Meaning and Features of a Stock Exchange

A stock exchange is an organised, regulated marketplace where securities such as equity shares, debentures, bonds and government securities are bought and sold under a well-defined set of trading rules. The Securities Contracts (Regulation) Act, 1956 describes a stock exchange as a body corporate (or an association of persons) formed for the purpose of assisting, regulating and controlling the business of buying, selling and dealing in securities. Students preparing the AP Intermediate Commerce syllabus (BIEAP) should think of a stock exchange as the organised meeting point between savers who wish to invest and companies or governments that need long-term capital.

Features of a stock exchange

• Organised market — trading follows fixed rules, timings and procedures laid down by the exchange and by SEBI.
• Deals only in listed securities — only securities that satisfy the exchange's listing conditions can be traded on it.
• Membership-based — only registered members (stock-brokers/trading members) can transact business on the floor or the trading terminal; the public buys and sells through them.
• Regulated market — every recognised stock exchange in India functions under the supervision of the Securities and Exchange Board of India (SEBI).
• Provides liquidity and marketability — an investor can convert a security into cash, and cash into a security, with reasonable speed.
• Barometer of the economy — continuous movement of share prices and market indices reflects the underlying health of businesses and of the economy as a whole.

In India, the two principal stock exchanges are the Bombay Stock Exchange (BSE), the oldest in Asia, and the National Stock Exchange (NSE), which introduced fully electronic, screen-based trading.