Functions of Secondary Market

Functions of tributary Market The alternate food martplace provides an organized place and the implement for trading in securities. They also ensure that the deals struck in the course atomic number 18 clean-living and within the framework of law. The efficient functioning of the line of credit supplant creates a conductive climate for an supple and growing primitive coil grocery store for new issues. An active and healthy secondary food securities industry in existing securities leads to better psychology of expectations considerable broadening of investment enquiries renders the parturiency of raising resources by entrepreneurs easier.Good performance and outlook for equities in the hold exchanges imparts buoyancy to the new issue market. The good stock exchange facilities the following heavy activities in the economy of a country i. Favorable climate for addition of primary market ii. Widening of investment opportunities for the investor iii. Improving availab ility of resources for the championship enterprises iv. Buoyancy in new issues v. Increasing confidence among the players of the market classic functions 1.Provide a mean solar day-and-night market It is the important objective of the secondary market to ensure stability in hurt as the trading natural action progresses. The stock market achieves this aim by providing a continuous market infrastructure to the investor, thereby ensuring liquidity in the market. Some important characteristics of a continuous market are i. Frequency of trades ii. Small spread between bid and ask expenditures iii. Immediate execution of order iv. Change in legal injury beingness minimum as the transaction takes place The enefits of continuous market are that it creates marketable liquid investments and facilitates collateral lending. 2. Frequency of gross sales A market will be liquid only when a buyer/ seller behind find seller/buyer. If there are no buyers/sellers for some securities or ther e is long wait before a buyer/ seller can find counterparty, such(prenominal) market are called illiquid markets. The primary criterion for a good market is whether investors can sell their portfolio holding quickly with minimal price fluctuation at the succession of sale.Liquidity occupies a central place in evaluating the efficiency of exchange. The market should assume three important dimensions of liquidity. They are i. Depth ii. Breadth iii. resilience Depth refers to the situation wherein buy and sell orders are available at the quoted price for the desired quantity. If it is not available, then the market is termed as modify market. The number of the transaction or the number of orders determines the breadth of the market. Otherwise the market is known as thin.The response to orders to changes in price reflects the resilience of the market. 3. falsifiable measurement of liquidity Empirically, liquidity is measured by the number of old age a lodges dish out is traded, out of the number of geezerhood in the year, when the market is open. The number of days particular share is being traded reflects the liquidity of the market. If it is traded actively 50%of the days when the market is open, then it is termed as liquid. The variation in price of the share from one trading day to another also determines the liquidity of the share.If the difference between the lowest asked(or offered) price and highest bid-price is wide, the market is said to lack depth and considered shallow. Actually bid- asked spread is an antonym measure of liquidity. Tick as the minimum difference in range between two orders on the same side i. e. , buy or sell entered on the system for a scrip. Trading in scrips listed on BSE is done with the size of 5 paise, it is 1 paise, in cocktail dress of mutual funds and others to encourage orders at finer rates and remediate liquidity.In United states, variation of one eighth point in the price from the immediate trade is considere d liquid. In our country, the minimum tick start from 0. 25. 4. mean(a) price determination The prices in the stock market are set(p) by the interplay of the forces of supply and demand. When the prices are going up, it is termed as bull stage and when the prices are going down, it is termed as bear phase. As seen earlier active, control and two-way auction trading takes place in the stock exchange. The progeny is as near a market for desolate trading and free competition, as can be found anywhere.The bargains that are struck are at the fairest price, determined by the basic laws of supply and demand. At time large-mouthed scale speculator activities raise the price of the share. barely such activities are ephemeral in nature. There is no fundamental kin between book value, par value and market value of share, because the share price may experience a boom if there is large scale investment from an individual or mutual fund company and also during such period too much money c hases a few shares.The performance of the stock exchange is also subject to speculation, which at times, drives up the prices above the investment worth and at others, below it. under the normal circumstances, one would leave the situation to the forces of the market- what the buyers and sellers willing to bid and to offer. But in India, conscious policy is adopted to make shares attractive to the unlike institutional investors who evaluates our market, in relation to the other emerging markets. The stabilization of the stock market prices around a reasonable level would be desirable. . caution to Financing Activities Listed company finds it helpful to sell further issues of their shares in the primary market based on the good performance of their earlier ones. An active market and the good market prices for the companys shares makes the task of raising funds through further issues easier. This facilitates the company to leave out good price for the subsequent primary issue in t he market. Rights themselves have an immediate and a wide market in the stock exchanges, provided the price including the premium reflects a fair price.Thus the stock exchanges enable a company to market further issues successfully by creating a continuous market for the rights. 6. Other allied functions * The market prices established in the stock exchange trading are useful for tax purpose. * The stipulation on disclosure and transparency ensures that the investors have access to information on the listed companies, particularly with regards to their fiscal condition. * It serves to protect the investors interest by eliminating the dishonest and irregular practices uncontrolled in the brokerage trade. To ensure a measure of safety and fair dealing to protect investors interest. * To provide the instant valuation of securities caused by changes in the internal environment. * To induce companies to improve performance since the market price at the stock exchanges reflects the perf ormance and this market price is readily available to investors. * Secondary marketing is vital to an efficient and modern capital market. * In the secondary market, securities are sold by and transferred from one investor or speculator to another. * lay on the line management