Question

State and explain the meaning of secondary market and enlist its characteristics.

Answer 1

Meaning and explanation:

• The secondary market is the market in which securities such as shares (stock), bonds, etc. which were originally issued in the primary market can be purchased and sold (traded/exchanged). The secondary market is also called the stock exchange.
• Thus, stock exchange is an organization which enables share brokers and investors to buy and sell shares, debentures and other securities. It is an organized market for trading of existing securities.

Characteristics of stock exchange (Secondary market):

1. Registered corporate body: Stock exchange is a registered and established corporate body that prepares rules and regulations for the transactions of securities.
2. Approval of government: Stock exchange has to obtain approval of the central government as per the provision of Securities Contracts (Regulation) Act, 1956.
3. Organized market: It is an organized market for dealing in existing listed securities.
4. Membership: Membership of stock exchange must be obtained for dealing transactions in stock exchange.
5. Market of securities: Stock exchange is an approved organized market for buying and selling of securities.
6. Listing of securities: The securities which are listed on stock exchange are transacted in stock exchange.
7. Management: It is administered and managed by board of directors.
8. Strict control over the members: The Board of Directors exercise strict control over the members through their disciplinary powers.
9. Organizational structure: The organizational structure of stock exchange is in the form of public company.
10. Regulation of stock exchange: All the stock’exchanges of India are regulated by Securities and Exchange Board of India (SEBI) and Securities Contracts (Regulation) Act.