MBA (Finance) – IV Semester, Investment and Portfolio Management, Unit 1.4
Organisation, Membership and Management of Stock Exchanges
Basically, a stock exchange is an organised market for trading securities. It is also called a bourse. It is an association or organisation of individuals which is governed by certain rules and regulations. The manner of organisation and the rules of membership are important features of stock exchanges as also the governance system of the organisation.
Organisation, Membership and Management of
Stock Exchanges
Basically, a stock exchange is an organised market for trading
securities. It is also called a bourse. It is an association or organisation of
individuals which is governed by certain rules and regulations. The manner of
organisation and the rules of membership are important features of stock exchanges
as also the governance system of the organisation.
Over the years, stock exchanges in the country have been organised
in various forms such as voluntary non-profit making association, public
limited company and company limited by guarantee. In India, the earliest stock
exchanges were organised as voluntary non-profit making associations of
persons. Later on, stock exchanges began to be organised as companies.
The membership of stock exchanges initially comprised of
individuals and partnership firms. It was the stock brokers who became members
of stock exchanges either in their individual capacity or by forming
partnership firms. Later on companies were also allowed to become members of
stock exchanges. Thus, stock exchanges now have both individual and
institutional membership. Membership in stock exchanges is restricted and
limited. It is acquired by paying the prescribed entrance fee/share value.
Members are also supposed to make security deposit and pay annual subscription
to the exchange. The quantum of entrance fee/share value, security deposit and
annual subscription vary from exchange to exchange.
The management of each stock exchange is vested in a Governing
Board which is the apex body deciding the policies of the exchange as also
regulating the affairs of the exchange. The composition of the governing board
is of a heterogeneous nature. It usually consists of elected directors (mostly
from the broking community), SEBI nominees and public representatives. The
governing board is usually presided over by an executive director or president.
The executive director/ president as the Chief Executive Officer (CEO) of the
exchange is responsible for the day-to-day administration of the exchange. The
governing board may constitute executive committees of its members to supervise
and monitor specific functions.
The BSE governing board has twenty members consisting of nine
elected directors, three SEBI nominees, six public representatives, an
executive director (CEO), and a non-executive chairman. The governing board of
the National Stock Exchange comprises senior executives from promoter
institutions, eminent professionals in the fields of law, economics,
accountancy, finance, taxation, etc., public representatives, nominees of SEBI
and one full-time executive of the exchange.
The governing board of an exchange has wide powers for the
management and administration of the stock exchange concerned. These powers
include wide ranging discretionary powers also.
The important powers of the governing body are:
Manage and control the functioning of the exchange.
Regulate trading in securities.
Admit, fine, suspend or expel members and take such disciplinary
action as it deems fit.
Settle disputes, if any, amongst the members and between members
and nonmembers.
Make or amend any rules, by-laws or regulations or suspend their
operations with the approval of the government.
Interpret the rules, by-laws and regulations. The stock exchanges
have to comply with the directions of the SEBI.
