Stock Exchange

What is a Market? In economics, the concept of a market is any structure that allows buyers and sellers to exchange any goods, services and information. Financial Market: The coming together of buyers and sellers to trade financial securities. i.e. stocks and shares are traded between buyers and sellers in a number of ways,  The use of stock exchanges  Directly between buyers and sellers etc.

2. Organizations that facilitate the trade in financial securities. i.e. stock exchanges facilitate the trade in stocks, bonds and warrants.

Types Of Financial Markets

Capital Market
Capital market is the market for securities, where companies and governments can raise long-term funds. The capital market includes the stock market and the bond market. 
Stock Market:

Provides financing through the issuance of shares or common stock, and enable the subsequent trading thereof. 
Bond Markets:

Provides financing through the issuance of Bonds, and enable the subsequent trading thereof

Money Market
In finance, the money market is the global financial market for short-term borrowing and lending. It provides short-term liquid funding for the global financial system.
The global financial system (GFS) is a financial system consisting of institutions and regulations that act on the international level, as opposed to those that act on a national or regional level.

Primary & Secondary Markets
Primary Market:
Where firms raise new capital
1. IPO, Bond issuance etc 2. Investment banking

Secondary Market:
Where existing claims trade between investors (just passing around pieces of paper)
1. NASDAQ, NYSE, AMEX, Bourse etc. 2. In economic terms, enables the trading of TIME & RISK

What is Stock Exchange?
Hartely defines Stock Exchange as, ³Stock Exchange a warehouse where all securities which are listed thereon are kept and traded on specified prices´.

Types of Speculators 
Bulls  Bears  Stag  Lame Duck

Characteristics of Stock Exchange
The salient features of stock exchange are as under: 
Stock Exchange is a regulated capital market.  Stock Exchange deals in securities which are issued by joint stock companies, government institutions.  All the transaction in stock exchange are carried out through approved members.  The trading in Stock exchange is strictly according to the rules of stock exchange.  Both genuine investors and speculators buy and sell shares.

Study of Stock Exchange
The securities market is studied under two main heads: 
The New Issue Market  The stock Exchange

Formation of Stock Exchange 
The stock exchange is a corporate body having liability of the members Limited by Guarantee in Pakistan.  Each Stock Exchange frames its own rules for the conduct of business and they are duly approved by the Government.  The affairs of the stock exchange are managed by a committee of Management or Board of Directors.  The membership of stock exchange is open to those persons who are citizens of the country, possess sound credit standing and have a sound knowledge of the stock exchange business.

The stock exchange is required to maintain the following books and documents,  Minute Book  Register Of Members  Register Of Authorized Clerks  Register Of Authorized Assistant  Record Of Security Deposits  Ledger  Journals  Cash Book  Bank Pass Book.

Functions of Stock Exchange 
Organized Ready Market  Turning Investment into Cash  Proper Canalization of Capital  Proper evaluation of Security  Profitable use of Capital  Loan Opportunity  Investment by Banks  Facilitates Speculation  Riba free mode of investment  Employment Opportunities

How Business is Transacted in Stock Exchange
1) Choosing a Broker: A broker is a person who buy and sell shares for clients and charge nominal commission. 
Financial Position  Opening of an account


Placing an Order: The client gives a definite or a near price however the broker is given some choice of bargaining.


Making the Contract: 
The buying and selling of shares is done in the nature of auction.  When the sale or purchase is made, the customer is informed and a contract note is signed.  A contract note includes,  Names and address of the broker  Name and address of the buyer  The price of the share  Commission of the broker  The date, number and amount of transaction


Spot Transaction  Cash Basis  Payment within 24 hours.  Forward Transaction  Account Basis  Payment within the specified rate