What is Stock Exchange?
The stock exchanges were once physical market places where the brokers of sellers and buyers operated through the auction process. Now, these have been replaced with electronic exchanges where sellers and buyers are connected over a telecommunications network by computers. Auction trading is providing a way to "screen-based" trading, where offer (or ask prices) and bid prices are displayed on the computer screen.
A stock exchange may be described in different ways. In simple words, a stock exchange is "A centralized market for selling buying stocks where the quotes is determined through demand-supply mechanisms".
Functions of Stock Exchanges
The stock exchange performs four important functions.
- First, it renders a market place for sale and purchase of securities such as bonds, debentures, shares etc. Thus stock exchanges provide the feasibility for continuous trading in securities.
- Second, they provide liquidity to the investments in securities. It allows the capitalist a place to liquidate their holdings.
- Third, they help in the valuation of securities by providing the market quotations of the securities prices.
- Fourth, stock exchanges act as a barometer, that indicates the state of health of the nation's economy.
Organization, Membership and Management of Stock Exchanges
Basically, for trading securities , a stock exchange is an organized market. It is also known as bourse. It is an association of individuals which is governed by certain specific rules and regulations. The rules of membership and mode of organization are important features of stock exchanges.
Over the decades, exchanges in the country have been organized in various ways. For example public limited company, voluntary non-profit making association and company limited by guarantee. In India, earlier stock exchanges were formed as voluntary non-profit making associations of persons. Later on they began to be organized as companies.
Listing of Securities
For trading of their securities in a stock exchange, a company has to be listed in that stock exchange. For the purpose of trading, Listing is the procedure of including the securities of a company in the official list of the stock exchange.
Permitted Securities
The securities of companies which have signed listing agreement with an exchange are traded at the exchange as listed securities. A stock exchange sometimes allows certain securities which actively trading in other stock exchanges but are not listed at the exchange. Such securities are called as permitted securities.
REGULATION OF STOCK EXCHANGES
The stock exchanges play a very sensitive and critical role in the functioning of the economy, especially the private sector of the economy. Therefore, the functioning of the exchanges needs to be efficient, fair and transparent. This is assured through proper regulation of the functioning of stock exchanges. There are rules, regulations,acts, guidelines and by-laws governing the working of secondary markets or stock exchanges in the country.
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