Below is a complete, detailed explanation of Stock Exchange Operations, including meaning, characteristics, concepts, Indian context, and operational process.
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STOCK EXCHANGE OPERATIONS
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1. Meaning of Stock Exchange
A Stock Exchange is an organized and regulated marketplace where securities such as shares, bonds, debentures, derivatives, and other financial instruments are bought and sold.
It provides a platform for investors and companies to trade in a safe, transparent, and systematic manner.
Definition (Simple Form)
A stock exchange is a platform where buyers and sellers of securities meet to trade through brokers under controlled rules and guidelines.
Technical Definition
According to Securities Contracts (Regulation) Act (SCRA), 1956:
A stock exchange means any 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.
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2. Characteristics of Stock Exchange
**1. Organized Market
Stock exchanges are formal institutions with proper rules, membership, and regulations.
**2. Deals in Securities
Only listed securities such as shares, debentures, bonds, mutual fund units, and derivatives are traded.
**3. Regulated by SEBI
All stock exchanges in India operate under the Securities and Exchange Board of India (SEBI) and SCRA Act.
**4. Provides Continuous Market
Trading happens daily during business hours, creating liquidity and constant price discovery.
**5. Facilitates Fair Trading
No direct trading is allowed — trading is done through registered brokers and intermediaries, ensuring fairness.
**6. Transparent Price Mechanism
Prices are determined by demand and supply forces in a transparent electronic system.
**7. Provides Safety
Strict listing rules, surveillance systems, and margin systems protect investors.
**8. Encourages Investment
Stock exchange promotes savings into investments by providing easy entry and exit.
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3. Concept of Stock Exchange
The concept of a stock exchange revolves around the idea of a centralized, regulated financial marketplace that enables companies to raise capital and investors to trade securities.
Concept Explained in Points
A. Marketplace for Securities
A stock exchange acts as a meeting place for buyers and sellers offering a ready, steady and continuous market.
B. Capital Formation
Companies raise funds through public issues (IPO), rights issues, and listing on stock exchanges.
C. Liquidity Provider
Investors can quickly convert their securities into cash, ensuring liquidity.
D. Price Discovery Mechanism
Prices of securities are determined through open trading, reflecting the true market value.
E. Investor Protection
Regulations, listing agreements, audits, and surveillance systems safeguard investor interests.
F. Economic Indicator
Movements in stock exchange indices like Sensex, Nifty, reflect the health of the economy.
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4. Definition of Stock Exchange in Indian Context
India has a well-developed capital market system with two major national stock exchanges:
1. Bombay Stock Exchange (BSE)
Established in 1875
Oldest in Asia
Index: Sensex
2. National Stock Exchange (NSE)
Established in 1992
Fully automated electronic trading
Index: Nifty 50
Indian Context Highlights
A. SEBI-Regulated System
Stock exchanges in India operate under strict rules of SEBI, ensuring transparency and fairness.
B. Dematerialized (Demat) Trading
All securities are held in electronic form through depositories like NSDL & CDSL.
C. Use of Advanced Technology
Trading is done through electronic order-matching systems (no physical trading floor).
D. Presence of Multiple Intermediaries
Brokers
Sub-brokers
Depository participants
Clearing members
Custodians
E. Growth of Derivatives Market
India has an active derivatives market in:
Equity futures & options
Currency derivatives
Commodity derivatives
F. Rise of Retail Investors
Due to mobile apps and digital platforms, retail participation has grown significantly.
