What is a Stock Exchange?

A stock exchange is an organised market for the buying and selling (also re-ferred to as trading) of securities listed on the exchange. As the name sug-gests, it was mainly intended for the trading of ordinary and preference shares of companies. Today, exchanges offer more than the trading of ordinary and preference shares and are referred to as securities exchanges. Exchanges now provide for the trading of bonds and derivatives, among others. Exchanges started off as floor trading and used an open outcry system, but nowadays, they use electronic systems.

An exchange, in some countries, is a self-regulatory organisation that regulates the activities and trading of its members, who vary from being stockbrokers, sponsoring brokers and issuers. The exchange also publishes information about trading and general information about other exchange activities. The exchange sets rules and requirements to ensure that the market operates ef-ficiently and fairly.

The Stock Exchange Markets

A stock exchange is made up of a primary market and a secondary market. The primary market is where securities are first offered to the public in what is known as the initial public offering (IPO). After the IPO, the company becomes a publicly held company. It is a much less active market than the secondary market.

In the secondary market, the securities listed on the exchange are bought and sold by or for investors. Listed companies raise capital in the secondary market and the trading is among public investors. However, the listed company or its directors and shareholders may also buy or sell the company securities held.

Function of the Stock Exchange

Stock exchanges perform various functions and offer useful services to inves-tors and to the listed companies. It is an investment intermediary and facilitates the economic and industrial development of a country. The following are some of the functions performed by the stock exchange: to establish and develop the capital market, i.e. a long-term market for raising capital for investment; to assist listed companies to raise capital; and to provide a trading platform for securities.

The Role and Function of a Stockbroker

A stockbroker is a member of the stock exchange and is permitted to buy and sell securities listed on the stock exchange. To obtain membership, natural and legal persons must buy rights at a set cost in accordance with the rules of the exchange. All other persons, including investment managers and manage-ment companies of unit trust schemes, must buy or sell securities through a stockbroker. Stockbrokers charge trading fees on securities traded, which fees are by law required to be reasonable. A stockbroker can also hold securities in custody for investors.

It is an investment intermediary and facilitates economic and industrial development of a country.

The Role of Sponsoring Brokers

A sponsoring broker assists listed companies with the listing process and en-sures that the company meets ongoing compliance obligations.

They also provide capital raising and corporate advisory services as well as provide research and promote companies to their clients. Sponsoring brokers are important to help provide liquidity in the market and better access to finan-cial markets for raising capital.

The Role of a Regulator (NAMFISA) in Relation to the Operation of a Stock Exchange

In order for an exchange to perform its function of bringing together buyers and sellers of securities, it requires a licence to conduct the business of an ex-change. An exchange licence is approved by the Registrar of Stock Exchanges and is renewed annually. The rules of the exchange are required to be approved by the Registrar (NAMFISA).