A PROJECT REPORT ON FUNCTIONS AND SERVIES OF STOCK EXCHANGE

SUBMITTED TO THE UNIVERSITY OF MUMBAI AS A PARTIAL REQUIREMENT FOR COMPLETING THE DEGREE OF M.COM (BANKING AND FINANCE) SEMESTER I SUBJECT: FINANCIAL MARKET AND SERVICES

SUBMITTED BY: GEETA LACHAIAH MEDI ROLL NO.: 60

UNDER THE GUIDANCE OF MRS. B !"#$! %!%

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What is a Stock Exchange?

Stock exchange means companies can raise capital by issuing shares or debentures known as corporate securities and governments also issue bonds and instruments known as government securities to raise funds from the public. nvestors hold securities either to earn income by way of interest or dividend or to gain capital appreciation due to increase in the price of the security over time. !ut investors cannot sell them without finding a buyer for the same. Similarly" people with accumulated savings or the institutions having surplus funds may also like to invest their funds in various securities and they also cannot do that without finding a seller. Stock exchange is an organi#ation which facilitates this process of buying and selling existing securities by providing a medium for buyers and sellers to interact with each other. $s there could be a large number of buyers and sellers who want to trade in a particular security" stock exchanges facilitates arriving at trading price based on supply and demand by providing a medium. %hey help both buyers and sellers arrive at a mutually satisfactory price.

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Definition of Stock Exchange:

%he word 'Stock (xchange) is made from two words *Stock* and (xchange. Stock means part or fraction of the capital of a company" and (xchange means a transferring the ownership+ representing a market for purchasing and selling. %hus" we can describe the stock exchange as a market or a place where different types of securities are bought and sold. Securities traded on a stock exchange include shares issued by companies" unit trusts" derivatives" pooled investment products and bonds. $s the stock exchange deals in all types of securities" it is known as *securities market* or *securities exchange* also. $ stock exchange is a secondary market of securities because the trading happens only for the securities that have already been issues to the public and now being allowed to be traded on the floor of a stock exchange after getting listed with the stock exchange. %he initial offering of stocks and bonds to investors is by definition done in the primary market and subse,uent trading is done in the secondary market.

The Securities Contracts (Regulation) Act " 1956 has defined stock exchange as an association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business of buying, selling and dealing in Securities.- Learn more at www.technofunc.com. Your online source for free professional tutorials.

History of Indian Stock Market

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ndian stock market marks to be one of the oldest stock market in $sia. t dates back to the close of 1.th century when the (ast ndia /ompany used presses took place in !ombay. to transact loan securities. n the 1.30s" trading on corporate stocks and shares in !ank and /otton %hough the trading was broad but the brokers were hardly half do#en during 1.40 and 1.50. $n informal group of 22 stockbrokers began trading under a banyan tree opposite the %own 1all of !ombay from the mid21.50s" each investing a 3then4 princely amount of 5upee 1. %his banyan tree still stands in the 1orniman /ircle 6ark" 7umbai. n .&0" the exchange flourished with &0 brokers. n fact the *Share 7ania* in ndia began with the $merican /ivil 8ar broke and the cotton supply from the 9S to (urope stopped. :urther the brokers increased to 250. %he informal group of stockbrokers organi#ed themselves as the %he ;ative Share and Stockbrokers $ssociation which" in 1.-5" was formally organi#ed as the !ombay Stock (xchange 3!S(4. !S( was shifted to an old building near the %own 1all. n 1<2." the plot of land on which the !S( building now stands 3at the intersection of =alal Street" !ombay Samachar 7arge and 1ammam Street in downtown 7umbai4 was ac,uired" and a building was constructed and occupied in 1<30. 6remchand 5oychand was a leading stockbroker of that time" and he assisted in setting out traditions" conventions" and procedures for the trading of stocks at !ombay Stock (xchange and they are still being followed. Several stock broking firms in 7umbai were family run enterprises" and were named after the heads of the family. %he following is the list of some of the initial members of the exchange" and who are still running their respective business> =.S. 6rabhudas ? /ompany 3now known as =S6" and a @oint venture partner
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with 7errill Aynch4 Bamnadas 7orar@ee 3now known as B74 /hampaklal =evidas 3now called /ifco :inance4 !ri@mohan Aaxminarayan

n 1<5&" the Covernment of ndia recogni#ed the !ombay Stock (xchange as the first stock exchange in the country under the Securities /ontracts 35egulation4 $ct. %he most decisive period in the history of the !S( took place after 1<<2. n the aftermath of a ma@or scandal with market manipulation involving a !S( member named 1arshad 7ehta" !S( r esponded to calls for reform with intransigence. %he foot2dragging by the !S( helped radicalise the position of the government" which encouraged the creation of the ;ational Stock (xchange 3;S(4" which created an electronic marketplace. ;S( started trading on 4 ;ovember 1<<4. 8ithin less than a year" ;S( turnover exceeded the !S(. !S( rapidly automated" but it never caught up with ;S( spot market turnover. %he second strategic failure at !S( came in the following two years. ;S( embarked on the launch of e,uity derivatives trading. !S( responded by political effort" with a friendly S(! chairman 3=. 5. 7ehta4 aimed at blocking e,uity derivatives trading. %he !S( and =. 5. 7ehta succeeded in delaying the onset of e,uity derivatives trading by roughly five years. !ut this trading" and the accompanying shift of the spot market to rolling settlement" did come along in 2000 and 2001 2 helped by another ma@or scandal at !S( involving the then 6resident 7r. $nand 5athi. ;S( scored nearly 100D market share in the runaway success of e,uity derivatives trading" thus consigning !S( into clearly second place. %oday" ;S( has roughly &&D of e,uity spot turnover and roughly 100D of e,uity derivatives turnover. Stock (xchange provides a trading platform" where buyers and sellers can meet to transact in securities.

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Capital Market: %he capital market is divided into two segments vi#>
a4 6rimary 7arket b4 Secondary 7arket a ) Primar Market:
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7ost companies are usually started privately by their promoters. 1owever the promotersE capital and the borrowed capital from banks or financial institutions might not be sufficient for running the business over the long term. %hat is when corporate and the government looks at the primary market to raise long term funds by issuing securities such as debt or e,uity. %hese securities may be issued at face value" at premium or at discount. Aet us understand the meaning of these terms> :ace Falue> :ace value is the original cost of the security as shown in the certificateGinstrument. 7ost e,uity shares have a face value of 5s. 1" 5s. 5" 5s. 10 or 5s. 100 and do not have much bearing on the actual market price of the stock. 8hen issuing securities" they may be offered at a discount or at a premium. 6remium> 8hen the security is offered at a price higher than the face value it is called a premium =iscount> 8hen the security is offered at a price lower than the face value it is called a discount.

!) Secon"ar Market > %he secondary market provides li,uidity to the investors in the primary market. %oday we would not invest in any instrument if there was no medium to li,uidate our position. %he secondar y markets provide an efficient platform for trading of those securities initially offered in the primar y market. $lso those investors who have applied for shares in an 6H may or may not
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get allotment. f they donEt then they can always buy the shares 3sometimes at a discount or at a premium4 in the secondary market. %rading in the secondary market is done through stock exchange. %he Stock exchange is a place where the buyers and sellers meet to trade in shares in an organi#ed manner. %he stock exchange performs the following functions> 6rovide trading platform to investors and provide li,uidity :acilitate Aisting of securities 5egisters members 2 Stock !rokers" sub brokers 7ake and enforce by2laws 7anage risk in securities transactions 6rovides ndices

There are three lea"ing stock e#changes in $n"ia are:

%ational Stock &#change > ;ational Stock (xchange incorporated in the year 1<<2 provides trading in the e,uity as well as debt market. 7aximum volumes take place on ;S( and hence en@oy leadership position in the country today .

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'om!a Stock &#change

!S( on the other hand was set up in the year 1.-5 t has evolved in to its present

and is the oldest stock exchange in $sia.

status as the premier stock exchange. $t !S( you will find some scripts listed that are not available on ;S(. $lso !S( has the largest number of scripts which are listed.

(TC&$ was incorporated in 1<<0 as a Section 25 company under the /ompanies $ct 1<5& and is recogni#ed as a stock exchange under Section 4 of the Securities /ontracts 5egulation $ct" 1<5&. %he (xchange was set up to aid enterprising promoters in raising finance for new pro@ects in a cost effective manner and to provide investors with a transparent ? efficient mode of trading.

7odelled along the lines of the ;$S=$I market of 9S$" H%/( introduced many novel concepts to the ndian capital markets such as screen2based nationwide trading" sponsorship of companies" market making and scripless trading. $s a measure of success of these efforts" the (xchange today has 115 listings and has assisted in providing capital for enterprises that have gone on to build successful brands for themselves like F 6 $dvanta" Sonora %iles ? !rilliant mineral water" etc

$ntro"uction to 'S&: $s we read in the history of ndian stock exchange+ the stock exchange" 7umbai" popularly known as )'S&)* !S( was established in 1.-5 as J%he ;ative Share and Stock !rokers $ssociationJ. t is the oldest one in $sia" even older than the %okyo Stock (xchange" which was established in 1.-.. t is a voluntary non2profit making $ssociation of 6ersons 3$H64 and has converted itself into demutualised and corporate entity. t has evolved over the years into its present status as the 6remier Stock (xchange in the country. t is the first Stock (xchange in the /ountry to have
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obtained permanent recognition in 1<5& from the Covt. of Securities /ontracts 35egulation4 $ct" 1<5&.

ndia under the

%he (xchange" while providing an efficient and transparent market for trading in securities" debt and derivatives upholds the interests of the investors and ensures redressal of their grievances whether against the companies or its own member2brokers. conducting t also strives to educate and enlighten the investors by education programmes and making available to them investor

necessary informative inputs. $ Coverning !oard having 20 directors is the apex body" which decides the policies

and regulates the affairs of the (xchange. %he Coverning !oard consists of < elected directors" who are from the broking community 3one third of them retire every year by rotation4" three S(! nominees" six public representatives and an (xecutive =irector ? /hief (xecutive Hfficer and a /hief Hperating Hfficer. %he (xecutive =irector as the /hief (xecutive Hff icer is responsible for the day2to2day administration of the (xchange and he is assisted by the /hief Hperating Hfficer and other 1eads of =epartment %he (xchange has inserted new 5ule in its 5ules" !ye2laws ? 5egulations pertaining to constitution of the (xecutive /ommittee of the (xchange. $ccordingly" an (xecutive /ommittee" consisting of three elected directors" three S(! nominees or public representatives" (xecutive =irector ? /(H and /hief Hperating Hfficer has been constituted. %he /ommittee considers @udicial ? ,uasi matters in which the Coverning !oard has powers as an $ppellate $uthority" matters regarding annulment of transactions" admission" continuance relating and suspension of member2brokers" declaration of a member2broker as defaulter" norms" procedures and other matters to arbitration" fees" deposits" mar gins and other monies payable by the member2brokers to the (xchange" etc.

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$ntro"uction to %S& %he ;ational Stock (xchange 3;S(4 is ndia*s leading stock exchange covering 3&4 cities and towns across the countr y. ;S( was set up by leading institutions to provide a modern" fully automated screen2based tr ading system with national reach. %he (xchange has brought about unparalleled transparency" speed ? efficiency" safety and market integrity. t has set up facilities that serve as a model for the securities industry in terms of systems" practices and procedures. ;S( has played a catalytic role in reforming the ndian securities market in terms of microstructure" market practices and trading volumes. %he market today uses state2of2art information technology to provide an efficient and transparent trading"
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clearing and settlement mechanism" and has witnessed several innovations in products ? services vi#. demutualisation of stock exchange governance" screen based trading" compression of settlement cycles" dematerialisation and electronic transfer of corporations securities" to securities lending and borrowing" market of professionali#ation debt and of trading members" fine2tuned risk management systems" emergence of clearing assume counterparty risks" derivative instruments and intensive use of information technology. %he ;ational Stock (xchange of ndia Aimited has genesis in the report of the 1igh 6owered Study Croup on (stablishment of ;ew Stock (xchanges" which recommended promotion of a ;ational Stock (xchange by financial institutions 3: s4 to provide access to investors from all across the country on an e,ual footing. !ased on the recommendations" ;S( was promoted by leading :inancial nstitutions at the behest of the Covernment of ndia and was incorporated in ;ovember 1<<2 as a tax2paying company unlike other stock exchanges in the country. Hn its recognition as a stock exchange under the Securities /ontracts 35egulation4 $ct" 1<5& in $pril 1<<3" ;S( commenced operations in the 8holesale =ebt 7arket 38=74 segment in Bune 1<<4. %he /apital 7arket 3(,uities4 segment commenced operations in ;ovember 1<<4 and operations in =erivatives segment commenced in Bune 2000. ;S(*s mission is setting the agenda for change in the securities markets in ndia. %he ;S( was set2up with the following ob@ectives> establishing a nation2wide trading facility for e,uities" debt instruments and hybrids" ensuring e,ual access to investors all over the countr y through an appropriate communication network"

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providing a fair" efficient and transparent securities market to investors using electronic trading systems"

enabling shorter settlement cycles and book entry settlements systems" and

meeting the current international standards of securities market %he standards set by ;S( in terms of market practices and technologies have become industry benchmarks and are being emulated by other market participants. ;S( is more than a mere market facilitator. t*s that force which is guiding the industry towards new hori#ons and greater opportunities.

%ill the advent of ;S(" an investor wanting to transact in a security not traded on the nearest exchange had to route orders through a series of correspondent brokers to the appropriate exchange. %his resulted in a great deal of uncertainty and high transaction costs. Hne of the ob@ectives of ;S( was to provide a nation wide trading facility and to enable investors spread all over the country to have an e,ual access to ;S(. ;S( has made it possible for an investor to access the same market and order book" irrespective of location" at the same price and at the same cost. ;S( uses sophisticated telecommunication technology through which members can trade remotely from their offices located in any part of the countr y. ;S( trading terminals are present in 3&3 cities and towns all over ndia. ;S( has been promoted by leading financial institutions" banks" insurance companies and other financial intermediaries ;S( is one of the first demutualised stock exchanges in the country" where the ownership and management of the (xchange is completely divorced from the right to trade on it. %hough the impetus for its establishment came from policy makers in the
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country" it has been set up as a public limited company" owned by the leading institutional investors in the country. :rom day one" ;S( is owned who ;S( has adopted the form of leading trade on of a demutualised exchange 2 the

ownership" management and trading is in the hands of three different sets of people. by a set financial institutions" the (xchange. banks" insurance completely companies and other financial intermediaries and is managed by professionals" do not directly or indirectly %his has eliminated any conflict of interest and helped ;S( in aggressively pursuing policies and practices within a public interest framework. %he !oard ;S( model however" of senior does not preclude" from but in fact accommodates

involvement" support and contribution of trading members in a variety of ways. ts comprises executives promoter institutions" eminent professionals in the fields of law" economics" accountancy" finance" taxation" etc" public representatives" nominees of S(! (xchange. 8hile the !oard deals with broad policy issues" decisions relating to market operations are delegated by the !oard to various committees constituted by it. Such committees include representatives from trading members" professionals" the public and the management. %he day2to2day management of the (xchange is delegated to the 7anaging =irector who is supported by a team of professional staff. Securit Measures an" (perational +eatures o, 'S& an" %S&: %he leading stock exchanges in ndia have developed itself to a large extent since its emergence. %hese stock exchanges aim at offering the investors and traders better transparency" genuine settlement cycle" honest transaction and to reduce and solve investor grievances if any. !lease "ote #he researcher has not covered all the and one full time executive of the

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operational features of both the stoc$ e%changes, but has ta$en into consideration only the ones which are important to understand the thesis. %he aim to describe these operational features is for better understanding of the working of stock exchanges. %his is done for the purpose of easy understanding from the readerEs point of view .

$ntro"uction o, (-er The Counter &#change o, $n"ia %he H%/ (xchange of ndia 3H%/( 4 incorporated under the provisions of the /ompanies $ct 1<5&" is a public limited company. t allows listing of small and medium si#ed companies. %he minimum issued share capital re,uired of a company that wants to be listed on H%/( is 5s.3 million and the maximum 5s.250 million. /ompanies engaged in investment" leasing" finance" hire purchase" amusement parks etc." and companies listed on any other recogni#ed stock exchange in ndia are not eligible for listing on H%/( . $lso" listing is granted only if the issue is fully subscribed to by the public and sponsor. H%/( is promoted by the 9nit %rust of ndia" the ndustrial /redit and nvestment /orporation of ndia" the ndustrial =evelopment !ank of ndia" the ndustrial :inance /orporation of ndia and others and is a recogni#ed stock exchange under the S/5 $ct. 'ene,its:

%he H%/( has set up a national" automated screen based and ring less stock market. t helps companies raise finance from the capital market in a cost effective manner and provides a convenient and effective avenue of capital market investment for investors at large.

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8hile the other recognised stock exchanges re,uire that in order to have its securities listed the company should have an issued capital of not less than 5s. 3 crores out of which normally 25D is to be offered to the public" the minimum issued e,uity share capital of a company for eligibility for listing on the H%/( is 5s 30 lacs.

Aisting on H%/( is advantageous to companies because of the high li,uidity of these securities" which is a result of compulsory market making" improved access and speed of transactions resulting from the extensive network of electronically interlinked counters.arial

/ompanies can obtain a fair price of their securities by negotiating the same with the sponsors 3who are members of the H%/( 4 and save unnecessary issue expenses by placing their securities with the sponsors who will in turn off load the securities to the public. %his mechanism is now popularly known as a bought out deal.

H%/( *s wide computeri#ed net work will be spread all over ndia and will make investment easier. $ll deals will be entered into through remote terminals which will be connected to the mainframe computer of the H%/( . %he exchange will enable transactions to be completed ,uickly and investors can settle the deals across the counter within a few days. %he exchange will also provide li,uidity to investors as every scrip listed on the H%/( will have at least two makers who will continuously give two way ,uotes.

Securities: Several public sector undertakings have issued Jdebt instrumentsJ commonly known as 6S9 bonds. %hese bonds are securities as defined under the S/5 $ct. nterest earned on some of these 6S9 bonds are not liable to income tax. &uro.issues: $ large number of ndian companies are considering the issue of (uro2issues in order to
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finance their foreign exchange re,uirements. !lue chip companies initially allowed to enter the market include Crasim ndustries and %ata ron. Several international bankers and other organisations have approached the above companies indicating their keenness to price and underwrite the issues.

Functions of stock exchange

Although the stock e#change market has multiple ,unctions/ its main acti-ities are t0o:

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%o promote the savings and for them to be canali#ed towards of carrying through investment pro@ects that otherwise wouldnKt be possible you need that the issuing institution of the securities to be admitted for ,uoting. %he negotiations will be done on the primary market.

%o provide li,uidity to the investors. %he investor can recuperate the money invested when needed. :or it" he has to go to the stock exchange market to sell the securities previously ac,uired. %his function of the stock market is done on the secondary market.

(ther ,unctions o, the stock e#change market as an organi1ation are:

%o guarantee the legal and economic security of the agreed contracts.

%o provide official information about the ,uantities that are negotiated and of the ,uoted prices. %o fix the prices of the securities according to the fundamental law of the offer and the demand.

Specifying a bit more and centering on the two main agents that intervene in the market" investors and companies" we could do the following classification>

+unctions "one ! the stock e#change market in ,a-or o, the in-estor:

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t permits him the access to the profitable activities of the big companies.

t offers li,uidity to the security investments" through a place in which to sell or buy securities.

t permits for the investor to have a political power in the companies in which he invests its savings due that the ac,uisition of ordinary shares gives him the right 3among other things4 to vote in the general shareholders meetings of the company in ,uestion.

t offers the possibility of diversifying your portfolio by enlarging the field of strategy of investments due to alternative options" as could be the derived market" the money market" etc.

2ith respect to the ,unction "one ! the stock e#change market in ,a-or o, the companies:

t supplies them with the obtaining of long2term funds that permits the company to make profitable activities or to do determine pro@ects that otherwise wouldnKt be possible to develop for lack of financing. $lso" this funding signifies a less cost than if obtained at other channels.

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%he securities ,uoted at the stock exchange market usually have more fiscal purpose advantages for the companies.

t offers to the companyKs free publicity" which in other way would suppose considerable expenses. %he institution is ob@ecting of attention of the media 3television" radio" etc.4 in case any important change in its owners 3the share holders4.

There also e#ists a constant ,ollo0ing (ne0spapers) o, the 3uotations*

%herefore we can see how the stock exchange market supposes a great advantage to the companies" but there are also some inconveniences to have in mind>

:irst of all" they need of a series of conditions to be apt to enter to the ,uotations" not all the companies that apply can do it.

%he issuing of shares may suppose a loss of power for the founders of the company. $nyway" this is very relative because it will depend on the grade of atomi#ation on the participations of the new shareholders and of the percentage of shares that the founders keep over the total capital of the company.
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f for example a 4<D of the share capital is in hands of the founders" these could loose the control of in case the other 51D would be in hands of one main shareholder. 1owever" this rarely happens" due that the share capital that usually goes to the stock market tends to be distributed between a great number of shareholders that ac,uire modest participations in respect to that of the capital of the company the founders may still keep control with share capital is distributed between a great number of participants.

;ow then" the property of these shares implies the possession of certain rights over the company in which you participate.

%hese are> political rights" among which appears the possibility of participating in the general share holders meetings and in the administration of the company by means of the execution of your rights to vote+ and the economic right" which embraces the possibility of receiving dividends" preferential rights of subscription" the transmission of shares 3selling4 and the right to the li,uidity value. %his last implies that at the moment in which the company is li,uidated" what remains is proportionally divided between the shareholders.

The possession o, all these rights is 0hat re"uces the po0er o, the ,oun"ers*

%he shares may pass to be property of unknown people to the founders. $t the moment in which they are ob@ect of ,uotations at the stock exchange market any supplier of capital may have them. f itKs a company that previously knew all its
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shareholders" considering this as an asset of value to the company. %he stock market ,uotation may generate an important change that will not always be positive.

%he companies that are ,uoted at the stock market offer a better transparency" in a way that the general public may have access to any information related to their evolution and activities.

%his makes them have a greater control and to supervise every movement done.

!ther Function of the stock exchange+

1* Continuous an" rea" market ,or securities Stock exchange provides a ready and continuous market for purchase and sale of securities. t provides ready outlet for buying and selling of securities. Stock exchange also acts as an outletGcounter for the sale of listed securities.

4* +acilitates e-aluation o, securities Stock exchange is useful for the evaluation of industrial securities. %his enables investors to know the true worth of their holdings at any time. /omparison of companies in the same industry is possible through stock exchange ,uotations 3i.e. price list4 . 5* &ncourages capital ,ormation
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Stock exchange accelerates the process of capital formation. t creates the habit of saving" investing and risk taking among the investing class and converts their savings into profitable investment. t acts as an instrument of capital formation. n addition" it also acts as a channel for right 3safe and profitable4 investment.

6* Pro-i"es sa,et an" securit in "ealings

Stock exchange provides safety" security and e,uity 3@ustice4 in dealings as transactions are conducted as per well defined rules and regulations. %he managing body of the exchange keeps control on the members. :raudulent practices are also checked effectively. =ue to various rules and regulations" stock exchange functions as the custodian of funds of genuine investors.

5* Regulates compan management Aisted companies have to comply with rules and regulations of concerned stock exchange and work under the vigilance 3i.e supervision4 of stock exchange authorities.

6* +acilitates pu!lic !orro0ing Stock exchange serves as a platform for marketing Covernment securities. t enables government to raise public debt easily and ,uickly.
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7* Pro-i"es clearing house ,acilit Stock exchange provides a clearing house facility to members. t settles the

transactions among the members ,uickly and with ease. %he members have to pay or receive only the net dues 3balance amounts4 because of the clearing house facility.

8* +acilitates health speculation

1ealthy speculation" keeps the exchange active. ;ormal speculation is not dangerous but provides more business to the exchange. 1owever" excessive speculation is undesirable as it is dangerous to investors ? the growth of corporate sector.

9* Ser-es as &conomic 'arometer Stock exchange indicates the state of health of companies and the national economy. t acts as a barometer of the economic situation G conditions.

19* +acilitates 'ank :en"ing !anks easily know the prices of ,uoted securities. %hey offer loans to customers against corporate securities. %his gives convenience to the owners of securities.
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11* Corporate ;o-ernance $s stock exchanges facilitate ownership of companies to be help by a wide and varied scope of owners" companies generally tend to improve management standards and efficiency to satisfy the demands of these shareholders. %o safeguard the interest of investors more stringent rules are imposed by public stock exchanges and the government on public corporations when compare to privately owned enterprises. (very stock exchange defined its own rules and regulations for the control of operations of the exchange. Hnly members are allowed to deal in securities and make transactions. $s the members have to transact their business strictly according to the rules" the investors* interests are safeguarded against dishonesty or malpractices. %raded public companies tend to have better management records than privately held companies. 14* 'arometer o, the &conom %he share prices fluctuate on stock exchanges as a result of underlying market forces. %he intensity of buying and selling of securities and the corresponding rise or fall in the prices of securities reflects the investors* assessment of the economic and business conditions. Share prices tend to rise or remain stable when companies and the economy show signs of stability and growth whereas they might fall sharply at the time of an economic recession" stagnation" depression" or financial crisis. /hange in security prices are known to be highly sensitive to changing economic" social and political conditions and hence act as a barometer of economic and business conditions.

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&ervices given ', &tock Exchange to Investors

1. Pro-i"es li3ui"it

to in-estment> Stock exchange provides li,uidity 3i.e easy

convertibility to cash4 to investment in securities. $n investor can sell his securities at any time because of the ready market provided by the stock exchange. Stock exchange provides easy marketability to corporate securities.

2. Pro-i"es collateral -alue to securities > Stock exchange provides better value to securities as collateral for a loan. %his facilitates borrowing from a bank against securities on easy terms.

3. (,,ers opportunit to participate in the in"ustrial gro0th > Stock exchange provides capital for industrial growth. t enables an investor to participate in the industrial development of the country.

4. &stimates the 0orth o, securities> Stock exchange provides the facility of knowing the worth 3i.e true market value4 of investment due to ,uotations 3i.e price list4 and reports published regularly by the exchange. %his type of information guides investors as regards their future investments. %hey can purchase or sell securities as per the price trends 3i.e latest price value4 in the market.
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5. (,,ers sa,et

in corporate in-estment > $n investor can invest his surplus

money 3i.e extra money4 in the listed securities with reasonable safety. %he risk in such investment is reduced considerably due to the supervision of stock exchange authorities on listed companies. 7oreover" securities are listed only when the exchange authorities are satisfied as regards legality and solvency of company concerned. Such scrutiny 3detailed checking4 avoids listing" of securities of unsound companies 3i.e companies with bad financial status4.

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Services given by Stock Exchange to Companies

1. 2i"ens market ,or securities > Stock exchange widens the market for the listed securities and enables the companies to collect capital for promotion" expansion and moderni#ation purpose. t indirectly provides financial support to companies G corporations.

2. Creates goo"0ill an" reputation > Stock exchange enhances the goodwill and the reputation of the companies whose securities are listed. Aisting acts as a charater certificate given to a company. t gives prestigious position to company.

3. +acilitates ,air pricing o, liste" securities > %he market price of listed securities tends to be slightly higher in relation to earnings and property values.

4. Pro-i"es !etter response ,rom in-estors > Aisted securities get better response from the investor due to safety and security. Aisting of securities is a uni,ue service which stock exchanges offer to companies. t is a moral support given to stable companies.

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5. +acilitates 3uick selling o, securities > Stock exchange enables companies to sell their securities easily and ,uickly. %his is natural as investors always prefer to invest money in listed securities.

Service given by Stock Exchange to Economy

1. 'rings economic "e-elopment> Stock exchanges bring rapid economic development through mobili#ation of funds for productive purposes. %his facilitates the process of economic growth.

Conclusion
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$n exchange is an institution" organi#ation" or association which hosts a market where stocks" bonds" options and futures" and commodities are traded. !uyers and sellers come together to trade during specific hours on business days. (xchanges impose rules and regulations on the firms and brokers that are involved with them. f a particular company is traded on an exchange" it is referred to as JlistedJ. /ompanies that are not listed on a stock exchange are sold H%/ 3short for Hver2%he2 /ounter4. /ompanies that have shares traded H%/ are usually smaller and riskier because they do not meet the re,uirements to be listed on a stock exchange.

BIB I!"#$%H& '''()SE(C!M

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'''(BSE(C!M '''(SCIB*(C!M

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