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Why is it called stock exchange?

Stock Exchange is one of the integral parts of capital market. It is a secure place where trading is done in a systematic way. Here the securities are bought and sold as per well-structured rules and regulations. Securities mention here include debenture and share issued by a public company, debentures and bonds issued by the government bodies, municipal and public bodies. Stock exchange plays a vital role in growing industries and commerce of a country which eventually affect the economy.

A stock exchange is an organization which provides “trading” facilities for stock brokers and traders, to trade shares of the listed companies and other financial instruments. Stock exchange also provide facilities for the issue, redemption of securities and other capital events including the payment of income and dividends.

Stock market is a collection of buyers and sellers of stocks. These stocks represent ownership interests in companies. These may include publicly or privately traded securities. The New York Stock Exchange (NYSE) is an example of a share market.

Why is it called stock exchange?


1. A market for securities: It is a wholesome market where securities of government corporate companies, and semi government companies are bought and sold. Stock exchange is a market for securities, which are financial instruments that represent ownership in a company or a debt owed by a company.

The most common securities traded on stock exchanges are stocks (also known as shares or equities) and bonds. When a company issues stock, it sells ownership in the company to investors in the form of shares, which can then be bought and sold on a stock exchange.

Similarly, when a company issues bonds, it is borrowing money from investors, and the bonds can also be traded on a stock exchange. Other types of securities that may be traded on a stock exchange include mutual funds, exchange-traded funds (ETFs), and options contracts.

2. Second hand securities: It associates with bonds, shares that have already been announced by the company once previously. Second-hand securities can be bought and sold on a stock exchange. Second-hand securities are securities that have been previously issued and are now being traded between investors, rather than being sold by the company that originally issued them.

When investors buy and sell securities on a stock exchange, they are buying and selling second-hand securities, since the securities have already been issued and are being traded among investors. The price of these securities is determined by supply and demand in the market, based on factors such as the performance of the company, economic indicators, and global events.

The ability to buy and sell second-hand securities on a stock exchange provides liquidity to the market, allowing investors to quickly and easily buy or sell their holdings as needed.

3. Regulate trade in securities: The exchange does not sell and buy bonds and shares on its own account. The broker or exchange members do the trade on the company’s behalf. One of the main functions of a stock exchange is to regulate the trade in securities.

Stock exchanges typically have a set of rules and regulations that govern the conduct of market participants, such as brokers, traders, and listed companies. These rules and regulations are designed to ensure fair and transparent trading practices, prevent market manipulation and insider trading, and protect investors.

In addition to regulating the conduct of market participants, stock exchanges also require listed companies to meet certain requirements, such as financial reporting requirements and minimum standards for corporate governance. This helps to ensure that investors have access to accurate and timely information about the companies in which they are investing.

4. Dealing only in registered securities: Only listed securities recorded in the exchange office can be traded. Stock exchanges deal only in registered securities. Registered securities are those that have been issued and registered with a regulatory body, such as the SEC in the United States or the Financial Conduct Authority (FCA) in the United Kingdom.

To be listed on a stock exchange, a company must first register its securities with the relevant regulatory body and meet certain listing requirements, such as minimum financial standards and disclosure requirements. Once the securities are registered, they can be traded on the stock exchange.

Dealing only in registered securities helps to protect investors by ensuring that the securities being traded have met certain regulatory standards and that investors have access to relevant information about the companies whose securities they are trading. It also helps to prevent fraud by ensuring that only legitimate securities are being traded on the exchange.

Why is it called stock exchange?

5. Transaction: Only through authorized brokers and members the transection for securities can be made. A transaction on a stock exchange refers to the buying or selling of securities between two parties. When a buyer and a seller agree to a price for a security, a transaction occurs.

The process of a transaction on a stock exchange typically involves a broker or other intermediary who helps to facilitate the trade between the buyer and the seller. The broker or intermediary may charge a commission or fee for their services.

Once a transaction has occurred, the exchange typically provides a record of the trade, including the price, quantity, and time of the trade. The exchange may also provide real-time price quotes and other market data to help investors make informed trading decisions.

The settlement of a transaction on a stock exchange involves the transfer of ownership of the securities and the payment of funds between the buyer and the seller. This process is typically handled by a clearinghouse, which helps to ensure that the transaction is completed smoothly and that both parties receive the securities and funds as agreed.

6. Recognition: It requires to be recognized by the central government. Recognition refers to the official status granted to a stock exchange by a regulatory body or government agency. In order to operate as a stock exchange, an organization must typically be recognized or licensed by the regulatory body or government agency in the jurisdiction where it operates.

The process of recognition typically involves meeting certain regulatory requirements, such as having proper governance structures, operating transparently, and maintaining appropriate levels of capitalization. The regulatory body or government agency may also conduct regular inspections and audits to ensure that the stock exchange is operating in accordance with relevant laws and regulations.

7. Measuring device: It develops and indicates the growth and securities of a business in the index of a stock exchange. A stock exchange can be thought of as a measuring device for the overall performance of the stock market. This is because stock exchanges provide a platform for buying and selling securities, and the prices at which these securities trade can be used as a measure of investor sentiment and overall market performance.

The most commonly used measure of stock market performance is an index, such as the S&P 500 or the Dow Jones Industrial Average. These indexes track the performance of a basket of securities listed on the stock exchange and provide a snapshot of overall market performance. Investors and analysts use these indexes as a benchmark for evaluating the performance of their own investments or the market as a whole.

8. Operates as per rules: All the securities dealing at the stock exchange are controlled by exchange rules and regulation and SEBI guidelines. Stock exchanges operate as per a set of rules and regulations that govern the conduct of market participants and ensure fair and transparent trading practices. These rules and regulations are designed to protect investors, prevent market manipulation and insider trading, and ensure that the market operates in a fair and efficient manner.

In addition to its own rules, a stock exchange may also be subject to regulations from external regulatory bodies, such as the Securities and Exchange Commission (SEC) in the United States or the Financial Conduct Authority (FCA) in the United Kingdom. These regulatory bodies oversee the operation of the stock exchange and ensure that it is operating in compliance with relevant laws and regulations.

By operating as per rules, stock exchanges ensure that investors have access to a fair and transparent market in which to buy and sell securities, and that companies have access to capital in a fair and efficient manner.

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