Q.What is the Secondary Market? Explain the functions of a stock exchange.

Once a security is already out in investors' hands, this is the market that lets it keep changing hands — without which the primary market itself would struggle to attract investors at all.

The secondary market is the segment of the capital market in which securities already issued in the primary market, and already held by investors, are subsequently bought and sold among investors themselves. No fresh capital reaches the issuing company from a secondary-market transaction; what changes is simply which investor holds the security. It is organised principally through recognised stock exchanges in India, chiefly the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

A stock exchange performs several functions beyond simply providing a trading venue. It provides liquidity and marketability, letting an investor who wishes to exit find a buyer readily rather than searching privately — which is precisely what makes investors willing to subscribe to new primary-market issues in the first place. It provides continuous pricing and quotation, so a security's current market price is publicly known at any time, helping investors, companies and lenders assess the value of a holding or collateral. It ensures safety and fairness of transactions, since trading on a recognised exchange follows a regulated framework — dematerialised holding through depositories, standardised settlement, and a clearing-corporation guarantee against counterparty default — a purely private transaction could not offer. It acts as an economic barometer, since price and volume movements are widely read as reflecting investor sentiment about companies and the economy. And by …

Students commonly say the secondary market 'raises capital for the company,' which is the primary market's job, not the secondary market's — the secondary market only transfers already-issued securities BETWEEN investors. Omitting the exchange's role as an …