This article throws light upon the top nine functions of stock exchange. The functions are: 1. Ensure Liquidity of Capital 2. Continuous Market for Securities 3. Evaluation of Securities 4. Mobilising Surplus Savings 5. Helpful in Raising New Capital 6. Safety in Dealings 7. Listing of Securities 8. Platform for Public Debt 9. Clearing House of Business Information.
Function # 1. Ensure Liquidity of Capital:
The stock exchanges provide a place where shares and stock are converted into cash. The exchanges provide a ready market where buyers and sellers are always available and those who are in need of hard cash can sell their holdings. Had this not been possible then many persons would have feared for blocking their savings in securities as they cannot again convert them into cash.
Function # 2. Continuous Market for Securities:
The stock exchanges provide a ready market for securities. The securities once listed continue to be traded at the exchanges irrespective of the fact that owners go on changing. The exchanges provide a regular market for trading in securities.
Function # 3. Evaluation of Securities:
The investors can evaluate the worth of their holdings from the prices quoted at different exchanges for those securities. The securities are quoted under the free atmosphere of demand and supply and the prices are set on the basis of free market. Stock exchanges are helpful in evaluating any type of security listed there.
Function # 4. Mobilising Surplus Savings:
ADVERTISEMENTS:
The stock exchanges provide a ready market for various securities. The investors do not have any difficulty in investing their savings by purchasing shares, bonds etc. from the exchanges. If this facility is not there then many persons who want to invest their savings will not find avenues to do so. In this way stock exchanges play an important role in mopping up surplus funds of investors.
Function # 5. Helpful in Raising New Capital:
The new and existing concerns need capital for their activities. The new concerns raise capital for the first time and existing units increase their capital for expansion and diversification purposes. The shares of new concerns are registered at stock exchanges and existing companies also sell their shares through brokers etc. at exchanges.
The exchanges are helpful in raising capital both by new old concerns. The intending buyers also remain in touch with the exchanges for investing money in securities.
Function # 6. Safety in Dealings:
The dealings at stock exchanges are governed by well-defined rules and regulations of Securities Contract (Regulation) Act, 1956. There is no scope for manipulating transactions. Every contact is done according to the procedure laid down and there is no fear in the minds of contracting parties. The safety in dealings brings confidence in the minds of all concerned parties and helps in increasing various dealings.
Function # 7. Listing of Securities:
ADVERTISEMENTS:
Only listed securities can be purchased at stock exchanges. Every company desirous of listing its securities will apply to the exchange authorities. The listing is allowed only after a critical examination of capital structure, management and prospects of the company.
The listing of securities gives privilege to the company. The investors can form their own views about the securities because listing a security does not guarantee the financial stability of the company.
Function # 8. Platform for Public Debt:
The increasing government’s role in economic development has necessitated the raising of huge amounts for this purpose. The stock exchanges provide a platform for raising public debts. The stock exchanges are also organised markets of government securities. However, there is no provision for a separate counter for government securities but these are traded through brokers dealing in these securities.
Function # 9. Clearing House of Business Information:
The companies listing securities with exchanges have to provide financial statements, annual reports and other reports to ensure maximum publicity of corporation operations and working. The economic and other information provided at stock exchanges help companies to decide their policies.