Stock Exchange

A stock exchange connects buyers and sellers and provides a regulated system for trading listed securities. In India, recognised stock exchanges operate under the supervision of the Securities and Exchange Board of India (SEBI).

• BSE was established in 1875 and is Asia’s oldest stock exchange.
• NSE was incorporated in 1992 and began operations in 1994.
• The Sensex tracks 30 major companies listed on BSE.
• The NIFTY 50 tracks 50 large companies listed on NSE.
• Exchanges match buy and sell orders electronically.
• They support price discovery, liquidity and capital raising.

• Investments made through stock exchanges involve market risk, and returns are not guaranteed.

  
  
  

A stock exchange in India is an organised marketplace where securities such as shares, bonds and exchange-traded products can be bought and sold.
It provides a regulated environment where buyers and sellers trade during fixed market hours on working days. Recognised stock exchanges in India follow regulations issued by SEBI.
A company must list its shares on a recognised stock exchange before those shares can be traded on that exchange. The company must meet the exchange’s listing and disclosure requirements.
Some unlisted securities may be traded through the over-the-counter market. However, these securities may have lower liquidity and less publicly available information than exchange-listed shares.
 

Stock exchanges in India use an electronic order-driven system. Buy and sell orders are entered into an electronic order book and matched according to price and time priority.

The process generally works as follows:

• Place an order: You place a buy or sell order through a registered broker.
• Send the order: The broker sends the order to the stock exchange.
• Find a match: The exchange looks for a matching order for the same security.
• Execute the trade: The trade is completed when suitable buy and sell orders match.
• Confirm the order: The exchange sends the trade confirmation to the broker.

• Inform the investor: The broker provides the trade details to you.

  
  

This system supports transparent price discovery because orders are matched using predefined exchange rules. However, the complete identity of individual buyers and sellers is generally not displayed publicly.

Read more: IPO

A stock exchange provides an organised system for trading securities. It also supports capital formation, liquidity and transparent price discovery.

• Economic indicator: Market indices and share prices may reflect investor expectations about companies and the economy. However, stock market performance does not always represent the condition of the entire economy.
• Security valuation: Demand and supply help determine the market price of securities.
• Transaction framework: Exchanges set rules for trading, clearing, settlement and disclosure.
• Capital formation: Companies can raise money by issuing shares and other eligible securities.
• Investor information: Exchanges publish market data, company announcements and disclosures that can help investors make informed decisions.
• Market liquidity: Investors receive a platform where they can buy and sell listed securities. Liquidity may vary depending on the security and market conditions.
• Capital allocation: Exchanges help direct savings towards businesses that are seeking funds.
• Investment opportunities: Investors can access different securities through an exchange. However, returns depend on market performance and are not guaranteed.
   

Listing on a stock exchange can help a company raise capital and make its shares available for public trading. It also requires the company to follow disclosure, governance and reporting standards.

Increased visibility

A listed company may receive greater visibility among investors, lenders and other market participants.

Listing may also increase the number of shareholders who can invest in the company. However, listing does not automatically increase the company’s value.

Access to capital

A listed company can raise funds by issuing shares, subject to regulatory and shareholder approvals. The money raised may be used for business operations, expansion or other stated purposes.

Collateral value

Some lenders may accept listed securities as collateral for loans. The amount accepted and the applicable conditions depend on the lender, the security and its market value. A fall in the security’s price may reduce its collateral value.

Liquidity

Listing allows shareholders to buy and sell shares through the exchange. However, the level of liquidity depends on factors such as trading volume, investor interest and market conditions.

Market-based pricing

The price of a listed security is determined through demand and supply on the exchange. The market price may change throughout the trading session and may differ from the company’s underlying or book value.

The stock market consists of stock exchanges, brokers, clearing corporations, depositories and other market institutions.

Companies issue shares to raise capital for business activities and expansion. Investors can then trade eligible listed shares through the secondary market.

In India, companies seeking to list securities must follow SEBI regulations and the requirements of the relevant stock exchange. After listing, they must continue to meet applicable disclosure and reporting requirements.

• Raising capital

  
  

  Companies can raise money through an initial public offering or through further issues of shares.

  
  

  The funds may be used for purposes such as expansion, debt repayment, acquisitions or general business operations, as stated in the offer documents.

  
  
  

• Corporate governance

  
  

  Listed companies must follow applicable corporate governance, disclosure and financial reporting requirements.

  
  

  These requirements help shareholders access information about the company’s performance, management and major decisions.

  
  
  

• Economic efficiency

  
  

  Stock exchanges help move savings from investors to companies seeking capital.

  
  

  They also provide liquidity by allowing investors to trade existing securities. Market prices are established through the interaction of buy and sell orders.

  
  

As an investor, you can participate in the Indian securities market through the primary market or the secondary market.

Through the primary market

The primary market is where new securities are issued to investors for the first time.

For example, a company may offer its shares to the public through an initial public offering. Money raised through the issue goes to the company or selling shareholders, depending on the structure of the offer.

Through the secondary market

The secondary market is where investors buy and sell securities that have already been issued and listed.

In these transactions, securities generally move between investors. The issuing company does not directly receive money from each secondary-market trade.

Secondary markets may use different trading systems, including order-driven and dealer-based systems. Indian stock exchanges mainly use electronic order-driven systems for equity trading.

BSE and NSE are the two major stock exchanges in India. Both provide electronic platforms for trading securities and operate under SEBI regulations.

1. Bombay Stock Exchange

BSE was established in 1875 and is Asia’s oldest stock exchange. It is located at Dalal Street in Mumbai.

Thousands of companies are listed on BSE. However, not every listed company is actively traded every day.

BSE’s main benchmark index is the Sensex. It tracks 30 large and established companies listed on the exchange.

The Sensex represents selected companies from different sectors. Its movement is commonly used to understand the general direction of the Indian equity market.

2. National Stock Exchange

NSE was incorporated in 1992 and began operations in 1994. Its headquarters are in Mumbai.

It introduced nationwide electronic, screen-based trading in India. NSE provides platforms for trading equities, derivatives, debt securities and currency derivatives.

NSE’s main benchmark index is the NIFTY 50. It tracks 50 large and actively traded companies from major sectors of the Indian economy.

The index is commonly used as a benchmark for measuring the performance of the Indian equity market.

Stock exchanges give companies access to capital and provide investors with a regulated trading platform. However, securities traded on exchanges remain exposed to market, business and economic risks.

Stock exchanges support economic activity by helping companies raise capital and giving investors a regulated platform to trade securities. They also provide liquidity and help determine market prices through demand and supply.
Market indices such as the Sensex and NIFTY 50 are often used to understand broad market movements. However, investing and trading involve market risk, and stock prices or returns are never guaranteed.