Anupama Nair
www.mediaeyenews.com
What is stock market? The stock market is the collection of exchanges and other venues where the buying, selling, and issuance of shares of publicly held companies take place. The financial activities are conducted through institutionalized formal exchanges whether physical or electronic or via over-the-counter or OTC market places that operate under a defined set of regulations.
The terms ‘stock market’ and ‘stock exchange’ are often used inter-changeably, — stock exchange generally comprises a subset of the former. If one trades in the stock market, it means that they buy or sell shares on one or more of the stock exchanges that are part of the overall stock market. A given country or region may have one or more exchanges comprising their stock market. The leading US stock exchanges are the New York Stock Exchange (NYSE) and the Nasdaq.
The stock market permits numerous buyers and sellers of securities to meet, interact, and transact. Stock markets permit the price discovery for shares of corporations and serve as a barometer for the overall economy of the country. Since the number of participants in the stock market is large, you can often be assured of a fair price and a high degree of liquidity as various market participants compete with one another for the best price.
Are you aware, a stock market is a regulated and controlled environment? In the United States, the main regulators include the Securities and Exchange Commission (SEC) and market participants under the purview of the Financial Industry Regulatory Authority (FINRA). Since the stock market brings together hundreds of thousands of market participants who wish to buy and sell shares, it ensures fair pricing practices and transparency in transactions. While earlier stock markets used to issue and deal in paper-based physical share certificates, the modern-day computerized stock markets operate electronically.
In a nutshell, we can say stock markets provide a secure and regulated environment where market participants can transact in shares and other eligible financial instruments with confidence, with zero to low operational risk. Operating under the defined rules as stated by the regulator, the stock markets act as primary markets and secondary markets.
Since the stock market is a primary market, it allows companies to issue and sell their shares to the common public for the first time through the process of an IPO. This activity helps companies raise necessary capital from investors. To facilitate this process, a company needs a marketplace where these shares can be sold. This marketplace is provided by the stock market. Investors will get the company shares, which they can expect to hold for their preferred duration, in anticipation of rising in share price and any potential income in the form of dividend payments. The stock exchange acts as a facilitator for this capital-raising process and receives a fee for its services from the company and its financial partners.
The stock exchange shoulders the responsibility of ensuring price transparency, liquidity, price discovery, and fair dealings in such trading activities. Most of the major stock markets across the globe now operate electronically, the exchange maintains trading systems that efficiently manage the buying and selling orders from various market participants. They perform the price-matching function to facilitate trade execution at a price that is fair to both buyers and sellers. A listed company may also offer new, additional shares through other offerings at a later stage, such as through rights issues or follow-on offerings. They may even buy back or delist their shares. The stock exchange eases such transactions.
The stock exchange often creates and maintains various market-level and sector-specific indicators, like the S&P (Standard & Poor’s) 500 index or the Nasdaq 100 index, which provide a measure to track the movement of the overall market. Other methods include the Stochastic Oscillator and the Stochastic Momentum Index. The stock exchanges also maintain all the company news, announcements, and financial reporting, which can usually be accessed in their official websites. A stock exchange also supports various other corporate-level, transaction-related activities. For instance, profitable companies may reward investors by paying dividends that usually come from part of the company’s earnings. The exchange maintains all such information and may support its processing to a certain extent.
