Functions of Stock Exchange

6 minute read

Are you intrigued by the concept of the stock exchange and wish to understand it more clearly? The stock exchange is essential for any economy in contemporary times. It serves as the main body in the growth and functioning of the nation’s economy by attracting foreign investments for different companies that are listed on the stock exchange. Pertinent to mention is that career options in the stock exchange are humongous offering lucrative opportunities. Various functions of the stock exchange will be highlighted in the course of this blog. This blog has collated detailed information on concepts associated with the stock exchange

What is Stock Exchange (SE)?

A stock exchange is simply an institution, a platform, or a facility where different stockbrokers and traders can interact and bring about transactions by buying and selling shares. They can be shares of a stock, a bond or any other related financial instrument. People involved in the business of a stock market can be anyone, ranging from individual stock buyers to even big trade investors and conglomerates. Participants can be based anywhere in the world without any restrictions. Stock exchange markets also include banks and insurance companies that trade in stock with other organizations.

Functions of Stock Exchange in India

Here is a list of functions of the stock exchange in India-

  1. Economic Barometer
  2. Pricing of Securities
  3. Contributes to Economic Growth
  4. Safety of Transactions
  5. Providing Scope for Speculation
  6. Spreading of Equity Cult
  7. Liquidity
  8. Better Allocation of Capital
  9. Promotes the Habits of Savings and Investment

Having an idea about the functions of the stock exchange can be highly advantageous in the contemporary world. The stock exchange is a crucial part of the modern world of finance and business. Discover below some of the different functions of the stock exchange.

1. One of the primary functions of the stock exchange is to provide a quick, persistent and constant demand for the purchase and sale of securities. It has a ready outlet for buying and selling these securities. It also functions as an outlet for the sale of securities that are listed on the stock exchange.

2. Among different functions of the stock exchange, one is to speed up, as much as possible, the whole process of capital accumulation and formation. It induces or inculcates the habit of saving and investing and risk-taking among the investors. The stock exchange aims at converting their precious savings into profit. It also serves as a tool for capital formation. It functions as a medium for a secure and profitable investment.

3. It is among the fundamental functions of the stock exchange to impart necessary information to potential and current investors. Such information can be easily found on their websites. They regularly put out advertisements in various newspapers, business magazines and television channels regarding different investment opportunities and provide proper guidance. This is aimed to encourage investors and make them aware of stock market investments.

4. It is one of the top priority functions of the stock exchange to provide a safe and secure way of conducting business and investments. The transactions in the stock exchange are done under clearly outlined rules and regulations. It is the responsibility of the authority body of a stock exchange to keep in check its employees. Practising forgery is discouraged and swiftly dealt with.

5. In a stock exchange, the companies which are listed have to consistently comply with the already well-defined rules and regulations. Before enlisting themselves they are asked to submit various documents, providing all the information about their return. Providing the documents acts as an instrument to monitor any important activity that the organization is planning to undertake in the course of the future. These rules and regulations have been made to ensure the safety of investments and funds.

6. Another important function of the stock exchange is to aid and enable the creation of new business ventures. For a venture to be able to function, it needs financing and capital. This is done by stock exchanges. They act as a major platform for the new business to raise capital to meet their financial needs. Stock exchanges help in the establishment of new ventures.

7. A stock exchange not only helps individuals and business ventures to raise funds for their financial needs but functions as a platform for a government to raise money for its major development and expansion projects. Many times central, as well as, state governments have raised millions to meet their growing needs. 

List of Important Stock Exchanges in India

  • Bombay Stock Exchange (BSE) — Mumbai
  • National Stock Exchange (NSE)-  Mumbai
  • Calcutta Stock Exchange (CSE) – Kolkata
  • Cochin Stock Exchange -Kochi
  • Madras Stock Exchange
  • Meerut Stock Exchange
  • Interconnected Stock Exchange of India
  • Multicommodity Stock Exchange
  • OTC Exchange of India
  • Pune Stock Exchange — Pune
  • National commodity and derivatives Exchange
  • P Stock Exchange
  • Hyderabad Stock Exchange
  • Bangalore Stock Exchange
  • Vadodara Stock Exchange
  • Coimbatore Stock Exchange
  • Ahmedabad Stock Exchange
  • Delhi Stock Exchange
  • P Stock Exchange

Features of Stock Exchange

Knowing about the functions of the stock exchange is the first step toward understanding the concept. A stock exchange has its features and characteristics like any other institution. Listed below are the primary features of a Stock Exchange to look through at a glance.

1. It is a platform where shares and securities of government and corporate sectors are purchased, as well as, sold.
2. Another feature of the stock exchange is that only listed companies can engage in trading.
3. A major characteristic feature of the stock exchange is that it becomes a representation of the economic functioning of a nation.
4. It is a common platform that attracts hundreds of corporations and investors.
5. A stock exchange gathers an enormous amount of capital on a single platform.

Important Questions on Functions of Stock Exchange Class 12 Business Studies

  • Stock exchange not only contributes to the economic growth but also performs many other functions. Explain any three such functions.    
  • What is the purpose of the stock exchange?
  • Explain the trading procedure on a stock exchange. 
  • State any one function of the stock exchange.
  • ”Money Market is essentially a market for short term funds”. Discuss.
  • What is a Treasury Bill?
  • Distinguish between Capital Market and Money Market.
  • What are the objectives of the SEBI?
  • State the objectives of the NSE.
  • Explain the various Money Market Instruments.
  • What are the methods of floatation in the Primary Market?
  • Explain the recent Capital Market reforms in India.

Importance of Stock Exchange

Economic turbulence inside a country is determined by the price movement of the listed equities. Additionally, a variety of firms need capital to operate their operations and launch new enterprises. They issue various financial instruments, shares, and debentures to raise funds. Additionally, investors frequently aim to make good returns on their capital. They have a choice, thanks to the stock market. A common option for producing passive income is the stock market.

National Stock Exchange vs Bombay Stock Exchange

Courtesy: India’s Top Facts


Why is the stock market significant?

Stock markets assist businesses in raising funds by allowing them to trade openly. It serves as a marketplace for the acquisition and selling of securities.

What are the four categories of stocks?

Preferred stock
Common stock
Growth stock
Yield stock (Dividend)

What does the stock exchange do?

By offering a common platform for trade, a stock exchange serves as a mediator between businesses and investors and aids in capital development.

We hope this blog has provided a comprehensive guide to the myriad functions of the stock exchange. Aspiring to join any top-notch educational institution in the world for a degree in business and finance?  Leverage Edu will facilitate your academic journey. Its experts will guide you through the admission process and evaluate your application to bring to light your strengths. Book your free 30 minutes of e-counselling with the team now and get ready to embark on this stimulating journey of the business world.

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