What Is a Stock Exchange? Meaning, Types and Basics

Stock Exchanges are vital for investors to buy and sell shares. It brings investors and companies together in a win-win relationship. For instance, stock exchanges help companies raise capital by issuing equity shares sold to investors. Companies invest these funds into their businesses to increase profits, thereby boosting share prices. 

What is a Stock Exchange?

Stock exchanges are central marketplaces where stocks, bonds and other securities are bought and sold. It is a marketplace where companies issue financial securities traded over the platform. Stock exchanges electronically connect securities buyers and sellers, bringing transparency and stability to the stock trading process. 

Stock exchanges play a vital role in generating liquidity for financial securities. Any company which wants to list its securities on a stock exchange agrees with the stock exchange to ensure its securities are allowed for trading. Trading on stock exchanges is based on an order-matching algorithm. It ensures matching the best buy order with the best sell order. 

A stock exchange earns money by charging fees to trading members. After a company’s securities are listed on the stock exchange, you can buy and sell them electronically. To understand the workings of a stock exchange, you must know the basics of the primary market and secondary market. 

Primary market:

In a primary market, a company issues its shares for the first time through an initial public offering or IPO. 

Secondary market:

The secondary market in India is where investors buy and sell shares issued by the company during the initial public offering. 

Types of Stock Exchanges

There are two types of stock exchanges in India.

1. Stock Exchanges at the National Level
2. Stock Exchanges at the Regional Level 

1. Bombay Stock Exchange Limited (BSE)

Bombay Stock Exchange, popularly called BSE Limited, is the oldest stock exchange in Asia. It was established in July 1875 and is the tenth oldest stock exchange globally. 

BSE is the world’s eighth-largest stock exchange by market capitalisation of Rs 276.713 Lakh Crore as of January 2022. 

BSE has 5,439 companies listed on it. Moreover, it was the first Indian stock exchange recognised by the government on 31 August 1957 under the Securities Contracts Regulation Act, 1956. BSE is one of the world’s fastest stock exchanges, with a speed of six microseconds. 

BSE developed the S&P BSE Sensex Index in 1986 to measure the stock market’s overall performance. The BSE shifted from an open outcry system to an electronic trading system in 1995. BSE Online Trading or BOLT is an automated screen-based trading platform with a capacity of 8 million orders per day.

2. National Stock Exchange of India (NSE)

The National Stock Exchange of India is a leading stock exchange in India. It was established in 1992 as the first dematerialised stock exchange in India. SEBI, the capital markets regulator, recognised NSE as a stock exchange in 1993. 

NSE was ranked fourth for cash equities in terms of trades for the calendar year 2021. It was the world’s largest derivatives exchange by the number of contracts traded in 2021. NSE has a total market capitalisation of above US$3.4 trillion as of August 2021. 

NSE’s flagship index is the NIFTY 50, launched in 1996. It is extensively used by Indian investors in the stock market and serves as a barometer measuring the performance of the Indian stock market. 

3. Calcutta Stock Exchange Limited (CSE)

Calcutta Stock Exchange (CSE) is Asia’s oldest government-owned stock exchange. It was reconstituted in May 1908 and is located at the Lyon’s range, Kolkata. 

The Government of India granted permanent recognition to the Calcutta Stock Exchange (CSE) on 14 April 1980 under the Securities Contracts Regulation Act, 1956. The Calcutta Stock Exchange initially followed the open outcry system for stock trading up to 1997. 

It was replaced by CSE Screen-Based Trading And Reporting or C-STAR, an electronic trading platform. SEBI asked Calcutta Stock Exchange to stop operations, but the matter is before the Calcutta High Court.

4. India International Exchange Ltd

India International Exchange Ltd (India INX) is a subsidiary of BSE and India’s first international stock exchange. It is located at the International Financial Services Centre (IFSC) in Gujarat (Gift City). 

India International Exchange Ltd commenced operations on 16 January 2017. It runs on an advanced technology platform and is the fastest exchange in the world, with a turnaround time of four microseconds

India International Exchange Ltd operates 22 hours per day, six days a week. It helps NRIs and International investors trade from anywhere globally across time zones. India International Exchange Ltd has a daily turnover volume of Rs 74,509 crore. 

5. Multi Commodity Exchange of India (MCX)

The Multi Commodity Exchange of India is the nation’s first listed commodity exchange. It was established in November 2003 and was regulated by the Forward Markets Commission (FMC). However, FMC merged with SEBI on 28 September 2015. 

MCX is among the world’s top commodity exchanges based on the number of futures contract trades. Moreover, MCX offers options trading in gold and futures trading in bullion, non-ferrous metals, energy and agro-commodities.

6. National Commodities and Derivatives Exchange (NCDEX)

National Commodities and Derivatives Exchange (NCDEX) is India’s major agricultural commodity index. It falls under the ownership of the Ministry of Finance and offers a commodity exchange platform for trading in commodity derivatives. 

NCDEX was established in April 2003, with headquarters in Mumbai. It obtained the certificate for commencement of business in May 2003. NCDEX is a recognised stock exchange under the Securities Contracts Regulation Act, 1956 and is regulated by SEBI. 

7. Indian Commodity Exchange Limited (ICEX)

Indian Commodity Exchange Limited is a SEBI-registered commodity derivative exchange headquartered in Mumbai. It was registered with SEBI in August 2017. 

ICEX launched the world’s first diamond derivatives contract in August 2017. It offers a trading platform for precious metals, spices, industrial metals, energy, agricultural products etc. 

Conclusion:

Stock exchanges play a vital role in generating liquidity for financial securities. Modern stock exchanges follow an order matching algorithm which ensures the best buy and sell order matches. 

NSE and BSE are the two leading stock exchanges in India. Stock exchanges promote trading in stocks and are an essential part of capital markets. Moreover, stock exchanges ensure the liquidity of financial securities and widespread investor participation in the stock market.