A stock exchange can be defined as the marketplace where capital or securities, like bonds and stocks, are purchased and retailed. Bonds are generally marketed over Over-the-Counter (OTC). However, some corporate bonds are possible to trade on stock exchanges. These stock exchanges enable businesses or companies to raise equity and attract investors to make conscious decisions by keeping the real-time price input in mind.
These exchanges can vary from physical locations to electronic trading outlets. Even though people are generally familiar with the portrayal of the conventional trading floors, these days are in the past now, and most of the exchanges, if not all, now use online or electronic trading.
What is the purpose of Stock Exchanges?
Stock exchanges decree as an envoy for a country’s economy by stimulating trade and distributing information about it. Here we have listed some of the ways in which the exchanges contribute:
- Corporate Governance
Companies or businesses publicly registered on a stock exchange should correspond to documenting standards established by the central regulating bodies. This consists of having to publicly announce their monetary statements and incomes to their stakeholders on a regular basis.
The activities of a company’s administration are continually under the eyes of the nation and directly influence the state of the business. Public reporting ensures that the association will compel decisions that profit the objectives of both the company and its stakeholders, therefore acting proficiently.
- Economic Efficiency
These exchanges not only help to facilitate management proficiency but also facilitate financial or economic efficiency by allocating capital. Stock exchanges procure a boulevard for people to capitalize on their money, as impeded to just saving their funds. This implies that the equity that would contrarily be unused is used towards financial benefits, thereby stemming in an even more efficient economy.
In addition to this, these exchanges also procure liquidity, as it is moderately susceptible to trade one’s holdings with the means of procuring liquidity and real-time information on the price of company stakes. The stock exchange furthermore stimulates a productive market by enabling its investors to actively determine the value or price of companies with the help of supply and demand.
- Raising Capital
By means of initial public offerings, commonly referred to as (IPO) or issuing of fresh shares, businesses are eligible to raise money to finance undertakings and development projects. This procures businesses with paths to improve growth.
The Bombay Stock Exchange and the National Stock Exchange
The majority of the trading in India’s stock market is done on the two central stock exchanges of the country, namely, the Bombay Stock Exchange or the BSE and the NSE or National Stock Exchange. Nearly all our nation’s important companies or firms are registered on both exchanges. Hence, both exchanges contend for the decree flow that directs to reduce prices, create, and improve market efficiency. Moreover, the existence of arbitrageurs maintains the prices on both the stock exchanges within a short spectrum.
What Is the Bombay Stock Exchange?
The BSE or Bombay Stock Exchange, was established in 1875 Native Share and Stock Brokers’ Association and is the country’s first and largest securities market. The stock exchange is based in Maharashtra Mumbai. As of 2022, around 6,000 firms and businesses are registered on the exchange and it is one of the biggest stock exchanges not only in the country but also in the world, along with exchanges like the NYSE or New York Stock Exchange, NASDAQ, Shanghai Stock Exchange, Japan Exchange Group, and the London Stock Exchange group.
The BSE has assisted in expanding and boosting the country’s capital markets, comprising the commercial debt market. In addition to this, it has also helped develop the nation’s corporate sector to raise the required investment capital. The Bombay stock exchange is also Asia’s foremost stock exchange and comprises an equities trading outlet or platform for SMEs or small and medium enterprises. Moreover, the BSE has modified into procuring additional capital market services encompassing settlement, risk management, and clearing.
The Bombay Stock Exchange is well-known for its electronic trading system that procures quick and productive trade performance. The BSE also facilitates investors to exchange in currencies, debt instruments, mutual funds, equities, and derivatives. In addition, the BSE also delivers other critical market trading services like investor education, risk management, and settlement.
What Is the National Stock Exchange of India?
The National Stock Exchange of India Limited (NSE) is the largest monetary market in the country. Established in 1992, the National Stock Exchange is also based in Mumbai. It has furthermore evolved into a refined, electronic market. In fact, the NSE has earned the fourth position in the world regarding equity trading volume.
Even though it was founded in 1992, it wasn’t until two years later, in 1994, that the trading officially commenced with the takeoff of the cash market segment and wholesale debt market. The National Stock Exchange was also the first exchange of the country to procure contemporary, entirely computerized electronic trading. It is also the largest private wide-area network in the country.
The National Stock Exchange of India Limited was the first exchange in India to provide modern, fully automated electronic trading. It was originally set up by a committee or group of Indian financial institutions to generate better translucency to India’s capital market.
The NSE performs transactions in the wholesale debt, equity, and derivative markets. One of the prominent offerings the NSE provides is the NIFTY 50 Index, which traces the nation’s biggest assets in the equity market.