Introduction to Stock Market

Posted by Puja Agarwal on November 27th, 2020

Learning Objective

This chapter will assist you understand the essential concepts of a stock exchange , stock brokers, different market participants and therefore the regulatory body that regulates the stock exchange .

Stock Market

Stock market may be a place where people buy/sell shares of publicly listed companies. It offers a platform to facilitate seamless exchange of shares. In simple terms, if A wants to sell shares of Reliance Industries, the stock exchange will help him to satisfy the vendor who is willing to shop for Reliance Industries. However, it's important to notice that an individual can trade the stock exchange only through a registered intermediary referred to as a stock broker. The buying and selling of shares happen through electronic medium. we'll discuss more about the stock brokers at a later point.

Major Stock Exchanges in India

There are two main stock exchanges in India where majority of the trades happen - Bombay stock market (BSE) and therefore the National stock market (NSE). aside from these two exchanges, there are another regional stock exchanges like Bangalore stock market , Madras stock market etc but these exchanges don't play a meaningful role anymore.

National stock market (NSE)

NSE is that the leading stock market in India where one can buy/sell shares of publicly listed companies. it had been established within the year 1992 and is found in Mumbai. NSE features a flagship index named as NIFTY50. The index comprises of the highest 50 companies supported its trading volume and market capitalization . Lottery Sambad This index is widely employed by investors in India also as globally because the barometer of the New Delhi markets.

Bombay stock market (BSE)

BSE is Asia’s first also because the oldest stock market in India. it had been established in 1875 and is found in Mumbai. it's a complete of ~5,295 companies listed out of which ~3,972 are available for trading as on August 21, 2017. BSE Sensex is that the flagship index of BSE. It measures the performance of the 30 largest, most liquid and financially stable companies across key sectors.

Different Market Participants

There are tons of people and company houses who trade a stock exchange . Anyone who buys/sells shares during a stock exchange is termed as a market participant. a number of the categories of market participants are as follows:

• Domestic Retail Participants-These are individuals who transact within the markets.
• NRI’s and Overseas Citizen of India (OCI)-These are people of Indian origin who reside outside India.
• Domestic Institutions-These are large corporate entities based in India (for example: LIC of India).
• Domestic Asset Management Companies (AMC)-The market participants during this category would be open-end fund companies like HDFC AMC, SBI open-end fund , DSP Black Rock and lots of more similar entities.
• Foreign Institutional Investors-FIIs are Non-Indian corporate entities like foreign asset management companies, hedge funds and other investors.

Regulator of the Indian stock exchange
Securities Exchange Board of India
Securities Exchange Board of India (SEBI) is that the regulatory body of the Indian Stock Markets. the most objective of SEBI is to safeguard the interest of retail investors, promote the event of stock exchanges, and regulate the activities of monetary intermediaries and investors within the market. SEBI ensures the following:

• The stock exchanges (BSE and NSE), brokers and sub-brokers conduct their business fairly.
• Corporate houses shouldn't use markets as a mean to unfairly benefit themselves
• Small retail investors’ interest is protected.
• Large investors with huge cash shouldn't manipulate markets.

Types of Financial Intermediaries within the stock exchange

From the time an investor places his order to shop for shares till the time it's transferred to his Demat account, variety of corporate entities are involved to make sure smooth transaction. These entities are referred to as financial intermediaries and that they work consistent with the principles and regulations prescribed by SEBI. a number of the financial intermediaries are discussed below:

Stock Broker

A stock broker also referred to as a dealer may be a professional individual who buys/sells shares on behalf of its clients. A stock broker is registered as a trading member with the stock market and holds a stock broking license. Sikkim State Lottery They operate under the rules prescribed by SEBI. a private must open trading/DEMAT account to transact within the financial market.

National Security Clearing Corporation Ltd (NSCCL) and Indian Clearing Corporation Ltd (ICCL)
NSCCL and ICCL are 100% subsidiaries of National stock market and Bombay stock market respectively. They ensure guaranteed settlement of transactions carried available exchanges. The clearing corporation ensures there are not any defaults either from buyers or sellers side.

DEMAT Account and Trading Account
In order to trade equities, it's mandatory to possess a DEMAT account also because the Trading account.

DEMAT Account

DEMAT account or dematerialized account allows holding shares in electronic form rather than taking physical possession of certificates. it's mandatory to possess a DEMAT account to trade shares. DEMAT account holds all the investments a private makes in shares, exchange traded funds, bonds, government securities, and mutual funds in one place.

How to open DEMAT Account?

Below mentioned are the steps to open DEMAT account in India:

To open a DEMAT account; a private has got to approach a depository participant (DP), an agent of depository, and refill an account opening form. The list of DPs is out there on the web site of depository’s i.e. CDSL and NSDL.

An individual must attach photocopies of KYC documents like identity proof, proof of address along side the account opening form.

The DP will provide the depository participant ID or client ID. All the acquisition / sale of shares are going to be through DEMAT Account

Trading Account

A trading account is employed to put buy/sell orders within the stock exchange . One can open their trading account with a stock broker who is registered with SEBI. An order are often placed either through a web or offline mode. within the online mode, Nagaland State Lottery one can buy/sell stocks through the trading terminal provided by the broker whereas; within the offline mode, a private can ask its broker to put an order on his/her behalf.

Key takeaways

• A stock exchange may be a place where people buy/sell shares or stocks of publicly listed companies.
• NSE and BSE are the 2 major stock exchanges in India.
• An individual has got to mandatorily open a trading account to trade the stock exchange .
• There are different market participants like retail investors, domestic institutions and foreign institutional investors
• Indian stock exchange is governed by SEBI.
• There are different financial intermediaries like stock broker, banks, depository participants etc.
• DEMAT account or dematerialized account allows holding shares in electronic form rather than taking physical possession of certificates.

Depository and Depository Participants

A Depository may be a financial intermediary that gives the service of DEMAT account. A DEMAT account will have all the shares that an investor owns in electronic format. In India, there are only two depositaries which offers DEMAT account services - National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). An investor cannot directly attend the depositary to open the DEMAT account. He must appoint a Depository Participant (DP). consistent with SEBI guidelines, banks, financial institutions and members of stock exchanges registered with SEBI can become DPs.

Banks

Banks help to transfer funds from a checking account to a trading account. The client must categorically mention which checking account has got to be linked to the trading account to the stock broker at the time of opening the trading account.