stock market

AGENDA
BASICS

OF STOCK MARKET HISTORY OF STOCK EXCHANGE CHARACTERISTICS TYPES IMPORTANCE ADVANTAGES

Stock Market Basics

Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide on a price. Some exchanges are physical locations where transactions are carried out on a trading floor. The purpose of a stock market is to facilitate the exchange of securities between buyers and sellers, reducing the risks of investing.

Stock market
A stock exchange is defined under section (2) 3 of the Securities Contracts (Regulation) Act, 1956, as any body of individuals whether incorporated or not, constituted for the purpose of assisting, regulating & controlling the business of buying, selling or dealing in securities.

Characteristics of a stock exchange

1. 2. 3.

4.

5.

It is an organized market. Securities can be bought and sold easily. In a stock exchange, transactions take place between its members or their authorized agents. All transactions are regulated by rules and by laws of the concerned stock exchange. It makes complete information available to public in regard to prices and volume of transactions taking place every day.

Stock market

Primary market and Secondary markets

Primary Market
The primary market is a market for new issues. It is also called the new issues market. Funds are mobilized in the primary market through . (a) Prospectus,

(b)
(c)

Rights issues, and Private placement

THE SECONDARY MARKET

Secondary

market is a market in which existing securities are resold or traded. This market is also known as the stock market.

IMPORTANCE OF STOCK MARKET

The stock market is one of the most important sources for companies to raise money. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate. The stock market is often considered the primary indicator of a country's economic strength and development. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk

FUNCTIONS OF THE SECONDARY MARKET

1.

To facilitate liquidity and marketability of the outstanding equity and debt instruments 2. To contribute to economic growth through allocation of funds to the most efficient channel through the process of disinvestment to reinvestment. 3. To provide instant valuation of securities caused by changes in the internal environment 4. To ensure a measure of safety and fair dealing to protect investors interest.

ADVANTAGES OF STOCK EXCHANGES Advantages which can be outlined from the point of view of (a) Companies, (b) Investors, and (c) the Society as a whole.

To the Companies
The companies whose securities have been listed on a stock exchange enjoy a better goodwill and creditstanding than other companies because they are supposed to be financially sound. The market for their securities is enlarged as the investors all over the world become aware of such securities and have an opportunity to invest As a result of enhanced goodwill and higher demand, the value of their securities increases and their bargaining power in collective ventures, mergers, etc. is enhanced. The companies have the convenience to decide upon the size, price and timing of the issue.

To the Investors: (i) The investors enjoy the ready availability of facility and convenience of buying and selling the securities at will and at an opportune time. (ii) Free from any anxiety about the delivery and payment problems. (iii) Availability of regular information on prices of securities traded at the stock exchanges.

(c) To the Society (i) The availability of lucrative avenues of investment and the liquidity thereof induces people to save and invest in long-term securities. This leads to increased capital (ii) The facility for convenient purchase and sale of securities at the stock exchange provides support to new issue market. This helps in promotion and expansion of industrial activity, which in turn contributes, to increase in the rate of industrial growth. (iii) The Stock exchanges facilitate realisation of financial resources to more profitable and growing industrial units where investors can easily increase

(iv) The volume of activity at the stock exchanges and the movement of share prices reflect the changing economic health. (v) Since government securities are also traded at the stock exchanges, the government borrowing is highly facilitated. The bonds issued by governments, electricity boards, municipal corporations and public sector undertakings (PSUs) are found to be on offer quite frequently and are generally successful.