Question

Explain the features of stock exchange.

Answer 1

Meaning: -
Stock exchange plays an important role in capital markets. A capital market is a market for long term funds. Stock exchange is a mechanism, which facilitates listing and trading in securities. 

Definition: -
Securities contracts Regulation Act, 1956 defines stock exchange as “an association, organisation or body of individuals whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities.

1. Organized body: -
   A stock exchange is an organized association or corporate body. The organized stock exchanges can take any of the following terms: 

• Public limited companies
• Companies Limited by Guarantee
• Voluntary Non-Profit Organisation. 

2. Facilitates Listing of Shares: -
   The Stock exchange facilitates the listing of shares issued by Public limited companies. The companies that issue shares to the public can get their shares listed on one or more stock exchanges in the country. 

3. Facilitates Trading of Securities: -
   The Stock Exchanges facilitates the trading of shares. The shares listed on the exchange can be traded. The shares can be traded between the sellers and buyers on the stock exchange. The trading of shares brings liquidity to the shares. 

4. Controlled by SEBI: -
   The activities of stock exchanges are controlled by SEBI. SEBI has framed rules and regulations to be followed by stock exchanges. If the rules and regulations are not followed, SEBI may cancel the registrations of such stock exchanges. 

5. Membership: -
   Every stock exchange has its members. The members are normally the stock brokers. Membership charges must be paid to become members of the stock exchange. The membership fees include:

• Entrance Fees
• Membership Security Deposit
• Annual Subscription fees. 

6. Trading through Registered Brokers: -Transactions on the stock exchange are done only through the registered stock brokers. Transactions through any other party are considered invalid.