Stock Exchange

Stock Exchange is a market in which securities are brought and sold and it s an essential component of a developed capital market.

According to Securities Contracts (Regulation) Act, 1956, Stock Exchange means anybody of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of beinging selling or dealing in securities.

According to this Act, securities include

(i) Shares, Scrips, Stocks bonds, debentures, stock or other marketable securities of a like nature n or of any incorporated company or body corporate.
(ii) Government Securities.
(iii) Rights or interest in securities.

It provides necessary nobility of to capital & directs the flow of capital into profitable and successful enterprises. It may be defined as the place or market where securities of joint stock companies & of government or semi-government bodies are dealtion.

Dealing on Stock Exchange

Stock exchange dealings in India are regulated by the Securities Contracts (Regulation) Act and the Securities and Exchange Board of India (SEBI).

On the trading floor of stock Exchange, dealings are permitted only n the listed securities through the members or their authorized clerks during fixed working hours.

There are 2 important types of trading on the stock exchange namely Ready Delivery contract and Forward Delivery Contract. The important differences between these 2 dealings are the following:-

Ready delivery contracts also known as cash trading or cash transactions, are to be settled either on the same date or within a short period that may extend at best up to seven days. As against these the forward delivery contracts are discharged on fixed settlement days. Ready delivery contract can be made in respect of all securities where as forward delivery contracts are confined to those securities which are placed of the forward list.

Speculation on the Stock Exchange:-

Stock Exchange transactions are made ether for the purpose of investment or for speculation. Investment transactions are made with the intention of earnings a return on the securities by holdings them more or less permanently whereas speculative transactions are made with the intention of making gains by disposing of the securities at favourable prices.

Organisation of Stock Exchange in India-

There are 23 stock exchange functioning in India including the Over. The Counter Exchange of India (OTCEI) and National Stock Exchange (NSE).

The Bombay Stock Exchange, which was established n 1875 is the oldest one in Asia, the Tokyo Stock Exchange was founded only n 1878.

With about 10,000 listed companies, India holds the unique distinction of having the largest number of listed companies in the world.

Since the coming into effect of the Securities Contracts Act, 1956, only those stock exchange which are recognized by the government can function in the country. The policy of the Government is that there shall be only one stock exchange in one area. In pursuance of this policy, where more than one stock exchange in one area. In pursuance of this policy, where more than one stock exchange was given reconition and active members of the non-recognised stock exchanges were admitted.

Each stock exchange is managed by an Executive Committee/ Governing Body to which the Government is empowered to nominate not more than 3 members. The rules & bye-laws of the stock exchange shall be in conformity with such conditions as may be prescribed by the Government. The Securities Contracts (Regulation) Act empowers the Government also to withdraw the recognition granted to a stock exchange, in the interest of trade or in public interests.

Regulation of Stock Exchange:-

In India the Development of the stock market is directed and the dealings on the stock exchange are regulated by the Central Government in accordance with the Securities Contracts (Regulation) Act 1956 (SCRA) and Securities and Exchange Board of India (SEBI) established by the Central Government.

Securities Contracts (Regulation) Act:-

The Securities Contracts (Regulation) Act, Exacted in 1956, come into force on Feburary 20, 1957.

Objectives:-

  1. To empower the Central Government to regulate the dealings n and functioning of the stock exchange in India.

  2. To Promote healthy & orderly development of stock market in India.

  3. To prevent unhealthy speculation & other undesirable activities on the stock exchange.

  4. To protect the interest of investors.

  5. To provide for reasonable uniformity of the bye laws & rules of the different stock exchange in India.

Main Provisions:-

    1. The grant of recognition or withdrawal of recognition to any stock exchange.

    2. Approval of the bye-laws and rules of stock exchanges.

    3. Power to direct the stock exchanges to make or amend roles and bye-laws in certain cases.

    4. Power to make or amend bye-laws or roles for stock exchanges.

    5. Monitoring the activities & functioning of the stock exchanges by calling for periodic returns & specific information as and when required and by conducting inquiry into certain matters when the situation so warrants.

    6. Power to suspend business of stock exchanges.

    7. Power to supersede governing body of any stock exchange on account of specific reasons.

    8. Regulation of listing of securities.

Recognition to Stock Exchanges.:

Any stock exchanges which is desirous of being recognized may apply to the Central Government in the prescribed manner with the required particulars and a copy of the bye-laws of the stock exchange and the rules relating to the constitution of the stock exchange.

The Act lays down that the Central Government Shall not refuse grant of recognition to a stock exchange without giving it an opportunity to be heard & that the reasons for the refusal shall be communicated to the stock exchange in writing.

Power of Recognised Stock Exchange to Make Rules Restricting Voting Rights Etc.

A Recognised Stock exchange shall have effect until they have been approved by the Central Government and published by that Government in the official Gazettee.

Power to obtain Information & to Conduct Inquiry:-

Every recognized stock exchange shall furnish the Central Government with a copy of the annual report containing all the particulars prescribed. Further, every recognized stock exchange. Shall furnish to the SEBI such periodical returns relating to its affairs as may be prescribed.

The SEBI is also authorised to call upon any recognized stock exchange or any members of such exchange to furnish any information or explanation relating to the affairs of the stock exchange or the members in relation to the stock exchange.

Power to supersede Governing Body:-

It the Central Government has sufficient reasons to think that the governing body of any stock exchange should be superseded, it may do so after serving a written notice on the governing body & giving the body an opportunity to be heard in this matter.

These Powers are exercisable by the SEBI also.

Power to Suspend Business of Stock Exchange:-

The SCRA empowers the Central Government to suspend the business of any stock exchange, under certain circumstances, for a period not exceeding 7 days in the interest of trade or public interest. The period of suspension may be extended from time to time but after the governing body has been given an opportunity of being heard in the matter.