What is Stock Exchange? Explain its functions
Ans. Stock Exchange is an organized secondary market, where the listed securities are bough and sold by the investors. The holder of securities can find immediate buyer and the proposed buyer of securities can find a seller as the stock exchange helps in determining the reasonable and fair price. This task will be held by the members of the stock exchange such as commission broker, jobber, etc. The activities of the stock exchange will be regulated by Securities and Exchange Board of India to protect investors interest against malpractices on part of companies, brokers and other persons engaged in marketing the shares.
Definition: The Securities Contracts (Regulation) Act, 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."
Pyle says that "Security exchanges are market places where securities that have been listed there on may be bought and sold either for investment or speculation.
Read Notes :- Define Mutual Fund and explain its objectives.
Functions of Stock Exchange: Stock exchange exercises certain functions basing on the aims of its inception and development there of.
1) Provides infrastructure for trading: In the stock exchange, instantaneously trading gets executed. It draws investment by providing ready and continuous market for securities.
2) Provides information regarding prices: It gives sensible information through reliable sources and publishers to investors about the prices of securities. The proposed investor knows the quotation and the investor knows the price of his holdings.
3)Protects investors, wealth: It protects the interest and wealth of investors through the enforcement of its rules and regulations.
4) Clearing House: Without clearing house one will find lot of trades mismatched. It act on behalf of both buyer and seller and helps in trading of securities.
5) Provides liquidity: The holder of securities can easily encash the securities by selling them on the buyer whenever he wants.
6) Helps to raise new capital: The requirement of additional capital of an existing company can be raised by issuing the rights shares, through stock exchange
7) Acts as a barometer: An efficient stock exchange acts as a barometer of business conditions in the country.
8) Increases credit worthiness of company: A company which got its shares to be listed in the stock exchange enjoys good reputation.
9. Minimises the dangers of speculation: By following rules and regulations of the Acts, it minimises the dangers of speculative dealings and price manipulations.
10. Facilitates Speculation: Stock exchange facilitates speculation thereby