Functions of Secondary Market

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 activities in the economy of a country:

i. Favorable climate for growth of primary market

ii. Widening of investment opportunities for the investor

iii. Improving availability of resources for the business enterprises

iv. Buoyancy in new issues

v. Increasing confidence among the players of the market

Important functions

1. Provide a continuous market:

It is the important objective of the secondary market to ensure stability in price as the trading activity progresses.

The stock market achieves this aim by providing a continuous market infrastructure to the investor, thereby ensuring liquidity in the market.

Some important characteristics of a continuous market are:

i. Frequency of trades;

ii. Small spread between bid and ask prices;

iii. Immediate execution of order;

iv. Change in price being minimum as the transaction takes place;

The benefits of continuous market are that it creates marketable liquid investments and