STOCK EXCHANGES

Definition:
According to Husband and Dockery, stock exchange is a privately organized
market which are used to facilitate trading securities. It is an organized
market for buying and selling of securities. It is one of the important
constituents of the capital market. It also a financial intermediary in the
capital market.
The Share market is divided in two segments Primary and secondary
markets. The secondary markets refer to trading of securities on the 24
exchanges in our country. Out of 24 exchanges, 4 are national level
exchanges including National Stock Exchange(NSE), Bombay Stock
Exchange(BSE), Over the Counter Stock Exchange of India(OCTEI) and
Inter-connected Stock Exchange(ISE) and the remaining 20 exchanges are
regional which include stock exchanges at Delhi, Kolkata, Baroda,
Bhubaneshwar etc.
The stock exchanges in India are demutualised and corporatised as they
are not owned but controlled and monitored by an association of persons
containing people from the corporate field, RBI, Central and State
Government and SEBI.

National Stock Exchange (NSE)

This exchange was incorporated in November 92 with an equity capital of
25,00,00,000. The International Securities Consultancy, HongKong
played an instrumental role in setting up this exchange. The Interconnected stock exchange(ISE) had prepared the detailed business plan
including the installation of latest hardware and software systems for
trading. Financial institutions, Insurance companies banks, Infrastructure
Leasing and Financial Services(ILFS) and Stock holding Cooperation Ltd.
were the promoters of NSE. It aims at promoting professionalism in market
and providing securities trading facilities to investors nation-wide. NSE
transcends the geographical barriers by providing screen-based
trading(SBTS) instead of Open outcry trading system and the
conventional Trading ring. This results in easy access to securities and
liquidity in the stock market. NSE is not a stock exchange in the traditional
sense where the brokers own and manage the exchange, it has a two tier
administrative set up involving a Company board as well as a governing
board for the exchange. It is professionally managed providing a platform
for high value Corporate and Government securities.

The NIFTY50 index on NSE is popular as it involves high value securities

of only 50 companies segmenting the investment in the market.
NSE Clearing Cooperation of India Ltd.(NSECIL) stands as a guarantee
to all trades taking place on the exchange. This counter guarantee of the
trading cooperation insures the delivery of securities and payment leading to
settlement of transactions.
Options & Futures Market including trading of derivatives is an important
segment on NSE attracting domestic and international investment.

BOMBAY STOCK EXCHANGE(BSE)

This exchange evolved from Native Stock Brokers Association in 1875. It
is the oldest exchange in the exchange in the country. It is managed by an
executive or the governing body. It has been playing an active role in the
process of capital formation in the country. BSE is a very active stock
exchange with highest number of listed companies next to New York Stock
Exchange.
BSE Sensex shows a specified portfolio of share prices is moving in order to
give an indication of market trends. It is a basket of securities and the
average price movement of the basket of securities indicates the index
movement, whether upwards or downwards. The investors observe the stock
market fluctuations and also use the various indices for their analytical
purposes to study the trend of growth patterns in the economy.
The BSE Sensex is divided into various indices for different sectors such as
capital goods, infrastructure, FMCG, retail, real estate, entertainment,
banking etc. which enables the investors to compare these indices and
review portfolio.
BSE On-line Trading System(BOLTS) is a screen-based trading system. A
brokers office may be located anywhere in the country. It is connected with
the central computer through Very-small Aperture Terminals(VATs) to enable
trading of securities all over the country. It is the first floorless exchange
where trading is carried out electronically through telephone lines and online computers.

 Features of Stock Exchange

1. Organized Market:
The transactions are carried out to authorize brokers or members of
the exchange. It deals with securities such as shares, debentures and
bonds. It provides a common platform to the members to carry out
trading in an organized manner with regard to :
Specific timings
Regulatory authorities
Paperless trading and electronic infrastructure.
2. Private Status:
It is an association of persons and a privately owned association.
Some of the exchanges are also Joint stock companies. The stock
exchanges should be registered with the government.
3. Sensitive Index:
The index is sensitive to political and social events in the country and
all over the world. It is affected by demand and supply forces in the
economy and also by events like wars, earthquakes, floods, economic
crises and terror attacks affect stock prices.
4. Government control:
The exchanges operate under the control of the government. Today,
SEBI is controlling the exchanges in India. Wide powers are granted
to SEBI by the government to regulate and control the exchanges
particularly after multiple scams taking place in the country.
5. Rules & Regulations:
It is an organized market which operates under well defined rules and
regulations. Every stock exchange has its own constitution bye- laws
with managing bodies for orderly functioning of the exchange. The
bye-laws contain detailed rules and regulations for carrying out the
transactions.
6. Liquidity & Marketability:
The stock exchange provides transferability and liquidity to the
investors. There are large number of buyers and sellers in the market.
If you want to sell securities, there are buyers and if you want to buy

securities there are sellers. The exchange provides marketing facilities

to the companies as well as investors.
7. Securities Contract:
Every transaction entered into by the parties in the exchange is a
contract governed under Securities Contract Regulation Act, 1956.
The provisions of this act have to be followed in the day-day
operations.
8. Nerve Centre of the economy:
It is connected with savings, investments and capital formation in the
country. The countries economy is closely connected with the
performance of stock market.

Functions of the stock exchange

1. Protection of investors:
The exchange provides a healthy market and avoids unhealthy
speculation. Healthy speculation is not harmful to genuine investors
and it provides more business to the exchange and therefore healthy
speculation is encouraged.
2. Capital Formation:
It instills confidence in the people for mobilization of funds towards
investment in corporate securities. This helps to promote industrial
development and capital formation in the country.
3. Uniformity & Regularity:
It provides a ready and continuous market to impart liquidity to the
securities.
4. Safety in dealings:
The transactions in the exchange are under well defined rules and
regulations and bye-laws of the exchange. The listed companies are
required to make continuous disclosure of material information for the
benefit of investors. SEBI also keeps a watch on the transactions and
takes action against fraudulent practices.
5. Wide Ownership of Securities:
It enables more & more people scattered all over the country to buy
and sell securities and the ownership of securities is widely diffused.

Broad ownership tends to safeguard the corporate sector from the

criticism and government interference.
6. Regulation of Company Management:
Listed companies have to comply with the rules and regulations of the
concerned exchanges and work under the vigilance of the exchange
authorities. Thus the exchange helps to regulate the management of
the company.
7. Clearing House Facility:
It settles transactions amongst its members quickly ad with ease. The
members have to pay or receive the net dues or receipts because of the
clearing house facility.
8. Economic Barometer:
It serves as an economic barometer. It indicates the state of health of
the companies and the economy.

Services of stock exchange

Services to the Company:
1. Wide market for listed securities.
2. Enhances the goodwill and reputation of the company.
3. Facilitates fair pricing of listed securities.
4. Facilitates high valuation of securities at the time of mergers,
amalgamations etc.
5. Maintains the confidence of investors in the capital market.
6. Facilitates selling of securities quickly and easily.
7. It enables the companies to raise finance from the general public.
8. It provides a platform for indirect marketing of companies in the
Domestic and the International capital markets.
Services to the Investors:
1. Information about the prices of listed securities on the exchange
through daily quotations.
2. Safety and security in dealings to investors.
3. Liquidity to their investments is ensured by enabling them to sell
securities whenever they require liquid funds.
4. Avoiding undue fluctuations in the prices of securities by operations
of speculators.
5. Reducing the risk of investors who buy listed securities.

6. Better price for listed securities through speculative and continuous

operations.
7. Wide market and wide ownership of securities.
8. Tax benefits in terms of capital gains if the securities are subject to
Securities Transaction Tax (STT).
Services to society:
1. It encourages and mobilizes savings amongst the masses in the
country.
2. It helps to achieve capital formation and economic development.
3. It helps to diversify investments in a profitable manner.
4. It provides Direct and Indirect Employment in the country.
5. It helps to attract Foreign Direct and Foreign Portfolio Investment.