What is a Stock Exchange• The stock exchange is a highly organised market for the purchase and sale of second hand quoted or listed securities. Stock exchange is a market in which securities are bought and sold and it is an essential component of a developed capital market.• According to the Securities Contracts (Regulation) Act, 1956, “Stock Exchange means any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities.”
What is a Stock Exchange…..cont’nd Stock Exchange is an important part of the Capitalisticsystem of economy. It is indispensable for the smoothfunctioning of a corporate enterprise.It provides the necessary mobility to capital and directsthe flow of capital into profitable and successfulenterprises.It exerts a powerful and significant influence as adepressant or stimulant of business activity.It maybe defined as the place or market where securitiesof joint stock companies and of government or semigovernment bodies are dealt in.
Importance of a Stock Exchange• Only an organized securities market can provide sufficient marketability and price continuity for shares.• It is a market that can provide reasonable measure of safety and fair dealing in buying and selling of securities.• Through the interplay of demand for and supply of securities, properly organized stock exchange results in a reasonably correct evaluation of securities in terms of their real worth.• Through such evaluation of securities, the stock exchange helps in the orderly flow of savings between different types of investments.
Objective and Role of Stock Exchange•To safeguard the interest of investing public•To establish and promote honorable and just practices in securitiestransactions.•To promote, develop and maintain a well regulated market for dealingin securities.•To promote industrial development in the country throughefficient resource mobilization by way of investment in corporatesecurities.•To enable flow of capital into most efficient industries. The marketprice and relative yield of a security are the guiding factors.•It encourages people to save and invest in corporate securities therebyaccelerating capital formation.•Raising long term capital: The existence of a stock exchange enablecompanies to raise permanent capital.
Stock Exchange Regulations• Dealings on the Stock exchange are subject to the bye- laws and rules of the Stock Exchange.• Stock exchange dealings in India are regulated by the Securities Contracts (Regulation) Act and the Securities and exchange Board of India (SEBI).
BrokersA broker is a person who buys and sells securities on behalf of investors inreturn for a commission. He should be able to:1. Provide information about the available investment opportunities as well as the capital structure of companies, their financial information and policies and prospects. He should also be able to provide advice about portfolio management.2. He should be able to supply financial periodicals, prospectuses and reports. He should also be able to prepare or analyze advisory literature for the education of the investor.3. He should also under his employment have registered and competent representatives who can assist customers with most of their problems at the location preferred by the customer .
Different Types of BrokersThe different types of brokers are:1. Commission broker – these brokers buy and sell securities for a commission. They are registered memebers of the stock exchange. The broker sells and purchases securities in his own name and he is not allowed to deal with non- members.2. Jobber – A Jobber is a professional speculator who works for a profit which is called turn. Jobbers, however, only re-sell the stock they have to brokers but not to the general public.3. Floor broker – the floor broker buys and sells shares for other brokers on the stock exchange. He too receives commission on the order that he executes, which is a part of the brokerage charges paid by the customer to the commission broker.4. Taraniwala – he is very similar to a jobber. He makes an orderly and continuous auction in the stock in which he speciaalizes.
Different Types of Brokers……cont’nd5. Odd Lot Dealer – Dealers buying and selling odd lots of shares and debentures are called odd lot dealers. However, now, with the demat trading account, the concept of odd lots no longer exists.6. Budliwalla – He is the financier in the stock market who provides credit facilities to the market in return for a fee called the contango or backwardation charge. He gives the loan for a short period os time ranging from two to three weeks. The interest rate charged for the loan is the one prevailing in the market. He makes a profit on the interest rate, subject to regulations of the stock exchange.7. Arbitrageur – He deals in securities in different stock markets and specializes in making a profit from the price differences in different stock markets.8. Primary Dealers – These brokers deal only in government securities.
Types of securitiesThe different types of securities traded in a stock exchange are:Specified Securities: In this category are actively traded shares of established growthcompanies commanding a large market capitalization.the following conditions should besatisfied for inclusion of shares in this category:a) The share should have been listed on the stock exchange for atleast 3 years.b) The minimum issued capital must be Rs 75 crores.c) Its market capitalisation should be two or three times.d) The minimum face value of the shares held by the public shall be Rs 4.5 crores.e) It should have atleast 20,000 shareholders on the dividend receiving list.f) The company should be growth oriented.g) The company’s shares should have been actively traded in, in the previous month.
Types of securitiesNon-Specified Securities: In this category are securities who are not in the specified list.Odd-lot Securities: An odd lot is an order for anything less than 100 shares or, 10 shares in case of a thinly traded stock. Nearly all brokers accept odd-lot trades, but some may charge a higher commission for doing so. Odd-lot orders tend to be placed by small personal investors rather than institutional traders. However, now with the introduction of the electronic trading system, the concept of odd-lot does not exist.