Functions of Stock Exchange in India
Meaning of Stock Exchange
Stock exchange is an organised market for the purchase and sale of listed financial securities. It is the place where the buyer may find an immediate seller and the seller may find a reasonable buyer. Stock exchange is indispensable for economic development of a country. It is called the barometer of a country’s prosperity. Today, stock exchange constitutes a vital organ of a free modern society.
The exchange is the market where stocks, shares and other securities are bought and sold. This market deals in stocks, share and other securities. The owners may sell their securities, stocks or shares as and when they like. They serve as a form for trading in stocks, shares and bonds that have a local and national followings,
According to Hartley Withers, “Stock Exchange is like a big godown where different securities are purchased and sold.”
According to Securities Contracts (Regulation) Act of 1956 “Stock exchange means a body of individuals, whether incorporated or not, contributed for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities.”
1. Functions of Stock Exchange
The stock exchange performs the following functions:
1. To Provide Regular Market: The main function of a stock exchange is to provide a regular market for the purchase and sale of securities, Le… stocks, shares, debentures, bonds etc.
2. To Evaluate Securities : Another main function of the stock exchange is to provide a market for the evaluation of securities, i.e, the current value of securities is determined because of their regular purchase and sale. It provides a free market for purchase and sale of securities at the prevailing rates.
3. To Provide and Mobility to Capital: Another main function of a stock exchange is to provide liquidity and mobility to capital by providing a free and continuous market for the purchase and sale of securities. The investor can convert his securities into cash at any time by selling the name on the stock exchange.
4. To Provide Safety in Dealings: Another function of stock exchange is to provide safety in dealings to the investors. All business on a stock exchange is transacted under the strict rules, regulations and bye-laws of the stock exchange which provide full safety to investors. In the absence of these rules, regulations and bye-laws, the innocent investors might be easily deceived by the clever and dishonest brokers dealing in securities.
5. To Encourage Capital formation : Another main function of a stock exchange is to encourage capital formation. This is done by encouraging the investors to invest money in listed securities. By investing money in listed securities the investor gets safety, liquidity and good return. On account of these facilities even persons of small income group are tempted to invest their hard earned savings on a stock exchange. The cycle of ‘saving investment income saving’ keeps on moving with higher speed resulting in higher rate of capital formation.
6. To Minimize Fluctuations in Prices of Securities : Another function of the stock exchange is to minimize fluctuations in the prices of securities. This is done by (1) providing a wide and continuous market for the purchase and sale of securities, (2) providing facilities for speculative transactions.
7. Economic Barometer: The stock exchange is the barometer of a country’s economy. In the words of the leading Economist Alfred Marshall, “Stock exchanges are not merely chief theatres of business transaction, the are also barometers which indicate the general condition of business in a country.
8. To in Getting Loan: The stock exchange assists the government and the joint stock compaines in getting loan by providing facilities of purchase and sale of debentures of companies and bounds of the government on the stock exchange,
9. To Stimulate Industrial Investment: The stock exchange stimulates the industrial investment by attracting the savings of the masses into productive channels. This is done by mobilizing the surplus funds lying idle in the hands if individuals, firms and corporations and thereby getting them invested into shares, stocks and debenture of joint stock companies. In the absence of such facilities, the large funds would have remained locked up in non-industrial ventures.
