Market Participants & Intermediaries

Stock Market Participants & intermediaries in Securities Market include buyers, sellers, and various intermediaries between the buyers and sellers. Some of these entities are briefed below:

Stock Exchanges

·       Stock Exchanges offer a trading platform where buyers and sellers can carry out transactions in already-issued securities.

·       Stock markets such as NSE, BSE, and MSEI are nationwide exchanges. Trading occurs on these exchanges through electronic trading terminals which attribute anonymous order matching.

·       Stock exchanges also appoint clearing and settlement agencies and banks that manage the funds and securities settlements arising from these trades.

Depositories

·       Depositories are institutions that hold securities (like shares, debentures, bonds, government securities, and mutual fund units) of investors in electronic form.

·       Using a registered Depository Participant, Investors open an account with the depository.

·       They also provide services related to transactions in the securities held in dematerialized form.

There Are Two Depositories In India That Are Registered With SEBI At Present:

·       Central Depository Services Limited (CDSL), and

·        National Securities Depository Limited (NSDL)

Depository Participant

·       A Depository Participant (DP) is an agent of the depository through which it interfaces with the investors and provides depository services.

·       Investors were enabled depository participants to hold and transact in securities in the dematerialized form.

·       While the investor-level accounts in securities are held and maintained by the DP, the company-level accounts of securities issued are held and maintained by the depository.

Who Can Register As A DP?

With the approval of the SEBI Depository, Participants were appointed by the depository. Scheduled commercial banks, Public financial institutions, foreign banks operating in India with the approval of the Reserve Bank of India, state financial corporations, custodians, stock- brokers, clearing corporations /clearing houses, NBFCs, and Registrar to an Issue and Share Transfer Agents complying with the requirements prescribed by SEBI, can be registered as a DP.

Trading Members/Stock Brokers & Sub-Brokers

·       Trading members or stock brokers a reregistered members of a Stock Exchange. They will assist in buy and sell transactions of investors on stock exchanges.

·         All secondary market transactions on stock exchanges have to be conducted through registered brokers of the stock exchange.

·       Trading members can be individuals (sole proprietors), Partnership Firms, or Corporate bodies who are permitted to become members of recognized stock exchanges subject to completion of minimum practical needs.

·       A sub-broker is an entity that is not a member of the Stock Exchange but that acts on behalf of a trading member or stockbroker as an agent for assisting the investors in buying, selling, or dealing in securities through such trading members or stock brokers with whom he is connected.

·       Sub-brokers assist in increasing the reach of brokers to a larger number of investors.

·       Trades have to be routed only through the trading terminals of registered brokers of exchange to be accepted and executed on the electronic system.

·        Sub-brokers in remote locations who do not have electronic facilities offer trading services to their customers through phone or physical order formats.

·       The main broker to whom they are affiliated then enters these trades into the system.

·       Broker-members of exchanges can complete transactions on the exchange only electronically.

·       It is called proprietary trade when brokers trade on their accounts using their funds.

·       SEBI registration to a broker is approved based on adequate office space, equipment, and manpower to successfully perform his activities, past experience in securities trading, etc.

·       SEBI also makes sure brokers' capital competence by requiring them to deposit a base minimum capital with the stock exchange and limiting their gross exposures to a multiple of their base capital.

·       Brokers receive a commission for their services, which is called brokerage. Individual stock exchanges fix maximum brokerage chargeable to customers.

·       Several brokers offer research, analysis, and advice about securities to buy and sell to their investors.

Authorized Person

·       An authorized person is any person (individual, partnership firm, LLP, or body corporate) appointed by a stock broker or trading member as an agent to reach out to the investors spread across the country.

·       A stockbroker may appoint one or more authorized person(s) after acquiring precise previous consent from the stock exchange concerned for each such person.

·       The approval and the appointment of authorized person(s) are for a definite segment of the exchange.

Custodians

·       A Custodian is a body that is charged with the accountability of holding funds and securities of its large clients, characteristically institutions such as banks, insurance companies, and foreign portfolio investors.

·       In addition to safeguarding securities, a custodian also settles transactions in these securities and keeps a record of corporate actions on behalf of its clients.

It Aids In

·       Maintaining a client’s securities and funds account

·       Collecting the benefits or rights accruing to the client in respect of securities held

·        Keeping the client informed of the actions taken or to be taken on their portfolios.

Clearing Corporation  

·       Clearing Corporations play a vital role in protecting the interest of investors in the Securities Market.

·       Clearing agencies ensure that members of the Stock Exchange meet their obligations to deliver funds or securities.

·       These agencies act as a legal counterparty to all trades and guarantee settlement of all transactions on the Stock Exchanges. It can be a part of an exchange or a separate entity.

Clearing Banks

·       Clearing Bank acts as a significant mediator between clearing members and the clearing corporation.

·       Every clearing member needs to maintain an account with the clearing bank. The clearing member’s accountability is to ascertain that the funds are available in its account with the clearing bank on the day of pay-in to meet the obligations arising out of trades executed on the stock exchange.

·       In case of a pay-out, the clearing member receives the amount in their account with the clearing bank on pay-out day.

Merchant Bankers

·       Merchant bankers are bodies registered with SEBI and act as issue managers, investment bankers, or lead managers. Investors were enabled depository participants to hold and transact in securities in the dematerialized form.

·       They are single-point contact for issuers during a new issue of securities. They assess the capital needs of issuers, constitute a suitable instrument, get concerned in pricing the instrument and manage the entire issue process until the securities are issued and listed on a stock exchange. They coordinate with other mediators such as registrars, brokers, bankers, underwriters, and credit rating agencies to manage the issue process.

Underwriters

·       Underwriters are mediators in the primary market who undertake to subscribe to any portion of a public offer of securities that investors may not buy.

·        They fulfil a significant function in the primary market, providing the issuer with the ease that if the securities being offered to the public do not draw out the desired demand from investors, they (underwriters) will step in and buy the securities. When the underwriters make their guarantee at the initial stages of the IPO, it is called complex underwriting.

·       Soft underwriting is the commitment given once the pricing is resolute. The transferred shares are more often than not placed with other financial institutions, thereby restraining the risk to the underwriter.

·       Soft underwriting also comes with a part that offers the option to exit from the commitment in the event of certain events happening. The risk in rigid underwriting is much higher than in soft underwriting.