Most Important Services and Functions of Stock Exchange

A stock exchange is a market place where securities that have been listed thereon, may be bought and sold for either investment or speculation. A stock exchange renders valuable services to the investors, the corporate sector, and society. So, we describe here all functions of the stock exchange below:

Services / Functions of Stock Exchange

There are three functions of the stock exchange and their sub-functions

  1. Functions to the Investors
    1. Investment guide
    2. Liquidity of investment
    3. Safety of investment due to fair dealings
    4. Better use of capital
    5. Protection from bad deliveries
    6. The high collateral value of listed securities
  2. Functions to the Corporate Sector
    1. The wide market for new securities
    2. Increasing goodwill of the company
    3. Assist in the development of companies
    4. Transfer of securities at suitable prices
    5. Creation of investors confidence
    6. Knowledge about future investment
    7. Encouragement to efficient companies
  3. Functions / Services to the Society
    1. Capital formation
    2. Utilizing scarce capital resources for productive purposes

1. Services / Functions of the Stock Exchange to the Investors

1.1 Investment Guide: Stock exchanges publish periodically the quotations of listed securities. Investors can decide about the purchase and sale of securities on the basis of stock exchange quotations. Thus the investors can get maximum benefits from their investments.

1.2 Liquidity of investment: Stock exchanges are ready and continuous markets for the purchase and sale of securities. The securities can easily be converted into cash as the need of the investors arises.

1.3 Safety of investment due to fair dealings: Investors can expect the safety of their investment s ad stock exchange are well organized and efficiently regulated. It reduces the risk of purchase of shares for the investors to a large extent.

function-to-the-investors
Function to the investors

1.4 Better use of capital: The prices of the shared reflect the profitability and efficiency of the company concerned. A stock exchange helps investors in choosing good companies for investments.

1.5 Protection from bad deliveries: Securities in the stock exchanges are listed after proper scrutiny. It prevents the trading of false and duplicate securities. Therefore, there is little possibility of the sale of any forged or bad securities.

1.6 The high collateral value of listed securities: Listed securities in any stock exchange have high collateral value. Rational investors prefer these securities. The securities of such companies can be sold easily. The investors have n fear of risk while trading in listed securities.

2 Service / Functions to the Corporate Sector

2.1 The wide market for new securities: A stock exchange services as a sales counter for new securities. Once a company it’s listed is a stock exchange, its shares are traded freely in that exchange. Therefore, the company can raise a huge amount of capital form different types of investors.

2.2 Increasing goodwill of the company: The shares of only those companies are listed in the stock exchanges which are financially sound. Therefore, the listing of shares adds to the goodwill and credit standing of a company.

2.3 Assist in the development of companies: A stock exchange is an essential adjustment of companies for quick capital formation. It profiles a wider and a ready market for the securities of companies. It ensures higher bargaining power of companies in the event of further expansion and merger.

Functions of Stock Exchange
Functions to the corporate sector

2.4 Transfer of securities at suitable prices: In the event of a merger or amalgamation, the company shoe securities are listed, are in a better position than the company whose securities are not listed.

2.5 Creation of investors confidence: A Stock exchange helps to enhance the confidence of investors in the company. Without the existence of a stock exchange, there would be no rules and regulations in the case of the sale of securities. A stock exchange ensures transactions of securities at competitive prices.

2.6 Knowledge about future investment: Companies can get relevant information regarding trends of investment, investors’ choices and priorities, etc, from stock exchanges on a regular basis. The companies can plan their future issue of capital on the basis of such information.

2.7 Encouragement to efficient companies: The shares of efficient companies are sold at a very high premium, whereas the shares of inefficient companies are sold at discounts. This gives an impetus to efficient companies to improve their efficiency further.

3. Functions / Services to the Society

3.1 Capital formation: A stock exchange provides good investment opportunities for investors. It promotes the habit of savings and investment.

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Services to society

3.2 Utilizing scarce capital resources for productive purposes: The funds which are lying idle can be invested in securities on account of stock exchange helps to initialize scarce capital resources for productive purposes for rapid industrial growth.

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