Stock Exchanges are structured marketplace where affiliates of the union gather to sell firm’s shares and other securities. The affiliates act as the intermediaries to their customers or as key players for their own accounts. According to the Securities Contracts ( Regulation ) Act, 1956 – ” Stock Exchange is 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 securities ”.
Features of Stock Exchange
(1) Organised Market – Stock exchange is an organised market. Every stock exchange has a management committee, which has all the rights related to management and control of exchange. All the transactions taking place in the stock exchange are done as per the prescribed procedure under the guidance of the management committee.
(2) Dealings in Securities Issued by Various Concerns – Only those securities are traded in the stock exchange which is listed there. After fulfilling certain terms and conditions, security gets listed on the stock exchange.
(3) Dealing only through Authorised Members – Investors can sell and purchase securities in stock exchange only through the authorised members. Stock exchange is a specified market place where only the authorised members can go. Investor has to take their help to sell and purchase.
(4) Necessary to Obey the Rules and Bye-laws – While transacting in Stock Exchange, it is necessary to obey the rules and bye-laws determined by the Stock Exchange.
Role of Stock Exchange
(1) Mobilisation of Savings – Stock exchanges provide liquidity, marketing support and secure investment mechanism which motivates investors to make investment in securities.
(2) Capital Formation – Addition in the capital stock ( i.e. buildings, equipment etc. ) is called capital formation. Stock exchanges provide secure trading platform which persuades investors to use their savings for investment. Money invested by investors is further used by companies for the production of goods and services and results in increased capital formation.
(3) Wider Avenues of Investment – Stock exchanges facilitate trading in various types of securities such as equity shares, preference shares, debentures, mutual funds etc. Due to the availability of many securities, investors have an option of utilizing total funds in buying of one or more than one financial instrument.
(4) Liquidity of Investment – Stock exchanges provide internet based trading facility which enables investors to buy or sell their instruments whenever they want during the trading hours of the stock exchange ( s ).
(5) Safety of Money – Stock market does not process any order if sufficient funds are not available in trader’s trading account. Since availability of funds is the first requirement of placing an order, question of default does not arise.
(6) Indicator of Development – Stock exchanges indices such as Nifty, Sensex reflect overall economic position of the nation. Positive movement of economy shows upside movements in the indices whereas negative movement brings down the indices.