Table of Contents
What is the Stock Market & Stock Exchange?
The stock market and stock exchange are connected to each other in their operations.
The stock market is a market where public listed companies are listed and regular activities of buying, selling, and issuance of shares take place in the exchange associated with it.
Financial activities like transactions in stocks and other forms of securities in the market are conducted through institutionalized formal exchanges and operate with a set of regulations. There can be multiple stock markets and exchanges (trading venues) available in a country.
- In Stock exchange, in addition to stocks/equities, other financial products like exchange-traded funds (ETF), corporate bonds, commodities, currencies, and other derivative-based products are also traded.
The most important factor is that the Stock exchanges are the base of measures of a countries economy where industrial development, financial growth, and firmness are mirrored through the index of the respective exchanges.
Significance of the Stock Market
- The stock market helps individuals investors to use their savings and investments to channelized productive investment for the capital formation & economic growth of the country.
- Stock markets enable democratized access to investment and trading for investors of all kinds in the country.
What is the difference between the stock market and the stock exchange?
Even though, both the terms stock market and stock exchange are used interchangeably by the investors and traders, the reality is, the stock exchange is only a subset of the stock market.
The stock market is the place where companies list their equity shares for the public to invest or trade. Stock exchanges are an infrastructure, which is the part of the stock market, that facilitates the trading ( Buy or Sell) of those equities or stocks of the listed companies.
- The difference between the stock market and the stock exchange is the stock market is for the listing of equity shares, and stock exchanges are for trading listed equity shares among public investors.
Without a stock market, companies can’t list shares, and without a stock exchange, investors can’t buy or sell it. I.e. for the smooth transaction of equities of the listed companies, between the investors both the stock exchange and stock market need to function together. Stock exchanges can be electronic or manual in their operation, now most of the exchanges are working online.
Benefits of Stock Market & Exchange:
The benefits of the Stock Exchange are equally for the listed companies and the investors. Listed on a reputed stock exchange is considered as one of the prime prestigious factors, in showing the overall companies business.
A few of the benefits of the stock market and stock exchanges for the companies are listed below.
By listing a company in the stock market, they can raise the capital for its operations from the general public.
For a listed company it is easy to get credit facilities from any financial institutions and accepted listed securities as collateral as they are deemed more credible.
The Companies listed on a reputed stock exchange will get a higher market reputation than the non-listed companies, which in turn increases their credibility.
A few of the benefits of the investors from the stock market and stock exchange are listed below.
Listing in the share market and trading in the stock exchange helps shareholders for easy liquidation of their holdings. As now every transaction is over the online portal, it is much more convenient for the companies and shareholders to liquidate and acquire the shares.
As the prices of listed shares are decided by the forces of demand and supply in the market and price manipulations are monitored and regulated by the exchange, investors can get the shares of any company at a fair price.
How to buy stock in the share market and Stock Exchange:
The first step is to open a trading and Demat account with any stockbroker and then the investor can easily buy and sell stocks through the trading platforms provided by the broker in the stock exchange electronically.
If you want to invest in the stock market and you are a beginner, it is ideal to understand how the stock market function and then open an account with a suitable broker and select a suitable company to invest and buy stocks from the stock exchange through the trading platform provided by the broker.
Which stock market is best in the world?
All most all countries have their won stock market and exchange to trade the shares of the listed companies of that country and the foreign companies. There are many factors that decide the quality of the stock exchange, the prime factor that needs to consider is the total market cap of all listed companies in it.
History of Stock Markets:
London stock exchange is considered as the official first stock market in the world started in 1773 in a coffee house, where investors and traders used to meet to exchange their shares.
The New York stock exchange is the first stock exchange in the United States of America started in 1790. It is started with an agreement between 24 traders. The traders structured and renamed it in 1817.
Followed by these stock exchanges, different countries started their own stock exchanges for trading the shared in their respective land.
List of the largest 15 Stock Exchange in the world:
Here is the list of the biggest 15 stock exchanges in the world, where investors are dealing in securities, derivatives, commodities, and other financial equipment. In all these exchanges the securities of the companies are bought and sold with regulation and clear-cut rules formulated by the respective counties’ regulatory authorities. The list is based on the total market cap and it governs in operation to make sure the fair trade.
The ranking may vary on the basis of market cap as it is decided by the demand and supply in the market. The market cap and listing count figure in the table is approximate as of the date May 2021, as it is varying day by day.
|SHORT NAME||NAME||COUNTRY||CITY||~Market cap (2021)**||No. of listings 2021**|
|NYSE||New York Stock Exchange||United States||New York City||US $26.2 trillion||2400|
|NASDAQ||National Association of Securities Dealers Automated Quotations.||United States||New York City||US $19.4 trillion||3554|
|JPX||Japan Exchange Group||Japan||Tokyo||US $6.99 trillion||3700|
|SSE||Shanghai Stock Exchange||China||Shanghai||US $6.98 trillion||1860|
|SEHK||Hong Kong Stock Exchange||Hong Kong||Hong Kong||US $6.93 trillion||2,730|
|Euronext||European Union/EEA||Amsterdam||Brussels, Dublin, Lisbon, Oslo, Paris||US $6.85 trillion||1900|
|SZSE||Shenzhen Stock Exchange||China||Shenzhen||US $3.5 trillion||2435|
|BSE||Bombay Stock Exchange||India||Mumbai||US $3.1 trillion||5439|
|NSE||National Stock Exchange||India||Mumbai||US $3.0 trillion||1952|
|TSX||Toronto Stock Exchange||Canada||Toronto||US $2.87 trillion||2231|
|DBX||Deutsche Börse||Germany||Frankfurt||US $2.57 trillion||446|
|KRX||Korea Exchange||South Korea||Seoul, Busan||US $2.3 trillion||2445|
|ASX||Australian Securities Exchange||Australia||Sydney||US $1.75 trillion||2048|
|CSE||Copenhagen Stock Exchange||Denmark||Denmark, Copenhagen||US $638.5 billion||149|
|LSE||London Stock Exchange||United Kingdom||London||US $46.54 billion||2483|
Understanding the Stock Market:
The stock market and the stock exchange is a dedicated market platform where buyers and sellers meet, interact and execute the transaction.
Share market, the trading platform can be considered as an online shopping site like Amazon, where buyers can check the price, compare the price offered by different sellers, identifying the quantity of no of sellers and buyers, to get the best deals and forcing the various sellers to offer the best price. In the share market and stock exchange, instead of products in online sites, they are trading equities of the listed companies.
- Now share market and stock exchange brings lakhs of market participants to Sell and Buy shares, in a controlled and managed way to ensures fair pricing practices and transparency in transactions electronically.
Only the stocks, bonds, and commodities of the listed companies are allowed to participate in stock exchange trading. The companies which are not listed can trade in an ‘Over The Counter Market’.
How the Stock Exchange Works:
The entire process of trading in the stock exchange is executed over an electronic limit order booking. Once a buyer places an order, it is automatically searching for a perfect price match by the trading computer to a sell order.
In the stock exchange, all the buyers and sellers can check the price of all the transactions as it is available publicly. Market participants can place the order in any financial instruments on the stock exchange through a stockbroker, with whom they have a trading account.
Stock markets act as two types primary markets and secondary markets on the basis of their operation.
In the primary market, companies can sell the shares to the public for the first time to raise necessary capital from investors. This process is called initial public offerings (IPO).
The Investors will get company shares by paying the lot size cost decided by the authorities. In general, during IPO, shares are sold in lot size, it may vary from few quantities to a few 100 of no’s. Investors can hold these shares for their preferred duration, or they can sell them later in the secondary market.
- The stock exchange charges a services fee from the company as well as from the financial partners for the service IPO process.
The first-time share issuance is called the IPO, also called listing of share and after that, if companies again release additional shares into the market for the investors, it is called follow-on public offering (FPO). Follow-on offerings by a company are also known as secondary offerings.
The stock exchange facilitates a trading platform to the investors and traders for buying and selling of the listed shares (Got over IPO / FPO) among themself. This facility offered by the share market is called the secondary market. The stock exchange ensures a fair price, transparency, liquidity, and fair dealings for every trading activity.
- The stock exchange charges a fee for every trade that occurs on its platform, and for the service it offers from the brokers in turn from the investors.
Type of Stock market and stock exchange participants:
In a stock market and stock exchange, there are many different types of participants associated. Each participant has a unique role, which may be intertwined and interdepend to make the market run smoothly.
Participants who buy stocks and hold them for long period like 1 month or too many years until to get a fair price to sell and book profit as a capital gain.
For participants who enter and exit a position within a day, the duration of trade may as low as a few seconds or hours until square off to book profit.
Participants who are licensed professionals or a company that can buy and sell stocks on behalf of investors. They are intermediaries between the investors and the stock exchange. They provide the Demat and Trading account for the investors and provide access to the share market through it.
Participants who provide liquidity in the market for trading. They post the bid and ask prices and maintain an inventory of shares. They maintain the details of the bid and the asking price quoted in a market.
Participants who trade in derivative products and mitigating the risk involved in share market investments.
Participants who create the portfolios of securities, for clients. These professionals managers get recommendations from different analysts and take decisions for the creation of portfolios for Mutual funds, SIP Funds, hedge funds, etc. They develop investment strategies for the money they hold on behalf of the investors.
Investment bankers help various companies during the IPO, mergers, and acquisition process. They take care of the entire listing process and manages the requirements of regulations in the stock market on behalf of the companies.
Custodian is an institution, who holds the customers’ securities on behalf of them. They work in sync with the stock exchange for the to and fro transfer of the shares from the respective accounts in accordance with the trading on the stock market.
Roles and Functions of a Stock Exchange:
A stock exchange primarily serves the following functions with the support of the stock market. Both the stock exchange and the market will work in tantrums to meet the role and functions of the stock exchange in the capital market.
As almost all stock exchanges function electronically, and they maintain efficient trading systems (Infrastructure) to manage the transaction of various market participants.
The stock exchanges also maintain and publish on their official websites, all listed company details, operational news, financial reporting, and announcements.
The stock exchange makes sure that the price matching is done efficiently and the trade executed at a fair price to both sellers and buyers.
The stock exchange often creates and maintains various indexes to track the movement of the overall market-level or sector-specific, like NEFTY, SENSEX for India market and S&P 500 or Nasdaq 100 for US market.
Supporting in Inverters earning:
The exchange also monitors, regulates, maintains information, and supports the processing of the payment like dividends payout to the investors to a certain extent.
Follow on the process:
The exchange facilitates and support listed company in the rights issue, follow-on offers, buyback of shares and delist their shares.
Roles and Functions of a Stock Market:
A stock market primarily serves the following functions:
Listing of the Companies:
Share market will verify the companies and make sure the eligibility before listing the companies in the market. If the share market identifies a company that violates the qualification criteria after listing, it will take the necessary actions to remove the company from the market.
The stock market will make sure all the companies listed in it will meet all the necessary rules and regulations implemented by the authorities in the respective country. Share market makes sure all listed companies do their timely filing of quarterly financial reports and any relevant developments. Share market makes sure all types of market participants become aware of the respective corporate actions of the listed companies.
Maintain Securities Transactions details:
The stock market maintains and provides instant access to data of current buy and sell orders price and make sure fair and transparent pricing to all the investors.
Efficient Price Discovery:
Stock markets support stock exchange to identify the perfect price match by assessing market demand and supply and other associated factors.
Share market will work with market participants to identify the qualified and willing to trade investors through the broker and provide instant access and maintain the balanced number of buyers and sellers for a particular financial security.
Verification of participants:
Share market ensures that all participants are verified and make sure they will adhere to the rules, and work within the legal framework and regulations, by leaving no room for any type of malpractices.
Support to every Participants:
The stock market makes sure that all types of participants like investors, traders, etc can operate seamlessly in their desired roles and ensure the market continues to operate efficiently.
Protection to Investor:
As there is a different category of investors like wealthy, retail, and institutional investors, the stock market provides equal opportunity to all type of investors to invest and earn again. The stock exchange used to implement necessary measures and knowledge sharing section to investors to shield them from financial loss.
Segregation of stocks:
The stock market helps the stock exchange to categorize companies in various segments depending on their capital, risk profiles, etc for the easy selection of the stocks for the investors with limited knowledge. Also, maintain and share information about the high-risk stocks to the investors to avoid losses.
Regulating the Stock Market:
In every county, there will be a financial regulator agency that works independently or an institute is assigned the task of regulating the stock market of the respective country. The prime function of these agencies is to protect investors, maintain efficient market transitions and facilitate capital formation in the country.
- In the USA: The Securities and Exchange Commission (SEC) is the regulatory body overseeing the U.S. stock markets.
- In India: Securities and Exchange Board of India or SEBI set of rules and regulations to the stock exchanges in India, to protect the investors.
How Stock Exchanges Make Money:
Stock exchanges make money from different services they offer to the market participants in the form of fees.
Stock exchange charges transaction fees for every trade carried out on its trading platform, this is the primary source of income to stock exchanges.
Stock Listing fee:
Stock exchanges charge a listing fee to the companies for the listing service during the time of IPO and follow-on offerings.
Sale of Market Data:
The stock exchange charges fees to the equity research companies for providing them the market real-time data, reference & historical data generated on the stock exchange platform.
Many exchanges make huge money by sharing the technology products like a trading terminal to the participants. As a premium service, some exchanges provide a dedicated network connection for fast trading against higher fees.
The stock exchange charges premium charges for the premium services like high-frequency trading to asset management companies (AMC), and other financial institutions.
The stock market charges registration fees for different market participants, like a market maker, broker, etc.
Service License charges:
The stock exchange charges to the asset management companies for using the Index in the name of license charges. Stock exchanges charge a licence fee to third party companies for using their specific technical charts in their platforms.
Courses and Certification:
Stock exchanges provide free and paid courses and certification to market participants on various financial topics. These courses help Newbie investors to identify high return good quality stocks very easily.
Competition for Stock Markets and Exchange
All the stock markets are facing strong competition in the market in the listing of the companies and incensing the market participant count. In addition to the competition among the individual stock exchanges to get maximum transaction volume, they are facing threats from Dark pools and Blockchain Ventures.
Internal market Competition:
Most of the countries will have multiple stock markets and exchanges in the territory. Each of the share markets will try to get more market participants to associate with them by providing them premium services with lower cost and competitive fees and charges.
- Internal competition leads to compromise in the operating profits of the stock exchanges.
Due to the advancement of blockchain technology, many Crypto exchanges have emerged in the market. Many investors are moving to cryptocurrency investing from stock investing as the expected gain over the short time period is larger.
- Also now most of the Crypto exchanges are charging zero- to low-cost services charges, make it more attractive to the investors.
The Dark pools are private exchanges that operate within private groups for securities trading. Through the dark pools security transactions, traders will get the advantage of lower transaction costs and other charges. Now more retail investors are interested in it, which posing a challenge to public stock markets.
- The legal operation validity of Dark Pools is subject to local rules and the regulations in the county.
List of Indian Stock Exchanges in India:
A stock exchange in India is the place or platform used by buyers and sellers to trade stocks during business hours 5 days a week in India through online and offline platforms.
Some companies will list only with one stock exchange and most of the big companies will list on the multiple exchanges like both in BSE and NSE or in any list of stock exchanges in India. As the Bombay Stock Exchange (BSE) and The National Stock Exchange (NSE) operate at a national level, they are the most popular stock exchanges in India.
The list of Indian stock exchanges is big, In addition to these stock exchanges, there are many active stock exchanges in India, which are registered with and regulated by the Securities and Exchange Board of India (SEBI).
Here is the list of major Indian stock exchanges in India:
Bombay Stock Exchange (BSE):
Bombay Stock Exchange BSE is Indian’s oldest and first stock exchange in Asia. BSE was formerly known as The Native Share & Stock Brokers Association. BSE located at Dalal Street, Mumbai, India. BSE is the World’s top 10th largest Stock Exchange in market capitalization.
It was founded by Mr. Premchand Roychand, the most influential businessman of the 19th century. The story of BSE starts back in the 1850s and moved to Dalal Street, Bombay in the year 1874.
One of the top Index of Indian The SENSEX was introduced in the year 1986, which was the first equity index. BSE offers varied services such as depository services, market data services, risk management, etc to the investors.
National Stock Exchange (NSE):
National Stock Exchange -NSE came into operation in the year 1992, which is one of the youngest stock exchanges of India. In 1992, Mr. Vikram Limaye is MD & CEO introduced the advanced electronic trading system which offered an easy trading facility. NSE is the 11th largest world stock exchange ( Ranking vary from time to time).
In the year 1995, NSE formed depository services called National Securities Depository Limited (NSDL) for the investors. Nifty 50 is one of the top popular benchmark indexes in the Indian stock market consist of the top 50 companies listed in NSE.
Calcutta Stock Exchange (CSE):
Calcutta Stock Exchange CSE is the second oldest stock exchange in South East Asia located at the Lyons Range, Kolkata, India. CSE was one of the largest Stock exchanges in India which is incorporated in 1908. Calcutta Stock Exchange is one of the prime stock exchange need to consider in the list of Indian stock exchanges.
Metropolitan Stock Exchange (MSE):
Metropolitan Stock Exchange (MSE) was notified as a Recognized Stock Exchange by the Ministry of Corporate Affairs on December 21, 2012.
MSE offers a hi-tech trading platform to trade in the futures & options, currency derivatives, capital market, and debt market segments of the Indian market. Indian public and private sector banks and other domestic financial institutions are the prime shareholders in MSE.
India International Exchange (India INX):
India International Exchange- INX start operation in January 2017, it is India’s first international stock exchange and the subsidiary of the Bombay Stock Exchange (BSE) located in Gujarat at the International Financial Services Centre (IFSC).
Indian INX operates 22 hours 6 days a week with the most advanced technology platform in two sessions.
India International Exchange timings
- The first section starts at 3:0 a.m. and ends at 5.00 p.m.
- The second section starts from 5:0 p.m. to 2.30 a.m.
It is also an international primary market platform in India, helps to connect global investors to Indian and foreign issuers.
NSE IFSC Ltd:
NSE IFSC Limited incorporated as the NSE International Exchange on 29th November 2016. NSE IFSC is a subsidiary of the NSE- National Stock Exchange located in Gujarat in the International Financial Services Centre (IFSC).
NSE IFSC exchange, investors can execute the securities trading in any foreign currency other than INR. NSE IFSC Limited operates 16 hours of daily in 2 trading sessions,
NSE IFSC limited operations hours
- The first section starts at 8 am and ends at 5 pm.
- The Second section start from 5.30 pm to 11.30 pm.
Stock exchanges and the stock market are some of the most important capital market constituents of any country. Stock market and exchange influence the country’s financial sector and become the deciding factor of economic growth of a county to a great extent.
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