Indian Capital Market Participants

Stock Exchange

A stock exchange is an organized marketplace or facility that brings buyers and sellers together and facilitates the sale and purchase of stocks. It makes sure that trading transactions are done in an efficient, orderly, fair, and transparent manner. It enforces rules and regulations that its publicly listed companies and trading participants must strictly abide by. In this way, the National Stock Exchange, for instance, fulfills its function as the “guardian” of the Indian stock market.

Investors

Investors, also referred to as stockholders or shareholders, are those who own shares of stock of a publicly listed company.  They are accorded certain privileges like the right to fair and equal treatment, the right to vote and exercise related rights, and the right to receive dividends and other benefits due to stockholders. They are classified as either retail or institutional, and local or foreign.

Stockbrokers

A stockbroker or trading participant is licensed by the Securities and Exchange Commission (SEC) and is entitled to trade at the Exchange. They act as an agent between a buyer and seller of stocks in the market. For their services as stockbrokers, they receive from their clients either a buying or a selling commission.

The representatives (licensed salesmen) of these accredited stockbrokers convene daily, at certain specified hours, on the “trading floor” of the exchange, where they sell and buy shares of stocks for the account of their clients. They execute orders in the market to the greatest possible advantage of their customers, by buying at the lowest possible price or by selling at the highest possible price.

There are two types of stockbrokers

• Traditional – those who assign a licensed salesman to handle your account and to take your orders via a written instruction or a phone call
• Online – those whose main interface is the internet where clients execute their orders and access market information online

Listed Companies

Listed companies, also called “issuers”, are those whose shares of stock are traded on the Exchange. These companies qualified with the stringent listing and reportorial requirements of the stock exchange, and have gone through initial public offering (IPO) or listing by way of introduction.

Clearing House

A clearing house is a wholly owned subsidiary of the Exchange. It was established to ensure the orderly settlement of equity trades executed at the Exchange. The clearing house is responsible for

• establishing the cash and securities liabilities and entitlements of its clearing members, synchronizing the settlement of funds and the transfer of securities based on the delivery-versus-payment model or multilateral net settlement;
• guaranteeing the settlement of trades in the event of a trading participant’s trade default in order to ensure the finality and irrevocability of all Exchange trades through its fails management procedures;
• implementing appropriate risk management measures in order to mitigate risks inherent in the clearing and settlement of Exchange trades and the maintenance and administration.

Depository

The depository acts as securities depository or “custodian” of listed shares of stock that are traded at the exchange. It was organized to establish a central depository in India and to implement scripless trading.

The depository performs book-entry transfer of securities:

• From seller’s to buyer’s accounts during settlement of Exchange trades;
• From one PDTC participant to another per client instruction, and;
• From lender’s to borrower’s account for loan transactions.

Settlement Banks

The settlement banks accept deposits of funds for payment of securities bought, confirm payments of due clearing obligations to SCCP, debit buyer’s cash account and credit seller’s cash account during settlement, and receive and/or return cash collateral put up by clearing members to cover their daily trade negative exposures.

Transfer Agents

The stock transfer agent is considered the “official keeper” of the corporate shareholder records. The stock transfer agents provide the issuer or the listed company with a list of holders of its securities. They effect transfer of beneficial ownership and process corporate actions like stock or cash dividends, stock rights, stock splits, and collation of proxy forms.