2. What is a Stock Exchange
• The stock exchange is a highly organised market for
the purchase and sale of second hand quoted or listed
securities. Stock exchange is a market in which
securities are bought and sold and it is an essential
component of a developed capital market.
• According to the Securities Contracts (Regulation)
Act, 1956, “Stock Exchange means any body of
individuals, whether incorporated or not, constituted
for the purpose of assisting, regulating or controlling
the business of buying, selling or dealing in
3. What is a Stock Exchange…..cont’nd
Stock Exchange is an important part of the Capitalistic
system of economy. It is indispensable for the smooth
functioning of a corporate enterprise.
It provides the necessary mobility to capital and directs
the flow of capital into profitable and successful
It exerts a powerful and significant influence as a
depressant or stimulant of business activity.
It maybe defined as the place or market where securities
of joint stock companies and of government or semi
government bodies are dealt in.
4. Importance of a Stock Exchange
• Only an organized securities market can provide
sufficient marketability and price continuity for shares.
• It is a market that can provide reasonable measure of
safety and fair dealing in buying and selling of
• Through the interplay of demand for and supply of
securities, properly organized stock exchange results in
a reasonably correct evaluation of securities in terms of
their real worth.
• Through such evaluation of securities, the stock
exchange helps in the orderly flow of savings between
different types of investments.
5. Objective and Role of Stock Exchange
•To safeguard the interest of investing public
•To establish and promote honorable and just practices in securities
•To promote, develop and maintain a well regulated market for dealing
•To promote industrial development in the country through
efficient resource mobilization by way of investment in corporate
•To enable flow of capital into most efficient industries. The market
price and relative yield of a security are the guiding factors.
•It encourages people to save and invest in corporate securities thereby
accelerating capital formation.
•Raising long term capital: The existence of a stock exchange enable
companies to raise permanent capital.
6. Stock Exchange Regulations
• Dealings on the Stock exchange are subject to the bye-
laws and rules of the Stock Exchange.
• Stock exchange dealings in India are regulated by the
Securities Contracts (Regulation) Act and the
Securities and exchange Board of India (SEBI).
A broker is a person who buys and sells securities on behalf of investors in
return for a commission. He should be able to:
1. Provide information about the available investment opportunities as well as
the capital structure of companies, their financial information and policies
and prospects. He should also be able to provide advice about portfolio
2. He should be able to supply financial periodicals, prospectuses and reports.
He should also be able to prepare or analyze advisory literature for the
education of the investor.
3. He should also under his employment have registered and competent
representatives who can assist customers with most of their problems at the
location preferred by the customer .
8. Different Types of Brokers
The different types of brokers are:
1. Commission broker – these brokers buy and sell securities for a commission.
They are registered memebers of the stock exchange. The broker sells and
purchases securities in his own name and he is not allowed to deal with non-
2. Jobber – A Jobber is a professional speculator who works for a profit which is
called turn. Jobbers, however, only re-sell the stock they have to brokers but
not to the general public.
3. Floor broker – the floor broker buys and sells shares for other brokers on the
stock exchange. He too receives commission on the order that he executes,
which is a part of the brokerage charges paid by the customer to the
4. Taraniwala – he is very similar to a jobber. He makes an orderly and
continuous auction in the stock in which he speciaalizes.
9. Different Types of Brokers……cont’nd
5. Odd Lot Dealer – Dealers buying and selling odd lots of shares and
debentures are called odd lot dealers. However, now, with the demat trading
account, the concept of odd lots no longer exists.
6. Budliwalla – He is the financier in the stock market who provides credit
facilities to the market in return for a fee called the contango or
backwardation charge. He gives the loan for a short period os time ranging
from two to three weeks. The interest rate charged for the loan is the one
prevailing in the market. He makes a profit on the interest rate, subject to
regulations of the stock exchange.
7. Arbitrageur – He deals in securities in different stock markets and
specializes in making a profit from the price differences in different stock
8. Primary Dealers – These brokers deal only in government securities.
10. Types of securities
The different types of securities traded in a stock exchange are:
Specified Securities: In this category are actively traded shares of established growth
companies commanding a large market capitalization.the following conditions should be
satisfied for inclusion of shares in this category:
a) The share should have been listed on the stock exchange for atleast 3 years.
b) The minimum issued capital must be Rs 75 crores.
c) Its market capitalisation should be two or three times.
d) The minimum face value of the shares held by the public shall be Rs 4.5 crores.
e) It should have atleast 20,000 shareholders on the dividend receiving list.
f) The company should be growth oriented.
g) The company’s shares should have been actively traded in, in the previous month.
11. Types of securities
Non-Specified Securities: In this category are securities who
are not in the specified list.
Odd-lot Securities: An odd lot is an order for anything less
than 100 shares or, 10 shares in case of a thinly traded stock.
Nearly all brokers accept odd-lot trades, but some may
charge a higher commission for doing so. Odd-lot orders
tend to be placed by small personal investors rather than
institutional traders. However, now with the introduction of
the electronic trading system, the concept of odd-lot does not