Meaning: - Stock exchange is a specific place
where trading of the securities is arranged in an organised method. In simple
words it is a place where shares, debentures and bonds (securities) are purchased
and sold. The term securities include equity shares, preference shares,
debentures, government bonds, etc. including mutual funds.
Presence and vibrant functioning of a stock
exchange is necessary for developing economy. It reflects a healthy financial
and investment conducive atmosphere in the economy.
The Indian securities market is considered
as one of the most promising emerging markets. It is one of the top eight
markets of the world.
1.
Liquidity: -It is the Stock Exchange
that provides liquidity to private investment in corporate enterprises. The
stock exchange provides marketability along with liquidity to the product
called securities.
2.
Fair Evaluation of Securities: -Stock exchanges like any other market provide a mechanism (instrument) for
evaluating the prices of securities through the basic law of demand and supply.
Stock exchange prices help to check the real worth of the securities in the
market.
3.
Promotes capital Formation: -Stock exchange motivates the investors to invest their savings in
the securities of the reputed companies. As stock exchange is the creation of
continuous market where buying and selling of securities continuously goes on.
As a result, capital flows continuously into business field. Thus formation of
capital goes on.
4.
Protects investors’ interest: -All the transactions in the stock exchanges are effected and controlled
by the securities control (regulation) Act 1956. The stock exchanges protect
the interest through the strict enforcement of their rules and regulations.
5.
Economic Barometer: -A stock exchange
serves as a reliable barometer of a country’s
economic status. ‘Stock exchanges support and promote industrial development.
It stimulates investment in productive sector which accelerates the process of
economic development of the nation.
6.
Motivation to the management to improve its performance: -An exchange allows the trading of
listed securities only. While getting the shares listed on exchange, a company
is required to follow certain guidelines for protecting the interest of
shareholders.
7.
Regulation of speculative transaction: -
Speculation is an important part of stock exchange
operations. The stock exchange enables speculators to speculate and secure
adequate profits through fluctuation in security prices.
