What is the share market?
A share market, also known as a secondary market, is the aggregation of buyers and sellers of stock, representing ownership claims on businesses. It’s a place that lists securities for the public to trade public companies’ shares on BSE (Bombay Stock Exchange) or NSE (National Stock Exchange). Companies list their shares on a stock exchange through an IPO (Initial Public Offering) to raise capital from the public.
Two primary stock exchanges of India
Most of the trading in India takes place on the Bombay Stock Exchange and the National Stock Exchange. The BSE has existed since 1875. The NSE was formed in 1992 and started trading in 1994. In both exchanges, the primary timing for stock trading starts at 9:15 a.m. and closes at 3:30 p.m. As of November 2021, the BSE has 5,565 listed firms, whereas the NSE has 1,920.
What are the trading mechanisms?
Trading at NSE or BSE takes place through an open electronic limit order book in which order matching is done by the trading computer. The whole process is democratic and run by an order-driven market. It allows investors to get a good return on their investment through algorithmic limit orders. Lastly, the identity of buyers and sellers remains anonymous, bringing more transparency by displaying all buy and sell orders in the trading system. However, if either party remains absent, there is no guarantee of the execution of the order.
Who regulates the stock exchange?
SEBI (Security Exchange Board of India) is responsible for the development, regulation, and supervision of the stock market in India. In 1992, SEBI was formed as an independent authority that consistently tried to lay down market rules in line with successful market practices. The roles of SEBI are:
- Ensuring a fair and equitable market for investors for growth.
- Compliance of the exchange organisation and its practices in accordance with the rules laid under the Securities Contracts Act 1956.
- Ensure proper implementation of the guidelines and directions issued by the SEBI.
- Check if the exchange has complied with all the conditions and has renewed the grants, if needed, under Section 4 of the SC(R) Act of 1956.
Who are stock brokers?
Due to the sheer number of trades on the stock exchange, the difficulty of assembling them at one location increases. Therefore, to conduct trades, stock brokerage firms came into existence. These are private companies registered with the stock exchange to serve as intermediaries between the investors and the exchange board. When an order to buy a share is placed, the broker processes it in real-time.
IPO and the secondary market: What is the difference?
IPO or primary market: In the primary market, companies list themselves to issue their share and raise money. In recent times, several internet companies like Zomato and Paytm issued an IPO and listed themselves on the stock market. The primary purpose for issuing an IPO is to raise money and transition from a private limited company to a public limited company.
Secondary market: Once the IPOs of the companies are allotted to people, the shares of a company begin to trade in the secondary market. Meanwhile, investors are locked with IPOs in the primary market for a brief period. In the secondary market, investors are in control of their shares and can exit the market by selling their shares. In secondary markets, buying and selling happen amongst the traders at market-agreed prices.
What is the settlement period and trading hours?
The equity spot market follows a T+2 rolling settlement. It means that any trade taking place on Monday gets settled by Wednesday. All trading on the stock exchange takes place between 9.55 a.m. and 3.30 p.m. during five working days (Monday to Friday). All deliveries of shares must be made in dematerialized form, and each exchange has its clearing house, which assumes all settlement risk by serving as a central counterparty.
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