Roles of a Stock Exchange in Economics

Subject: Economics
Pages: 2
Words: 324
Reading time:
2 min

A stock exchange plays various crucial roles and functions that influence the economy in a significant manner. First, it facilitates the regulation of the buying and selling of shares, bonds and securities. A stock exchange defines policies that facilitate fair trading practices and ensures that the activities of its various members adhere to stipulated rules. In this regard, the stock exchange ensures that certain individuals do not gain any undue advantage over other market participants, and that trading occurs in a transparent manner. Thus, the stock exchange creates an environment that promotes effective execution of transactions.

However, the stock exchange does not participate in the actual buying and selling of securities. Furthermore, it does not set the prices for securities, buts allows various market forces to determine prices. The stock exchange aims at creating a trading environment that is free from any form of interference. Another function of the stock exchange is to create a platform that enables individuals and organizations interested in the trading of securities to conduct various transactions.

This platform encompasses aspects such as the physical location at which the buying and selling of listed securities occur. Other considerations include the aspect of a virtual stock exchange considering the large number of investors that conduct transactions a given instant. In addition, it provides investors with information that guides them in making appropriate decisions regarding certain securities. Access to information is crucial as various decisions during the trading exercise largely depend on the information provided by the stock exchange.

Since the information on securities keeps on changing, participant need continuous updates on aspects such as stock prices. To achieve this objective, the stock exchange provides guidelines that require listed companies to disclose information on regular basis to the public. This information should include things such as corporate conditions, stock prices and dividends.