FUNCTIONS OF STOCK/SECONDARY MARKETS EXCHANGES Homework Help

FUNCTIONS OF STOCK/SECONDARY MARKETS EXCHANGES

Stock exchanges discharge three vital functions in the orderly growth of capital formation (i) Nexus between savings and investments, (ii) Market place and (iii) Continuous price formation.

Nexus between Savings and Investment

First and foremost, they are the nexus between the savings and the investments of the community. The savings of the community are channeled by stock exchanges for those sectors and units which are favored by the community at large, on the basis of criteria as return, appreciation of capital and so on. It is the preference of investment individual units as well as industry groups, which is reflected in the share price, that decide a mode of investment. Stock exchanges render this service by arranging for the preliminary definition of new issues of capital, offered through prospectus, as also offers for sale of securities in an orderly and themselves administer the same, by ens that the various of listing as offering at least the prescribed minimum percent a capital to public, keeping the subscription list open for a minimum period of days, provision for receiving applications at least at the prescribed centers, allotting the shares a applications on a (air condition and unconditional basis) are duty complies with. Members of exchanges also assist in the flotation of new issues by acting (i) as brokers, in which capacity they, inter to procure subscription from investors spread all over the country, and (ii) asunder writers. This quite often results in their being required to nurse new issues till a time when the new ventures start making profits and reward their shareholders by reasonable dividends when their shares command premiums in the market. Stock companies also provide a forum for trading in rights shares of companies already listed thereby enabling a new class of investors to take up a part of the right in the place of existing shareholders who renounce their rights for monetary considerations.

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