Fromthe time you access the market – let’s just say, to buy a stock till the timethe stocks comes and hits your DEMAT account, a bunch of corporate entities areactively involved in making this work for you. These entities play their rolequietly behind the scene, always complying with the rules laid out by SEBI andensure an effortless and smooth experience for your transactions in the stockmarket. These entities are generally referred to as the FinancialIntermediaries.
Together,these financial intermediaries, interdependent of one another, create anecosystem in which the financial markets exists. This chapter will help you getan overview of who these financial intermediaries are and the services theyoffer. Now let’s understandthe stock market intermediaries: Market intermediaries are the entities,which help investors to invest in stock market and link investors to stockexchanges and other required entities, these intermediaries are independent toone another Some of the stock market Intermediaries is:· Stock Broker, Sub Brokers andDepository Participants,· Depositories, · Clearing Corporations,· Banks, Debenture Trustees, Merchant Bankers,· Credit Rating Agency (CRA),· Portfolio Managers and Portfolio management System (PMS),· Asset Management Companies (AMC). Stock Broker, Sub Brokers andDepository Participants: Stock Brokers: Stock brokers holds the broking license and these are corporate entity,registered as trading members with the stock exchange, who helps investors toopen Trading and Demat account. Sub Brokers: A sub brokers works like an agents to the stockbrokers.Depository Participants:Investors can not directly interactwith depositories; depository participants are those who connect investors to depositories. Depositories:Depositoriesacts like a vault for the number of shares you purchased. Shares are maintainedelectronically in Demat account.
We have two depository entities in India.· NSDL: The National SecuritiesDepository Limited.· CDSL: Central Depository Services Limited Clearing Corporations:Clearing corporation are theentities, which ensure guaranteed settlement of your transactions.The two types of clearingcorporate entities in India are:· NSCCL: National Security Clearing CorporationLtd,· ICCL: Indian Clearing Corporation. Role: These entities identify the buyer and seller and matchthe debit and credit process also ensures no defaults. Banks, DebentureTrustees, Merchant Bankers:Banks:Banks play an important role in market ecosystem.
Banks transfers funds from your bank account to trading account. The money tocome in and go out of your trading account a given specified bank account hasbeen linked t your trading account. Thethree financial intermediaries operate via three differentaccounts while transacting that is your trading account to tradetransactions, your DEMAT account to store your securities and your Bank accountto pay in and pay out process. Debenture Trustees: Most of the banks in India, acts as atrustee to corporate debenture. When companies are in need of loans to expandthe business they can issue debenture against which they promise to payinterest. Merchant Bankers:Merchant Bankers helps company in IPOprocess, or in the primary market.
Credit Rating Agency(CRA):If a corporate or government entity wants to avail loan to expand theirbusiness the credit rating agencies checks the worthiness of these entities andexamine whether the entity is worthy of giving loan or not. Portfolio managementSystem (PMS) and Portfolio Managers:Portfolio management system works similar to mutual funds and here theminimum investment is Rs.25, 00,000.Portfolio Managers:Portfolio managers are those who professionally handle portfoliomanagement scheme. While looking for a fund investing a portfolio manager isone of the most important factors to be considered. Asset ManagementCompanies (AMC):These are the entities which offer mutual fund schemes.
Asset managementcompanies pools the investors money and maintain it in one account, invest thatmoney in different deviations to generate wealth to investors. Note: The Indian stock market is regulated by SEBI (The Security Exchange BoardOf India). Market participants and Market intermediaries must follow theset of rules and regulations prescribed by SEBI.