether incorporated or not , constituted for the purpose of assisting ,regulating and controlling the business of buying , selling and dealing in securities .”
…….. Securities Contracts ( Regulation ) Act , 1956
The stock market is a market where exchange of regular activities of buying, selling, and issuance of shares of publicly-held companies take place.
Key meaning :-
• it is an organised market where securities are purchased and sold
• transaction takes place between the members or their authorized agents on behalf of the investors.
• securities refer to shares , stocks , debentures and Government bonds .
• Securities are traded in a stock exchange in a systematic manner for investment .
• only listed securities are traded in a stock market.
• functions on the basis of rules and regulations.
•It is managed by the Board Of Directors elected by the shareholders .
• brings a huge amount of capital necessary for the economic progress of a country .
Names and locations of stock exchanges in India :-
At present there are 24 recognised stock exchanges in India .
The major stock exchanges in India :-
1: Bombay ( Mumbai ) Stock Exchange :-
This stock exchange was formed on 13th December , 1887 in the name of Native Share and Stock Brokers Association .
It is a non – profit making voluntary association . It is organised and controlled by Bombay Securities Control Act . The rules and regulations of this exchange are its own and approved by the Government of Maharashtra.
2: Calcutta ( Kolkata ) Stock Exchange :-
This stock exchange was set up in the year 1908 at Royal Exchange place , Calcutta . In 1923 , it was registered in the name of Calcutta Stock Exchange Association Ltd. with 300 members . It is a public company limited by shares .
3: National Stock Exchange ( Greater Mumbai ):- This stock exchange was recognised by the Central Government on 26th April , 1993 . The object of its establishment was to convert the exchange market into a professional market . It provides security (i.e , shares , debentures , bonds , etc.) trading facilities at the national level through satellite communications systems .
4: Over the Counter Exchange (OTCE) :-
(About OTCE )
This stock exchange was established in 1992 . It has been promoted jointly by ICICI , UTI , IFCI , IDBI , SBI , GIC ,LIC , Capital Market Ltd. and Canara Bank Financial Services Ltd. These institutions are the sponsor members of this exchange. Its head office is in Mumbai . It has four regional offices at Kolkata , Delhi , Chennai and Mumbai . It helps smaller companies to raise funds at low cost .
There are two types of stock exchange market investment :-
Primary market – Primary market creates opportunities for the issuer to issue shares and bonds , and acts as a market where companies meet their investment requirements . The companies enlist their shares for the first time in the market and sell their shares through an Initial Public Offering or IPO.
(About IPO )
Secondary market – The secondary market is a trading market platform for investors or issuers , and is also known as the stock market. It is a market where shares of a company are traded after being initially offered to the public in the primary market by the help of brokers or agents . It is a market where buyers and sellers meet directly.
Functions and Services of a Stock Exchange:-
Stock exchange renders the following services :-
Services to the Investors :-
• Investment guide :- Stock Exchange periodically publishes the quotations of listed securities. Investment can decide about purchase and sale of securities on the basis of stock exchange and quotations . Thus , the investors can get the maximum benefit from their investment.
• Liquidity of Investment :- Stock Exchanges are ready and continuous markets for purchase and sale of securities .The securities can easily be converted into cash as the needs of the investors arise .
• High Collateral Value of Listed Securities :- Listed securities in any stock high collateral value . These securities are preferred by rational investors . The securities of such companies can be sold easily . The investors have no fear of risk while trading in listed securities.
• Better use of Capital :-
The prices of shares reflect the profitability and efficiency of the company concerned . A stock exchange helps the investors in choosing good companies for their investment .
• Protection from Bad deliveries :- Securities in the stock exchanges are listed after the proper scrutiny . It prevents the trading of false and duplicate securities .
Services to corporate sector
• Wide market for new securities :-
A stock exchange serves as a sales counter for new securities . Once a company gets listed in a stock exchange, it’s shares are traded freely in that exchange . Therefore , a company can raise a huge amount of capital from different types of investors.
• Increasing Goodwill of the company:-
The shares of only those companies are listed in the stock exchange which are financially sound . Therefore , listing of shares adds to the goodwill and credit standing of a company.
• Transfer of Securities at suitable prices :-
In the event of a merger or amalgamation ,the company whose securities are listed ,is in a better position than the company whose securities are not listed.
• Assist development of companies :-
A stock exchange is an essential adjunct of companies for quick capital formation . It provides a wider and a ready market for the secur of companies . It ensures higher bargaining power to companies in the event of further expansion and merger.
• Knowledge about future investment :-
Companies can get relevant information regarding trends of investment , investors choices and priorities etc., From the stock exchange on a regular basis .The companies can plan their future issue of capital on the basis of such information.
3: Services to Society :-
• Capital formation :- A stock exchange provides good investment opportunities to investors .It promotes the habit of savings and investment.
• Industrial Development :-
A stock exchange helps to mobilize public savings for the economical development of the country.This leads to industrial and commercial development .
• Utilizing scarce capital for productive purposes :- Idle lying funds can be invested in securities on account of stock exchange .
• Useful to Government :- The government plays a vital role as an entrepreneur in the promotion and management of commercial and industrial enterprises . A stock exchange helps the Government in raising sufficient funds for rapid industrial growth .
Operators In A Stock Exchange
Stock market operators are market participants who form a organise stock securities purchases and sales .
Generally found operators:-
A broker acts as a link between the investors and the jobber . He is a commission agent of buyer or seller of securities . A broker charges commissions from both the buyers and the sellers.
He does not specialize in any particular security .He assists in buying and selling all types of securities .
Jobber can sell and purchase securities in his own name . He is a professional operator . He gets no commission for his service. His income is the profit in purchase and sale of his securities. The service of a jobber is both useful for both the investors and the stock exchange.
Speculators in Stock Exchange
On the basis of Zoological characters , speculators are of four types :-
In India , bull speculator is known as
” Tejiwala “.
The stock market is called a ” bullish market ” when there are large numbers of bulls speculators .
A ‘bull’ is an optimistic speculator who buys securities with the exception of a rise in their prices . He makes purchases of Securities to be sold in future at a higher price to make profit .
In India , a ‘ bear ‘ speculator is known as a
” Mandiwala “. When a stock market has large number of bears ,it is known as ” bearish market “.
A bear speculator expects a fall in the prices of securities . He sells securities with the hope of buying the same at a lower price before the date of delivery.
A ‘stag ‘ is a ” premium hunter “. He never holds securities as a permanent investment. He issues shares by the new company on the basis of their issued prospectus .He sells these shares at a premium soon after the allotment is made . The premium earned became his profit.
• Lame & duck :-
A ‘lame-duck’ is a bear speculator struggling against the difficulties involved in meeting his commitments. He struggles like a duck to purchase shares so that he may deliver the same to another party . He is a bear speculator who is in no position to find shares .
Trading procedure in a Stock Exchange.
Trading in stock markets means the transfer (in exchange for money) of a stock or security from a seller to a buyer. This requires these two parties to agree on a price.
• Selection of a broker
• Placing the order
• Executing the order
• Preparing the contract note
• Final settlement.