Identify, which of the following is not a function of a stock exchange?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Regulation of take-over bids by companies
A stock exchange is a market where existing securities are bought and sold. Its functions are providing liquidity and marketability to existing securities, pricing of securities, safety of transactions, contributing to economic growth, spreading of equity cult, and providing scope for speculation. Regulation of takeover bids by companies is not in this list.
Option (1) Providing liquidity to existing securities — A function of a stock exchange (Incorrect). It gives a continuous market where investors can sell their securities and get cash.
Option (2) Regulation of take-over bids by companies — Not a function of a stock exchange (Correct). This is a function of SEBI, the regulator of the securities market.
Option (3) Pricing of securities — A function of a stock exchange (Incorrect). Share prices are fixed there by the forces of demand and supply.
Option (4) Spreading of equity cult — A function of a stock exchange (Incorrect). It helps wider share ownership by educating the public about investments.
Note: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below. NCERT (Pre-rationalised Edition): “Functions of a Stock Exchange The efficient functioning of a stock exchange creates a conducive climate for an active and growing primary market for new issues. An active and healthy secondary market in existing securities leads to positive environment among investors. The following are some of the important functions of a stock exchange.” “Regulatory Functions 1. Registration of brokers and sub-brokers and other players in the market. 2. Registration of collective investment schemes and Mutual Funds. 3. Regulation of stock brokers, portfolio exchanges, underwriters and merchant bankers and the business in stock exchanges and any other securities market. 4. Regulation of takeover bids by companies.” |