Entities in Equity Market

The Stock Exchanges

Anyone who wants to transact in stocks does so in the stock exchanges. There are two major stock exchanges in the country- National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). These are not brick and mortar markets for shares. Each of them operates electronically where buyers and sellers place orders and matching orders are executed.

The Stock Broker

An investor can trade in the stock exchanges through a stock broker. The stock broker is registered with the exchange and has a valid stock broking license. The investor has to open a Trading Account with the broker. The investor can access both the BSE and the NSE by either calling the broker with his trade or placing the trade order online via his broking account.

The Depository

A central organization that holds stocks on behalf of the owner is called depository. Stocks are not held in physical form. Rather they are held in electronic form called 'dematerialized' or DEMAT form. The depository allows an investor to open a DEMAT Account where it stores all the stocks owned by the investor. It also maintains records of all stock owners so that ownership can be transferred through a book entry at the depository.

The clearing house

This is the agency responsible for clearing trades. The clearing house collects the purchase amount from the buyer's trading account and deposit's it into the seller's trading account. It simultaneously collects the shares from the seller's DEMAT account and deposits it in the buyer's DEMAT account.

The Bank

The role of the bank is to facilitate transfer of funds in any transaction. Thus, when you buy shares, the bank facilitates transfer of funds from your bank account to your trading account and when you sell shares, the bank facilitates transfer of funds from your trading account into your bank account.

The regulator

The role of the regulator is to protect the interest of investors in the stock market, promote the development of the stock market and regulate the participants in the same. The regulator lays down rules for each of the participants in the stock market including large investors, promoters, stock brokers, bankers etc. It prosecutes participants who violate laws. Securities Exchange Board of India (SEBI) is the regulator of Indian stock markets.


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