What is a Stock Exchange?

We often hear two names in the stock market, NSE and BSE. NSE means National Stock Exchange and BSE means Bombay Stock Exchange. Stock exchanges play an important role in investing and trading in shares by investors. It works as a platform where investors and companies can transact with each other. In today’s article “Stock Exchange Meaning”, we will try to know the working of stock exchange and why it is important.

What is Stock Exchange?

Stock exchange is a market where financial securities like shares, commodities, bonds, derivatives etc. are bought and sold. Through these exchanges, common people are able to invest and trade in securities offered by a public company. Stock exchange plays an important role in the financial infrastructure of a country. While companies can raise funds by offering their shares and other financial instruments to the public, common people can earn profits by trading and investing in the securities listed here.

Stock exchange is a platform for a company where it is able to list its shares through IPO, only after which regular transactions can be done in them. Stock exchange including stock market is also regulated by SEBI i.e. Securities exchange board of India. Stock exchange can be mainly divided into two parts. That is primary stock exchange and secondary stock exchange.

Primary and secondary stock exchange

Primary Stock Exchange: In the primary exchange, shares are offered for subscription by the company for the first time. A company does this through IPO i.e. Initial Public Offer, where for the first time the company offers its stake to the general public in the form of shares under a fixed price band.

Secondary Stock Exchange: Shares listed by a company during IPO are transacted in the secondary exchange. After IPO, the shares of the company can be traded among the common people in which its price increases or decreases according to demand and supply.

History of Stock Exchange

Established in 1875, the Bombay Stock Exchange (BSE) was the first stock exchange in India and is also one of the oldest stock exchanges in Asia. BSE initially started functioning with 22 stockbrokers, and today it is one of the largest stock exchanges in the world.

In the mid-20th century, apart from the BSE, other regional stock exchanges also developed, such as the Calcutta Stock Exchange and the Madras Stock Exchange. But, after the Harshad Mehta scam in 1992, the Government of India established the Securities and Exchange Board of India (SEBI) to strengthen stock market regulation.

After the arrival of SEBI, transparency and investor protection improved. The introduction of electronic trading replaced paper-based trading, making the trading process much faster and better. The National Stock Exchange (NSE), established in 1992, further expanded electronic trading.

Today, there are millions of investors in India’s stock market and this market has also become an attractive destination for global investors. With technology and innovation, India’s stock exchanges are seeing new improvements every day and it is becoming easier for people to access and trade on it.

How does stock exchange work?

Stock exchange is a place where buyers and sellers of shares can transact with each other. Here the entire process works on order based system. These orders are placed completely electronically in which no manual work is done. Investors and traders place orders on the exchange through their trading platforms. This order can be market or limit order. There are hundreds of such orders placed by buyers and sellers which keep running in the stock exchange every second. When a buyer places an order to buy a stock, the exchange looks for sell orders matching the price he has placed. The trade is executed when the order price matches correctly.

Brokers play an important role in this entire process. Broker is the party which provides us the platform to place orders in the stock exchange. No order can be placed directly in the stock exchange, hence for these purposes we have to open our trading account with a broker.

Objective of Stock Exchange

Providing liquidity: Stock exchange provides liquidity to investors in trading. Meaning, investors can convert their investment into cash by selling their shares at any time. This liquidity facility keeps the economy stable and investors safe from losses.

Price Discovery: Crores of shares are traded all the time in the stock exchange, the price of which keeps changing every second. On the basis of demand and supply, the price of every share is decided and this is called price discovery, information about which we get from the stock exchange.

Secure and Transparent Trading: India’s stock exchanges, such as BSE and NSE, operate under strict regulations. These regulations help in making trading safe and transparent, which greatly reduces the chances of investors getting cheated.

Arrangement of funds: Companies arrange funds through stock exchange. They need these funds for expansion, starting new projects, or for payment, which they can raise from the stock exchange by issuing new shares.

Economic Indicators: The performance of the stock exchange gives us an idea of the economic health of the country. If the stock market is performing well, then it is believed that the economy is strong and the companies of the country are performing well.

Investor Protection: Regulatory bodies like SEBI ensure that investors are protected from illegal activities and market fraud. This exchange keeps implementing new rules and regulations by taking steps from time to time to keep people aware and protect their interests.

Stock Exchange of India

Different stock exchanges operate every day in different parts of the country, information about which is given below.

Bombay Stock Exchange (BSE): BSE is the oldest stock exchange in India and is counted as the third largest stock exchange in the world. Established in 1875, BSE laid the foundation of financial trading in India. Sensex, which is the benchmark index of BSE, is one of the main stock market indices in the country.

National Stock Exchange (NSE): NSE was established in 1992 and is the stock exchange that revolutionized the field of electronic trading. It was established to eliminate the BSE monopoly and fully implement electronic trading.

Calcutta Stock Exchange (CSE): The CSE, established in 1908, is an important part of the financial market of North-East India. It is located in Kolkata and shares of regional companies are traded here.

India International Exchange (India INX): This is India’s first international stock exchange located in Gandhinagar, which attracts global investors. It was inaugurated by Prime Minister Narendra Modi on 9 January 2017.

Indian Commodity Exchange: This exchange established in Navi Mumbai is regulated by SEBI. This exchange provides brokers with the facility of trading selected securities. It is the only exchange in the world that launched diamond derivative contracts in 2017.

Metropolitan Stock Exchange of India: Located in Mumbai, this exchange facilitates trading in financial instruments such as currency derivatives, equity, and debt instruments. Established in 2008, this exchange is one of the three main exchanges in the country and its shareholders include big institutions and banks etc.

Multi Commodity Exchange: As the name suggests, MCE is the commodity exchange of India where commodities like cotton, gold, silver, crude oil etc. can be traded. Established in 2003, it is one of the largest commodity exchanges in India.

The National Commodity and Derivatives Exchange: It was started in 2003 in Mumbai but it provides its services through many centers across the country. Its shares are held by big investors like National Bank, Financial Institution etc.

National Stock Exchange IFSC Limited: This exchange is a part of NSE which is located in GIFT City Gujarat. It was launched in November 2016 with the aim of increasing the reach of the Indian stock market. It operates in two sessions, each of which is 8 hours long.

The exchanges mentioned above are active where trading is done daily. Apart from these, there are many such exchanges which used to work earlier but due to various reasons, they were closed by SEBI. These include:

1. Ahmedabad Stock Exchange

2. Delhi Stock Exchange

3. Guwahati Stock Exchange

4. Jaipur Stock Exchange

5. Madhya Pradesh Stock Exchange

6. Madras Stock Exchange

7. Pune Stock Exchange

8. Vadodara Stock Exchange

9.Bangalore Stock Exchange

10. OTC Exchange of India

11. Inter-connected Stock Exchange of India

12. Cochin Stock Exchange

13. Ludhiana Stock Exchange

14. Bhubaneswar Stock Exchange

15. Coimbatore Stock Exchange

16. Magadh Stock Exchange

17. Trivandrum Stock Exchange

18. Mangalore Stock Exchange

19. Hyderabad Stock Exchange

20. UP Stock Exchange

Conclusion

Stock exchanges are an important part of the financial sector of any country. The activities taking place in these affect the economic condition of the country in many ways. From the listing of companies till the trading of shares in them, stock exchange is very important and this is the medium through which people like me and you are able to invest in the stock market.