Page 106 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Unit 6: Secondary Market

6.3 Stock Market Notes

Stock exchange is the term commonly used for a secondary market, which provide a place where
different types of existing securities such as shares, debentures and bonds, government securities
can be bought and sold on a regular basis. A stock exchange is generally organised as an
association, a society or a company with a limited number of members. It is open only to these
members who act as brokers for the buyers and sellers. The Securities Contracts (Regulation)
Act has defined stock exchange as an "association, organisation or body of individuals, whether
incorporated or not, established for the purpose of assisting, regulating and controlling business
of buying, selling and dealing in securities".

The main characteristics of a stock exchange are:
1. It is an organised market.
2. It provides a place where existing and approved securities can be bought and sold easily.
3. In a stock exchange, transactions take place between its members or their authorised
agents.
4. All transactions are regulated by rules and by laws of the concerned stock exchange.
5. It makes complete information available to public in regard to prices and volume of
transactions taking place every day.
It may be noted that all securities are not permitted to be traded on a recognised stock exchange.
It is allowed only in those securities (called listed securities) that have been duly approved for
the purpose by the stock exchange authorities. The method of trading nowadays, however, is
quite simple on account of the availability of on-line trading facility with the help of computers.
It is also quite fast as it takes just a few minutes to strike a deal through the brokers who may be
available close by. Similarly, on account of the system of scrip-less trading and rolling settlement,
the delivery of securities and the payment of amount involved also take very little time, say, 2
days.

6.3.1 Functions of a Stock Exchange

The functions of stock exchange can be enumerated as follows:
1. Provides ready and continuous market: By providing a place where listed securities can
be bought and sold regularly and conveniently, a stock exchange ensures a ready and
continuous market for various shares, debentures, bonds and government securities. This
lends a high degree of liquidity to holdings in these securities as the investor can encash
their holdings as and when they want.
2. Provides information about prices and sales: A stock exchange maintains complete record
of all transactions taking place in different securities every day and supplies regular
information on their prices and sales volumes to press and other media. In fact, nowadays,
you can get information about minute to minute movement in prices of selected shares on
TV channels like CNBC, Zee News, NDTV and Headlines Today. This enables the investors
in taking quick decisions on purchase and sale of securities in which they are interested.
Not only that, such information helps them in ascertaining the trend in prices and the
worth of their holdings. This enables them to seek bank loans, if required.
3. Provides safety to dealings and investment: Transactions on the stock exchange are
conducted only amongst its members with adequate transparency and in strict conformity
to its rules and regulations which include the procedure and timings of delivery and
payment to be followed. This provides a high degree of safety to dealings at the stock

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