What do you mean by listing? State briefly the advantages of listing securities on a stock exchange from point of view of a company and an investor.
Listing means the securities have met the satisfaction of stock exchange authorities, in respect to certain prescribed standards of legality, security and work-manship minimum requirements regarding listing of securities on a stock exchange is laid down by Section 19 of Securities Contracts Rule 1957. Listing provides the information to the investor that he can use the quoted security for investment, as the issuing company has satisfied the stock exchange management by completing the required conditions and that no concealment exists.
Advantages of Listing Securities from the Companies Point of View
Extensive markets: Marketability of securities is increased as securities that companies issue are quoted and traded on the floor of stock exchanges. Through listing, investors throughout the world can know about the securities and invest in them.
Increase in the value of securities: Due to rise in demand, value of securities increases because investors come to know throughout the world that certain securities are available and that they can invest in them.
Knowledge about investment to the company: Through the quotations from stock exchange, companies get an idea about price fluctuations of securities and intensity of buyers’ demand. In order to raise extra capital, Companies can take proper decisions regarding terms of issue and whether to issue shares or debentures with the help of listing.
Increase in credit and goodwill of the company: Company has to get permission from the stock exchange authorities in order to include its shares in the list of securities to be bought and sold on the floor of stock exchange. If a company is financially sound and managed by qualified people, authorities easily grant them permission. Companies are said to be sound, if their securities are listed. They enjoy better goodwill and credit in the market.
Advantages of Listing From the Investors’ Point of View
Facility of investment: Investors can easily invest in listed securities because stock exchange provides assurance to investors regarding liquidity and safety of investment in such securities. Investors, as per their choice, can any time sell and buy the securities on a stock exchange.
Protection of investors interest: Stock exchanges are directly controlled by the Central Government and are regulated under the Securities Contracts (Regulation) Act, 1956. These are well organised markets and safeguard and protect the interest of the buyers and sellers of securities.
High collateral value: Banks and creditors prefer listed securities as collateral against losses because if borrowers and debtors who have pledged these securities with them become defaulters, banks and creditors can easily sell such securities.
Publication of quotations: It is the duty of the stock exchange to publish the prices quoted for securities on the floor on a regular basis. Buyers and sellers can easily decide whether to purchase or sell the securities after getting information regarding prices of securities.
Best possible use of capital: Through stock exchange, investors can compare the relative demands of various securities on the basis of sale and purchase of those securities. Profitable companies attract more investors and investors also get a chance to invest their savings in more profitable firms, all because of listing of securities on a stock exchange.