Share market or exchange is a place where stocks and shares and other long term investments are bought and sold. it is a market where savers can buy and dispose of securities as and when they like. In capitalist economics joint stock companies issue stocks and bonds to raise capital. For an investor who puts his savings in a company cannot get the amount back from directly. The stock exchange facilities the sale and purchase of these securities
Thus stock exchange is an organization for orderly buying and selling of listed (approved) existing securities (listed securities are those that appear on that appear list of the stock exchange).the organization includes an association of persons or firms to regulate and supervise all transaction. An organized stock exchange is an auction type market where pieces of trades stocks are settled by open bids and offers on the floor of the exchange
In a stock exchange only members-stock brokers-are entitled to transact business. The client will place his order with the broker either to buy or to sell or both at fixed prices or at best market prices. As soon as the order is received from the client, the broker approaches that part of the stock exchange in which the particular share is traded. As soon as the deal is transacted, the details of the transaction are recorded and a contract is prepared and sent to the client. The contract note gives details of the security bought or sold, the price, the broker’s commission etc. Accordingly settlement is done.
There are two types of transactions in a stock exchange, viz, investment transactions and speculative transactions. Investment transactions refer to purchase or sale of securities undertaken with a long-term prospect relating to their yield and price. It involves the actual delivery of security and payment of its full price. In a speculative transaction the delivery of the security and the payment of the full price is rare, instead only the differences in prices a paid.
The main function of the stock market is to provide liquidity to securities. Liquidity of an asset means it’s easy convertibility into cash at short notice and with minimal loss of capital value. This liquidity is provided by a continuous market for securities. The function of providing liquidity to old stocks is important for attracting new finance. It encourages prospective investors to invest in securities, both old and new. In the absence of any organized securities market this will not be easily feasible. Many people make investment in new issues in the hope of making capital gain later. With their funds released from sale of their old holdings, they can move into other issues coming into the market. Thus investment in new issues in new issues is facilitated by the stock market.
The new investments are influenced in another way by what is happening in the stock market. Stock market acts as an important indicator of the investment climate in the economy. When stock prices are raising and the volume of trading goes up, new issues also tend to increase. This is a good time for companies to come forward with new issues. When the secondary market is inundated the primary market also languishes.
The stock exchange provides a mechanism for fixing the prices of securities through the interaction of supply and demand. Stock market prices the means for evaluation of securities in terms of their real worth in the market. The prices quoted make a market evaluation of his holdings from time to time it also provides the tax authorities with a criterion for assessing capital gains tax, wealth tax and estate tax.
The first organized stock exchange in India started in Bombay towards the latter part of the 19th century. With both B.S.E and N.S.E., Mumbai leads the stock market operations in the country. The funding of the stock exchanges in India has shown many weaknesses, with long delays, lack of transparency in procedures and vulnerability to price rigging and insider trading. To counter these shortcomings and deficiencies to regulate the capital market, the government of India set up the Securities Exchange Board of India (SEBI) in 1988. SEBI was authorized to regulate all merchant banks on issue activities, lay guidelines and supervise and regulate the working of mutual funds and oversee the working of stock exchanges in India. SEBI in consultation with the government has taken a number of steps to introduce improved practices and greater transparency in the capital markets in the interests of involving the public and the healthy development of the capital markets. It has started the process of registration of intermediaries such as brokers and sub-brokers. It has also made rules for making client/broker relationships more transparent. It has also modified regulation on insider trading.
SEBI has been empowered to take complaints in courts and to notify its regulation. It is proved with regularity powers over companies in the issuance of capital. The transfer of securities and other related matters. It is also empowered to impose monetary penalties on capital markets intermediaries and other participants further it has to someone the attendance of and call for documents from all categories of market intermediaries.
Recent trends in stock market
1) Listing of securities in foreign markets allowed.
2) Online trading system is established.
3) Trading system is changed from outcry system to onscreen based system.
4) Derivative trading started.
5) Dematerialization of shares allowed. Depositories Limited started.
6) Foreign institutional investment in securities permitted.
7) Companies are allowed to buy back their shares.
8) Emergence of Credit Rating Agencies.
The capital market edifice, covering both primary and secondary segments is today vastly superior to the one that obtained till early 1990’s. Yet the progress has been uneven. The secondary market has shown greater resilience and absorbed technology to the extent that it can now be compared to the best stock exchange systems in the world. The new issues market or the primary market on the other hand has languished. Far-reaching changes in the primary market procedures are likely if the first report of the Securities Market Infrastructure Leveraging Expert Task Force (SMILE, Sept. 2004) is implemented.
9) Indian companies are allowed to raise capital from abroad.
10) Foreign companies are allowed to raise capital from Indian market.