Financial Intermediaries

Introduction:

In the process of buying the stock and the stock reach in your DEMAT account, there are many corporate entities which look after the above process. These entities work quietly behind the scene with SEBI rules and regulations. We call these entities financial intermediaries. Altogether these entities create a system where market exists independently. Let’s discuss about these entities and their working process which they do for market participants.

Stock Brokers:

Stock brokers are first and most important financial intermediaries who market participant meet when they trade in stock market. A stock broker is a trading member under the stock exchange which holds the stock broking license.

Firstly one needs to open a trading account with stock brokers who work for you in the process of buying and selling of stocks. These stock brokers fully comply with SEBI rules and regulations for the client interest. When you have the trading account ready with you, you can trade in the stock market in two ways. One is you can call your dealer in the stock broking company or you can also trade yourself on the trading platforms given by stock brokers.

Depository Participants:

When you buy a share that share go to your DEMAT account, your shares are kept in electronic form in your DEMAT account. The trading account with the broker and the DEMAT account with depository are linked. So when you buy shares of any listed company it goes to the DEMAT account automatically. The depository participant work as an agent of the depository. Depository participants are also governed by the Securities and Exchange Board of India (SEBI). Presently there are only two depositories DEMAT account facility. The National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are two depositories in India which provide the DEMAT facility to clients.

Banks:

Banks have a very crucial role in transferring your money to the trading account. You need to have a bank account with your name which will be mapped with your trading account. You can send money to the trading account through cheque or transfer the fund online. When you get dividend that money also goes directly to your bank account. These three financial intermediaries operates through three accounts trading account, DEMAT account and Bank Account. All these three accounts are linked with each other and works automatically after you deposit money to your trading account. Your bank account is also connected with depository and Registrar and transfer agents (RTA) too.

Clearing Corporations:

National Security Clearing Corporation Ltd (NSCCL) and Indian Clearing Corporation Ltd (ICCL) are two clearing corporations which are fully owned subsidiaries of National Stock Exchange and Bombay Stock Exchange respectively. The main role of clearing corporations is to match the buyer with seller. The clearing corporations also make sure that none of the party (Buyer or Seller) defaults in their transactions. However, the trader or investor does not interact with clearing corporations directly. They just do their work in the back end process.