ROLES AND FUNCTIONS OF STOCK EXCHANGE
Stock exchange provides a ready and continuous market for purchase and sale of securities. It provides ready outlet for buying and selling of securities. Stock exchange also acts as an outlet/counter for the sale of listed securities.
Facilitates evaluation of securities
Stock exchange is useful for the evaluation of industrial securities. This enables investors to know the true worth of their holdings at any time. Comparison of companies in the same industry is possible through stock exchange quotations (i.e. price list).
Encourages capital formation
Stock exchange accelerates the process of capital formation. It creates the habit of saving, investing and risk taking among the investing class and converts their savings into profitable investment. It acts as an instrument of capital formation. In addition, it also acts as a channel for right (safe and profitable) investment.
Provides safety and security in dealings
Stock exchange provides safety, security and equity (justice) in dealings as transactions are conducted as per well-defined rules and regulations. The managing body of the exchange keeps control on the members. Fraudulent practices are also checked effectively. Due to various rules and regulations, stock exchange functions as the custodian of funds of genuine investors.
Regulates company management
Listed companies have to comply with rules and regulations of concerned stock exchange and work under the vigilance (i.e. supervision) of stock exchange authorities.
Facilitates public borrowing
Stock exchange serves as a platform for marketing Government securities. It enables government to raise public debt easily and quickly.
Provides clearing house facility
Stock exchange provides a clearing house facility to members. It settles the transactions among the members quickly and with ease. The members have to pay or receive only the net dues (balance amounts) because of the clearing house facility.
Facilitates healthy speculation
Healthy speculation, keeps the exchange active. Normal speculation is not dangerous but provides more business to the exchange. However, excessive speculation is undesirable as it is dangerous to investors & the growth of corporate sector.
Serves as Economic Barometer
Stock exchange indicates the state of health of companies and the national economy. It acts as a barometer of the economic situation / conditions.
Facilitates Bank Lending
Banks easily know the prices of quoted securities. They offer loans to customers against corporate securities. This gives convenience to the owners of securities.
Raising capital for businesses
Exchanges help companies to capitalize by selling shares to the investing public.
Mobilizing savings for investment
They help public to mobilize their savings to invest in high yielding economic sectors, which results in higher yield, both to the individual and to the national economy.
Facilitating company growth
They help companies to expand and grow by acquisition or fusion.
They help both casual and professional stock investors, to get their share in the wealth of profitable businesses.
Stock exchanges impose stringent rules to get listed in them. So listed public companies have better management records than privately held companies.
Creating investment opportunities for small investors
Small investors can also participate in the growth of large companies, by buying a small number of shares.
Government capital raising for development projects
They help government to raise fund for developmental activities through the issue of bonds. An investor who buys them will be lending money to the government, which is more secure, and sometimes enjoys tax benefits also.