A stock exchange is a vital component of the capital market. It is a safe environment where trading is done methodically. Securities are bought and sold following well-defined rules and regulations. Securities referred to here include debentures and shares issued by a publicly traded company that is properly listed on the stock exchange, as well as debentures and bonds issued by the government, municipal, and public bodies.
How does it work?
A stock exchange in India typically operates independently, as there are no market makers’ or specialists present. The entire process of trading on the Indian stock exchange is order-driven and takes place on an electronic limit order book.
Orders are automatically matched in this configuration with the assistance of the trading computer. Its purpose is to match investors’ market orders with the best limit orders. Brokers play an important role in the stock exchange trading system because all orders are routed through them.
The Advantages of a Stock Exchange Listing
Company securities benefit from special treatment when listed on a stock exchange. For example, a stock exchange only quotes publicly traded companies’ shares.
Being listed on a reputable stock exchange benefits companies, investors, and the general public in the following ways.
Liquidity
Listing allows shareholders to take advantage of liquidity before their counterparts and provides them with ready marketability. In addition, it enables shareholders to estimate the value of their investments.
Furthermore, it allows for share transactions with a company and assists them in spreading out the associated risks. It also assists shareholders in increasing their earnings from even minor increases in overall organisational value.
Obtaining capital
One of the most effective ways for a company to obtain low-cost capital is to sell company shares on the stock exchange market to shareholders. Because of their reputation in the stock exchange market, listed companies can generate comparatively more capital through share issuance and use it to keep their company afloat and its operations running.
Fair price
The quoted price also tends to represent the true value of a particular security on the Indian stock exchange. Because the prices of listed securities are determined by the forces of demand and supply and are publicly disclosed, investors can be confident that they will purchase them reasonably.
Enhanced Value
Only stocks listed on a reputable stock exchange are thought to be more valuable. Companies can capitalize on their stock exchange market reputation by increasing the number of shareholders. Issuing shares in the market for shareholders to purchase effectively increases the shareholder base and credibility.
Collateral value
Almost all lenders accept listed securities as collateral and provide credit facilities in exchange for them. In addition, because listed companies are deemed more credible in the stock exchange market, they are more likely to receive faster approval for their credit request.
India’s major stock exchanges
There are two stock exchanges in India: The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
BSE – This particular stock exchange was founded in 1875 on Dalal Street in Mumbai. It is renowned as Asia’s oldest stock exchange and the world’s tenth-largest stock exchange.
As of April, the estimated market capitalisation of the Bombay Stock Exchange was $ 4.9 trillion, with approximately 6000 companies publicly listed on it.
The National Stock Exchange (NSE) – was founded in 1992 in Mumbai and is regarded as the pioneer of India’s demutualised electronic stock exchange markets. This stock exchange market was established to eliminate the Bombay Stock Exchange’s monopolistic influence in the Indian stock market.
As of March 2016, the National Stock Exchange’s estimated market capitalisation was US$ 4.1 trillion, making it the world’s 12th largest stock exchange.
