Secondary market

Meaning
The secondary market refers to a financial market where previously issued securities
and financial instruments are bought and sold among investors, rather than being
directly issued by the issuing company or institution. In essence, it's where investors
trade securities they already own. The primary function of the secondary market is
to provide liquidity and facilitate price discovery for these securities.

Stock exchanges, such as the New York Stock Exchange (NYSE) and the NASDAQ,
are examples of secondary markets for stocks. In these markets, investors buy and
sell shares of publicly traded companies. Similarly, there are secondary markets for
bonds, options, futures contracts, and other financial instruments.

Functions and role of stock exchange

Stock exchanges play several crucial functions in the financial markets:

1. Facilitating Trading: The primary function of a stock exchange is to provide a

platform where buyers and sellers can come together to trade securities such as
stocks, bonds, and derivatives. It ensures that there's a centralized marketplace
where investors can buy and sell securities with ease.

2. Price Discovery: Stock exchanges help in determining the prices of securities

through the forces of supply and demand. The continuous trading on exchanges
leads to the establishment of market prices that reflect the perceived value of
securities based on all available information.

3. Liquidity Provision: Stock exchanges enhance market liquidity by providing a

ready market for securities. Liquidity refers to the ease with which assets can be
bought or sold without causing a significant change in their prices. Stock exchanges
ensure that investors can quickly buy or sell securities without much impact on the
market price.

4. Market Transparency: Exchanges provide transparency by publicly displaying

information about the prices and trading volumes of securities. This transparency
helps investors make informed decisions about buying and selling securities.
5. Price Regulation: Stock exchanges enforce rules and regulations to maintain fair
and orderly trading. They monitor trading activities to prevent market
manipulation, insider trading, and other illegal activities that could undermine
market integrity.

6. Capital Formation: Stock exchanges play a vital role in facilitating capital

formation for companies. By providing a platform for companies to list their
securities and raise capital from investors, exchanges enable businesses to grow,
expand operations, and fund new projects.

7. Risk Management: Exchanges offer various risk management tools such as

futures, options, and other derivatives to help investors hedge their risks. These
instruments allow investors to protect themselves against adverse movements in
asset prices.

8. Market Surveillance: Exchanges conduct market surveillance to monitor trading

activities and ensure compliance with regulatory requirements. They use
sophisticated systems and tools to detect and investigate any suspicious trading
behavior or violations of trading rules.

Listening procedure and legal requirement

The listening procedure and legal requirements for participating in the secondary
market vary depending on the jurisdiction and the specific securities being traded.
However, here are some general steps and legal considerations typically involved in
participating in the secondary market:

1. Brokerage Account: To participate in the secondary market, investors typically

need to open a brokerage account with a licensed brokerage firm. This account
serves as a gateway for buying and selling securities on the stock exchange or other
secondary market platforms.

2. Know Your Customer (KYC) Requirements: Before opening a brokerage account,

investors are required to provide certain personal and financial information to
comply with KYC regulations. This includes identification documents, proof of
address, and information about investment objectives and risk tolerance.
3. Trading Platform Access: Once the brokerage account is opened and funded,
investors gain access to the trading platform provided by the brokerage firm. This
platform allows investors to place orders to buy or sell securities in the secondary
market.

4. Compliance with Securities Regulations: Participation in the secondary market is

subject to various securities regulations enforced by regulatory bodies such as the
Securities and Exchange Commission (SEC) in the United States or the Financial
Conduct Authority (FCA) in the UK. Investors and brokerage firms must comply
with these regulations to ensure fair and orderly markets.

5. Disclosure Requirements: Companies whose securities are listed on stock

exchanges or other secondary market platforms are required to make certain
disclosures to investors. This includes periodic financial reporting, disclosure of
material information, and adherence to corporate governance standards.

6. Market Rules and Procedures: Each stock exchange or secondary market platform
has its own set of rules and procedures governing trading activities. These rules
cover areas such as order types, trading hours, market surveillance, and enforcement
mechanisms.

7. Tax Implications: Profits or losses from trading in the secondary market may be
subject to taxation. Investors should be aware of the tax implications of their trading
activities and consult with tax professionals if necessary.

8. Risk Disclosure: Investing in the secondary market involves inherent risks,

including the risk of loss of capital. Brokerage firms are required to provide
investors with risk disclosure statements and ensure that investors understand the
risks involved before engaging in trading activities.

The National Stock Exchange and Bombay Stock Exchange and its
Functions
The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are the
two primary stock exchanges in India. While both serve similar functions, they have
distinct features and differences.
Functionaries

National Stock Exchange (NSE):

1. Listing: NSE provides a platform for companies to list their securities, including
stocks, bonds, and derivatives.

2. Trading: It facilitates trading of listed securities through its electronic trading

system. The NSE operates on a fully automated screen-based trading system called
NEAT (National Exchange for Automated Trading).

3. Clearing and Settlement: NSE operates its own clearing corporation called the
National Securities Clearing Corporation Limited (NSCCL), which provides clearing,
settlement, and risk management services for trades executed on the exchange.

4. Market Surveillance: NSE monitors trading activities to ensure compliance with

exchange rules and regulations. It employs sophisticated surveillance systems to
detect and investigate any market abuses or irregularities.

5. Regulatory Compliance: NSE complies with regulatory requirements set by the

Securities and Exchange Board of India (SEBI), the primary regulatory authority for
securities markets in India.

6. Investor Education and Awareness: NSE conducts various investor education and
awareness programs to promote financial literacy and investor protection.

Bombay Stock Exchange (BSE):

1. Listing: BSE provides a platform for companies to list their securities, similar to
NSE.

2. Trading: It facilitates trading of listed securities through its electronic trading

system called the BOLT (BSE On-Line Trading) platform. BSE also operates a
separate segment for trading debt securities known as BSE Bond.

3. Clearing and Settlement: BSE has its own clearing corporation called Indian
Clearing Corporation Limited (ICCL), which provides clearing, settlement, and risk
management services for trades executed on the exchange.

4. Market Surveillance: BSE conducts market surveillance to ensure fair and orderly
trading. It employs surveillance mechanisms to detect and prevent market
manipulation and other irregularities.

5. Regulatory Compliance: BSE complies with regulatory requirements set by SEBI

and other relevant authorities.
6. Investor Education and Awareness: BSE organizes investor education initiatives
and workshops to enhance investor awareness and knowledge about capital
markets.

Various Defines

1. Broker: A broker is an individual or firm that acts as an intermediary between

buyers and sellers of financial securities, such as stocks, bonds, commodities, or
derivatives. Brokers execute trades on behalf of their clients and earn a commission
or fee for their services. They may provide investment advice, research, and other
related services to their clients.

2. Sub-broker: A sub-broker is a person or entity who is registered with a

stockbroker as an authorized agent to carry out trading activities on behalf of clients.
Sub-brokers typically operate under the supervision and guidance of a main broker
and may receive a portion of the commission earned from trades they facilitate.

3. Market Maker: A market maker is a financial institution or individual that

facilitates trading in a particular security by providing liquidity. Market makers
continuously quote buy and sell prices for a security and stand ready to execute
trades at these quoted prices. They play a crucial role in ensuring smooth and
efficient functioning of the market by reducing bid-ask spreads and providing
liquidity to investors.

4. Jobbers: Jobbers are individuals or firms that specialize in trading securities on

their own account, rather than on behalf of clients. They typically operate in the
secondary market and make profits by buying securities at a lower price and selling
them at a higher price. Jobbers help maintain liquidity in the market by actively
participating in trading activities.

5. Portfolio Consultants: Portfolio consultants, also known as investment advisors

or portfolio managers, are professionals who provide personalized investment
advice and management services to individuals, institutions, or funds. They assess
clients' financial goals, risk tolerance, and investment preferences to create and
manage investment portfolios tailored to their needs. Portfolio consultants may offer
services such as asset allocation, portfolio rebalancing, and investment research.
6. Institutional Investors: Institutional investors are organizations that invest large
sums of money on behalf of their clients or members. They include entities such as
pension funds, mutual funds, insurance companies, hedge funds, and banks.
Institutional investors typically have significant financial resources and may exert
substantial influence on financial markets through their investment decisions. They
often employ professional portfolio managers to manage their investment portfolios
and may engage in various investment strategies to achieve their financial objectives.