Introduction

Stock exchanges are the important ingredient of the capital market. They are the citadel of
capitaland fortress of finance. A stock Exchange is also called as a stock market. Stocks and
shares fall intotwo basic categories: shares, or equities, which give the buyer part- ownership of
the company inwhich he or she has invested; and stocks, or bonds which lend money to the
government or largecompany without giving a right of ownership. Both stocks and shares are
called as Securities. Themarket where existing securities are traded is referred to as the stock
market or secondary market.In brief, stock exchanges constitute a market where securities
issued by the central and stategovernments, public bodies and joint stock companies are
traded.
Definition
As per the Securities Contracts Regulation Act, 1956 a stock exchange has been defined as
follows:
It is an association, organization or body of individuals whether incorporated or not,
established for the purpose of assisting, regulating and controlling business in buying, selling
and dealing in securities.
Functions /Services of Stock Exchange
1.Liquidity and Marketability of SecuritiesStock exchanges provide liquidity to securities since
securities can be converted intocash at any time according to the discretion of the investor by
selling them at the listedprices. They facilitate buying and selling of securities at listed prices by
providing continuousmarketability to the investors in respect of securities they hold or intend
to hold. Thus, theycreate a ready outlet for dealing in securities.
2.Safety of fundsStock exchanges ensure safety of funds because they have to function under
strict rulesand regulations and the bye-laws are meant to ensure safety of investible funds.
Over-trading, illegitimate speculation etc are prevented through carefully designed set of rules.
This would strengthen the investors confidence and promote larger investment.
3.Flow of Capital to Profitable VenturesThe profitability and popularity of companies are
reflected in stock prices. The pricesquote indicate the relative profitability and performance of
companies. Funds tend to beattracted towards securities of profitable companies and this
facilitates the flow of capitalinto profitable channels.
4.Motivation for Improved PerformanceThe performance of a company is reflected on the prices
quoted in the stock market.These prices are more visible in the eyes of the public. This public
exposure makes acompany conscious of its status in the market and it acts as a motivation to
improve itsperformance further.
5.Promotion of InvestmentStock exchanges mobilise the savings of the public and promote
investment throughcapital formation. But for these stock exchanges, surplus funds available
with individuals andinstitutions would not have gone for productive and remunerative
ventures.
6.Reflection of Business CycleThe changing business conditions in the economy are immediately
reflected on thestock exchanges. Booms and depressions can be identified through the dealings
of the stockexchanges and suitable monetary and fiscal policies can be taken by
the government.

Organisation of Stock Exchanges in India

The first organised stock exchange in India was started in Bombay in 1875 with the formation
of the Native Share and Stock Brokers Association. Thus the Bombay Stock Exchange is the oldest one
in the country. With the growth of joint stock companies, the stock exchanges also made a steadygrowth and
at present there are 23 recognized stock exchanges with about 600 stock brokers.Traditional
Structure of Stock ExchangesThe stock exchanges in India can be classified into two broad
groups on the basis of their legalstructure. They are:
a)Three stock exchanges which are functioning as Association of Persons (AOP)
BSE, ASE andMadhya Pradesh Stock Exchange.
b)Twenty Stock Exchanges which have been set up as companies, either limited
by guaranteesor by shares. Some of them are :
i.Bangalore Stock Exchange
ii. Calcutta Stock Exchange
iii. Delhi Stock Exchange
iv. Madras Stock Exchange
v. National Stock Exchange etc :
Demutualisation of Stock Exchanges
The transition process of an exchange from a mutually owned association to a company owned
by shareholders is called demutualisation. In other words, transforming the legal structure, of
anexchange from a mutual form to a business corporation form is referred to as demutualisation.In mutual
exchange, the three functions of ownership, management and trading are intervened intoa
single group. It means the members of the exchange are the owners as well as traders on the
exchange and further they themselves manage the exchange. These three functions are
segregatedfrom one another after demutualisation. The demutualised stock exchanges in India
are:
i.The National Stock Exchange (NSE)
ii. Over the Counter Exchange of India (OTCEI)
Corporatisation of Stock Exchanges
The process of converting the organizational structure of the stock exchange from a noncorporate structure to a corporate structure is called corporatisation of stock exchanges. As
statedearlier, some of the stock exchanges were established
as Association of Persons in India like BSE
,ASE and MPSE. Corporatisation of these exchanges is the process of converting them
intoincorporated companies.exchange and further they themselves manage the exchange.
These three functions are segregatedfrom one another after demutualisation.
The demutualised stock exchanges in India are:
i.The National Stock Exchange (NSE)
ii.Over the Counter Exchange of India (OTCEI)

Corporatisation of Stock Exchanges

The process of converting the organizational structure of the stock exchange from a noncorporate structure to a corporate structure is called corporatisation of stock exchanges. As
statedearlier, some of the stock exchanges were established
as Association of Persons in India like BSE
,ASE and MPSE. Corporatisation of these exchanges is the process of converting them
intoincorporated companies.
Management
The recognized stock exchanges
are managed by Governing Boards. The governing boards consist
of elected member directors from stock broker members, public representatives and
governmentnominees nominated by the SEBI (Securities and Exchange Board of India).The
government has alsopowers to nominate Presidents and Vice Presidents of stock exchanges and to approve
theappointment of the Chief Executive and public representatives. The major stock exchanges
aremanaged by the Chief Executive Director and the smaller stock exchanges are under the
control of aSecretary.