Secondary Market

The secondary market is also referred to as the stock market where dealings in shares are taken up. It helps the shareholders to find buyers for trading. Thus, it creates liquidity in the capital market. Portfolio managers undertake buying and selling of shares so as to adjust their portfolio. It is called secondary market because trading of shares takes place in this market after they are issued to the shareholders. Thus, the secondary market is that segment of the capital market, where the outstanding securities issued by the Central and the State Governments, public bodies and corporate entities are traded. It is an open auction market where buyers and sellers meet and evolve a competitive price for the securities.

The secondary market in India consists of twenty four stock exchanges including an Over-The-Counter Stock Exchange (where small sized companies are listed) recognized by the government under the Securities Contract (Regulation) Act, 1956. These stock exchanges, operating under the rules, bye-laws and regulations approved by the government, constitute an organized market for the outstanding securities. In order to bring in the effect of objects of the legislation under the SCRA, the Government promulgated the Securities Contract (Rules), 1957. These are statutory rules and comprise Code of Standardized Regulations applicable to all recognized exchanges. Thus, the Securities Contract (Regulation) Act, 1956, and Securities Contract (Rules), 1957, both comprise the entire range of legal framework for regulating the stock exchanges and protecting the interest of the investors.