Function of produce exchange / Listing of securities
1. Functions of Produce Exchange
Produce Exchange are playing an important role in the economic development of a country. The credit of such and important role goes to the functions of Produce Exchanges which may be explained as under :
1. To Expand the Area Market : Produce Exchanges play an important role in expanding the area of market because they provide well organised market for the products.
2. Function of Exchanges: Every Produce Exchange works according to some rules and subrules. These rule and subrules relate to the management or weighing, standardization, gradation, speculation, commission, delivery, arbitration etc.
3. Arrangement of arbitration : A very important function of Produce exchanges is that they provide the arrangement of arbitration in case of dispute between members. An arbitration committee is established by these Exchanges for this purpose.
4. Forward Transactions : Generally, forward transactions are entered into at Produce Exchanges. These forward transactions play the role of insurance also because under these transactions, a person entering into a forward purchase contract also enters into a forward sale contract and similarly a person entering into a forward sale contract also enters into a forward purchase contract. Thus, the risk of one transaction is automatically covered by another transaction.
5. Gradation and Standardisation : Gradation and standardisation of the products is one of the most important functions being performed by Produce Exchanges. These exchanges rearrange the products to be dealt with and divide them into different grades and standards..
6. To Provide Information : Produce Exchange also play an important role by providing and publishing all the relevant data regarding present and future demand of the products, supply of the products, cost and price of the products etc.
7. Economic Functions: Goods are transferred to warehouse only by the exchange on receipts. Banks and other financial institutions provide the liability of loans and advances on the basis of these receipts very easily and quickly.
8. Rules and Regulations: Produce Exchanges prepare their own rules and regulations which are strictly followed by their members.
2. Listing of Securities
Listing means the admission of the securities of a company trading privileges on a stock exchange. A security is said to be listed’ when it is added to the authorized trading list of securities in which trading of a particular exchange is permitted. The purpose of such listing is to provide facility for the purchase and sale of that security on a particular stock exchange. For getting the shares, stocks or debentures listed the company has to apply to the concerned stock exchange on a prescribed form along with the requisite fee and as soon as the application the accepted and the security (shares, stock or debenture) is included in the trading list of the stock exchanges, it is said that the securities is listed.
The listing of securities is not a statutory obligation. It all depends on the sweet will of the company. Separate applications are to be given in separate stock exchanges. However under the provisions of the Securities contracts (Regulation) Act, 1956, the Central Government may, in the interest of the trade or in public interest, direct any limited public company to get its shares, stocks and debentures listed on recognized stock exchange.
Advantages of Listing of Securities: The Listing of securities on a stock exchange offers so many advantages to the company, to the shareholders and other investors this it becomes almost necessary for a large sized public company to gets securities listed on a recognised stock exchange. The important advantages may be enumerated as under :
(i) It adds to the marketability, negotiability and liquidity of security.
(ii) It facilitates the purchase and sale of its securities in the market.
(iii) It brings stability in the prices of its securities.
(iv) It grants high collateral value to the security for loans.
(v) It facilitates easy and quick evaluation of real worth of securities.
(vi) Listed securities may be easily used for obtaining loan from banks and other financial institutions.
(vii) Listed securities enjoy the advantages in respect of income-tax, tate duty, wealth tax etc. payable by the shareholders and the investors..
(viii) It facilitates the transfer, registration of rights, fair and equitable allotment etc.
(ix) It develops confidence amongst the shareholders and investors as to securities and the companies.
(x) Listing of securities is helpful in providing necessary information about the working and image of the company in the market.
3. Factors causing fluctuations in the price of securities
The prices of securities are fluctuating frequently and sometimes widely. The fluctuations are essential for speculative dealings, which is the backbone of a stock exchange. Many factors combine together to cause fluctuations in the price of securities. They may be enumerated as under :
(1) Demand and Supply: The stock exchange is an organised market where the prices securities are determines by the free interplay of forces of demand and supply. If the demand increase the prices will rise and if the demand falls the prices will also fall. On the contrary, if the supply increases, the prices will fall and if the supply decreases, the prices will rise.
(2) Speculative Conditions: Speculative conditions also bring. fluctuations in the prices of securities on stock exchanges. The large scale buying activities of the bull operator tend to cause and upward movement in security prices, and the bear pressure (heavy forward selling by the bear operators) tend to cause a downward movement in security prices.
(3) Action of Underwriters and Financial Institutions: The action of underwriters of the shares preferably in new shares underwritten by them may cause a good demand by their artificial buying in the stock exchange and thus tend to increase the prices of those shares. Similarly, the large scale buying by financial institutions may have the effect of creating favourable impression about the security in the minds of the speculators on the stock exchange.
(4) Overproduction and Underconsumption: In case, the industry faces the problem of over production, the prices of the shares of that industry tend to fall. Similarly, any under consumption of the products of any industry due to change in the fashion and taste or for any other reason may lead to fall in the prices of shares of that company.
(5) The general outlook of Trade: The expectation of “boom” in trade increases the value of shares and that of ‘slump’ depresses the price of shares.
(6) Confidence in Government: If the confidence of the people in regard to receipt of interest and dividend on government securities is shaken. the prices of the securities have a tendency to fall. But if the people’s confidence is restored, the prices of securities will begin to rise.
(7) Unfavourable Balance of Trade: Unfavourable trade creates a demand for foreign exchange and shares and securities are sold to meet foreign obligations. So this will depress the prices of shares also.
(8) Change in Management : Change in the management of a company is also responsible for fluctuations in the prices of a security. Good and efficient management means more reputation, more sales and more profits and thereby rapid increase in the prices of shares of that company and vice versa.
(9) Political Factors: The stock exchange is very quick to react to political changes whether inside the country or even outside the country.
(10) Other Factors: Besides the above, war, strike, competition. rumourns, new taxation. Government’s industrial and fiscal policy, strikes and lock-out, amalgamations etc. may have repercussions on the prices of shares and securitiers. Besides, failure of monsoon, change in export-import policy, unexpected competition, manipulations etc., also influence the security values on the stock exchange.
