Exercises · Q2
Q.Explain the features (characteristics) of a stock exchange.
Tamil Nadu DgeTextbookSubjectiveImportance★★★★★
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A stock exchange has several distinguishing features:
- An organised market — it operates under a definite set of rules, byelaws and regulations governing membership, order placement, trade matching and settlement, rather than as an informal gathering.
- Deals only in existing (already-issued) securities — being a secondary-market institution, it does not itself issue new securities; it only provides the platform on which previously issued securities change hands.
- A regulated body — every recognised exchange functions under the Securities Contracts (Regulation) Act, 1956, and under SEBI's continuing supervision, which approves its rules and monitors its working.
- Trading confined to listed securities — only securities formally admitted (listed) on that exchange can be traded on it.
- Historically membership-based, now largely electronic — trading was traditionally restricted to the exchange's registered members (brokers) acting for the investing public; today, Indian exchanges use almost entirely screen-based electronic trading, with orders matched automatically by computer rather than through open-outcry floor trading.
✓Final answer
Features of a stock exchange: an organised, rule-bound market; trades only existing/listed securities; regulated under the SCRA and SEBI; and now conducted mainly through screen-based electronic trading.
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