Stock Exchange Transactions – tryspring

By | January 22, 2019

Stock Exchange Transactions

Stock exchange is an organized market where sale and purchase of
listed securities of all description i.e. shares, stocks,
debentures, government securities, etc. are done. It is a
government approved market place where buyer and seller of
securities of all kind find each other to buy and sell securities
on the market price.

Meaning of Stock Exchange

“ An association, organization or body of individuals,
whether incorporated or not, established for the purpose of
assisting, regulating and controlling business in buying,
selling and dealing in securities.”

– The Securities Contracts (Regulation) Act, 1956

A stock exchange is a common and authorized point of exchange,
which offers the services for stock brokers and traders to buy or
sell stocks, bonds, and other securities of such kind. Further,
it also provides facilities for issue and redemption of
securities, other financial instruments, and capital events. For
example, payment of income and dividends.

Features and Characteristics of Stock Exchange

Following are the main features and characteristics of a stock
exchange −

  • Stock exchange is the market place where trading of
    listed securities can be done.

  • Trading of un-listed securities is not allowed.

  • There are certain rules and regulations that need to be
    followed while trading.

  • Stock exchange is an association of persons, whether
    incorporated or not.

  • Anyone can buy or sell securities whether he is investor or

  • For doing business transaction i.e. sale & purchase of
    securities, membership is compulsory. Non-members are not
    allowed to do business transactions. Membership can be
    applied only when there is a vacancy in any stock exchange
    and after paying the prescribed fees of respective stock
    exchange, membership can be acquired. Members of stock
    exchange are called as brokers and commission charged
    by them for the transaction done is called as

  • Only a broker (member) can buy or sell securities, therefore,
    investors or speculators can do transaction through members

Functions and Services of Stock Exchange

Followings functions are performed by Stock Exchange −

  • Anyone can sell and buy any industrial, financial, and
    Government securities. Stock Exchange is an organized ready
    market to do all this.

  • Liquidity is provided by the stock exchange. Investors and
    speculators can buy and sell their securities at any time.

  • Stock exchange provides collateral value to the securities
    that is helpful in borrowing from the bank on easy terms.

  • Capital for the industrial growth is provided by the stock
    exchange that is helpful for the investor to participate in
    the industrial development.

  • Price list and reports are prepared and published in the
    newspapers and broadcasted through the TV channels by stock
    exchange. It is helpful in knowing the true value of the
    investments. With the help of this, an investor or speculator
    can get to know the fair market value of his securities as
    per the latest market trend.

  • Listing of securities is encouraged by the stock exchange.
    Listing of securities means — “a permission to trade” that is
    given by the stock exchange only after fulfillment of the
    prescribed standards.

  • Listed companies have to provide the financial statements,
    reports, and other statements time to time to stock exchange
    — necessary for the maintaining the record and deciding the
    value of securities.

Thus, stock exchange works as the center of providing business
information at one platform.

Procedures for Dealing at Stock Exchange

Following procedures are normally followed for dealing at stock
exchange −

  • No one can directly deal in stock exchange, therefore, any
    person who wants to sell or buy securities, requires a broker
    through whom selling or buying of securities can be done.

  • After finalization of a member or a broker, intending buyer
    or seller of the securities, places an order according to his
    choice, mentioning tentative quantity, and price. Thereupon,
    broker opens a new account for each client and start trading
    in the best possible way.

  • After getting an order, broker tries to finalize the deal
    between seller and buyer. After finalization of deal, seller
    and buyer of securities send a selling and buying note
    respectively mentioning the detail of traded securities.

  • Finally, settlement of account may be done in the following
    three manners −

    • When the settlement of account is done as per the fixed
      and agreed date, it is called as “liquidation in

    • When only difference of agreed price and ruling price is
      settled on the fixed date, it is called as “liquidation
      by payment of difference.”

    • When a settlement is carried forward to the next
      settlement period, it is known as “carried over to next
      settlement period”.

In case, when purchase is delayed and charge debited by the
broker to purchaser is known as “contango” (Contango
charge is also known as “Badla” Charge) and in case, where sale
is delayed by the seller and charge debited by the broker is
known as “backwardation.”

Operators at Stock Exchange

The following figure shows the three operators at the Stock
Exchange −

Operators at Stock Exchange


As studied earlier, no one can deal directly in stock exchange
and every intended seller or buyer, who wants to sell or buy
securities has to deal through members known as brokers. Broker
is duly certified by SEBI (Stock and Exchange Board of India)
under its 1992 rule. Membership of the stock exchange is
restricted to prescribed numbers of members, to financially sound
persons who have sufficient experience in dealing in securities.

A broker cannot buy or sell securities on his personal capacity.
He charges commission from the parties, sellers, and buyers and
deals on the behalf of his non-member clients.


Sub-brokers are non-members of the stock exchange and deal only
on behalf of the members or registered brokers. Commission is
received by sub-brokers on the business procured by them out of
total commission received by the brokers. Sub brokers are known
as “half commission men” and “remisiers” too.


Jobbers are the independent dealers, who deal in securities at
their own. A jobber cannot sell or buy securities on the behalf
of others, but he deals in securities for his own profit through
fluctuation of the prices. Difference between sale price and
purchase price of securities is the profit of a jobber.

Important Terms used in Stock Exchange

Following are the significant terms more commonly used in stock
exchange −

  • Bull − Bulls are those brokers who strongly expect
    price hike of securities and with this hope, they buy shares
    to sell them at later stage (when price gets increased). Thus
    bull market means when buying of the securities are on much
    higher side instead of selling of the securities. Bulls first
    buy securities and sell when the price of securities is high.

  • Bear − Bear is pessimist, who expect fall in the price
    of certain securities. A Bear first sells his securities and
    purchases at later stage when the price of securities are low
    and the difference of both is his profit.

  • Stag − A cautious investor or speculator is known as a
    stag. Stag doesn’t sell or buy shares in his hand, but
    he tries to buy shares of new company with a hope that price
    of those shares will increase in the future.

  • Blue Chips − Shares of well-recognized, well-renowned,
    financially strong, and well-established companies.

  • Cash Shares − Settlement of some of the transactions
    are completed in cash are known as cash shares. These
    transactions are done by real and genuine investors who want
    to buy or sell shares for the actual investment purpose.

Important Terms used in Stock Exchange

  • Cleared Shares − Speculators are normally deals in
    such type of shares. In these types of shares, settlement of
    the payments are done by the differential amounts only;
    however, actual delivery of the securities may not be done.

  • Carry Over or Badla System − Speculator earns money by
    foreseeing the future. If their expectations come true, they
    earn profit and if not, they lose money. Speculator mostly
    does transactions on forward basis, when any speculator
    forwards his transactions from one settlement date to
    another, he has to pay charges called “Badla charge.”
    Transaction of these natures is called as Badla System.

  • Kerb Market − Transactions that done before and after
    the official hours are known as kerb market.

  • Short Selling − Short selling means where the large
    volumes of securities are sold by the bear speculator without
    actually possessing.

  • Arbitrage − Securities are traded at the different
    stock exchanges and there is normally a little difference in
    prices (among different stock exchanges). Therefore,
    arbitrage is practiced to take advantage of different rates.

  • Primary Market − Primary market is the market where
    new securities are issued for the capital formation in the
    form of a new issue or in the form of a right issue to the
    existing shareholders.

  • Secondary Market − Secondary market is the market
    where subsequent trading (sale and purchase) of securities
    are done called as secondary market and the transactions are
    known as secondary transactions.

  • Group A Shares − Actively traded shares of the reputed
    companies are called a Group A shares.

  • Group B Shares − Not actively traded shares or the
    shares of different stock exchanges are called as Group B


The Securities and Exchange Board of India (SEBI) is the
regulatory board. It regulates affairs of stock exchange in
India, similar to Securities Exchange Commission of the United
States. To protect the rights of investors and to enforce an
orderly growth of securities market, SEBI came into existence by
an Act of Parliament known as “Securities and Exchange Board of
India Act, 1992”.


The Over the Counter Exchange of India (OTCEI) was established in
India in 1990. It is the latest concept and a new way to do
securities business in India similar to Electronic Exchange in
the United States. Brokers located at the different regions,
communicate through latest means of technologies such as
Telephones, Faxes, Mobile phones, and Computers.

Selectors are allowed to select the prices as shown on the
computer screen among the competitive markets, without the floor
meeting of brokers. It is the most efficient, economic, and
courageous way of the trading of securities. The latest market
prices of the securities are displayed on the computer screens.
Since, listing of the securities is not required on OTCEI, hence
it is the most suitable way for the small and medium size

Over-the-Counter Exchange of India

Brokers require and maintain following books of accounts as per
the SEBI rules, 1992 −

  • Cash Book

  • Bank Book (Pass Book)

  • General Ledger

  • Client Ledger

  • Register of Transaction

  • Journal

  • Document Register (Showing Particulars of the Securities
    received and delivered)

  • Members Contract Book

  • Duplicates of Contract Notes issued to clients

  • Written consent of clients

  • Margin Deposit Books

  • Register of accounts of Sub Brokers

  • An agreement with a Sub-Broker.

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