The organization of stock exchanges has been depicted in the following figure:
The stock market organization (highlighting the capital market intermediaries) in India as shown in the above diagram is discussed as below:
(i) Stock Broking –Brokers are members of stock exchange. They enter into share trading transactions either on their own account or on behalf of their clients. They have to get registration from SEBI before starting their operations and have to comply with the prescribed code of conduct. Till recently, most of the brokers work as proprietary or partnership concerns. However, now many top broking firms are company form of organizations. Recent examples are:
Further, every stock broker should appoint a compliance officer to monitor the compliance of SEBI Act and its various rules, regulations and guidelines and also for redressal of investor grievances. The compliance officer should immediately report any non-compliance observed by him to the SEBI.
SEBI is also empowered to appoint one or more persons as inspectors to inspect the books of accounts, other records and documents of the stockbroker. Also, a stock broker shall only deal with any person as a sub-broker only if he has obtained a certificate of registration from the SEBI.
(i) Custodial Services –The custodians play a critical role in the secondary market. SEBI Custodian of Securities Regulation, 1996 was framed for the proper conduct of their business.
The related services provided by them are as follows:
(ii) Depository System – A major reform of the Indian stock markets has been the introduction of the depository system and scripless trading mechanism. The Depository Act was passed in 1996 to provide further fillip to the process.
The issuers should enter into an agreement with the depository to enable the investor to dematerialize the securities.Before the depository system came into being, the market suffered from various drawbacks including thefts and forgeries of share certificates.
Is it compulsory for every investor to hold securities in the demat form or can he also hold shares in the physical form? The Depositories Act provides that every person subscribing to securities offered by an issuer has the option to receive the security certificates or hold securities with a depository.
When an investor holds securities in the physical form, the certificates bear serial numbers, the distinctive numbers, etc. However, when the securities are held in demat mode, they are akin to money lying in the bank account. Therefore, there is no question of certificate numbers or distinctive numbers, though the quantity will remain the same.
As in the case of certificates, holders of securities in demat mode (called beneficial owners) can create a pledge or hypothecation in respect of the securities held by them. In such cases, it is necessary for the beneficial owner to inform the depository of the pledge or hypothecation created by him.
What can an investor do if a depository or any participant or an issuer fails to redress his grievances? A complaint should be lodged with Sebi giving the necessary particulars in the prescribed form. Sebi would write to the concerned party asking it to redress the grievances of the investors within a specified time. In exceptional circumstances Sebi may grant further time for redressing the grievances. However, if the depository or the participant indulges in dilatory tactics or neglects to redress the grievances, Sebi has power to proceed against such defaulting party and impose penalty. In fact, Sebi has come down heavily on various market intermediaries as also the defaulting companies which ignore the investors and fail to redress their grievances.
SEBI Registered Market Intermediaries
Source: SEBI handbook of statistics
Debenture Trustees
The stock market organization (highlighting the capital market intermediaries) in India as shown in the above diagram is discussed as below:
(i) Stock Broking –Brokers are members of stock exchange. They enter into share trading transactions either on their own account or on behalf of their clients. They have to get registration from SEBI before starting their operations and have to comply with the prescribed code of conduct. Till recently, most of the brokers work as proprietary or partnership concerns. However, now many top broking firms are company form of organizations. Recent examples are:
- Sharekhan Limited
- India Bulls
- Angel Broking Limited
- India Infoline Limited
- Reliance Money
- Kotak Securities Limited
- ICICI Direct
- Motilal Oswal Securities
- HDFC Securities
- Bajaj Capital
Further, every stock broker should appoint a compliance officer to monitor the compliance of SEBI Act and its various rules, regulations and guidelines and also for redressal of investor grievances. The compliance officer should immediately report any non-compliance observed by him to the SEBI.
SEBI is also empowered to appoint one or more persons as inspectors to inspect the books of accounts, other records and documents of the stockbroker. Also, a stock broker shall only deal with any person as a sub-broker only if he has obtained a certificate of registration from the SEBI.
Further, a stock broker or a sub-broker who has contravened any provisions of SEBI Act, rules and regulations are liable for penal actions.
(i) Custodial Services –The custodians play a critical role in the secondary market. SEBI Custodian of Securities Regulation, 1996 was framed for the proper conduct of their business.
According to SEBI regulations, custodial services in relation to securities of a client or gold/gold related instrument held by a mutual fund or title deeds of real estate assets held by a real estate mutual fund mean safekeeping of such securities or gold/gold related instruments or title deeds of real estate assets and providing related services.
The related services provided by them are as follows:
- Maintaining accounts of the securities of a client.
- Collecting the benefits /rights accruing to the client in respect of securities.
- Keeping the client informed of the actions taken by issuer of securities.
- Maintaining and reconciling records of the services as referred above.
SEBI’s task is also to ascertain that compliance of provisions of SEBI Act and its regulations have been duly complied with. Moreover, his job is also to investigate into complaints received from the investors or clients.
(ii) Depository System – A major reform of the Indian stock markets has been the introduction of the depository system and scripless trading mechanism. The Depository Act was passed in 1996 to provide further fillip to the process.
The issuers should enter into an agreement with the depository to enable the investor to dematerialize the securities.Before the depository system came into being, the market suffered from various drawbacks including thefts and forgeries of share certificates.
Moreover, dealing in the physical mode had its own limitations which inhibited the growth of the capital market in India. These shortcomings were acutely felt more so after the liberalization of the economy. To address all such issues the Central Government enacted the Depositories Act, 1996, with retrospective effect from September 20, 1995.
Is it compulsory for every investor to hold securities in the demat form or can he also hold shares in the physical form? The Depositories Act provides that every person subscribing to securities offered by an issuer has the option to receive the security certificates or hold securities with a depository.
However, investors need to note that while securities can be held by way of certificates, dealing in the market is permitted only if the securities are in the demat mode.
When an investor holds securities in the physical form, the certificates bear serial numbers, the distinctive numbers, etc. However, when the securities are held in demat mode, they are akin to money lying in the bank account. Therefore, there is no question of certificate numbers or distinctive numbers, though the quantity will remain the same.
As in the case of certificates, holders of securities in demat mode (called beneficial owners) can create a pledge or hypothecation in respect of the securities held by them. In such cases, it is necessary for the beneficial owner to inform the depository of the pledge or hypothecation created by him.
The depository concerned has to make a noting in its records to that effect.
Can the investor, who has opted for holding the securities in demat form, ask for certificates on opting out of the depository. A beneficial owner has a right to opt out of the depository at any time he or she may desire. In fact, the depository has to note the request in its records and also convey the same to the company.
Can the investor, who has opted for holding the securities in demat form, ask for certificates on opting out of the depository. A beneficial owner has a right to opt out of the depository at any time he or she may desire. In fact, the depository has to note the request in its records and also convey the same to the company.
The company is obliged to issue the certificates in respect of the securities within 30 days of the receipt of the intimation from the depository.
What can an investor do if a depository or any participant or an issuer fails to redress his grievances? A complaint should be lodged with Sebi giving the necessary particulars in the prescribed form. Sebi would write to the concerned party asking it to redress the grievances of the investors within a specified time. In exceptional circumstances Sebi may grant further time for redressing the grievances. However, if the depository or the participant indulges in dilatory tactics or neglects to redress the grievances, Sebi has power to proceed against such defaulting party and impose penalty. In fact, Sebi has come down heavily on various market intermediaries as also the defaulting companies which ignore the investors and fail to redress their grievances.
The heavy penalties that Sebi can impose and in many cases it has done so have come as an eye opener for various market players.(Source: Financial Express)
Secondary Market Structure
Secondary Market Structure
SEBI Registered Market Intermediaries
Source: SEBI handbook of statistics
Debenture Trustees
29
|
32
|
32
|
31
|
32
|
32
|
31
|
|
Credit Rating Agencies
|
6
|
6
|
6
|
6
|
6
|
6
|
7
|
KYC
Registration Agency (KRA)
|
Na
|
Na
|
5
|
5
|
5
|
5
|
5
|
Venture Capital Funds
|
184
|
207
|
211
|
207
|
201
|
201
|
200
|
Foreign
Venture Capital Investors
|
153
|
175
|
182
|
192
|
204
|
201
|
213
|
Alternative Investment Funds
|
Na
|
Na
|
42
|
101
|
135
|
125
|
189
|
Registrars
to an Issue & Share Transfer Agents
|
73
|
74
|
72
|
71
|
72
|
71
|
73
|
Portfolio Managers
|
267
|
250
|
241
|
212
|
188
|
193
|
201
|
Mutual Funds
|
51
|
49
|
52
|
50
|
47
|
49
|
47
|
Investment Advisors
|
Na
|
Na
|
Na
|
129
|
271
|
239
|
373
|
Research Analysts
|
Na
|
Na
|
Na
|
Na
|
26
|
0
|
233
|
Collective
Investment Management Company
|
1
|
1
|
1
|
1
|
1
|
1
|
1
|
Approved
Intermediaries (Stock Lending Schemes)
|
2
|
2
|
2
|
2
|
2
|
2
|
2
|
STP (Centralised Hub)
|
1
|
1
|
1
|
1
|
1
|
1
|
1
|
STP Service Providers
|
2
|
2
|
2
|
2
|
2
|
2
|
2
|
Market Intermediaries
|
2010-
11
|
2011-
12
|
2012-
13
|
2013-
14
|
2014-
15
|
Apr 14-
Dec 14
|
Apr 15-
Dec 15
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
Stock
Exchanges (Cash Market)
|
19
|
19
|
19
|
16
|
15
|
14
|
5
|
Stock
Exchanges (Derivatives Market)
|
2
|
2
|
3
|
3
|
3
|
3
|
3
|
Stock
Exchanges (Currency Derivatives)
|
4
|
4
|
4
|
4
|
3
|
3
|
3
|
Stok
Exchanges (Commodity Derivatives Market)
|
Na
|
Na
|
Na
|
Na
|
Na
|
Na
|
12
|
Brokers(Cash Segment)
|
9,235
|
9,307
|
10,128
|
9,411
|
5,899
|
7,306
|
4,824
|
Corporate
Brokers(Cash Segment)
|
4,563
|
4,672
|
5,113
|
4,917
|
3,677
|
4,196
|
3,405
|
Sub-brokers(Cash Segment)
|
83,952
|
77,165
|
70,178
|
51,885
|
42,409
|
44,540
|
36,683
|
Brokers(Equity Derivatives)
|
2,301
|
2,337
|
2,957
|
3,051
|
2,761
|
3,008
|
2,762
|
Brokers(Currency Derivatives)
|
1,894
|
2,173
|
2,330
|
2,395
|
2,404
|
2,406
|
2,408
|
Foreign Institutional Investors
|
1,722
|
1,765
|
1,757
|
1,710
|
Na
|
Na
|
Na
|
Sub-accounts
|
5,686
|
6,322
|
6,335
|
6,344
|
Na
|
Na
|
Na
|
Foreign
Portfolio Investors (FPIs)
|
Na
|
Na
|
Na
|
Na
|
1,444
|
782
|
3,491
|
Deemed FPIs
|
Na
|
Na
|
Na
|
Na
|
6,772
|
7,360
|
5,114
|
Custodians
|
19
|
19
|
19
|
19
|
19
|
19
|
19
|
Depositories
|
2
|
2
|
2
|
2
|
2
|
2
|
2
|
Depository Participants
|
805
|
854
|
865
|
857
|
854
|
858
|
853
|
Merchant Bankers
|
192
|
200
|
199
|
197
|
197
|
198
|
191
|
Bankers to an Issue
|
55
|
56
|
57
|
59
|
60
|
60
|
62
|
Underwriters
|
3
|
3
|
3
|
3
|
2
|
2
|
2
|
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