Benefits and Limitations of Stock Exchange
The Benefits of Stock Exchange are classified into Benefits to the Community, Company and Investors.
i. Economic Development
It accelerates the economic development by ensuring steady flow of savings into productive purposes.
ii. Fund Raising Platform
It enables the well-managed, profit-making companies to raise limitless funds by fresh issue of shares from time to time.
iii. Tools to Divert Resources
Scarce resources are thus diverted to efficiently run enterprises for better utilization.
iv. Capital Formation
It encourages capital formation.
v. Fund Raiser for Government
It enables Government to raise funds for undertaking projects through sale of securities on the stock exchange. Thus stock exchange serves as a platform for raising public debt.
i. Enhances Goodwill or Reputation
Companies whose shares are quoted on a stock exchange enjoy greater goodwill and credit standing.
ii. Wide Market
There is a wide and ready market for such securities.
iii. Raises huge funds
Stock Exchange can raise huge funds easily by issue of shares and debentures.
iv. Increases bargaining strength
Companies whose shares rise in the stock exchange command higher bargaining power in the event of further expansion, merger or amalgamation.
Stock exchange helps an investors to convert his shares into cash quickly and thus increases the liquidity of his investments.
ii. Adding collateral value of security
The fact that a security is dealt on a stock exchange makes it a good collateral security for obtaining loan from banks.
iii. Investor protection
The stock exchange safeguards, investor’s interest and ensures fair dealing by strictly enforcing its rules and regulations.
iv. Assessing real worth of security
An investor can easily assess the real worth of securities in his hands, as market quotations are published daily in the newspapers and in websites.
v. Mechanism to trade security
Stock Exchange provides a mechanism by which purchase and sale of listed securities take place in a matter of few minutes.
The limitations of stock exchange are as follows
i. Lack of uniformity and control of stock exchanges.
ii. Absence of restriction on the membership of stock exchanges.
iii. Failure to control unhealthy speculation.
iv. Allowing more than one charge in the place.
v. Non-insistence of margin requirement in stock exchange or in the case of produce exchanges.
vi. No proper regulation of listing of securities on the stock exchange.