Stock Exchange is a platform in which brokers and traders can buy and sell securities with each other such as stocks, bonds, etc. It is the most important institution in the secondary market for securities. It makes available the prices of trading as important information to the investors. It publishes indexes and fulfills the purpose of projecting moods of the stock market. In this article, we will see the meaning and history of stock exchanges and some major stock exchanges in India and around the world which are important for the UPSC examination.

Overview of Stock Exchanges

• Stock Exchanges gives updated information to listed companies about their present stakeholders.
• They help in issuing, redeeming various securities, instruments, and capital events such as those responsible for the payment of dividends and income.
• According to the Securities Contract Regulation Act, 1956 stock exchanges are formed for regulating the business of buying, selling, or dealing with various securities such as shares and bonds.
• They form a part of the securities market globally and therefore provide liquidity to the shareholders.

Stock Exchanges - History

• Dutch East India Company in early 1600 was the first company that issued bonds and shares to the public.
• First government bonds were issued by King William III and the Bank of England.
• A broker called John Castaing in 1698 started posting regular lists of stocks and commodity prices. This development marked the beginning of the London Stock Exchange.
• World’s stock exchange was established in 1631 in Antwerp, Belgium.

Functions of Stock Exchange

• Selling shares provides capital for the expansion of businesses.
• For capital intensive companies it helps raise capital by going public.
• Helps in venture capital, it is a type of private equity which is used to raise capital provided by investors to small early-stage startups with promising potential.
• Mobilization and a rational division of resources for investing in the economy lead to better economic growth.
• For various companies it also provides access to better distribution channels, hedging against volatility and increasing their market share, etc.
• Better management, rules for companies to operate lead to better practices of corporate governance.
• It helps in raising capital for small investors.

Bombay Stock Exchange (BSE)

• Bombay Stock Exchange (BSE) is India's first and largest stock market and was founded in 1875 as the Native Equity and Stockbroker Association.
• It is headquartered in Mumbai, India. BSE is one of the largest stock exchanges in the world with approximately 6,000 listed companies.
• BSE is Asia's first stock exchange and also includes a stock trading platform for small and medium-sized enterprises (SMEs).

*Click here to read more about BSE.

National Stock Exchange (NSE)

• In 1992, the National Stock Exchange was established.
• The Securities Contracts (Regulation) Act, 1956, designated it as a stock exchange, and it began operations in 1994.
• It was the country's first completely computerized electronic trading exchange.

*Click here to read more about NSE.

India INX

• India International Exchange Limited (India INX) is the first international exchange at GIFT IFSC.
• It provides a state-of-the-art electronic platform to facilitate trading, clearing, and settlement of the various global benchmark products across all major asset classes such as securities, equity derivatives, precious metals, etc.
• India INX has also introduced the Global Securities Market platform which is a pioneering concept in India offering issuers an efficient and transparent method to raise capital.
• India INX also has an exclusive Green listing platform established as per ICMA’s Green Bond Principles and Climate Bonds Initiative which provides an ideal platform for global investors to invest.

Commodity Exchanges

Commodity Exchanges are those where there is an exchange of various commodities and derivatives products. They mostly trade in agricultural products and contracts based on them. They hedge against price risk, especially in the case of agricultural commodities.

NCDEX

• NCDEX (National Commodities and Derivatives Exchange) is an Indian online commodities exchange that specializes in agricultural commodities. It is a public limited company that was incorporated under the Companies Act of 1956 on April 23, 2003.
• The NCDEX is governed by the Securities and Exchange Board of India (Securities and Exchange Board of India) (SEBI).
• Various laws under the Indian Penal Code regulate the exchange, including the Securities Contracts (Regulation) Act, 1956, the Companies Act, the Contract Act, and other regulations.

Multi Commodity Exchange of India (MCX), Mumbai

• The Multi-Commodity Exchange of India was established under the Forward Markets Commission (FMC) in 2003.
• It is an online platform that enables online trading, settlement, and clearing of commodity futures transactions.
• It acts as a platform for providing risk management (hedging).

*Click here to read more about NCDEX and MCX.

Spot Exchanges

• Spot Exchanges are electronic trading platforms that enable the purchase and sale of specific commodities such as agricultural, metals, bullion, etc by providing spot delivery contracts in these commodities.
• They employ the use of the latest technology available for the trading of goods. In a spot exchange, a farmer or a trader can discover the prices of commodities on a national level and can buy or sell goods to anyone across the country.
• All contracts available on the exchange are compulsory delivery contracts.

National Spot Exchange Limited (NSEL)

• It was incorporated as a spot exchange for trading in commodities in May 2005. It acts as an electronic trading platform for participants for spot trading of commodities, such as bullion, agricultural produce, metals, etc.
• NSEL consists of registered trading members, called brokers who execute commodity trades on the NSEL platform on behalf of and in accordance with the instructions of their respective clients across India

Social Stock Exchange

• Social Stock Exchange serves as a platform for listing social enterprises that are focused on addressing various socio-economic issues. They are regulated by SEBI.
• The idea for a Social Stock Exchange was first discussed in the budget 2019-20. It enables organizations working for various social causes to raise funds. It shows less dependence on foreign aid organizations.
• These organizations already exist in various developed democracies such as the US, UK, etc. It enables better allocation of resources and hence their better utilization.

*Click here to read more about Social Stock Exchange.

Sustainable Stock Exchange

• Sustainable stock exchanges (SSE) are a peer-to-peer learning platform that is used for exploring how exchanges can increase corporate transparency by working with investors, regulators, and companies.
• Sustainable Stock Exchanges were started by UNCTAD, the UN Global Compact, UNEP FI, and the PRI. It is a UN Partnership Programme.

*Click here to read more about Sustainable Stock Exchange.

Power Exchanges

• Power Exchanges act as a platform where purchasing and selling of power occur between various participants in the energy industry.
• Various forms of power trading are possible depending on the market design, ranging from short-term trading to long-term power purchase agreements.

Depository

• Depositories are such facilities where various items are deposited either for storage, safeguarding or work as an institution that accepts currency deposits from customers such as a bank.
• A depository ensures that money deposited is used for safeguarding, lending, investing, etc. They decrease the risks associated with holding physical cash.
• When the various assets are deposited, the depository holds the securities in an electronic form called book-entry form or in a dematerialized or paper format such as a physical certificate.

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Stock Market Index

• It is a statistical tool that measures the changes in the prices of shares in the stock exchange.
• It is ascertained from the prices of different selected stocks which constitute the weighted average of those stocks.
• It involves its use for describing the market and comparing returns on various investments.
• The Basis market index is used to calculate the value of the stock market index.
• Major stock indices in India include NSE Nifty and BSE Sensex.

Important International Indices

Major International Stock Exchanges of the World

New York Stock Exchange (NYSE)

• It is the largest equities-based exchange in the world.
• Here is the total market capitalization of its listed securities.
• It became public in 2005 after acquiring an electronic trading platform, Archipelago.

NASDAQ

• It is an electronic marketplace and benchmark index for US technology stocks.
• It was created in 1971 by the National Association of Securities Dealers (NASD).
• It provides investors with the ability to trade securities on a rapid, computerized and transparent system.
• It consists of more than 3,000 listed technology companies such as Apple, Google, Microsoft, etc.

London Stock Exchange (LSE)

• It is the largest stock exchange in Europe and the primary stock exchange in the UK.
• It developed after the merger of several regional exchanges in 1973.

Bombay Stock Exchange

• It is the first stock exchange of Asia founded in 1875.
• It is the 10th largest in the world.

National Stock Exchange

• It was established in 1992.
• It comes under the ownership of various leading financial institutions, banks, and insurance companies.

Important Terms Related to Stock Exchanges

Conclusion

Stock Exchanges were established as platforms to serve between buyers and sellers to raise capital. This capital can then be utilized for the expansion of businesses leading to economic growth and development of the country. These platforms are regulated by various institutional mechanisms so as to ensure transparency in trading activities.