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Who are the market participants in the stock market and what role do they play in stock market?

While entering the stock market, it is very important to know the bodies involved in the stock market and its mechanism, who all are behind its smooth functioning, who all are responsible for a trade to successfully get completed, who to go to for complaining about illegal practices, etc. The stock exchange cannot do all the work. The motive behind appointing these participants is to maintain standards for fair, orderly, and efficient markets.

There are various Stock market participants and each of them has its own scope of role. Participants like stockbrokers, stock exchanges, financial intermediaries, and regulators. Let’s take a look at how each of them participates in the stock market.

Stock exchange

The stock exchange is a facility that helps the buyers and sellers come together to trade in securities. A stock exchange facilitates the buying and selling of stock in an efficient and fair manner. Since a stock exchange acts as a major point of contact between buyers and sellers, it is a major participant in the market. Currently, the most number of trades are done through two exchanges NSE and BSE.

Investors and Traders

Participants in the stock market range from small individual stock investors to larger investors, The stock market attracts individuals and corporations from diverse backgrounds to trade in stocks or shares. Traders look for short-term gains while investors hold their investment(s) for the long term. Investors can be categorized into the following:

  • Domestic Retail Participants - Retail participants like you and me transacting in the stock markets

  • Domestic Institutional Investors (DIIs) - Domestic institutional investors are those institutional investors who undertake investment in securities and other financial assets of the country they stay in. Example: LIC of India.

  • Foreign Institutional Investors (FIIs) - Foreign institutional investors (FIIs) are opposite to DIIs, the investors that invest in the assets belonging to a different/foreign country other than where these organizations are based.

  • Domestic Asset Management Companies (AMC) - AMC is a company that invests funds collected from its clients into securities that match declared financial objectives. Examples would be the mutual fund companies such as HDFC AMC, SBI Mutual Fund, DSP Black Rock, etc.

Financial Intermediares

A financial intermediary is an institution or a person that acts as a middleman between two parties of a financial transaction. Financial Intermediaries help Mobilize savings into investments, Provides storage facilities such as locker for cash and precious metals, Provide funds on the basis of short term or long term needs, Assist investors to grow their money by investing and maximizing their returns, Provide interests on investments made.

Depository (DP) and Depository Participants

The depositories provide their services to the investors through an agent, called Depository Participants. Just as a broker acts as an agent of the investor at the Stock Exchange; a depository participant is the representative of the investor in the Depository system providing a link between the Company and the Investor through the depository.

Main Roles of Depository Participant are as under:

  • Act as an agent of Depository

  • Account Opening

  • Facilitates Dematerialisation

  • Credits to Investors in IPO, Bonus, Right shares.

According to SEBI guidelines, custodians, banks, and stockbrokers can become participants in the depository.

Clearing Corporations

A clearing corporation is an organization associated with the stock exchange that ensures the successful completion of trades. Whenever a buy order matches with a sell order, a trade is generated. Hence, the Clearing corporation at this point enters in between the buyer and seller and manages the confirmation, settlement, and completion of transactions. They are further responsible for the proper and timely delivery of money and securities to the concerned parties.

There are two qualified Clearinghouses in India, ICCL, and NSCCL

National Security Clearing Corporation Ltd (NSCCL) and Indian Clearing Corporation Ltd (ICCL) are wholly owned subsidiaries of the National Stock Exchange and Bombay Stock Exchange respectively. The clearing corporations work as per the regulations of SEBI. They are also referred to as Clearing Firm or Clearing House.


Banks being a key component of the financial system, play a critical intermediary in the payment system from your trading account and to your trading Demat account. You need to link your trading account to your bank account to use this facility.

Stock Brokers

Since any individual cannot trade directly with the stock market. The buying and selling have to be done through a stockbroker who is a registered trading member of the stock exchange. Stockbrokers are allowed to trade in securities of that exchange which they are members. They act as an intermediary by buying and selling for themselves and also on the behalf of their clients

Stock Brokers hold a stockbroking license. They operate under the guidelines prescribed by SEBI. A stockbroker buys and sells stocks and other securities for both retail and institutional clients through a stock exchange or over the counter in return for a fee or commission.

There are mainly three types of Brokers;

  • Full-Service Broker

A Full-Service Broker is a licensed financial broker that offers diversified financial services. They usually assign a licensed individual broker to each client. The Full-Service brokers are more trustworthy than the other brokers in the market. Apart from placing orders and trading on behalf of its clients, their additional services include providing helpful and expert analysis, recommendations, products, tax tips, and access to initial public offerings (IPOs), and much more. And all this comes at a cost of higher commissions or brokerage.

A full-service broker charges different brokerage for Intra-day trades, Delivery based trades, Futures, and Options trades.

SBI Securities brokerage charges for you to get an idea of approximate brokerage that a Full-Service broker charges:

  • Intra-day Trades: 0.15% (both sides) Or Minimum 5 paise per share whichever is higher.

  • Delivery Based Trades: 0.50% or Minimum 5 paise per share whichever is higher.

  • Futures: 0.05% for intraday and 0.09% for carrying forward Or Minimum 5 paise per share whichever is higher.

  • Options Trades: Rs. 50/- for intraday (one side) (per contract) and Rs. 100/- for carrying forward (per contract).

The other full-service brokers are ICICI Direct, Motilal Oswal, Sharekhan, etc.

However, A full-service broker proves helpful for beginners or investors having large capital.

  • Discount Brokers

A discount broker just like a full-service broker allows the clients to buy and sell securities. Let’s understand the difference- Discount brokers are more advisable for investors who are self-directed. Discount brokers take comparatively fewer commission charges and as a result do not provide extra services, analytical advices like a Full-Service broker. Discount brokers are particularly useful to investors and traders who actively buy and sell securities on a frequent basis.

The popular Discount brokers available in the market are, SAMCO securities ltd., Upstox, Zerodha, Angel Broking, Groww, etc.

A discounted broker generally charges around Rs.20 per executed trade.

The other rapidly growing popular category of brokers is Direct Access Brokers who have direct access to market

  • Direct Access Brokers

As the markets have evolved and developed over time, quicker trade execution is needed for the rapidly growing market. Direct market access (DMA) is a method of electronic trading where investors can execute trades by directly interacting with an electronic order book. A Direct Access Broker, also known as an Online broker, acts as an intermediary/ broker in this type of trading.

These brokers focus on speed of order execution. They provide advanced trading platforms and allow the clients to directly track their orders through electronic communication networks (ECN)

These brokers charge relatively less commission and provide higher efficiency in trade by removing the role of the third party.

Broker-dealers and market-making firms have direct market access. Sell-side investment banks are also known for having direct market access.

Merchant Bankers

Merchant Bankers are the intermediaries who make arrangements regarding selling, buying or subscribing to securities. They also act as a manager/ consultant/ advisor or render corporate advisory services related to the issue management. They are a key intermediary between the company and the issue of capital. Merchant Bankers are mandated by SEBI to manage public issues by preparing a prospectus, determine the financial structure and other activities.

The Regulator of All

Though SEBI is not a participant in Stock Market, it is the core of the Indian stock market. A Stock Market needs a regulatory body that can act as a watchdog of the system. In India, SEBI is the regulatory body for Indian Capital Markets. The main objective of establishing SEBI is to protect the interest of investors and to promote the development of stock exchanges, regulate the activities of market participants and financial intermediaries, Ensures honesty and transparency in the Capital Markets, outline a set of rules and regulation or legal framework for operations of each entity.

There are many other types of participants involved in the market.

The variety of investment options that our market offers, the grown competition, wide variety of investors, traders, and their different investment goals, the need for various layers of monitoring and regulators collectively demand several participants for each role and each market.

“The stock market is filled with individuals who know the price of everything, but the value of nothing"

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