Functions, Importance or Role of Stock Exchange

Stock Exchange :-
Stock exchange is an organized market where Government securities, shares, bonds and debentures of the trading units are regularly transacted. Stock exchange provides a place to the buyers and sellers of the shares and securities. Stock exchange indicates about the good or bad health of economy. If the share prices are rising it means country is running on the path of development and prosperity.


Importance or Functions of Stock Exchange :
We discuss about major functions of stock exchange under these headings:-

1. Providing a ready market
The organization of stock exchange provides a ready market to speculators and investors in industrial enterprises. It thus, enables the public to buy and sell securities already in issue.

2. Providing a quoting market prices
It makes possible the determination of supply and demand on price. The very sensitive pricing mechanism and the constant quoting of market price allows investors to always be aware of values. This enables the production of various indexes which indicate trends etc.

3. Providing facilities for working
It provides opportunities to Jobbers and other members to perform their activities with all their resources in the stock exchange.

4. Safeguarding activities for investors
The stock exchange renders safeguarding activities for investors which enables them to make a fair judgment of a securities. Therefore directors have to disclose all material facts to their respective shareholders. Thus innocent investors may be safeguard from the clever brokers.

5. Operating a compensation fund
It also operate a compensation fund which is always available to investors suffering loss due due the speculating dealings in the stock exchange.

6. Creating the discipline
Its members controlled under rigid set of rules designed to protect the general public and its members. Thus this tendency creates the discipline among its members in social life also.

7. Checking functions
New securities checked before being approved and admitted to listing. Thus stock exchange exercises rigid control over the activities of its members.

8. Adjustment of equilibrium
The investors in the stock exchange promote the adjustment of equilibrium of demand and supply of a particular stock and thus prevent the tendency of fluctuation in the prices of shares.

9. Maintenance of liquidity
The bank and insurance companies purchase large number of securities from the stock exchange. These securities are marketable and can be turned into cash at any time. Therefore banks prefer to keep securities instead of cash in their reserve . This it facilities the banking system to maintain liquidity by procuring the marketable securities.

10. Promotion of the habit of saving
Stock exchange provide a place for saving to general public. Thus it creates the habit of thrift and investment among the public. This habit leads to investment of funds incorporate or government securities. The funds placed at the disposal of companies are used by them for productive purposes.

11. Refining and advancing the industry
Stock exchange advances the trade , commerce and industry in the country. it provides opportunity to capital to flow into the most productive channels. Thus the flow of capital from unproductive field to productive field helps to refine the large scale enterprises.

12. Promotion of capital formation
It plays an important part in capital formation in the country. its publicity regarding various industrial securities makes even disinterested people feel interested in investment.

13. Increasing Govt. Funds
The govt. can undertake projects of national importance and social value by raising funds through sale of its securities on stock exchange.

According to MARSHAL "Stock exchange are not merely the chief theaters of business transaction, they are also barometers which indicate the general conditions of the atmosphere of business."