QUESTION: What are the functions and benefits of listing the securities in stock exchange?
ANSWER: LISTING OF SECURITIES IN STOCK EXCHANGE: Listing means admission of securities of an issuer to trading privileges or dealings on a stock exchange through a formal agreement.
In other words, listing of securities means permission to quote shares and debentures officially on trading floor of the stock exchange.
The prime objective of listing or admission to dealings on the exchange is to provide liquidity and marketability to securities and also to provide a mechanism for effective control and supervision of trading.
FUNCTIONS AND BENEFITS OF LISTING OF SECURITIES IN STOCK EXCHANGE:
The listing of securities aims at
- Ensuring proper supervision and control in the dealing of the securities.
- To protect the interest of the shareholders and the investors by ensuring full disclosures.
- To avoid the concentration of economic power.
- To assure marketing facilities for the securities.
- To ensure liquidity of securities.
- To regulate dealings in securities.
- To require promoters to have a reasonable stake in the company.
ADVANTAGES FROM COMPANY’S VIEWPOINT:
- EXTENSIVE MARKETS: Marketability of securities is increased as securities that companies issue are quoted and traded on the floor of the stock exchanges. Through, listing investors throughout the world can know about the securities and invest in them.
- INCREASE IN THE VALUE OF SECURITIES: Due to rise in demand, value of securities increases because investors come to know throughout the world that certain securities are available and that they can invest in them.
- KNOWLEDGE ABOUT INVESTMENT TO THE COMPANY: Through the quotations from stock exchange, companies get an idea about price fluctuations of securities and intensity of buyer’s demand. In order to raise extra capital, companies can take proper decisions regarding terms of issue and whether to issue shares or debentures with the help of listing.
- INCREASE IN CREDIT AND GOODWILL OF THE COMPANY: Company has to get permission from the stock exchange authorities in order to include its shares in the list of securities to be bought and sold on the floor of stock exchange. If a company is financially sound and managed by qualified people, authorities easily grant them permission. Companies are said to be sound, if their securities are listed. They enjoy better goodwill and credit in the market.
ADVANTAGES FROM INVESTOR’S VIEWPOINT:
- FACILITY OF INVESTMENT: Investors can easily invest, in the listed securities because stock exchange provides assurance to investors regarding liquidity and safety of investment in such securities. Investors, as per their choice, can any time sell and buy the securities on a stock exchange.
- PROTECTION OF INVESTOR’S INTEREST: Stock exchanges are directly controlled by the central government and are regulated under the Securities Control Regulation Act 1956. These are well organized markets and safeguard and protect the interest of buyers and the sellers.
- HIGH COLLATERAL VALUE: Banks and creditors prefer listed securities as collateral against losses because of borrowers and debtors who have pledged these securities with them become defaulters, banks and creditors can easily sell such securities.
- PUBLICATION OF QUOTATIONS: It is the duty of stock exchange to publish the prices quoted for the securities on the floor on a regular basis. Buyers and sellers can easily decide whether to purchase or sell the securities after getting information regarding prices of the securities.
- BEST POSSIBLE USE OF CAPITAL: Through stock exchange, investor can compare the relative demand of various securities on the basis of sale and purchase of those securities.
Profitable companies attract more investors and also get a chance to invest their savings in more profitable firms, all because of listing of securities at stock exchange.
| ALSO STUDY: | ALSO STUDY: |
| Depositories act 1996 | Functionaries of stock exchange |
| Money Market | PRIMARY MARKET |
| SECONDARY MARKET |
