Important Functions of Stock Exchange

1. Economic Barometer:

A stock exchange is a reliable barometer to measure the economic condition of a country. Every
major change in country and economy is reflected in the prices of shares. The rise or fall in the
share prices indicates the boom or recession cycle of the economy. Stock exchange is also known
as a pulse of economy or economic mirror which reflects the economic conditions of a country.

2. Pricing of Securities:

The stock market helps to value the securities on the basis of demand and supply factors. The
securities of profitable and growth oriented companies are valued higher as there is more demand
for such securities. The valuation of securities is useful for investors, government and creditors.
The investors can know the value of their investment, the creditors can value the
creditworthiness and government can impose taxes on value of securities.

3. Safety of Transactions:

In stock market only the listed securities are traded and stock exchange authorities include the
companies names in the trade list only after verifying the soundness of company. The companies
which are listed they also have to operate within the strict rules and regulations. This ensures
safety of dealing through stock exchange.

4. Contributes to Economic Growth:

In stock exchange securities of various companies are bought and sold. This process of
disinvestment and reinvestment helps to invest in most productive investment proposal and this
leads to capital formation and economic growth.

5. Spreading of Equity Cult:

Stock exchange encourages people to invest in ownership securities by regulating new issues,
better trading practices and by educating public about investment.

6. Providing Scope for Speculation:

To ensure liquidity and demand of supply of securities the stock exchange permits healthy
speculation of securities.

7. Liquidity:

The main function of stock market is to provide ready market for sale and purchase of securities.
The presence of stock exchange market gives assurance to investors that their investment can be
converted into cash whenever they want. The investors can invest in long term investment
projects without any hesitation, as because of stock exchange they can convert long term
investment into short term and medium term.

8. Better Allocation of Capital:

The shares of profit making companies are quoted at higher prices and are actively traded so
such companies can easily raise fresh capital from stock market. The general public hesitates to
invest in securities of loss making companies. So stock exchange facilitates allocation of
investor’s fund to profitable channels.

9. Promotes the Habits of Savings and Investment:

The stock market offers attractive opportunities of investment in various securities. These
attractive opportunities encourage people to save more and invest in securities of corporate
sector rather than investing in unproductive assets such as gold, silver, etc.

Benefits of listing of securities

Registering on the stock exchange has many benefits, they are as follows:

 First and foremost when a company gets registered on the stock exchange, its securities become
tradeable.
 The company has the chance of getting the best price from its securities as the market price on the
stock exchange is regulated by the availability of buyers and sellers and the number of buyers and
sellers there is huge.
 Registering on the stock exchange gives the company great publicity as all information such as
opening price, closing price, and other information are provided through almost every means of
communication such as the internet, and newspapers, basically becoming public and providing
more reach.
 A proper timely report has to be maintained for a company to stay on the stock exchange. This
helps in eradicating fraud and maintaining transparency in the operations of the company.

Conditions for registering in the stock exchange

According to regulation 4(2) of the SEBI Regulations, 2009, if a company wants to list its
securities on a stock exchange then it has to make an application to one or more designated stock
exchange, which has nationwide trading capacity. Certain other conditions need to be fulfilled by
a company to enter the stock market, they are as follows:

 A company has to publish a prospectus through which twenty-five percent of the securities are to
be offered to the public.
 The company must have a good amount of capital structure and the securities which are being
listed must be in the public interest.
 The prospectus should also contain the date of receipt of the application and such other details as
necessary.
 The basic or minimum requirement of capital is three crore rupees out of which sixty percent,i.e.,
one crore eighty lakh rupees should be made available for the public. If the share capital exceeds
 five crore rupees then it becomes mandatory for the company to get itself registered under a
recognized stock exchange.
 The company must inform the stock exchange in case the board of directors changes or new
securities are issued.
 A company needs to file the annual return and inform the stock exchange.
 Last but not least, a company must comply with the terms and conditions of the stock exchange
under which it is getting registered and strictly adhere to them.

Documents needed for a listing of securities

Certain documents are needed to be shown by the company which wants to register its securities
in a stock exchange, they are as follows:

1. Details of the company since its inception.

2. Certified copy of Articles of Association and Memorandum of Associations.
3. Copy of financial report and auditor’s report for last five years.
4. Details of the company’s capital structure.
5. Prospectus and agreement.
6. Consent copy from SEBI.

The procedure for a listing of securities on the stock exchange

There is a step-by-step procedure that is to be followed for a listing of securities in the stock
market:

1. Firstly, an application has to be submitted by the company to a recognized stock exchange. This
procedure is provided vide section 73 of the Companies Act, 1956 whereby it is stated that if a
public limited company wants to list its securities on the national stock exchange then it has to
submit an application regarding the same with necessary documents to that stock exchange. The
stock exchange can ask for any missing documents that are needed and the company has to
submit them within ten working days.
2. Next, the stock exchange will inspect the financial status of the company and make sure
everything is in line. If the stock exchange accepts the application of the listing company then the
stock exchange and the listing company enter into an agreement.
3. The listing company has to accept all the terms and conditions and follow rules and regulations of
the stock exchange under which it is getting registered and also abide by the regulations of SEBI.
4. A company shall have to pay a fee for listing annually, which is calculated on the company’s
paid-up capital.
5. A company seeking admission to the stock exchange has to pay a security deposit which the stock
exchange can confiscate if the company fails to pay dividends or delays in transferring securities,
etc.
6. Finally, a company gets access to trade in the stock market after it fulfills all the formalities
within the time prescribed under the SEBI Regulations, 2009.

NSE
The NSE or National Stock Exchange is the leading stock exchange of India. It is the fourth
largest in the world (based on equity trading volume). Based in Mumbai and established in 1992,
it was the first stock exchange in India to offer a screen-based system for trading.

The NSE was initially set up with an aim to usher in transparency to the Indian market system,
and it has ended up delivering on its aim quite well. With the help of the government, the NSE
successfully offers services such as trading, clearing as well as the settlement in debt and equities
comprising domestic and international investors.

BSE
The BSE or the Bombay Stock Exchange is a lot older than its cousin. It was Asia’s first stock
exchange. With a trading speed of 6 microseconds, the BSE is the fastest stock exchange in the
world.

The BSE does have some interesting history. A man named Premchand Roychand founded the
Native Share and Stock Brokers Association in the 19th century. In those times, it used to
function in Dalal Street under a banyan tree - where traders would gather together to buy and sell
stocks. Gradually, the network expanded and the exchange was established by the name of
Bombay Stock Exchange in 1875.

How does NSE & BSE work?

The trading mechanism of both the NSE as well as BSE is similar. Investors and traders connect
to the exchanges via their brokers, and place buys or sells orders on these exchanges. What
makes them decide on their trading strategy? You might have often heard the terms ‘Nifty’ and
‘Sensex.’ Both of them are indices - the former representing NSE and the latter BSE. These
indexes play an integral part in the working of these exchanges.

 The indices are an indicator of the health of the stocks on these exchanges (and given their scale,
an indicator of the Indian economy’s health too).
 A set of 50 stocks in the NSE (and 30 in the BSE) have been selected, on the basis of their
company’s reputation, market capitalization, and significance, to be part of a weighted formula
that gives us the ‘value’ of the index.
 If anyone of these stock prices rise, the value of Nifty & Sensex goes up. If the prices decline, so
do Nifty & Sensex.

That’s all well and good, but what is the actual role of these stock exchanges? What do they do?

 Suppose a company wishes to raise money from investors, it first needs to be registered in the
stock exchange, which it does with an IPO.
 The company produces shares and sells them at a particular price. The investors who buy the
shares are the shareholders of the company.
 For every share, a fixed amount of dividend (profit, in layman terminology) is paid to the
investors. If the company grows, the dividend increases and vice versa.
In case the company keeps growing, it will attract more investors and more shares need to be
issued.
 All these transactions are carried out under a regulating authority known as the stock exchange,
like NSE and BSE. Companies list their shares in these exchanges and investors buy them.

Trading on NSE and BSE

now that you know what is NSE and BSE, you should be looking forward to start trading on
NSE and BSE, follow these steps:

 Firstly, open an online trading & demat account. They are required for buying, selling and storing
stocks.
 Do remember to choose an authentic broker who is registered with SEBI.
 Move funds from your bank account to your trading account.
 Once set up, trading can begin!

OTCEI
Over the Counter Exchange of India (OTCEI) was incorporated in 1990 under the Companies Act, 1956
and was recognised as a stock exchange under the Securities Contracts Regulation Act, 1956. It
commenced operations in the year 1992. It aims at providing the small and medium companies an easy
access to the capital market. OTCEI is a fully computerised and single window exchange system. OTCEI
is modelled along the lines of NASDAQ, the OTC exchange in USA. OTC was promoted by UTI, ICICI,
IDBI, LIC, IFCI, GIC and SBI financial services. It does not involve a geographical area rather, trading
takes place through its counters or offices through telephones and other modes of communication. It acts
as a place where buyers meet the sellers and negotiate for an acceptable terms of trade. It provides a
convenient, transparent and efficient avenue for capital market investment. It incorporates an exclusive
list of companies as only those companies which have an issued capital of 30 lakh or more can be listed
on OTCEI. It provides liquidity to the securities along with practicing a fair trade system. It also aims at
providing cheaper and easy means of trade to public as well as small companies.

broker
A broker is a person or company who works as a go-between for just a client and a stock market. Personal
traders and investors utilize the assistance of exchange members since stock markets cannot accept orders
from persons or organizations that are members of the exchange.

Brokers will provide service and are paid in a variety of methods, including commissions, fees, and
payments from the exchange itself. The companies constantly examine all the top brokers on a regular
basis and keep a list of the finest brokerage firms and trading systems to assist investors in determining
which broker is right for them.

SUB BROKER
A sub-broker is an agent of a broker, i.e., he introduces new clients to the broker. A sub-broker gets a
certain percentage of profit-sharing from the broker for introducing new clients. You can become a sub-
broker by obtaining a certificate of registration from the SEBI. It is mandatory for the sub-broker to enter
into an agreement with the broker as specified by SEBI.

Market Maker

The term market maker refers to a firm or individual who actively quotes two-sided markets in a
particular security by providing bids and offers (known as asks) along with the market size of
each. Market makers provide liquidity and depth to markets and profit from the difference in the
bid-ask spread. They may also make trades for their own accounts, which are known as principal
trades.

JOBBERS

Jobbers were the people who were employed by the employers to meet their needs pertaining to
working capital. Their role involved them to do following:
a. These Jobbers used to employ the workers and were responsible for the whole recruitment
process.
b. These people were the trusted people of the employers. Their major role of providing workers
to the industrialists required them to employ the people from their own villages.
c. They also used to provide money to these workers in the time of extreme financial crisis.
d. But, as the need of the workers grew, the domination and power of jobbers increased as they
had control over the main organ of economic and industrial development i.e. the workers. After
that, they began demanding favours for the recruitment and their power increased at an alarming
rate.
e. Jobbers also used to help the workers to settle in the cities.

Portfolio Manager

A portfolio manager is a person or group of people responsible for investing a mutual, exchange
traded or closed-end fund's assets, implementing its investment strategy, and managing day-to-
day portfolio trading. A portfolio manager is one of the most important factors to consider when
looking at fund investing. Portfolio management can be active or passive, and historical
performance records indicate that only a minority of active fund managers consistently beat the
market.

A portfolio manager holds great influence on a fund, no matter if that fund is a closed or open
mutual fund, hedge fund, venture capital fund or exchange-traded fund. The manager of the
fund's portfolio will directly affect the overall returns of the fund. Portfolio managers are thus
usually experienced investors, brokers, or traders, with strong backgrounds in financial
management and track records of sustained success.

A portfolio manager, regardless of background, is either an active or passive manager. If a

manager takes a passive approach, their investment strategy mirrors a specific market index.
Using that market index as a benchmark is extremely important since an investor should expect
to see similar returns over the long term.
Institutional Investor

An institutional investor is a company or organization that invests money on behalf of other

people. Mutual funds, pensions, and insurance companies are examples. Institutional investors
often buy and sell substantial blocks of stocks, bonds, or other securities and, for that reason, are
considered to be the whales on Wall Street.

The group is also viewed as more sophisticated than the average retail investor and, in some
instances, they are subject to less restrictive regulations.

An institutional investor buys, sells, and manages stocks, bonds, and other investment securities on behalf
of its clients, customers, members, or shareholders. Broadly speaking, there are six types of institutional
investors: endowment funds, commercial banks, mutual funds, hedge funds, pension funds, and insurance
companies. Institutional investors face fewer protective regulations compared to average investors
because it is assumed the institutional crowd is more knowledgeable and better able to protect
themselves.