Marketing Aptitude: Stock Exchange
A Stock exchange or bourse is an organized market where listed securities are purchased and sold for investment or speculation. It provides trading facilities for stock brokers and traders to trade stocks, bonds and other securities. It also provides facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, derivatives, unit trusts, etc.
As per Securities Contracts (Regulation) Act, 1956, a stock exchange is an association, organization or body of individuals, whether incorporate or not, established for the purpose of assisting, regulating and controlling the business in buying, selling and dealing in securities.
The term ‘Stock Exchange’ has been defined as under:
- H. Haney: – “A Stock Exchange is an association of brokers organized for the purpose of furnishing a convenient and regular market for the securities or governmental and business units.”
- Charles W Gerstenberg: – “The Stock Exchanges are organized markets where buyers and sellers come together through their brokers to affect transactions in securities admitted to listings on the exchange.”
- Pyle: -“Security exchanges are market places where securities that have been listed thereon may be bought and sold for either investment or speculation.”
- Husband and Dockery: -“Securities or stock exchanges are privately organized markets which are used to facilitate trading in securities.”
- Hartley Withers: – “A stock exchange is something like a vast warehouse where securities are taken away from the shelves and sold across the countries at a fixed price in a catalogue which is also called the official list.”
- K. Dhar: -“By the term stock exchange we mean a market where stocks, shares and other kinds of securities are bought and sold. In this market owners can dispose of their securities as per their liking.”
- Husband and Dockerary: – “Stock exchanges or securities are privately organized markets which are used to facilitate trading in securities.”
- Derek Honeygold:- “Stock exchange can be described as the place where a marriage of convenience is enacted between those who wish to raise capital such as companies. Government and local authorities and those who wish to invest – largely households through the medium of institutions acting upon their behalf’.
Characteristics of Stock Exchange
- It is a market where securities are purchased and sold.
- It is an association of persons whether incorporated or not.
- The buying and selling of shares is done by both genuine investors and speculators
- The trading in a stock exchange is strictly regulated and rules and regulations are prescribed for various transactions as per SEBI Guidelines.
- All types of securities, whether government or industrial, are allowed to be dealt at stock exchanges.
- It also helps in the distribution of new securities.
- It provides a market that mobilizes and distributes the nation’s savings utilized for the best purpose of the country.
Functions of Stock Exchange
Stock Exchange plays an important role in the industrial and economic development of a country. Some of the functions of the stock exchange are as follows:-
- Provide liquidity: – In it, shares and stocks are converted into cash. Here, investors can sell their securities at any time they needed and the buyers can buy the securities at any time they require. Thus, the stock exchanges provide liquidity to the listed companies when needed.
- Open market for securities: – The stock exchange provides a continuous, ready, open, active and broad-based market for sale and purchase of securities. It creates marketable liquid investments and facilitates collateral lending. The major indicators of active trading or continuous market are frequency of sales, prompt execution of orders, etc.
- Mobilizes savings: – The stock exchange helps in mobilization of savings of individuals, firms and other financial institutions. It provides an ample opportunity to all investors to invest their surplus funds into various financial instruments and directs its flow towards deficit units. In this way, stock markets motivates investors to save more and invest in high yielding securities and thus promotes such units which show best productive and financial performance.
- Reduces personal risk: – Through marketability, personal risk of investor is reduced by broadening the supply of equity and long term debts capital for financing business enterprise.
- Ensure safe and fair dealing: -The dealings at stock exchanges are governed by rules and regulations of Securities and Exchange Board of India (SEBI), Securities Contract (Regulation) Act, 1956 and Central Government. Thus, it provides an adequate safety to the investors from frauds and manipulations caused due to speculators, brokers, members, etc.
- Fix the prices: – On the basis of demand and supply, the prices of securities are fixed or determined by the stock exchange. These prices are quoted and published for public on daily basis. With this, the investors can easily evaluate worth of their holdings from the prices at different exchanges for those securities. Thus, stock exchange provides an opportunity to determine a reasonable and fair price of the security.
- Performance Inducer: – The quoted stock prices on stock exchanges not only reflect the performance of the traded companies but also of the economy of the nation as a whole. This makes the corporate more cautious with its public image and tries to maintain good performance.
- Transfer Ownership: – The transaction in securities at a stock-exchange represents shift in ownership from one to other of a long-term security. Hence, a stock exchange expands the ownership base.
- Increases collateral value of securities: – The collateral value of listed securities is more than the collateral value of unlisted securities. As the stock exchanges deal only with listed securities, they are helpful in increasing the collateral value of securities.
- Seasoning of securities: – The securities issued by newly listed companies are temporarily held by stock market players such as underwriters, dealers, brokers and speculators. This is known as “Seasoning of securities”. These securities are issued at appropriate time when the market is all set to absorb new securities. This process ensures a better standard and market for these types of securities.
- Clearing house for business information: – The stock exchange acts as an information hub of trade and industry of an economy. It provides information regarding financial soundness of listed companies to public through various publications. It also publishes share prices, volume of trade, etc., on daily basis. Here, the listed companies have to provide financial statements, annual reports and other reports to ensure publicity of corporation operations and working. With this, public can easily deal with the ups and down of stock market.
Advantages of Stock exchange
The advantages of stock exchanges are as follows:-
- The advantages of stock exchanges for the companies are to provide a wide market and reasonable prices for the securities. The exchanges are also helpful increasing the goodwill of listed companies and works as middlemen between the listed companies and the public.
- The advantages of stock exchanges for the investors are to provide proper return on investment, safe and secured investment of funds, easily liquidate the investment of investors and provide more collateral value of the securities. The stock exchange also works as guide for investors as it publicize the financial soundness and working of listed companies, which will be helpful for investors to invest their saving funds.
Stock Exchanges in India
Some of the popular stock exchanges in India are as follows: –
- National Stock Exchange (NSE): – The NSE is the India’s leading stock exchange, located in Mumbai, Maharashtra. It is a modern, fully automated screen-based electronic trading system which offers easy trading facility to the investors spread across the India. The logo of the NSE symbolizes a single nationwide securities trading facility that ensures equal and fair access to investors, trading members and issuers.
- Bombay Stock Exchange (BSE): – The BSE is the Asia’s first and fastest stock exchange in world with a median trade speed of 6 microseconds. It located at Dalal Street in Mumbai, Maharashtra. Its’ popular equity index “the S&P BSE SENSEX” is India’s most widely tracked stock market benchmark index.
- National Commodity & Derivatives Exchange (NCDEX): – The NCDEX is an online commodity exchange based in India. Its headquarters is in Mumbai, Maharashtra. It is regulated by the Forward Markets Commission (FMC), and is subject to the Companies Act 2013, Stamp Act, Contracts Act, Forward Commission (Regulation) Act, and various other laws. It facilitates deliveries of commodities through a network of over 594 accredited warehouses through eight warehouse service providers, with holding capacity of around 1.5 million tones.
- OTC Exchange of India (OTCEI): – The OTCEI is the India’s first exchange for small companies and also the first screen-based nationwide stock exchange in India. Its’ headquarters is in Mumbai, Maharashtra. The OTCEI is also known as the Over-the-Counter Exchange of India and is recognized stock exchange under the Securities Contracts Regulation Act, 1956. It is established to access high-technology enterprising promoters in raising finance for new product development in a cost-effective manner and to provide a transparent and efficient trading system to investors.
- Multi Commodity Exchange of India Ltd. (MCX): – The MCX is the India’s first listed exchange, located in Mumbai, Maharashtra. It is a commodity futures exchange that helps online trading and clearing and settlement of commodity futures transactions and provides a platform for risk management. It offers futures trading in bullion, non-ferrous metals, energy and agricultural commodities.
- Calcutta Stock Exchange (CSE): – It is the oldest stock exchange in South Asia. It was incorporated in 1908 and is the second largest bourse in India. Its’ headquarters is in Kolkata, West Bengal.
- Madras Stock Exchange (MSE): – The MSE is founded in 1937 at Chennai, Tamil Nadu and is one of the oldest regional exchanges in India.
- Inter-Connected Stock Exchange of India (ISE): – The ISE is a national-level stock exchange, founded in 1998 at Mumbai, Maharashtra. It provides trading, clearing, settlement, risk management and surveillance support to its Trading Members. The purpose of ISE is to address the needs of small companies and retail investors by harnessing the potential of regional markets and to transform them into a liquid and vibrant market using state-of-the art technology and networking.