When you want to buy a stock or a mutual fund unit, all you need to do is open a Demat account, punch in your request to the broker, or directly on their online trading portal and you can get your stocks in your portfolio. This process sounds simple but there is a whole ecosystem behind this process that is responsible for executing the purchase and sale of securities from end to end. There are multiple key players in the stock markets to make investing and trading a smooth process. The details of these key players are given hereunder.
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Key players in the stock market
Most investors think the key players in the stock market industry are investors, brokers, and SEBI. But there are many more in this ecosystem. Given below is the list of key players in the stock market and their roles and responsibilities.
SEBI stands for Securities Exchange Board of India which was established in 1988. It is the regulatory body that is in charge of governing all the securities and regulating all the activities in the stock markets. The intention of forming SEBI was mainly the protection of investors’ interests and to ensure proper coordination and transparency between all the participants of the market. Some of the key functions and responsibilities of SEBI include,
- Framing the rules and regulations that have to be adhered to by all the participants of stock markets.
- Protection of investors’ interests
- Prevention of any frauds and malpractices by any participant in the stock market
- Ensure fair market practices in stock markets and seamless process right from investment to settlement.
The stock exchanges are essentially a platform or in the nature of an organized market for buying and selling shares, futures and options, commodities, and other securities that are traded in the stock markets. India has two main stock exchanges NSE and BSE where huge volumes of securities are traded during normal market hours. These stock exchanges are run and regulated as per the rules and regulations laid down by SEBI. The companies that are listed on these stock exchanges have to abide by all the provisions of the Companies Act, 2013 as well as SEBI.
Depository and Depository Participants
The shares held by investors in the early 90s were in paper format. They were issued share certificates from the company stating the number of shares held by them, their face value, and the value of the investment. These share certificates were then digitized and held or deposited in a secure vault known as the Demat account. This is where the depositories come into the picture. Their role is to be the intermediary between the stock exchange and investors and keep their digitized shareholdings in a secure account. They can also be known as defacto banks for securities.
Depository participants on the other hand are the intermediaries between the depository and investors. Investors cannot directly deposit their shares and other securities into their Demat account. They will need a depository participant who is a registered agent that acts on behalf of investors and deposits the shares and other securities that are held in the dematerialized form with the depository.
Stockbrokers are the link between the stock exchange and investors. They are the registered entities that are responsible for executing the buy and sell order of investors. These stockbrokers provide Demat accounts and Trading accounts that can be opened to hold and trade in the designated securities. For providing these services, stockbrokers charge a nominal fee. Stockbrokers can be individuals, companies, partnership firms, banks, etc.
Banks are the custodians of funds or the channels that are used to transfer funds from one account to another or from a bank account to a trading account or vice versa. Investors need to link their Demat account and trading account to their valid and active bank account as part of their KYC too.
Investors are an important key to all the activities in the stock markets, They are the ultimate consumers who invest in stock markets or trade in different securities. Every IPO defines the eligible investor and the maximum percentage of investment that can be done by them. The common categories of investors available in the stock markets are Retail Institutional Investors, High Networth Individuals, and Qualified Institutional Investors. Generally, QII category investors have the highest share in any IPO and are also considered to be market drivers.
The various participants in the stock markets are responsible for the smooth functioning of the entire system of investing and trading in securities. The roles and responsibilities of every participant are defined and regulated by SEBI. These participants have to carry out their responsibilities within this framework and any deviation from the provisions will be Companies Act or SEBI will attract penalties.
The popular stock exchanges in India are NSE and BSE.
A trading account is used to transfer shares to another account or sell it in the open market. Hence, investors are advised to open a trading account and a Demat account.
Yes. There are many cases when the depository participant and the stockbroker have been the same participant’.
Clearing corporations are entities responsible for clearing as well as settlement of transactions. India has two main clearing houses namely NSCCL and BSCCL.