From the time you buy a share in the stock market till that share comes in your Demat account, many types of corporate entities are working in the backend, so that this work is done properly. These entities working behind the scenes make your transaction possible as per the rules and regulations of SEBI so that you do not face any problems. These entities are known as Financial Intermediaries.
These intermediaries are dependent on each other's work and together they form the ecosystem without which the financial market is impossible to run. In this article, we will discuss what are the Intermediaries of the Stock Market.
Intermediaries of the Stock Market are the middlemen between two parties that are taking part in a transaction. The Intermediaries act as the bridge between them and help in exchanging requisite information towards fulfilling the objective of a common goal.
In a stock market or any traditional marketplace, these intermediaries act as the connecting links between the producers and consumers. They expedite intermediate actions or transactions between those parties.
To understand the functioning of Intermediaries in the Stock Market and the role they play in providing a common platform to the players, one has to understand the types of Intermediaries. Based on the type of intermediary, their functions are also predefined. You should also note that there can be intermediaries at various levels of a supply or distribution chain. Hence, these levels could be a parameter to decide the roles of an intermediary.
- Intermediaries of the Primary Market.
- Intermediaries of the Secondary Market
When a company, for the first time, raises money from investors by selling some of its stakes through the stock exchange, then it has to offer an IPO. This is called the primary market. For this, companies have to register in the primary market. After this, the shares become available for purchase by the general public. By listing on the stock exchanges (BSE, NSE, etc.), companies reach investors through the primary market.
If a company wants to bring an IPO, then it has to give information about its finance, promoter, business, number of shares, price, etc.
Below mentioned are the intermediaries of the Primary Market-
Primary market issues have registrars (registered to SEBI). These registrars are responsible for collecting investor applications and keeping track of these applications. The registrars keep track of any money received from investors, as well as money paid to sellers, and assist companies to determine the allocation of shares through consulting stock exchanges.
The process of allotting shares to those who have applied and sending out allotment letters is also overseen by registrars.
2. Merchant Bankers
Merchant bankers are responsible for determining a company's capital structure and drafting a prospectus. These forms are then submitted to SEBI for approval to list stocks on stock exchanges. Merchant Bankers are responsible for all compliance formalities. They also appoint registrars.
They look at the listing and placing of securities, the arrangement for underwriting, placing of issues, selections of brokers, bankers to issue, publicity and advertising agencies, printers, etc.
The role of the underwriters is important when a company is listed. In case the company does not meet the minimum subscription, and there are not enough subscribers, the underwriter agrees to purchase all securities. They ensure that all shares are subscribed to by them or others. The companies appoint underwriters after consulting with merchant bankers.
4. Share Transfer Agent
The stock transfer agent is treated as the "official keeper" of the company’s shareholder records. The stock transfer agents furnish the issuer with a list of holders of its securities. They work on the transfer of beneficial ownership and process corporate actions like stock or cash dividends, stock rights, stock splits, and collation of proxy forms.
A secondary market is a market where existing shares, debentures, or bonds are traded among investors. After the initial public offering of shares, where the securities are first offered in the primary market are thereafter traded on the secondary market. The secondary market is also termed Follow on Public offering and Aftermarket. In the secondary market, the trade is done between a buyer and seller, and the stock exchange facilitates the transaction. Below mentioned are the intermediaries of the Secondary Market.
Stockbrokers act as direct links between investors and markets. Stockbrokers facilitate trades in secondary markets. An investor can place orders with any SEBI registered broker, such as Paytm Money, because you cannot place an order directly in the market. To buy or sell shares, you will need to transfer money directly to your broker. The broker will execute the trade and ensure that you get the shares.
The depository houses all records and certificates for investors who have a Demat account. Every listed entity must become a member to maintain all records regarding shares they have issued.
In India, there are two depositories-
- NSDL (National Securities Depository Limited) and
- CDSL (Central Depository Services Limited)
SEBI regulates depositories and ensures that all shareholders of listed companies have information.
3. Clearing Corporation
Clearing Corporation in the stock market ensures that the trades are executed successfully and that investors' Demat accounts are credited or debited with shares. Clearing Corporation guarantees delivery of shares and provides transparency for buying and selling shares.
4. Agents for Share Transfer
A company may appoint a share transfer agent to keep track of shareholders who have been issued securities. The agent who transfers shares also handles the redemption and transfer of securities.