Key Players In The Indian Security Market: Before going ahead with this blog, let’s play a mind mapping exercise. When you hear the words “grocery store”, what is the first image that flashes before your mind?
A cashier, store employees, a few counters, and you, as a customer buying everyday essentials. To make it simple, you buy everyday things from the store and they have them ready to grab. Behind the scenes, there’s a lot going on in the background that you as a customer don’t get to see.
Warehouses store the products so that the store doesn’t need to bulk up on quantity. Transportation always keeps the store stocked up. The products are brought from the manufacturer to depots and wholesale hubs, from where wholesalers buy them in bulk and store it.
They sell it to retailers who rent out commercial spaces so that the final product can make it to the end user – You.
What is Indian Security Market?
To an outsider, the stock market looks just like a store – With buying and selling of securities instead of groceries. And just like a store, there’s a lot of backend work that most investors, traders, speculators, and outsiders do not get to witness or understand.
To understand the securities market, we’ll need to understand who these market participants are. Here’s a list of important players in the Indian Security Market or Stock Market.
1. SEBI – Securities Exchange Board Of India
Parallel to how the United States has the Securities Exchange Commission (SEC), India has SEBI. Set up in 1988, SEBI is a government organization created to oversee fair practices in the stock market. SEBI was set up with one goal in mind – “Protect The Interests Of Retail Investors.”
With SEBI overlooking everything that happens in the exchanges, it makes sense why they come out on top in the list of Players In The Indian Security Market. Not only do they regulate the market itself, but they also frame policies, monitor the activities of market participants, and even oversee the major stock exchanges – BSE and NSE.
Read More about SEBI here.
2. Stock Exchanges
An exchange is a platform where commodities are traded for money. Add the title of “stock” and you have what we call a Stock Exchange. India’s major stock exchanges are the BSE and NSE.
There’s not too much difference between the two exchanges, even in the price of the shares or their functions. But aside from these two, there are also smaller, listed exchanges that are spread across the country like Hyderabad Stock Exchange, Jaipur Stock Exchange, and Metropolitan Stock Exchange of India.
3. Investors and Traders
If you’re looking for value on your investment in the long-term, then investing is the way to go, and if your focus is daily gains, then you could look up day trading. Either choice you make, you will come under the category of investors and traders.
Investors are of different types
- Retail Investors
Individuals who invest in the stock market are known as retail investors. Based on the status of citizenship, they are classified into three more categories namely
- Resident Indian Retail Investors
- Non-Resident Indian Retail Investors
- Overseas Citizen Of India Retail Investors
- Institutional Investors
Corporate entities that invest in the stock market are considered institutional investors. They are backed financially by major organizations and investors who can move markets from their trades. Institutional investors are sub-categorized into two types –
- Foreign Institutional Investors (FII) and
- Domestic Institutional Investors (DII)
- High Net Worth Individuals (HNIs)
There are different definitions of a High Net Worth Individual in India. Usually, an investor is considered an HNI if they have funds of ₹ 2 Crores or more for investments alone.
An asset management company is an investment firm that collects funds from different investors and invests that money into different securities in the Indian Stock Market. Some prevalent AMCs are HDFC Mutual Fund, Kotak Mutual Fund, and ICICI Prudential.
4. Stock Brokers
Stock brokers are middlemen in the stock market who work on behalf of clients. These clients could be retail investors like you and me or banks and insurance companies. Stock brokers are registered with exchanges and are authorized to make buy and sell orders.
It’s through a Demat account that you can conduct transactions of buying and selling shares of companies. You can open an account with your stockbroker directly.
5. Clearing Corporations
Prior to the existence of clearing corporations, trading used to take place on the basis of trust and longstanding business relationships. In the securities market, you need to understand two terms when you’re trading. One is the Trade date and the other is the settlement date.
The trade date is the straight word – The date when the trade takes place is the trade date for the same. Settlement date on the other hand is the date when the trade actually gets settled.
Now, when you sell shares of company FINGRAD for the price of ₹450, then simultaneously you need to find a buyer who’s looking to buy at ₹ 450. There are chances that either you will not deliver the securities or the buyer will not transfer the funds on time. That’s where the concept of Clearing Corporations or Clearing Houses was born.
The clearinghouse makes sure either party does not default on their side of the trade – either delivering securities or funds. This also means ensuring both parties have said securities and funds to exchange.
Banks have a huge role to play in the securities market and they are active directly as well as indirectly in the markets. For example, they link your bank account to create the Demat account to start investing and trading.
Some of the banks might be underwriters and guarantors to companies going public and even provide support in merging and acquiring companies. Directly, they might have an Asset Management Subsidiary that conducts investments on behalf of the bank.
Banks receive funds in the form of deposits and interest payments. Now they cannot leave those funds idle without making a return for their shareholders as well as their customers.
Some banks also have an Insurance subsidiary that does the same with the profits made through their policies.
Dematerialization is the conversion of your funds into a liquid or digital state. The funds and securities are stored here in a unique account accessible only to you. This account is what we call a Demat account.
For the two major stock exchanges BSE and NSE, there are two major depositories – The Central Securities Depository Ltd (CSDL)and the National Securities Depository Ltd. (NSDL).
Read more about CSDL and NSDL here.
This blog on Players In The Indian Security Market gives you the best broad view of the stock market as a whole system. If you’re interested in going deeper into any one of the topics, then the links should take you into a detailed study for the same. Happy Investing!