The key players in the stock market

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What’s the first thing that you imagine when you think of a school? Well, if you’re like most people, you’ll think of a classroom with a teacher by the board, educating a group of students. But when you look closer, you’ll see that a school is much more than merely the teachers and the students who make it up. 

There’s the school’s principal, there’s a management committee and there are donors and contributors. That’s not all. There are investors who fund the setting up and the running of the school. And there are governmental bodies that outline the syllabus and the curriculums for each grade. So, you see, there are many other people, organisations and systems in place. 

It’s pretty much the same in the case of the stock market. At first glance, it may merely seem like a place where buyers and sellers trade stocks. But looking closer, you’ll see that there are many other key players who make up the stock markets. Let’s get to know them better.

Securities and Exchange Board of India (SEBI)

Established in the year 1988, the Securities and Exchange Board of India is a government entity that’s responsible for the regulation of financial markets in the country. The main functions of SEBI include promotion of the securities market in India, protection of the investors’ interests and regulation of all the activities that take place in the market. 

Let’s take a quick look at what the SEBI does to make sure that the financial markets are not disturbed. 

  • Frames rules and regulations that dictate the way financial markets should be operated
  • Keeps an eye on the operations of various stock and commodity exchanges
  • Protects the interests of retail investors
  • Ensures that there is no manipulation of markets
  • Keeps stockbrokers, corporates and other market participants in check

Stock Exchanges

Assume you have a house to sell. Who do you get in touch with to help connect you to a prospective buyer? A real estate agent, right? On a similar note, stock exchanges in India are financial intermediaries that connect buyers and sellers and facilitate a trade of the stocks listed on that exchange. 

There are two principal stock exchanges in India - the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). In addition to these two exchanges, there are also other small exchanges such as the Calcutta Stock Exchange and the Metropolitan Stock Exchange of India that are currently operational. 

Interested in getting to know the complete list of stock exchanges in india? Well, here’s the list of 23 stock exchanges in india.

  1. U.P. Stock Exchange, Kanpur
  2. Vadodara Stock Exchange, Vadodara
  3. Coimbatore Stock Exchange, Coimbatore
  4. Meerut Stock Exchange, Meerut
  5. Bombay Stock Exchange, Mumbai
  6. Over the Counter Exchange of India, Mumbai
  7. National Stock Exchange, Mumbai
  8. Ahmedabad Stock Exchange, Ahmedabad
  9. Bangalore Stock Exchange, Bangalore
  10. Bhubaneshwar Stock Exchange, Bhubaneshwar
  11. Calcutta Stock Exchange, Kolkata
  12. Cochin Stock Exchange, Cochin
  13. Delhi Stock Exchange, Delhi
  14. Guwahati Stock Exchange, Guwahati
  15. Hyderabad Stock Exchange, Hyderabad
  16. Jaipur Stock Exchange, Jaipur
  17. Canara Stock Exchange, Mangalore
  18. Ludhiana Stock Exchange, Ludhiana
  19. Chennai Stock Exchange, Chennai
  20. M. P. Stock Exchange, Indore
  21. Magadh Stock Exchange, Patna
  22. Pune Stock Exchange, Pune
  23. Capital Stock Exchange Kerala Ltd.,Thiruvananthapuram, Kerala

Depositories

A depository allows you to store the dematerialised share certificates of the stocks you own in a dedicated account. This account is known as a demat account. It’s effectively a digital account that acts as a storage space for all the shares you hold in the electronic format. 

In India, there are currently two depositories that are operational - the National Securities Depository Limited (NSDL) and Central Securities Depository Limited (CDSL).

Depository Participants

A depository participant (DP) is a registered agent who acts as an intermediary between you and the depository. As an investor, you cannot deal with or open a demat account directly with a depository. You’re required to route all your transactions with a depository only through a DP.   

Stockbrokers

Stockbrokers are another section of financial intermediaries who play a major role in the stock markets. These entities are registered with the stock exchanges as trading members. Basically, they act as a link between the stock exchanges and investors/traders like you. To be able to buy and sell shares in the stock market, you need to open a trading account with a stockbroker of your choice. 

A trading account gives you access to the financial markets and allows you to buy or sell stocks or other securities of a company. A stockbroker generally charges a ‘fee’ known as ‘brokerage’ for every buy or sell transaction that you make through their trading account. Some stockbrokers such as Angel Broking are depository participants as well. So, you can open both a demat account and a trading account with us. 

Investors and Traders

Just like you trade on the stock market, there are several other individuals as well as institutions who buy and sell shares there. Here’s a quick glimpse of the different kinds of the investors and traders involved.   

Institutional investors

Institutional investors are basically corporate entities that invest in the stock market. Since they are financially very powerful, institutional investors have the capacity to influence the market movement. They’re sub-classified into two categories based on their nationality: 

  • Foreign Institutional Investors (FIIs)
  • Domestic Institutional Investors (DIIs)

Domestic AMCs

Asset Management Companies (AMCs) are essentially firms that pool funds from various clients and invest the capital raised in various financial market securities. Domestic AMCs are firms that are based out of India and include mutual fund houses such as ICICI Prudential Mutual Fund, HDFC Mutual Fund and the like.  

Retail (Indian and NRI and OCI)

Individuals like you who invest in the stock market are known as retail investors. They’re sub-classified into the following three different categories, based on their residential status:

  • Resident Indian retail investors 
  • Non-Resident Indian (NRI) retail investors
  • Overseas Citizen of India (OCI) retail investors   

High Net-worth Individuals (HNIs)

Individuals who possess an investable capital of more than Rs. 2 crores and take part in the investing and trading activities in the stock market are categorised as High Net-worth Individuals (HNIs).

Clearing Corporations

What happens when you execute a trade? Let’s say you plan to buy 1 share of ABC Limited at Rs. 276. In order for your trade to be successful, there needs to be a seller who is willing to sell 1 share of ABC Limited at the same price of Rs. 276, isn’t it? Assuming that such a seller does exist, the order you place to buy that 1 share gets executed. 

Rs. 276 gets debited from your trading account, since you’re the buyer. Simultaneously, the same Rs. 276 gets credited to the account of the seller. Parallelly, that 1 share that you traded will be transferred from the seller’s demat account to yours. This is essentially what happens during the process of clearing and settlement. And here’s where clearing corporations work their magic.

Essentially, a clearing corporation performs two basic functions:

  • They help prevent defaults by ensuring that buyers have the necessary funds to pay for their trades and that sellers are in possession of the assets they intend to sell.
  • They ensure that the funds and assets are transferred to the right accounts seamlessly. 

India has two main clearing corporations, namely the National Security Clearing Corporation Limited (NSCCL), which is a subsidiary of the National Stock Exchange and the Indian Clearing Corporation Limited (ICCL), which is a subsidiary of the Bombay Stock Exchange.

Banks 

The role of banks in the stock market is quite clear-cut. They help ensure that you have the funds needed for carrying out your trades. The funds in your bank account are transferred to your trading account, so you can buy financial assets without any hassle. To ensure that you have a smooth and seamless trading experience, it’s important that you link your demat account, your trading account and your bank account. 

A quick recap

  • The Securities and Exchange Board of India is a government entity that’s responsible for the regulation of financial markets in the country.
  • Stock exchanges are financial intermediaries that connect buyers and sellers and facilitate a trade of the stocks listed on that exchange. 
  • In India, there are two principal exchanges - the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). 
  • A depository allows you to store the dematerialised share certificates of the stocks you own in a dedicated account.
  • A depository participant (DP) is a registered agent who acts as an intermediary between you and the depository.
  • Stockbrokers act as a link between the stock exchanges and investors/traders like you.  To be able to buy and sell shares in the stock market, you need to open a trading account with a stockbroker.
  • There are different categories of investors and traders, such as institutional investors, domestic AMCs, retail investors and High Net-worth Individuals.
  • Clearing corporations play a key role in ensuring that the process of clearing and settlement is carried out smoothly. India has two main clearing corporations, namely the National Security Clearing Corporation Limited (NSCCL), which is a subsidiary of the National Stock Exchange and the Indian Clearing Corporation Limited (ICCL), which is a subsidiary of the Bombay Stock Exchange.
  • Banks help ensure that you have the funds needed for carrying out your trades.
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