Quick Summary
The Stock Exchange is an organised market where securities (shares, debentures, bonds) are bought and sold. It provides liquidity to investors and channels savings into productive investments.
Key Concepts and Definitions
Stock Exchange: An organised marketplace for buying and selling securities under regulated conditions.
Bull Market: A market condition where prices are rising and investor confidence is high.
Bear Market: A market condition where prices are falling and investors expect further decline.
SEBI: Securities and Exchange Board of India — the apex regulatory authority for capital markets.
Demat Account: An account that holds securities in electronic (dematerialised) form.
Major Stock Exchanges in India
BSE (Bombay Stock Exchange)
- Established: 1875 (oldest in Asia)
- Location: Dalal Street, Mumbai
- Index: Sensex (30 largest companies)
- First stock exchange to receive permanent recognition under Securities Contracts Act
NSE (National Stock Exchange)
- Established: 1992
- Introduced fully automated screen-based trading
- Index: Nifty 50 (50 largest companies)
- Largest stock exchange in India by trading volume
SEBI — Securities and Exchange Board of India
Established: 1988 (statutory body since 1992)
Functions of SEBI
1. Protective functions — prevents insider trading, fraudulent practices, price rigging 2. Developmental functions — promotes investor education, training of intermediaries 3. Regulatory functions — registers and regulates brokers, merchant bankers, mutual funds 4. Quasi-judicial functions — adjudicates disputes between market participants
Trading Mechanism
Steps in Trading Process
1. Opening a demat account and trading account with a SEBI-registered broker 2. Placing a buy/sell order through the broker or online platform 3. Order matching by the stock exchange system 4. Trade confirmation sent to both buyer and seller 5. Settlement: T+1 rolling settlement (trade date + 1 day) — effective from 2023
Types of Orders
- Market Order: Buy/sell immediately at current market price
- Limit Order: Buy/sell only at a specified price or better
- Stop-Loss Order: Automatically sell if price falls below a set level
Demat Account
| Feature | Details |
|---|---|
| Full form | Dematerialised Account |
| Purpose | Hold securities electronically |
| Opened with | Depository Participant (DP) |
| Depositories | NSDL, CDSL |
| Mandatory since | January 1999 for major listed companies |
Benefits of Demat:
- Eliminates risk of physical certificate loss/theft
- Faster settlement and transfer
- Reduces paperwork and stamp duty
- Enables easy pledging of securities for loans
Important Questions
One Mark
1. What is Sensex? 2. Name the regulatory body for Indian stock markets. 3. Full form of NSDL. 4. What is T+1 settlement?
Short Answer (3 Marks)
1. Distinguish between BSE and NSE. 2. Explain any three functions of SEBI. 3. What is a demat account? State its advantages.
Long Answer (5 Marks)
1. Explain the trading mechanism in a stock exchange with steps. 2. Describe the functions of SEBI in detail. 3. Distinguish between primary market and secondary market.
Board Exam Tips
- Sensex vs Nifty distinction is a frequent 1-mark question
- Write SEBI's functions under the three categories (protective, developmental, regulatory)
- Remember: NSDL and CDSL are depositories; brokers are Depository Participants (DPs)
- T+1 settlement is the current system — updated from T+2
Revision Checklist
- [ ] Definitions: stock exchange, bull/bear market, demat, SEBI
- [ ] Difference: BSE vs NSE, primary vs secondary market
- [ ] SEBI functions (three categories)
- [ ] Trading process — 5 steps
- [ ] Demat account — purpose and benefits