Stock Exchange; Definition, Division and Functions


A Stock Exchange may be defined as a market where shares, stocks and other securities are sold and bought. Before stocks and shares which come from registered limited liability companies are sold and bought, they must be approved by the Securities and Exchange Commission which is the governing body of the Stock Exchange market. Both existing and new stocks and shares are sold and bought in stock exchange markets.

These securities are sold and bought through agents known as brokers and jobbers who earn commission for the services rendered. An example of a stock exchange is the Lagos Stock Exchange established in 1960 through an Act of Parliament as a result of the need for a market for the selling and buying of securities.

The stock exchange today is a strong and very important source of capital in the capital market for the development of West Africa. In Nigeria, the apex regulatory body for stock exchange market is the Securities and Exchange Commission (SEC), established in 1979.

The stock exchange market is usually divided into two segment and they are;

  • Primary or first-tier securities market: This is a market where new securities (shares, stock, bond etc), are either bought or sold. It is a market for securities that are to be traded for the first time.
  • Secondary or Second-Tier securities market: this is a market where securities are converted into cash. Which means that old or existing securities are sold in this market

Some of the functions of the Stock Exchange includes;

  • It is a market for selling and buying of securities.
  • It assists companies to raise capital by helping to change the securities to cash.
  • The value of shares, stocks and other securities are presently determined by the issuing houses but must be approved by the Securities and Exchange Commission.
  • The stock exchange serves as a medium for the dissemination of information to industrialists, investors, etc
  • The prices quoted in the stock mange serve as economic indicator, high prices indicate good economic condition and would-be investors can assess their chances and vice versa.
  • It assists government in implementing its monetary policies.
  • By making market available far me sale of gilt-edged (government seccrnes stock exchange assists government in raising money.
  • By ensuring that its members exhibit highest standard of behaviour and that they are persons of good reputation, the stock exchange protects investors from any of fraud.
  • It discourages the abuse of insiders information.
  • The stock exchange advises the government industrialists and other investors that deals in securities.
  • Advising on and approval of merger and acquisition.
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Visionary Leader and Development Economist in Nigeria. CEO at Bufiredd Economic Consults Ltd
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