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The term stock market refers to several exchanges in which shares of publicly held companies are bought and sold. Such financial activities are conducted through formal exchanges and via (OTC) marketplaces that operate under a defined set of regulations.
Both “stock market” and “stock exchange” are often used interchangeably. Traders in the stock market buy or sell shares on one or more of the stock exchanges that are part of the overall stock market.
The leading Indian stock exchanges include the SENSEX (BSE) and the NIFTY (NSE).
The stock market allows buyers and sellers of securities to meet, interact, and transact. The markets allow for price discovery for shares of corporations and serve as a barometer for the overall economy. Buyers and sellers are assured of a fair price, high degree of liquidity, and transparency as market participants compete in the open market.
The first stock market was the London Stock Exchange which began in a coffeehouse, where traders met to exchange shares, in 1773. The first stock exchange in the United States began in Philadelphia in 1790. The beginning of New York’s Wall Street in 1792. The agreement was signed by 24 traders and was the first American organization of its kind to trade in securities. The traders renamed their venture the New York Stock and Exchange Board in 1817.
A stock market is a regulated and controlled environment. In the United States, the main regulators include the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
The earliest stock markets issued and dealt in paper-based physical share certificates. Today, stock markets operate electronically.
Stock markets provide a secure and regulated environment where market participants can transact in shares and other eligible financial instruments with confidence, with zero to low operational risk. Operating under the defined rules as stated by the regulator, the stock markets act as primary markets and secondary markets.
As a primary market, the stock market allows companies to issue and sell their shares to the public for the first time through the process of an initial public offering (IPO). This activity helps companies raise necessary capital from investors.
A company divides itself into several shares and sells some of those shares to the public at a price per share. To facilitate this process, a company needs a marketplace where these shares can be sold and this is achieved by the stock market. A listed company may also offer new, additional shares through sold, offerings at a later stage, such as through rights issues or follow-on offerings. They may even buy back or delist their shares.
Investors will own company shares in the expectation that share value will rise or that they will receive dividend payments or both. The stock exchange acts as a facilitator for this capital-raising process and receives a fee for its services from the company and its financial partners. Using the stock exchanges, investors can also buy and sell securities they already own in what is called the secondary market.
The stock market or exchange maintains various market-level and sector- specific indicators, like NIFTY 50 Index and the S&P BSE SENSEX Index, which provide a measure to track the movement of the overall market.
The stock market ensures price transparency, liquidity, price discovery, and fair dealings in trading activities.
The stock market guarantees all interested market participants have access to data for all buy and sell orders, thereby helping in the fair and transparent pricing of securities. The market also ensures efficient matching of appropriate buy and sell orders.
Stock markets need to support price discovery where the price of any stock is determined collectively by all its buyers and sellers. Those qualified and willing to trade should get instant access to place orders and the market ensures that the orders are executed at a fair price.
Traders on the stock market include market makers, investors, traders, speculators, and hedgers. An investor may buy stocks and hold them for the long term, while a trader may enter and exit a position within seconds. A market maker provides necessary liquidity in the market, while a hedger may trade in derivatives.
Most nations have a stock market, and each is regulated by a local financial regulator or monetary authority, or institute. The SEBI is the regulatory body charged with overseeing the Indian stock market.
The SEBI is a federal agency that works independently of the government and without political pressure. The mission of the SEBI is stated as “protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.”
Companies listed on the stock market exchanges are regulated, and their dealings are monitored by the SEBI. In addition, the exchanges set certain requirements such as mandating timely filing of quarterly financial reports and instant reporting of relevant corporate developments, to ensure that all market participants are equally informed.
Failure to adhere to the regulations can lead to suspension of trading and other disciplinary measures.
The stock market is a component of a free-market economy. It allows companies to raise money by offering stock shares and corporate bonds and allows investors to participate in the financial achievements of the companies, make profits through capital gains, and earn income through dividends. The stock market works as a platform through which savings and investments of individuals are efficiently channelled into productive investment opportunities and add to the capital formation and economic growth of the country.
Stockbrokers act as intermediaries between the stock exchanges and the investors by buying and selling stocks and portfolio managers are professionals who invest portfolios, or collections of securities, for clients. Investment bankers represent companies in various capacities, such as private companies that want to go public via an IPO or companies that are involved in pending mergers and acquisitions.
https://www.nseindia.com According to the website of the National Stock Exchange, around 2,113 companies have been listed on the exchange as of December 31, 2022. The total market capitalization of all the companies listed on the NSE comes up to around Rs. 2,75,67,268 crores. For more details visit https://www.bseindia.com/markets/equity/EQReports/allindiamktcap.aspx
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