FUNCTIONS OF STOCK EXCHANGE

The stock exchanges perform a number of functions useful to both the investors and the corporations. They carry out the following functions:

1. Central Trading Place. The provide a central place where the brokers and dealers regularly meet and transact business.
2. Settlement of Transaction. They provide convenient arrangements for the settlement of transactions.
3. Continuous Market. These are markets for the existing securities. These are places for the holders of securities to buy and sell their securities and for those who want to invest their savings. The stock exchange thus provides liquidity to their investment.
4. Supply of Long-term Funds. Since the securities can be negotiated and transferred through stock exchanges, it becomes possible for the companies to raise long-term funds from investors. In the stock exchange, one investor is substituted by another when a security is transacted. Therefore, the company is assured of long-term availability of funds.
5. Setting up of Rules and Regulations. Stock exchanges set up rules and regulations governing the conduct and finance of their members. It ensures that a reasonable measure of safety is provided to investors and the transactions take place under competitive conditions.
6. Evaluation of Securities. Stock exchanges help to evaluate the securities as they publish the prices of securities regularly in newspapers. They also enable the holders of securities to know the worth of their holdings at any time.
7. Control over Company Management. A Company which wants to get its shares listed in a stock exchange has to follow the rules framed by the stock exchange. Through these rules and requirements, the stock exchanges exercise some control on the management of the company.
8. Helps Capital Formation. Stock exchange helps capital formation. The publicity given by the stock exchanges about the different types of securities and their prices encourage even the disinterested persons to save and invest in securities.
9. Facilitates Speculation. Stock exchange provides facilities for speculation and enables shrewd businessmen to speculate in the market and make substantial profits.
10. Directs the Flow of Savings. A stock exchange directs the flow of savings of the community between different types of competitive investments. It also helps to meet the investment needs of entrepreneurs.