Friday, 22 November 2019

Unit 6: Secondary Market


                                                 Unit 6: Secondary Market      

Stock exchange is the secondary market, which provides a place for regular sale and purchase of different types of securities like shares, debentures, bonds and government securities.

It is an organised market where all transactions are regulated by the rules and laws of the concerned stock exchanges.

The functions of a stock exchanges are to provide ready and continuous market for securities, information about prices and sales, safety to dealings and investment, helps mobilisation of savings and capital formation.

It acts as a barometer of economic and business conditions and helps in better allocation of funds.

Stock exchanges provide many benefits to companies, investors and the society as a whole.

But they also suffer from limitations like exclusive speculation and fluctuation in prices due to rumours and unpredictable events.

Along with genuine investment, at times, stock exchange transactions may be undertaken by persons as a speculation.

There are 23 stock exchanges in India presently, including BSE, NSE and OTCEI.
Stock Exchanges are regulated by the Securities Contracts (Regulation) Act and by SEBI.
SEBI has initiated a number of reforms in the primary and secondary market to regulate the stock market.

Documentary and procedural requirements for listing and trading have been made stricter and foolproof to protect investors' interest.

Budiwalas: He/she specializes in buying and selling simultaneously in different markets.

Commission Broker: The commission broker executes buying and selling on the floor of the stock exchange.

Limit orders are orders to buy or sell at a minimum or maximum price.

Listing agreement is, in a sense, the code of discipline which the stock exchange(s) impose on a company as a condition precedent to listing its securities.

Listing of securities, on a stock exchange, allows them to be traded there under an agreement between the exchange and the issuer of the stocks.

Maintenance margin: The required proportion of your equity to the total value of the stock.

It protects the broker if the stock price declines.

Margin call: If the percentage margin falls below the maintenance margin, the broker issues a margin call requiring the investor to add new cash or securities to the margin account.

Margin trading occur when investors who purchase stocks on margin borrow part of the purchase price of the stock from their brokers, and leave purchased stocks with the brokerage firm in street name because the securities are used as collateral for the loan.

Odd-lot Dealer: He/she specializes in buying and selling in amounts which are less than present trading units.

Percentage margin: The ratio of the net worth, or “equity value” of the account to the market value of the securities.

Secondary market is a market for already existing long-term securities of governments, semigovernments and corporate enterprise.

Security Dealer: This dealer specializes in trading in government securities.

Short sale investors can sell shares they do not own.

Stock exchange is the term commonly used for a secondary market, which provide a place where different types of existing securities such as shares, debentures and bonds.

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