The Secondary market is also known as the Stock market or Stock exchange. It is a market for the sale and purchase of existing securities.
Functions of Secondary market are:
(i) Providing liquidity and marketability to existing customers:
1. Stock exchange provides a central market where securities can be-bought and sold.
2. Stock exchange gives investors the chance to disinvest and reinvest.
(ii) Pricing of securities:
1. Prices of securities are determined by the forces of demand and supply for the securities.
2. A stock exchange is a mechanism of constant valuation through which the prices of securities are determined.
(iii) Contribution to economic growth:
1. A stock exchange is a market in which existing securities are traded.
2. Through the process of disinvestment and reinvestment savings get channelised into their most productive investment avenues. This leads to capital formation and economic growth.
(iv) Spreading of equity cult: The stock exchange can play a vital role in ensuring a wider share ownership by regulating new issues, better trading practices and taking effective step in educating the public about investments.