Basics of Stock Exchange

What is Stock Exchange?

As per the Wikipedia,

  • A stock exchange, security exchange or bourse, is a facility where stock brokers and traders can buy and sell securities, such as shares of stock and bonds and other financial instruments.
  • Stock exchanges may also provide for facilities like the issue and redemption of such securities and instruments and capital events including the payment of income and dividends.
  • Securities traded on a stock exchanges include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds.

What is the definition of Stock Exchange?

As per the Securities Regulation Act, 1956

  1. Stock Exchange is defined as any body of  individuals,  whether incorporated or not, constituted before corporatization and demutualization under Section 4A and 4B or
  2. a body corporate incorporated under the Companies Act, 1956 whether under a scheme of corporatization and demutualization or otherwise,

For the purpose of assisting, regulating or controlling the business of buying, selling or dealing in Securities.

What is corporatization and demutualization?

  • Corporatization means the succession of the recognized stock exchange, being a body of individuals or a society registered under the Societies Registration Act, 1860, Article 21, by another stock exchange, being a company incorporated for the purpose of assisting in buying, selling and dealing in securities. 
  • Demutualization refers to the legal structure of an exchange whereby the ownership, the management and the trading rights at the exchange are segregated from one another.

Features of Stock Exchange

  • It is an organized Security market
  • It is an association of individuals recognized by the Central Government
  • Its membership is not open for everybody
  • Only the members can deal in a stock exchange
  • The Members can buy and sell securities as a broker for and on behalf of their clients
  • The dealing in Stock exchange are under certain accepted code of conduct.
  • It is an important constituent of Capital Market
  • It deals in Second-hand securities

Functions of Stock Exchange

  • Continuous and ready market for Securities.
  • Facilitates Evaluation of Securities
  • Encourages Capital Formation
  • Provides safety and security in dealings
  • Regulates Company Management
  • Facilitates Public Borrowings
  • Provides clearing house facility
  • Facilitates healthy speculation
  • Serves as economic barometer
  • Facilitates bank lending

Services given by stock exchanges to:


  • Provides liquidity to Investment
  • Provides Collateral Value to Securities
  • Offers opportunity to participate in the economical growth
  • Estimates the worth of securities Offers
  • Safety in corporate investment


  • Brings Economic Development
  • Forecasting the recession


  • Capital Gains and Fund Raising
  • Widens market for securities
  • Creates goodwill and reputation
  • Facilitates fair pricing of listed securities
  • Provides better response from investors
  • Motivates Management of the companies
  • Helps in proper Corporate Governance
  • Encourage to complete documentations on time
  • Facilitates quick selling of Securities

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