The securities market offers a platform where savers can invest their excess assets in financial instruments or securities that are made available to spenders in exchange for rewards including interest, dividends, capital gains, bonuses, and other perks. Thus, these investors and financial securities issuers are two crucial components of the securities market. Apart from the issuers and the investors, intermediaries and regulatory bodies form a significant part of the security market. The investors, the issuers, the intermediaries and the regulatory bodies can be collectively referred to as the Market Participators of the Securities Market.
For a more detailed understanding of the security market, click here.
The following parts will give you a deeper understanding of the market participators:
- Investors: An investor is a person who lends money to start, fund, or expand a business in exchange for earnings. As a result, we can claim that the security market is supported by its investors. The investors in the security market can be broadly classified as retail investors and institutional investors.Retail investors invest in their accounts. In other words, individual investors who transact in securities for their accounts and not on behalf of businesses or other organizations are called retail investors. High Net Worth Individuals (HNI), or those who invest more than Rs. 2 lakhs in a single transaction, are also included in this group. Institutional investors include domestic banks, insurance companies, mutual funds, and financial holding companies (FIIs). A FIL (Foreign Institutional Investor) is an organization that is founded or incorporated outside of India but plans to invest in India.
- Issuers: The Public sector undertakings (PSUs) and private businesses are the issuers. They use the securities market to raise money for growth and expansion. Since mutual funds mobilize small investors’ savings, they act as issuers in the securities market. The securities market is also a source of funding for banks and other financial institutions.
- Intermediaries: The primary role of the intermediaries involves assembling the demands of the buyers with the offers made by the security sellers. Market intermediaries work as a bridge between the investors and the issuers. In the securities market, there are a lot of intermediates who offer intermediary services. Some of them are listed below:
a) Stock exchanges: These provide a platform for trading. It is a place where buyers and sellers meet for the transaction of securities. According to the Securities Contract (Regulation) Act, 1956 (SCRA), a stock exchange is a group of people, whether or not they are legally recognized as such, who have come together to help, regulate, or manage the buying, selling, or dealing of shares. Stock Exchanges can operate on a regional and national level.
b) Clearing Agency/ Corporation: An organisation that settles and clears transactions between buyers and sellers who trade on the stock market is known as a clearing corporation. It also offers financial agreements for all the transactions taking place in the securities market, in addition to risk management capabilities. A clearing corporation may be an independent legal body or a component of the stock exchange.
c) Depositories/ Depository Participants: India has two depositories, namely Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL). The Depositories Act served as the foundation for the establishment of these two depositories. Its main goal is to make the dematerialization of securities easier. The Depositories also support the trading of securities in demat form. Depository participants are people who act as agents. They are appointed by the depositories after being approved by the SEBI. Customers are served by the Depository through representatives known as depository participants (DPs).
d) A custodian keeps track of business activities on behalf of its clients. In simple words, custodians help with the registration and protection of their clients’ securities are known as custodians. A custodian fulfils the following duties:
- it assists with maintaining a client’s securities account
- collects the benefits or rights accruing to the client concerning securities; and,
- Informs the client of actions taken or to be taken by the issuer of securities that will affect those benefits or rights.
4. Regulatory bodies: The Indian securities market regulators make sure that market participants act desirably so that the securities market continues to be a significant source of funding for businesses and the government. Its aims to safeguard the interests of the investors.
The regulators who regulate various sectors in the financial market are provided below:
- Securities and Exchange Board of India (SEBI) regulates the Securities Industry.
- The Reserve Bank of India (RBI) is in charge of policing and regulating the banking industry.
- Insurance Regulatory and Development Authority (IRDA) regulates the Insurance sector.
- Pension Fund Regulatory and Development Authority (PFRDA) regulate the pension fund industry.
- Ministry of Finance (MOF)
- Ministry of Corporate Affairs (MCA)
The Securities and Exchange Board of India, which is responsible for regulating the Indian securities market, is something that we would be concerned about.
Securities and Exchange Board of India (SEBI)
In the year 1992, the Securities and Exchange Board of India (SEBI) was set up under Section 3 of the SEBI Act. The SEBI works to protect the interests of the investors and regulate the securities market. The SEBI has the authority to question any of the market participators if the former suspects the latter of unjust practices.
What are the rules and regulations of SEBI?
- serving to safeguard the interests of stockholders.
- encouraging the growth of the stock market.
- regulating activity on stock exchanges and other securities markets.
- Registering stock brokers, sub-brokers, and other brokers and regulating their activities.
- Self-regulatory organisations’ promotion and control
- Banning deceptive and unfair business practises
- Making requests for information from, conducting inspections of, inquiring about, and auditing stock exchanges, intermediaries, self-regulatory organisations, mutual funds, and other individuals connected to the securities market
What are the acts governing the securities market?
The SEBI Act (1992), The SC(R)A, (1956), The Depositories Act (1996), and The Companies Act (1956), are the acts which govern the Securities Market.