In this article we will discuss about the meaning and advantages of listing of securities.
Meaning of Listing:
Listing means admission of securities to dealings on a recognized stock exchanges of any incorporated company, Central and State Governments, quasi governmental and other financial institutions/corporations, municipalities, electricity, housing boards etc. stock exchange means any-body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities.
Every recognized stock exchange i.e., a stock exchange which is for the time being recognized by the Central Government under section 4 of the Securities Contracts (Regulation) Act, 1956, has the power to make byelaws for the listing of securities on the stock exchange, the inclusion of any security for the purpose of dealings and the suspension or withdrawal of any such securities and the suspension or prohibition of trading in any specified securities. This power to make byelaws is subject to the previous approval of the Central Government.
Further, the Central Government has the power to make or amend byelaws of recognized stock exchanges either on a request by the governing body of a stock exchange or on its own motion. Securities are bought and sold in recognized stock exchanges through members who are known as ‘brokers’. The prices at which the securities are bought and sold on a recognized stock exchange is known as ‘official quotation’.
Advantages of Listing:
Listing of securities on the stock exchanges is advantageous to the company as well as to the investors as will be seen hereunder:
To the Company:
(a) The company enjoys concessions under direct tax laws as such companies are known as companies in which public are substantially interested resulting in lower rate of income-tax payable by them.
(b) The company gains national and international importance by its share value quoted on the stock exchanges.
(c) Financial institutions and banks extend term loan facilities in the form of rupee currency and foreign currency loan.
(d) It helps the company to mobilize resources from the shareholders through ‘Rights Issue’ for programs of expansion and modernization without depending on the financial institutions in line with the Government policies.
(e) It ensures wide distributions of shareholding thus avoiding fears of easy takeover of the organization by others.
To the Investors:
(a) Since the securities are officially traded, liquidity of investment by the investors is well ensured.
(b) Rights entitlement in respect of further issues can be disposed of in the market.
(c) Listed securities are well preferred by bankers for extending loan facility.
(d) Official quotations of the securities on the stock exchanges corroborate the valuation taken by the investors for purposes of tax assessments under Income-tax Act, Wealth- tax Act etc.
(e) Since securities are quoted, there is no secrecy of the price realization of securities sold by the investors.
(f) The rules of the stock exchange protect the interest of the investors in respect of their holdings.
(g) Listed companies are obliged to furnish unaudited financial results on the quarterly basis. The said details enable the investing public to appreciate the financial results of the company in between the financial periods.
(h) Takeover offers concerning the listed companies are to be announced to the public. This will enable the investing public to exercise their discretion on such matters.