IntroductionConstituting the largest investment avenues, the stock market consists of two primary stock exchanges – the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). It is the primary market that publicly listed companies use to list their shares, following which investors can proceed with buying or selling those shares over the secondary market.
How is the stock market regulated in India?In India, both the primary and secondary markets are presided over by the Securities and Exchange Board of India (SEBI). Constituted as an independent unit under the SEBI act, 1992, the statutory board retains the right to conduct periodical inspection of the stock exchanges.
Share markets – The types
- Primary market Companies list their shares over the primary market with the objective to raise funds. Should the company be issuing shares for the first time, the inherent process is referred to as Initial Public Offering (IPO). It is through this process that the company proceeds towards becoming a public entity.
- Secondary market It is the secondary market over which a company’s shares are traded. Once investors sell their holding, they can exit the secondary market.
Workings of the share market
- Understanding stock exchange Stock exchange refers to the platform over which financial instruments - such as stocks and derivatives - are bought and sold. The general rule is that participants must be registered with SEBI as well as the stock exchange prior to conducting these transactions – collectively called trades.
- Listing in the primary market A company that has just newly gone public has to register itself in the primary market through a process known as Initial Public Offering (IPO). Here, the company has to furnish details about itself, stocks that it wants to issue, etc. Allotment of stocks happens during the process of listing, following which bidders get their respective shares.
- Trading over secondary market Once the company has listed itself in the primary market, investors can then start trading the issued stocks over the secondary market. In simple terms, a secondary market is the melting pot for buyers and sellers wherein a gamut of financial transactions takes shape on a regular basis.
- What does a stock broker do? Considering the sheer number of investors, it can be problematic assembling everybody at a common location. This is where stock brokers and brokerage firms – that have to be mandatorily registered with the stock exchange – come into the picture.
Besides serving as middlemen between investors (buyers and sellers), stock brokers act as intermediaries between investors and the exchange as well.
Once a price is finalized, the stock exchange immediately confirms the relevant particulars in order to do away with any discrepancy or default, for that matter.
This is followed by ‘settlement’ – a process whereby ownership of shares is transferred to the investors. Usually, transfer of ownership happens over two days from the date of trading (T+2).
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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