Functions of a Stock Exchange

The efficient functioning of a stock exchange creates a healthy environment for both the primary and the secondary markets. Its important functions are:

1. Providing liquidity and marketability to existing securities. Its basic function is to create a continuous market where securities are bought and sold, giving investors the chance to disinvest and reinvest and providing ready marketability.
2. Pricing of securities. Share prices are determined by the forces of demand and supply. The exchange is a mechanism of constant valuation, providing instant price information to buyers and sellers.
3. Safety of transaction. Membership of a stock exchange is well regulated and its dealings are well defined under the existing legal framework, ensuring that the investing public gets a safe and fair deal.
4. Contributes to economic growth. Through the continuous process of disinvestment and reinvestment, savings get channelled into their most productive uses, leading to capital formation and economic growth.
5. Spreading of equity cult. The exchange helps ensure wider share ownership by regulating new issues, promoting better trading practices and educating the public about investment. …