Q.Define stock exchanges and explain its functions.

A stock exchange is an organised secondary market where already-issued securities (shares, debentures, bonds) are traded under regulation. Its functions include: providing a ready and liquid market, fair pricing of securities, safety of dealings, mobilising savings and aiding capital formation, acting as an economic barometer, and protecting investors.

Definition of a Stock Exchange

Under the Securities Contracts (Regulation) Act, a stock exchange means an association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling the business of buying, selling and dealing in securities. In simple terms it is an organised secondary market for existing securities, where trading takes place only in listed securities through authorised members (brokers) under strict rules. Leading examples in India are the BSE (Bombay Stock Exchange) and the NSE (National Stock Exchange). This matches the NCERT/CBSE commerce treatment of the stock exchange as the core of the secondary market.

Functions of a Stock Exchange

1. Ready and continuous market – It provides a convenient place where buyers and sellers of securities can readily find each other, giving a continuous market for securities.
2. Pricing of securities – The constant interaction of demand and supply determines fair prices; quoted prices guide investors about the worth of a company.
3. Safety of transactions – Trading is subject to well-defined rules, SEBI regulation and membership controls, which ensure fair and safe dealings and reduce the risk of fraud.
4. Mobilising savings / aiding capital formation – By offering a safe and profitable avenue, it attracts the savings of the public and channels them into productive investment, helping capital formation.
5. Liquidity – Investors can convert their securities into cash at any time by selling them on the exchange, which encourages people to invest. …