Stock Exchange: Meaning, Features, Services and Functions [Indian Financial System Notes BCOM NEP Course]

The important features of stock exchange are as follows:

1. Stock exchange is a market where dealings take place in shares, debentures and bonds issued by the company’s corporations, government, etc.

2. Only those securities could be traded that are included in the official list of stock exchange.

3. It also deals in government securities.

4. Stock exchange is organisation in the form of an association or a company or a body of individuals.

5. It is a common meeting place of buyers and sellers of second hand securities.

6. In stock exchanges, brokers serve as a link between the buyers and sellers.

7. Stock exchanges frame their rules and regulations.

8. The areas of operations of stock exchange or geographical jurisdiction is well defined.

9. In India, stock exchanges operate as per guidelines issued by the Securities and Exchange Board of India. 

As the barometer measures the atmospheric pressure, the stock exchange measures the growth of the economy. It performs the following vital functions:

1. Ready market and liquidity: Stock exchange provides a ready and continuous market where investors can convert their money into securities and securities into money easily and quickly. It provides a convenient meeting place for buyers and sellers of securities.

2. Evaluation of securities: Stock exchange helps in determining the prices of various securities that reflect their real worth. The forces of demand and supply act freely in the stock exchange and help in the valuation of securities.

3. Mobilsation of savings: Stock exchange helps in Mobilising surplus funds of individuals and institutions for investment in securities. In the absence of facilities for quick and profitable disposal of securities, such funds may remain idle.

4. Capital formation: Stock exchange not only mobilises the existing savings but also induces the public to save money. It provides avenue for investment in various securities which yield higher returns. It helps in allocation of available funds into the most productive channels.

5. Regulation of corporate sector: Stock exchanges frame their rules and regulations. Every company which wants its securities to be dealt in at the stock exchange has to follow the rules framed by the stock exchange in this regard.

6. Economic barometer: Stock exchange is very sensitive barometer of business conditions in the country. Booms, depressions and other important events affect prices of securities. Price trends on the stock exchange reflect the economic climate in the country. One can easily analyse the cause of change in the business climate by the ups and downs on the stock exchange.

7. Encourages Industrialization: The stock exchange provides capital to industry and commerce. They provide finance to the Govt.

8. Helps government in the Policy Formulation: All the government policies have their clear reflection on the national science through stock exchange whether they are economic policies or monetary or fiscal. 

Also Read: Indian Financial System Topic Wise notes

1. Information about Securities. Stock exchanges provide information such as the securities listed there, the prices at which traded, the list of authorised brokers etc. The investors can take investment decisions after studying that information.

2. Offering Liquidity for Securities. The exchange provides ready market for purchasing and selling of securities. Any investor needing cash can sell his shares at the exchange.

3. Protection Against Exploitation. The exchanges prescribe various rules and regulations under which trading is to be done. The investors are provided protection under various rules and regulations. They can also approach exchange authority if investors feel aggrieved on any account.

4. Better Use of Funds. Exchanges provide a mechanism for investors for making better use of their funds. The investors are provided proper information about the companies in whose shares the investor wants to invest.

5. Protection from Bad Deliveries. The securities are listed after proper scrutiny only. It prevents trading in duplicate or forged securities.

1. Providing Market for New Securities. A stock exchange provides a wide market for trading of securities. The securities can be listed and then traded at the exchanges. It provides an opportunity to companies to raise funds for capital issues.

2. Increases Goodwill of the Company. The listing of a security at an exchange adds goodwill to the company. The securities are listed only after the scrutiny of financial position of a company.

3. Helps in Growth of Companies. The stock exchanges provide ready markets for the purchase and rate of securities. Besides new companies, the existing companies also need to issue shares at the time of expansion and diversification. The facility of raising funds encourages the growth of corporate sector.

4. Creating Confidence in Investors. Those who invest in shares are confident of getting a ready market for their securities. The exchanges provide liquidity to securities. When investors are not sure of getting ready market for their shares then they will hesitate to invest.

5. Financial Information Available. The corporate sector can get information regarding trends of investment, investors, choice and priorities etc. from stock exchanges on regular basis. On the basis of his information, companies can plan their future issue.

1. Investment Opportunities. Stock exchanges provide opportunities for investing surplus funds to general public. Anybody can invest in shares or other securities whenever they have funds. The securities can be sold through the exchanges on the choice of the investors.

2. Productive Use for Funds. The exchanges provide a productive channel for investment of funds. The amount invested in shares is used for setting up new units or for expanding and diversifying existing ones. This is the best productive use of surplus funds.

3. Pulse of Economy. The business transacted at the exchanges and the indexes of prices show the growth of the economy in any country. The fluctuations in prices at exchange help in understanding the pulse of the economy.

4. Investments in Foreign Securities. The shares of good foreign companies are also traded at stock exchanges. Those who are interested in investing in foreign securities can safely invest through stock exchanges. The investments will be safe since shares of genuine companies are traded at exchanges.