14.2 ndian onom
(ii) Makes available the prices of trading as
Definition an important piece of information to the
The segment of a financial market of an economy investors.
from long-term capital is raised via instruments (iii) By following institutionalised rules
such as shares, securities, bonds, debentures, and procedures, it ensures that the
mutual funds, and is known as the security market participants in the stock market live up
of that economy. to their commitments.
A security market has components such as a (iv) Passes updated informations to the
security regulator (SEBI in India), stock exchanges, enlisted companies about their present
different share indices, brokers, FIIs, jobbers, etc. stockholders (so that they can pass on
There are different kinds of transactions which dividends etc., to them).
take place in a security market such as badla, (v) By publishing its ‘Index’, it fulfils the
reverse badla, future trading, insider trading (not purpose of projecting the moods of the
allowed), private placement, etc. stock market.
World’s first stock exchange was established in
Primary anD SeconDary marketS Antwerp, Belgium (then part of the Netherlands)
Every security market has two complementary in 1631, the London Stock Exchange opened in
markets—primary and the secondary. The market 1773 and then Philadelphia Stock Exchange (the
in which the instruments of security market are first in the New World) opened in 1790.1 The
traded (procured) directly between the capital- first stock exchange in India, the Bombay Stock
raiser and the instrument purchaser is known as Exchange known as The Native Share and Stock
the primary market. As for example, a share being Brokers’ Association was set up in 1870 (under a
directly purchased by anybody from the issuer tree!).2
which may be the company itself. The person is Top five largest stock exchanges (on the
known as the primary shareholder. The market basis of market capitalisation) of the world in
where the instruments of security market are their decreasing order are—the New York Stock
traded among the primary instrument holders is Exchange, the NASDAQ, the Tokyo Stock
known as the secondary market. Such transactions Exchange, the London Stock Exchange and the
need an institutionalised floor for their trading Bombay Stock Exchange.3
which is made available by the stock exchanges. Trading in the stock exchanges takes place via
the mediators known as the brokers, the jobbers,
Stock exchange the market-maker (discussed later in this chapter).
A physically existing institutionalised set-up where As per the latest information,4 presently,
instruments of security stock market (shares, there are a total number of 26 stock exchanges
bonds, debentures, securities, etc.) are traded. It 1. Marc Levinson, Guide to Financial Markets (London:
serves the following major functions: The Economist, 2006), p. 152.
(i) Makes a floor available to the buyers and 2. V. Raghunathan, Stock Exchanges and Investments
(New Delhi: Tata McGraw Hill, 1994).
sellers of stocks and liquidity comes to
3. Marc Levinson, Guide to Financial Markets, pp. 153–54;
the stocks. It is the single most important Ministry of Finance, Economic Survey 2005–06 (New
institution in the secondary market for Delhi: Government of India, 2006).
securities. 4. MoF, GoI, dated 22 April, 2013.