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October 29, 2013

Secondary Markets (Stock Exchanges) - Introduction


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Friends, in our last post we have discussed about the Introduction of Indian Capital Market along with one of its types Primary Capital Market. In this post we shall discuss about the secondary Markets. The Secondary (or Indirect) market deals in securities already issued or existing. It sells and purchases the securities already issued. Secondary market does not contribute any fresh capital directly, but it does so by making the securities issues issue on the primary capital more liquid.

 It is a market where stocks, shares and other securities are sold and purchased. It is organization where listed or approved existing securities are systematically sold and purchased. An organized stock exchange requires an association of persons to regulate its activities, authorized stock brokers etc.  Only throgh members the marketing of securities on stock exchange can be done. They are of the following types.
  1. Commission broker
  2. Floor broker
  3. Taraniwala
  4. Jobber or dealer
  5. Badla Wala or Financier
  6. Arbitrager.
Role and functions of Stock Exchanges :

The organized stock exchange performs the following functions.
  1. Minimises the Danger of Speculative Dealings : An organized stock exchange operating under well defined rules and regulations help to minimize the dangers of speculative dealings and price discrimination.
  2. Ensures Liquidity of Capital : The stock exchanges provide a place where shares and stocks 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.
  3. Continuous Market for Securities : The stock exchanges provide a ready market for securities. The exchanges provide a regular market for trading securities. 
  4. Evaluation of Securities : The stock exchange helps to determine the value of securities held.
  5. Mobilizing Surplus Savings : The stock exchanges provide a ready market for various securities. The investors do not have any difficult in investing their savings by purchasing shares, bonds etc. from the exchanges.
  6. Helpful in Raising New Capital : The new and existing concerns need capital for their activities. The shares of new concerns are registered at stock exchanges and existing companies also sell their shares through brokers etc. at exchanges.
  7. 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.l
  8. Increases Creditworthiness : Only listed securities can be purchased and sold at stock exchanges. The listing of securities gives privilege to the company. A company whose shares are listed in a stock exchange is considered to be a sound company.
  9. 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.
  10. Clearing House of Business Information : The companies listing securities with exchange 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.
  11. Acts as Barometer of Business : A competitive and efficient stock exchange acts as a barometer of business condition in the country.

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