The Stock Exchange

The stock exchange is basically a marketplace for stocks and securities. That is why it is also called a stock market. Just like any other market, it brings together the potential buyers and sellers of securities. The term "security" is a broad, generic term covering equity stocks, preference stocks, debentures and bonds issued by government, semi government and local authorities. For all practical purposes now there are only two nation wide stock exchanges in India: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

Unlike other markets, however, you are not permitted to buy or sell stocks directly in a stock exchange. According to the stock exchange rules you have to do so through a licensed member of the stock exchange called a stockbroker; or through his registered sub broker. The stockbroker is authorized to buy and sell stocks on behalf of others on a commission basis. This commission, or fee, is called brokerage. The brokerage rates are fixed by the stock exchanges. The maximum brokerage allowed by the stock exchanges can be verified from their web sites. At the time of writing, the maximum brokerage permitted was 2.5 per cent of the transaction value.

Trading in recognized stock exchanges in India is confined only to listed securities. Companies have to list their securities with one or more stock exchanges in order to make them eligible for trading. Listing is not a statutory obligation for public limited companies but most of them prefer to get their securities listed because of the numerous advantages and benefits of doing so. Listing not only gives easy marketability and liquidity to a stock, but trading in it is subject to the regulation and control of the stock exchanges authorities. As such, listed securities enjoy greater confidence among investors.