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The stock exchange is a highly organised market for the purchase and sale of second hand quoted or listed securities. Stock exchange is a market in which securities are bought and sold and it is an essential component of a developed capital market. According to the Securities Contracts (Regulation) Act, 1956, Stock Exchange means any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities. Securities include: Shares, scrips, stocks, bonds, debentures or other marketable securities of a like nature Government securities Stock Exchange is an important part of the Capitalistic system of economy. It is indispensable for the smooth functioning of a corporate enterprise. It provides the necessary mobility to capital and directs the flow of capital into profitable and successful enterprises. It exerts a powerful and significant influence as a depressant or stimulant of business activity. It maybe defined as the place or market where securities of joint stock companies and of government or semi government bodies are dealt in.
Importance: Only an organized securities market can provide sufficient marketability and price continuity for shares Is only such a market that can provide reasonable measure of safety and fair dealing in buying and selling of securities. Through the interplay of demand for and supply of securities, properly organized stock exchange results in a reasonably correct evaluation of securities in terms of their real worth. Through such evaluation of securities, the stock exchange helps in the orderly flow of savings between different types of investments. Objective and Role of Stock Exchange: To safeguard the interest of investing public To establish and promote honorable and just practices in securities transactions. To promote, develop and maintain a well regulated market for dealing in securities. To promote industrial development in the country through efficient resource mobilization by way of investment in corporate securities. To enable flow of capital into most efficient industries. The market price and relative yield of a security are the guiding factors. It encourages people to save invest in corporate securities thereby accelerating capital formation. Raising long term capital: The existence of a stock exchange enable companies to raise permanent capital.
Dealings on the Stock exchange are subject to the byelaws and rules of the Stock Exchange. Stock exchange dealings in India are regulated by the Securities Contracts (Regulation) Act and the Securities and exchange Board of India (SEBI). There are two important types of trading on the stock exchange namely Ready Delivery and Forward Delivery Contract.
Ready Delivery contract, also known as cash trading or cash transactions, are to be settled either on the same date or within a short period that may extend at best upto seven days. (If the payment and delivery of securities is on the same day or on the next day, it may be called Spot Delivery Contract). Forward Delivery contracts are discharged on fixed settlement days. They are confined to those securities which are placed on the forward lists.
Investment transactions require actual delivery of securities on the part of sellers and the payment of their full price by its buyers. Speculative transactions does not involve full payment for and taking delivery of the securities that the speculators have contracted to transfer. The transaction can be made by the deposit of a fractional part of the price. The volume of speculative transaction far exceed that of investment transaction on a stock exchange. It is therefore argued that speculation is necessary to ensure sufficient volume and continuity of business in the stock exchange. There are 23 stock exchanges functioning in India including the OTCEI (Over the Counter Exchange of India) and the National Stock Exchange (NSE). The Bombay Stock exchange established in 1878 is the oldest in Asia. There are over 10,000 companies listed and the number of investors is also one of the largest in the world. Only members and their authorized clerks can enter the trading floor and conduct buying and selling of securities
Types of Speculator:
Bull: Is a speculator who buys shares in the expectation of selling it at a higher price. Bear: Sells securities in the expectation of a fall in their prices in future. Stag: Neither buys nor sells but applies for subscription to the new issues expecting that he can sell them later at a premium. Option Dealing: Option is the right to buy or sell a certain quantity of the security at a certain price within a certain time. The option to buy is known as Call Option and the option to sell is know as a Put Option. In an option dealing, the speculator is given the right or option to buy or sell, or both buy and sell as the case maybe on the settlement day or else he will forfeit the option money.