Important functions of stock exchanges: UPSC Daily Important Topic | 20 February 2022

Important functions of stock exchanges:

✓Determining the fair price

The stock exchanges facilitate in discovering fair prices of the publicly listed securities. Relentless trading of securities helps in determining the price of the listed securities.

✓Facilitating industrial advancement

The industrialisation of a nation is reliant on capital availability. This is ensured by the stock exchanges as the public can invest directly in the companies through stock exchanges

✓Protecting investors’ interest

The stock exchanges lay down guidelines for the operation of the listed entities. These norms have to be strictly followed by the companies, thereby protecting investors’ interest as they would have financed the operations

✓Act as secondary markets

Stock exchanges will help investors of certain bonds, such as sovereign gold bonds (SGBs), to sell their holdings within the lock-in period or maturity

✓Reduce the dependency on loan for corporates

The existence of stock exchanges has helped listed companies avoid availing a loan as they could raise capital by issuing securities. This has helped them save a significant amount in the form of regular interest outgo.