Share market is a big place where lots of money is involved in daily transactions. This money is coming from normal people like you and me, big corporate houses, and investment firms. Also, international money is involved in many ways.
In this big-money market, anyone can fall for money greed and can play bad and unfair practices. It is very important that every participant of this market gets it fair chance any not any big player gets special treatment or advantage. In recent times some scams have also been done by some people like Harshad Mehta and others. So there was a big need for a regulatory authority.
So it is the duty of the government to watch this market and regulate it with its set of laws. This set of laws is known by regulations and who set the regulation is known by the regulator.
What is SEBI?
In India, the stock market regulator is the Securities and Exchange Board of India (SEBI). SEBI sets the rules and guidelines of the industry and forces all market participants to stick to these rules. It takes all the steps to make this stock market a level playing field for everyone involved.
It was established on 12 April 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992. SEBI is managed by its members and a chairman.
It regulates and monitors the Indian capital and securities market while ensuring to protect the interests of all the participants and investors.
What SEBI do?
It Ensures that……
- To watch the Stock exchanges (NSE and BSE), so that they conduct it’s working in fair manner.
- All participants don’t get involved in unfair practices and also ensures the rights of each participant.
- Stock brokers and sub brokers conduct their business in fair and decent manner.
- Big investor with huge cash should not manipulate the stock prices and market.
- Big corporates don’t get involve in unethical practices and not able to make fool out of small investors.
- The overall smooth working and development of the share market.
After all that objective, it also becomes necessary that SEBI should enforce rules and regulations on all other entities involved in the stock market.
What is Depository?
A depository refers to an entity, organization, bank, or institution that holds financial securities (shares), assets in a dematerialized or electronic form. It is the same as a bank that holds your account of money.
Just like your saving account is open with the banks, in the same way, your de-materialized account (De-mat) which consists of your shares and securities is open with the depository. These securities consist of equities, bonds, exchange-traded funds (ETF), units of mutual funds, government securities, and treasury bills.
What is NSDL?
It is one of the largest depositories in the world. It was established in 1996. It handles most of the securities held and settled in dematerialized form.
What is CDSL?
It is the first listed Indian central securities depository. It is a division of the Securities and Exchange Board of India, Ministry of finance, and government of India. It was founded in 1999 and was initially promoted by Bombay stock exchange limited (BSE).
What is Depository participant (DP)?
A depository participant (DP) is the agent or the registered member of a depository. You cannot directly interact with depository (NSDL and CDSL), because they are client-facing organizations.
So Depository participant (DP) acts as an intermediary between the Depository and clients, investors. They will provide the bridge between the Depository and De-mat account holders.
If we have to open a De-Mat account, we have to liaison with these companies to open and manage our Demat account.
They have to first register with a Depository participant (DP) and they will provide services to the end-users. They will choose any of NSDL and CDSL and become members of DP.
What is the Stock Broker?
A stockbroker is a member or registered broker of the stock exchanges. Just like we cannot interact with Depository, we cannot interact with exchanges for investing and trading.
So stockbroker has to register with stock exchanges first and then it will act as an intermediary between the exchange and the end-user and provide the platform where users can buy or sell the shares.
A firm or company can be a both Depository participant (DP) and stockbroker.
zerodha, upstocks and groww is the example of this type.
What is a trading account?
It is very interesting to know that at any time we start our journey of investing, we have to connect with all these financial intermediaries with 3 different accounts.
- De-mat account with Depository participant (DP)
- Trading account with stockbroker
- Bank account with banks
But it is also interesting that they all accounts works separately but stock broker app interlinked these accounts in each other electronically, so that we did not distinguish any difficulty and app provide us a smooth and seamless experience. These all accounts act as a single account.
What is Clearing Corporation?
A clearing corporation is an organization or an entity associated with a stock exchange, whose primary job is to handling of confirmation, settlement and delivery of transactions.
- To find the seller and buyer match for transactions
- To ensure no defaults happen in any transactions
- Ensure that buyer gets its share purchased and seller gets its money in specific time.
In India, there is currently 2 clearing authorities
- National security clearing corporation limited (NSCCL)
- Indian clearing corporation limited (ICCL)
Hope you enjoyed the learning of this article. If you have any question and doubt in your mind, you can ask me in comments section.