In our earlier blogs, you must have read again and again that securities or shares are listed on stock exchange and shares are traded on these exchanges. So what are these exchanges? Let’s dive in to find the answer to this question.
An exchange might be an organization, an institution, or an association that acts as a marketplace where securities like stocks, bonds, derivatives, and commodities are traded. It gives the platform to security brokers and traders where they can buy and sell securities.
Therefore, a Stock Exchange is a place where shares and share related products (derivatives) are traded. Stock Exchange has various rules and regulations for firms and brokers that need to be followed. Companies that are traded on the stock exchange are called as “listed company” and for this listing, a company has to fulfill various requirements that are laid down by the exchange.
Securities that are not listed on the stock exchange are traded Over-the-Counter or OTC. The number of such securities is very less and risker as they are not listed on the stock exchange so there is no supervision of these securities.
Benefits and purpose of the stock exchange
- The stock exchange is used by companies to raise capital through the general public to grow and expand their business.
- The benefit of the stock exchange which also the core function of the stock exchange is to ensure fair and orderly trading and efficient broadcasting of price information for any security that is trading on the exchange.
- It gives the platform to stock brokers and traders where they can buy and sell securities at the prices that are efficiently determined by the forces of supply and demand.
- One of the most important benefits is that it provides transparency as there is no manipulation of prices because they are determined by the natural forces of supply and demand.
Stock Exchanges in India
In India, there are three exchanges namely Bombay Stock Exchange (BSE), National Stock Exchange (NSE), Metropolitan Stock Exchange (MSE). BSE & NSE are the oldest and the prominent ones.
Bombay Stock Exchange (BSE)
Bombay Stock Exchange is Asia’s first stock exchange, established in 1875, currently has 5000+ listings. In 1986, it developed the S&P BSE SENSEX index, giving the BSE a means to measure the overall performance of the exchange and the securities within. It comprises of the top 30 companies based on market capitalization. Indices other than Sensex are BSE SmallCap, BSE MidCap, BSE LargeCap.
BSE has raised capital by issuing shares on 3rd May 2017 which is traded in NSE only.
BSE established India INX on 30 December 2016. India INX is the first international exchange of India.
National Stock Exchange (NSE)
National Stock Exchange of India Limited (NSE) was established in 1992 as the first demutualized electronic exchange in the country. NSE was the first exchange in the country to provide a modern, fully automated screen-based electronic trading system which offered an easy trading facility to the investors spread across the country. Currently, it has 1900+ listings.
Nifty 50 index was launched in 1996 by the NSE. It comprises of top 50 companies, based on market capitalization same as Sensex. It is used extensively by investors in India and around the world as a barometer of the Indian capital markets. Other indices are Nifty Next 50, Nifty 500.