Functions performed by stock exchange:
- Facilitates trading: The primary function of a stock exchange is to provide a platform for buying and selling of securities such as stocks, bonds, and derivatives. It acts as an intermediary between buyers and sellers, ensuring fair and transparent transactions.
- Price determination: Stock exchanges play a crucial role in determining the prices of securities based on the demand and supply dynamics in the market. The forces of demand and supply interact on the exchange, leading to price discovery.
- Liquidity: Stock exchanges provide liquidity to the market by allowing investors to easily convert their securities into cash. This is achieved through secondary market trading, where investors can buy or sell securities at any time during market hours.
- Risk management: Stock exchanges implement various risk management measures to ensure the stability and integrity of the market. These include mechanisms like circuit breakers, margin requirements, and surveillance systems to detect unusual trading activities.
- Information dissemination: Stock exchanges facilitate the dissemination of information related to listed companies, such as financial statements, corporate actions, and news updates. This ensures that investors have access to relevant information for making informed investment decisions.

Trading mechanism of Indian stock exchange (BSE and NSE):
1. Order placement: Investors place buy or sell orders through brokers, who act as intermediaries between the investors and the stock exchange. Orders can be placed as market orders (executed immediately at the prevailing market price) or limit orders (executed when the price reaches a specified limit).
2. Matching of orders: The stock exchange matches buy and sell orders based on the price, time priority, and quantity. This is done through an electronic order matching system.
3. Trade execution: Once the buy and sell orders are matched, the trade is executed. The stock exchange confirms the trade by generating a trade confirmation note, which is sent to the broker and the investors.
4. Clearing and settlement: The stock exchange's clearing corporation clears the trades by determining the obligations of buyers and sellers. It ensures the transfer of securities and funds between the parties involved in the trade.
5. Post-trade activities: After the settlement, the stock exchange updates the investors' demat accounts with the securities bought or sold. It also provides trade data, market indices, and other relevant information to investors, brokers, and other market participants.

Note: The trading mechanism may vary slightly between different stock exchanges, but the overall process remains similar in terms of order placement, matching, execution, clearing, and settlement.