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Secondary Market Essay

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Functions of Secondary Market:

The secondary market provides an organized place and the mechanism for trading in securities. They also ensure that the deals struck in the stock are fair and within the framework of law. The efficient functioning of the stock exchange creates a conductive climate for an active and growing primary market for new issues.

An active and healthy secondary market in existing securities leads to better psychology of expectations; considerable broadening of investment enquiries renders the task of raising resources by entrepreneurs easier.
Good performance and outlook for equities in the stock exchanges imparts buoyancy to the new issue market.
The good stock exchange facilities the following important …show more content…

As seen earlier active, bidding and two-way auction trading takes place in the stock exchange. The result is as near a market for free 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 scale speculator activities raise the price of the share. But such activities are ephemeral in nature.
There is no fundamental relationship 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 chases 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 foreign 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.

5. Aid to Financing Activities:
Listed company finds it helpful to sell further issues of

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