Stock Exchange-its meaning and functions

Stock Exchange is that market where securities of government, corporate companies, semi-government companies are bought and sold.

Meaning of Stock Exchange:

It is an integral part of the capital market where trading is done in a systematic way. According to well-structured rules and regulations, the securities are bought and sold by the traders. The stock market helps in the valuation of securities which are based on the factors of demand and supply.

Definition:

An organization or body of individuals, whether incorporated or not established for the purpose of assisting regulating and controlling of business in buying, selling, and dealing in securities.

–The Indian Securities Contracts (Regulation) Act of 1956

Functions of Stock Exchange:

The functions are as follows:

1. Economic Barometer:

 The stock exchange records all the major and minor changes in the share prices. It is said to be the nervous system of the economy, which reflects the state of the economy.

2. Valuation of Securities:

The stock market helps in the valuation of securities which are based on the factors of demand and supply. The valuation of securities helps investors, creditors, and the government in performing their other functions.

3.Transactional Safety: 

It ensured the securities that are traded in the stock exchange are listed, and the listing of securities is done after verifying the company’s position. All listed companies have to obey the rules and regulations prescribed by the governing body.

4. Contributor to Economic Growth: 

This process of trading is concerned with the continuous disinvestment and reinvestment, which offers opportunities for capital formation and subsequently, growth of the economy.

5. Making the public aware of equity investment: 

The stock exchange involves an information system that helps about investing in equity markets and by rolling out new issues to encourage people to invest in securities. 

6. Offers scope for speculation: 

By providing healthy speculation of the traded securities, the stock exchange ensures demand and supply of securities and liquidity.

7. Facilitates liquidity: 

By providing a ready platform for the sale and purchase of securities, the stock exchange offers liquidity in terms of investment.

8. Better Capital Allocation: 

The stock Exchange helps in better allocation of capital for the investors so that maximum profit can be earned. Profitable companies will have their shares traded actively, and such companies are able to raise fresh capital from this market.

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