Introduction and overview
In most countries, the stock exchange has two crucial functions. It assures a ready market for securities, encouraging consumers to invest money in corporations. It transfers capital among enterprises as a pricing mechanism by calculating prices representing the genuine investment value of a company’s shares.
A stock exchange is a regulated market for purchasing and selling securities like stocks and bonds. Although most bonds are traded over-the-counter (OTC), some corporate bonds can be exchanged on stock exchanges. This enables businesses to raise funds and investors to make decisions based on real-time price data. A physical venue or an electronic trading platform can be used as an exchange. Most exchanges employ electronic trading these days.
The stock market facilitates transactions between sellers of financial instruments and targeted buyers. Stock exchanges in India adhere to rules and regulations directed by the Securities and Exchange Board of India (SEBI). The authoritative body protects investors’ interests and promotes stock trading in India.
Concept of a stock exchange
The stock exchange is a marketplace where buyers and sellers meet to exchange financial instruments at certain times during business hours while complying with SEBI regulations. However, only firms listed on a stock market can trade on it., e.g., the National Stock Exchange and the Bombay Stock Exchange, known as the secondary markets.
How does it work?
A stock exchange in India works independently, as no “market makers” or “specialists” are present. In India, stock-exchange trading is order-driven and conducted over an electronic limit order book. Orders are automatically matched with the aid of the trading computer in this setup. Its purpose is to match the market orders from investors with the most appropriate limit orders.
An order-driven market enhances transaction transparency by publicly publishing all market orders. Brokers play a crucial part in the stock-exchange market’s trading structure, as all orders are placed through them. Institutional investors and retail customers can avail themselves of the benefits associated with direct market access. Investors can put orders directly into the trading system by utilizing the trading terminals offered by stock-exchange market brokers.
Benefits of listing with the Stock Exchange
Issuing firm shares on the stock exchange market for shareholders to purchase is one of the most effective ways for a company to obtain inexpensive money. It allows companies to raise more capital through share issuance due to their reputation and fundamentals from the stock exchange market, and use it to grow their company.
Listed assets are considered more reputable in the stock-exchange market. Lenders accept them as collateral and provide credit facilities against them, provided the companies have a decent financial performance.
Investors in equity markets are holding one of the most liquid assets they can encash their investments within a short time.
The quoted price also represents the real value of a particular security on a stock exchange in India. This is because the prices of listed securities are set as per the forces of demand and supply, and are disclosed publicly.
Major stock exchanges in India
In India, there are two major types of stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), which account for the majority of stock market transactions (NSE).
The Bombay Stock Exchange (BSE)
Located on Dalal Street, Mumbai, this stock exchange was founded in 1875. It is renowned as the oldest stock exchange not just in Asia but the world and is the “world’s 10th largest stock exchange.” Sensex measures the performance of BSE, and it reached its all-time high. The Native Share and Stock Brokers’ Association, India’s first and largest stock exchange, was created in 1875.
The National Stock Exchange (NSE)
The NSE was established in 1992 in Mumbai and is accredited as the pioneer among India’s electronic stock exchange markets. This stock exchange market was created to counteract the Bombay Stock Exchange’s monopolistic influence on the Indian stock market.
It is the 12th largest stock exchange in the world. NIFTY 50 is the NSE’s index, and investors extensively use it across the globe to gauge the accomplishment of the capital market in India. It is India’s first stock exchange to provide investors with a decentralized electronic trading platform.
India International Exchange (India INX)
India’s first international stock market, the India International Exchange, or India INX, was established in 2017. It is a subsidiary of BSE and is based in Gujarat International Finance Tec-City.
The Metropolitan Stock Exchange (MSE)
The Metropolitan Stock Exchange, established in 2008, is a modern clearinghouse situated in Mumbai that handles the clearing and settlement of contracts involving a wide range of asset classes.
NSE IFSC Ltd (NSE International Exchange)
In 2016, the NSE IFSC Limited (NSE International Exchange) rose to prominence. It is a subordinate of the National stock exchange, operating from Gujarat International Finance Tec-City.
Significant functions of a stock exchange
Determining a reasonable price
The stock exchanges facilitate price discovery for securities that are publicly listed through seamless trading of securities.
Advancing industrial development
Capital availability is critical to a nation’s industrialization. The stock markets ensure this by giving companies a platform to raise money.
Protecting investors’ interests
The stock markets set rules for how listed companies should operate. These standards must be adhered to by firms to preserve the interests of investors. The stock exchange must be brought to notice any significant decision to be taken by the company.
Reduces a company’s reliance on loans
The development of stock exchanges has aided listed firms in avoiding the need for loans by allowing them to generate capital through the issuance of securities, allowing them to save a large sum in the form of interest outflow.
The Role of Stock Exchanges in India’s Capital Market
Effective mobilization of savings
Stock exchanges provide organized markets for individuals and institutional investors and regulate trading transactions. It increases the trust of small savers and investors. Thus, stock exchanges attract small savings, especially from numerous investors in the capital market.
Promoting the establishment of the capital
The funds raised in the capital market are distributed to industries producing various goods and services that benefit society. This generates capital and promotes the growth of national assets. Savings are routed towards relevant investment opportunities.
Wider avenues of investment
Through online trading facilities, which bring the stock exchange to investors’ fingertips via a computer network, stock exchanges provide a broader avenue for investment for people and organizations with an investible surplus. In the stock markets, a wide range of securities is available to meet the goals and expectations of investors.
Stock exchanges facilitate investors’ decisions on their investment priorities by providing them with a basket of securities from different industries and companies.
Stock exchanges provide an organized market for individuals and institutional investors. They regulate the trading transactions with rules and regulations to ensure investors’ protection. The Indian stock exchange is a market for trading financial products, such as stocks, bonds, and commodities. It’s a marketplace where traders meet to exchange financial instruments at certain times during the business day, all while complying with SEBI’s strict restrictions.
Stock markets play a crucial role in the overall consolidation of a country’s economy and the growth of its industrial sector. It is the capital market’s most active and well-organized segment. In emerging nations like India, Stock markets play a critical role in fostering capital development by effectively mobilizing funds and assuring investor safety.
Stock markets promote investment and raise capital, which allows companies to grow their businesses, expand operations, and create jobs in the economy. The companies invest those funds back into their businesses, and investors, ideally, earn a profit from their investment in those companies.