Functions and Role of the Stock Market
The main functions of the stock market include:
- mobilization and concentration of free cash capital and deposits through the sale of securities;
- lending and financing of the state and other state organizations through the purchase of their securities;
- ensuring a high level of liquidity of investments in securities.
The stock exchange provides an opportunity to provide a concentration of demand and supply of securities, where the balance on the basis of exchange pricing really reflects the level of efficiency of the operation of equity capital.
An integral attribute of a modern market economy is the stock market, which, serving the needs of commodity and financial markets, is an efficiently operating center for transparent pricing of relevant commodity and financial instruments. Exchanges reflect all processes that take place in a society, directly or indirectly affecting the economic situation of the country. Therefore, it is not surprising that the development of the country’s market economy is determined by the level of functioning of the stock market.
It is not possible to build an effective market economy in our country without a highly developed exchange market, especially its component segment – the stock market derivatives market. Its current state requires the expansion and deepening of theoretical and methodological research in the direction of developing scientifically grounded ways of its development.
Studying the role and importance of the stock market in the economic system also requires an analysis of its organizational structure, that is, the elements from which it is composed and the directions of their interaction. To do this, the stock market should be considered as a complex system of education, which has an extremely rich organizational structure.
The main elements of the stock market infrastructure are:
– commodity exchange, which ensures the organization and holding of exchange trades by derivatives;
– clearing house, which is a financial institution, whose main responsibilities include providing clearing services for key players in this market;
– Exchange licensed warehouses that provide storage and
transfer of commodity flows. The basic condition for their effective activity is a sign of localization, which must be met
optimal requirements of participants regarding the most advantageous areas of accommodation and transportation;
– information and legal field, the main components of which is an integrated legal and regulatory framework and developed economic and informational space;
– Institute of intermediary structures – this category
participants, which is differentiated into professional and
unprofessional participants. The first group includes brokerage and dealerships, as well as participants
directly involved in transactions on commodity exchanges. All the rest – nonprofessional participants. Important is also the division of participants depending on the purpose of applying derivative instruments to:
– hedgers – market participants who use
derivatives for the purpose of insurance against price risks,
related to spot market transactions;
– speculators – members of the stock exchange, who seek to profit from the game at exchange price and exchange rate differences arising on stock trades in time and space;
– Arbitrators – participants who receive profits from the simultaneous sale and purchase of the same derivatives on different exchanges and spot markets, if they are observed different prices;
– investors who use derivatives market instruments in their portfolio management strategies. In the western derivatives markets, this group of participants includes investment, insurance funds, banks, and other financial institutions.
An analysis of the economic essence of the stock market requires clarification of the objective conditionality of the functioning of this segment of the market economy and the determination of its degree of influence. It is possible to detect this by analyzing the functional purpose of the stock market, which is ensured through the fulfillment of its socio-economic functions.
The classical functions of the stock market include: management of price risks (hedging); ensuring the transparency of the pricing process through concentration and balancing supply and demand in time and space; speculative function; dissemination of economic information; and recently, in accordance with the requirements of modern conditions of competitive development of the stock industry, scientists and practitioners began to allocate as a function – the engineering of new types of commodity derivatives.
The role of the stock market can not be overestimated because of the specific functions it performs. Based on the generalization of the views of most scholars and practitioners, a scheme for the functional purpose of the stock market in the conditions of the formation of market relations has been proposed.
In particular, the functional purpose of the stock market at the microeconomic level is ensured through the implementation of such basic organizational and economic functions as:
- transfer of price risks;
- transparency of pricing;
- redistribution of commodity and financial flows in time and space;
- forecasting of future price conditions on commodity markets;
- availability of credit resources;
- control and reimbursement of storage costs, as well as auxiliary functions;
- the organization of stock trading;
- providing clearing and exchange arbitrage;
- stock exchange engineering of new tools and technologies;
- scientific and educational activities of professional and nonprofessional participants in stock trading, which leads to the following general economic functions;
- increase the competitiveness of stock trading participants and their clients;
- stabilization of commodity markets, financial markets.
Due to the fact that in the current conditions the stock market is international, the coordination of efforts to use its tools will be carried out by all countries and international organizations. After all, at the macroeconomic level, the purpose of the exchange market is to establish a macroeconomic equilibrium, ensure the country’s economic security, integrate into the world economic space, influence on the formation of world pricing, attracting world speculative capital.
Consequently, the creation of this segment in any country becomes feasible given that it is called, due to its multifunctional purpose, to create the preconditions for more effective functioning of the economic system.