The stock exchange has a great contribution to the formation of an economy. The major functions of stock exchange or SEC are explained under these headings:-
- Providing a ready market: The organization of stock exchange provides a ready market to speculators and investors in industrial enterprises. It thus, enables the public to buy and sell securities already an issue.
- Providing quoting market prices: It makes possible the determination of supply and demand on price. The very sensitive pricing mechanism and the constant quoting of market price allow investors to always be aware of values. This enables the production of various indexes which indicate trends etc.
- Providing facilities for working: It provides opportunities to Jobbers and other members to perform their activities with all their resources in the stock exchange.
- Safeguarding activities for investors: The stock exchange renders safeguarding activities for investors which enables them to make a fair judgment of securities. Therefore directors have to disclose all material facts to their respective shareholders. Thus innocent investors may be the safeguard from the clever brokers.
- Operating a compensation fund: It also operates a compensation fund which is always available to investors suffering loss due to the speculating dealings in the stock exchange.
- Creating the discipline: Its members controlled under the rigid set of rules designed to protect the general public and its members. Thus this tendency creates the discipline among its members in social life also.
- Checking functions: New securities checked before being approved and admitted to listing. Thus stock exchange exercises rigid control over the activities of its members.
- Adjustment of equilibrium: The investors in the stock exchange promote the adjustment of equilibrium of demand and supply of a particular stock and thus prevent the tendency of fluctuation in the prices of shares.
- Maintenance of liquidity: The bank and insurance companies purchase a large number of securities from the stock exchange. These securities are marketable and can be turned into cash at any time. Therefore banks prefer to keep securities instead of cash in their reserve. This it facilities the banking system to maintain liquidity by procuring the marketable securities.