S.Y.J.C. (Commerce) Prof.

Vijay Patil

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CHAPTER 12 – STOCK EXCHANGE

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Q.1. Explain the various Functions of Stock Exchange.

Ans: A) MEANING:
Stock exchange is a specific place where various types of securities
are purchased and sold. The term securities include equity shares,
preference shares, debentures, government securities and bonds, etc.
including units of Mutual Funds. Stock markets act as intermediary
between investors and borrowers. To provide safety and stability to the
investors, Stock exchanges in India are regulated by SEBI.

B) FUNCTIONS OF STOCK EXCHANGE:

1. Mobilisation of Savings:
 Stock markets encourages small and big investors to invest in
securities through the stock exchange.
 It thus provides a ready market for buying and selling securities.

2. Capital formation:
 Investors in securities are attracted due to good returns on
investments and capital appreciation.
 This attracts more investors to invest through the stock exchange.

3. Pricing of Securities:
 The stock market helps to value the securities on the basis of
demand and supply factors.
 The valuation of securities is useful for investors, government and
creditors.

4. Economic Barometer:
 A stock exchange is a reliable barometer to measure the economic
condition of a country.

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S.Y.J.C. (Commerce) Prof. Vijay Patil

 Every major change in country and economy is reflected in the prices

of shares.

5. Protecting Interest of Investors:

 Stock exchange protects the interest of investors.
 The companies which are listed have to operate within the strict
rules and regulations laid down by the stock exchange.

6. Liquidity:
 The main function of stock market is to provide ready market for
sale and purchase of securities.
 Stock market gives assurance to investors that their investment can
be converted into cash whenever they want.

7. Promotes the Habit of Savings and Investment:

 The stock market offers attractive opportunities of investment in
various securities.
 These attractive opportunities encourage people to save more and
invest in securities of corporate sector rather than investing in
unproductive assets such as gold, silver, etc.
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Q.2. Write a short note on ‘Bombay Stock Exchange [BSE]’.

Ans: Bombay Stock Exchange [BSE]:
 BSE - Bombay Stock Exchange, was set up in 1875.
 At that time it was called as The Native Share and Stock Brokers’
Association.
 It is located in Dalal Street in Mumbai.
 It is Asia’s first Stock exchange.
 It is the first listed stock exchange in India. It is the 11th largest stock
exchange in the world.
 The BSE switched to an electronic trading system in 1995.
 This automated, screen-based trading platform is called BSE On-Line
Trading (BOLT).

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S.Y.J.C. (Commerce) Prof. Vijay Patil

Q.3. Explain the term ‘National Stock Exchange [NSE]’.

Ans: National Stock Exchange [NSE]:
 It is the largest and most modern stock exchange in India.
 The NSE is located in Mumbai.
 NSE was the first exchange in the country to provide a modern, fully
automated screen based electronic trading system.
 The main index of NSE is the NIFTY which was launched in 1996.
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Q.4. Explain the term SEBI. What are the various Functions of SEBI.
Ans: A) MEANING:
The Securities and Exchange Board of India (SEBI) is the regulator
of the capital markets in India. The SEBI was established in 1992 under
the Securities and Exchange Board of India Act, 1992. It has its
headquarters in Mumbai and has many regional and local offices all over
India.

B) FUNCTIONS OF SEBI:
The various functions of SEBI are -
1) To protect the interest of investors in securities market.
2) To promote the development of securities markets.
3) To regulate the business in stock exchanges and any other securities
market.
4) To register and regulate the working of stock brokers, sub-brokers,
share transfer agents, bankers to an issue.
5) To register and regulate the working of the Depositories, Depository
Participants, Custodians of securities, foreign institutional
investors, credit rating agencies.
6) To promote and regulate self-regulatory organizations.
7) To prohibit fraudulent and unfair trade practice relating to securities
markets.
8) To promote investors’ education and training of intermediaries of
securities market.
9) To prohibit insider trading in securities.

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S.Y.J.C. (Commerce) Prof. Vijay Patil

Q.5. Distinction Between:

Jobber Broker
1. Meaning:
Jobber is one who buys and sells Broker is an agent who deals in
securities in his own name. buying and selling of securities on
behalf of his client.
2. Nature of Trading:
A jobber carries out trading activities A broker carries out trading activities
only with the broker. with the jobber on behalf of his
investors.
3. Restrictions on Dealings:
A jobber is prohibited to directly buy A broker acts as a link between the
or sell securities in the stock jobber and the investors. He trades i.e.
exchange. Also he cannot directly deal buys and sells securities on behalf of
with the investors. its investors.
4. Agent:
A jobber is a special mercantile agent. A broker is a general mercantile agent.

5. Form of Consideration:
A jobber gets consideration in the A broker gets consideration in the
form of profit. form of commission or brokerage.

OBJECTIVE TYPE QUESTIONS

A) Select the correct option and rewrite the statements.

1. A stock exchange is where stock brokers and traders can buy and sell
______________
(a) Gold (b) Securities (c) Goods

2. The ______________ is the first Stock Exchange to be recognized by the

Indian Government under the Securities Contracts (Regulation) Act.
(a) BSE (b) NSE (c) OTCEI

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S.Y.J.C. (Commerce) Prof. Vijay Patil

3. ______________ is a dealer in Stock Exchange who carries on trading of

securities in his own name.
(a) Jobber (b) Broker (c) Bull

4. A ______________ who expects fall in price of securities.

(a) bull (b) bear (c) Jobber

5. The practice of buying and selling within the same trading day before the
close of the market on that day is called ______________
(а) insider trading (b) day trading (c) auction

6. The oldest stock exchange in Asia is ______________.

a) National Stock Exchange [NSE] b) Bombay Stock Exchange
c) Calcutta Stock Exchange [CSE]

7. An institution which regulates and controls the activities of the Stock

Exchange is called ______________.
a) NSE b) BSE c) SEBI

8. The SEBI was established in ____________.

a) 1972 b) 1982 c) 1992

9. ____________ is the index of BSE.

a) Sensex b) Nifty c) SEBI

10. Sensex was created in the year ____________.

a) 1976 b) 1986 c) 1996

B) Write a word or a term or a phrase:

1. A specific place where the trading of securities is Stock Exchange
arranged in an organized method.
2. The first Stock Exchange to be recognized by the BSE
Indian Government under the Securities Contracts
Regulation Act.

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S.Y.J.C. (Commerce) Prof. Vijay Patil

3. A dealer in the Stock Exchange who carries on the Jobber

trading of securities in his own name.
4. A speculator who expects the price of shares rises in Bull
the future.
5. The automated, screen based trading platform used BSE On-line
by BSE. Trading [BOLT]
6. A centralised, interest-based trading system set up bsewebx.co.in
by BSE to enable trading anywhere in the world.
7. The first demutualised electronic exchange in India. National Stock
Exchange [NSE]
8. An institution which controls & regulates activities of SEBI
stock exchange.

C) State whether the following statements are True or False.

1. A Stock Exchange is a reliable barometer to measure the True

economic condition of a country.
2. Bombay Stock Exchange is the oldest Stock Exchange in India. True
3. A broker is a dealer in the Stock Exchange who carries on the False
trading securities in his own name.
4. A Bear is a speculator who expects the prices of shares to rise False
in the future.
5. Stock exchanges reflect financial progress of the country. True
6. London Stock Exchange is the oldest stock exchange in the True
world.
7. The main function of stock market is to provide ready market True
for sale and purchase of securities.
8. BSE was set up in 1875. True
9. Trading based on insider information is illegal. True
10. NIFTY is made up of 50 Companies. True
11. Stock brokers have to register with SEBI. True

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S.Y.J.C. (Commerce) Prof. Vijay Patil

D) Find the odd one:

1. BSE, NSE, LSE LSE
2. Nifty, Sensex, Bull Bull
3. Rally, Crash, Stag Stag
4. Bull, Bear, Insider Trading Insider Trading

E) Complete the sentences.

1. The oldest Stock Exchange in India is the BSE
______________.
2. A speculator who expects fall in prices of share Bear
______________.
3. A person who buys or sells shares on behalf of his broker
clients is called as ______________.
4. The largest and most modern stock exchange in India National Stock
is the ______________. Exchange
5. SEBI has its headquarters in ______________. Mumbai
6. Only ______________ securities can be traded on a Listed
stock exchange.
7. NSE was set up by a group of Indian Financial 1992
Institutions in ______________.

F) Select the correct option from the bracket.

(London Stock Exchange, Index of NSE, SEBI,
Trades in securities in his own name)

Sr. Sr.
Group ‘A’ Group ‘B’
No. No.
1) Regulator of Capital Market a) ………………………….
2) …………………………. b) Nifty
3) Jobber c) ………………………….
4) …………………………. d) Oldest Stock Exchange in the world

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S.Y.J.C. (Commerce) Prof. Vijay Patil

Ans:
Sr.
Group ‘A’ Ans.
No.
1) Regulator of Capital Market SEBI
2) Index of NSE Nifty
3) Jobber Trades securities in his own name
4) London Stock Exchange Oldest Stock Exchange in the world

G) Correct the underlined word/s and rewrite the following sentences.

1. One of the functions of SEBI is to protect the interest Investors

of issuers of securities in the securities market.
2. A Broker cannot directly deal with investors. Jobber
3. A Bear expects prices of shares to rise in the future. Bull
4. A Bull buys new issues of securities from the primary Stag
market.
5. A stock market is an important constituent of Capital
the money market.
6. Nifty is the index of BSE. NSE
7. All listed companies have to comply with the guidelines SEBI
of BSE.

H) Explain the following Concepts:

1. Stock Exchange:
Ans: Explanation:
 Stock exchange is a specific place where various types of securities are
purchased and sold.
 The term securities include equity shares, preference shares, debentures,
government securities and bonds, etc. including units of Mutual Funds.
 Stock markets act as intermediary between investors and borrowers.
 To provide safety and stability to the investors, Stock exchanges in India
are regulated by SEBI.

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S.Y.J.C. (Commerce) Prof. Vijay Patil

2. SEBI:
Ans: Explanation:
 The Securities and Exchange Board of India (SEBI) is the regulator of the
capital markets in India.
 The SEBI was established in 1992 under the Securities and Exchange
Board of India Act, 1992.
 Objectives of SEBI is to promote securities market, protecting the interest
of investors in securities market and to regulate the securities market.
 SEBI issues rules & regulations to be followed by the issuers of securities,
the market intermediaries & the investors.

I) Justify the following Statements:

1. Stock Exchange work for the growth of the Indian Economy.
Ans: This statement is True.
Explanation:
 Stock exchange is a specific place where various types of securities are
purchased and sold.
 Securities of various companies are traded on the stock exchange.
 Investors invest in those companies which give good return on investment.
 Companies also try to invest in the most productive investment projects.
 This leads to capital formation and economic growth.
 Hence, Stock Exchange work for the growth of the Indian Economy.

2. SEBI is the regulator for the securities market in India.

Ans: This statement is True.
Explanation:
 The Securities and Exchange Board of India (SEBI) is the regulator of the
capital markets in India.
 The SEBI was established in 1992 under the Securities and Exchange
Board of India Act, 1992.
 Objectives of SEBI is to promote securities market, protecting the interest
of investors in securities market and to regulate the securities market.

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S.Y.J.C. (Commerce) Prof. Vijay Patil

 SEBI issues rules & regulations to be followed by the issuers of securities,

the market intermediaries & the investors.

STUDY THE FOLLOWING CASE / SITUATION &

EXPRESS YOUR OPINION.

1. Mr. Y is a practicing Company Secretary offering advisory services to

companies, institutions, etc. on corporate laws including the
Companies Act. He has received few queries from his clients, please
assist Mr. Y in answering them.

(a) BDI bank wants to offer DP services. Whom should they approach for
registering as DP?
Ans: BDI Bank has to approach SEBI for registering as DP.

(b) KM Financial wants to offer Debenture Trustee services. Where should

they apply for getting registered?
Ans: KM Financial should apply to SEBI for getting registered.

(c) TT Ltd. Co. wants to issue an IPO. Should it get itself registered with
SEBI?
Ans: IT Ltd Co. has to get itself registered with SEBI as it wants to issue an IPO.

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2. Mr. P has recently got his B.Sc. degree. He has enrolled in a course in
the securities market. As a new student of this subject, he has few
queries as follows:

(a) Does a company need to be listed on a stock exchange’s ability to sell

its securities through the stock exchange?
Ans: Yes, Company needs to be listed on a stock exchange to sell its securities
through the stock exchange.

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S.Y.J.C. (Commerce) Prof. Vijay Patil

(b) What is the term used for referring to a stock exchange’s ability to
reflect the economic conditions of a country?
Ans: ‘Economic Mirror’ is the term used for referring to a stock exchange’s
ability to reflect the economic conditions of a country.

(c) Which term refers to the functions of the stock exchange as a

provider of a ready market for sale and purchase of security?
Ans: ‘Liquidity’ is the term refers to the functions of the stock exchange as a
provider of a ready market for sale and purchase of security.

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