Meaning and Definition of a Stock Exchange

A stock exchange is often the most visible face of a country's capital market — it is the place where the general public most directly encounters "the market", through daily news of index levels rising or falling. Under the Securities Contracts (Regulation) Act, 1956 (the central law that governs securities trading in India), a stock exchange is defined in Section 2(j) as "a 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."

In plain terms, a stock exchange is an organised market where already-issued securities — equity shares, debentures, bonds and similar instruments of companies and governments — are bought and sold among investors. This is an important distinction: a stock exchange is part of the secondary market, dealing in securities that have already been issued once (in the primary market) and are now merely changing hands between one investor and another; the company itself receives no fresh money from a transaction taking place on the stock exchange.

Stock exchanges function under the overall regulatory umbrella of the Securities and Exchange Board of India (SEBI), which licenses and supervises them (a subject covered in full in its own chapter) — this chapter's own focus stays on the stock exchange as an institution: what it does, how it is organised, how trading actually happens on it, and the two major exchanges that dominate the Indian market today. The same stock-exchange framework under the Securities Contracts (Regulation) Act, 1956 is common ground across every Indian commerce syllabus, though the treatment and examples here follow the Tamil Nadu Higher Secondary syllabus's own presentation.