Types of Indian Stock Market Participants & Their Roles

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There are two parties of all stock market participants: buying and selling entities.

The buying entity has a surplus of funds. These stock market participants invest in the stock market so that they can increase their wealth. To do so, they invest in companies’ stock and other securities. The selling entity is deficient in funds, and they invest in the stock market to increase their finances. They sell stocks, issue bonds, or pay interests to raise funds.

With the help of a stock market exchange, the buying and selling of equity stocks take place. Hence, they become the major stock market participants of the financial or capital market. 

Types of Stock Market Participants

So far, we have discussed the two paramount stock market participants. However, there are many other stock market participants that are necessary for running the stock market. The other stock market participants include:

  • Listed companies on the stock market.
  • Stock exchanges and brokers.
  • Investors and traders.
  • Financial intermediaries.
  • Stock market regulators.
  • Other financial institutions. 

stock market participants

Listed Companies on the Stock Markets

Listed companies on stock markets refer to those registered in the country’s stock market exchange. Traders can buy/sell securities of companies and get financial returns. There are over 6000 companies listed on the Bombay Stock Markets, and there are over 7400 companies listed on the National Stock Markets. The list of companies is revised by both the stock exchanges from time to time.

Before investing in a company’s stock, traders have to do their own analysis and see the scope and future of the stocks. Then, they can take help from stockbrokers and take their recommendations to get the best possible returns. 

 Example: Know these 50 companies listed under NSE.

 Some of the top companies listed on the stock exchanges-

  •  ICICI Bank LTD

Stock Market Regulators

In order to ensure the interests of investors, governments have assigned stock market regulators. It is a government body set up by the Ministry of Finance to ensure there are no malpractices in the capital market. The Securities and Exchange Board of India (SEBI) regulates the stock market in India. They take of issues related to the stock market. It is the responsibility of the market regulator to add and delist companies on the stock exchange. SEBIs have the authority to conduct audits and take action against any financial institution that fails to do its job as per the law. 

Read more about Financial market regulators & what they do.

Stock Exchanges

Without a stock exchange, there would be no stock market. A stock exchange is a medium where traders and stockbrokers can buy or sell securities, including stocks, bonds, and other financial instruments. However, investors can only exchange companies that are listed on the stock exchange. In India, stock exchanges SEBI regulates stock exchanges, a financial market regulator which ensures that the stock market functions smoothly and protects the interests of investors. 

  • Bombay Stock Exchange (BSE): It is the oldest stock exchange in India. BSE was established in 1875 in Mumbai. There are roughly 6000 companies listed on this exchange. Sensex index indicates the growth of the stock market in India. It is evaluated by cumulating the development of the top 30 companies under BSE. As of January 2022, the estimated market capitalization of BSE is more than ₹276.713 lakh crore.
  •  National Stock Exchange (NSE): It is India’s first stock exchange that is entirely electronic. It operates all across the country. It is headquartered in Mumbai. There are over 7,400 companies listed in NSE. Nifty 50 is the index that tells about the stock market outlook in India. It’s the average of the top 50 companies listed in NSE. The total market capitalization of NSE is more than ₹8,998,811 crore.


 From an individual, a firm to a financial entity, an investor is someone who invests capital in a commodity/ company/ mutual funds in the hope of getting financial returns in the future. The primary purpose of investors is to generate wealth over a period of time. Broadly, there are two types of investors: Active and Passive. 

An active investor is a regular investor who checks for various investment opportunities in the market to increase wealth. In contrast, a passive investor is someone who thinks about the long-term benefits of investments following a buy-and-hold strategy. 

  • Domestic Institutional Investors: Domestic Institutional Investors include many participants—banks, mutual fund houses, insurance companies, pensions funds, provident funds, hedge funds and other institutions. They use pool funds and trade in the financial markets. 
  • Retail Investors: A retail investor is a non-professional investor who buys/sells shares, mutual funds, corporate bonds, etc in the stock market. They participate in the stock market with the help of a stock broker. Retail investors trade with smaller amounts than other types of investors. 
  • HNIs: HNIs are called High Net worth Individuals. You use this term to refer to individuals who invest vast amounts of money. They study the market in-depth and perform fundamental and technical analyses to understand the market better. 
  • FIIs: FIIs stands for Foreign Institutional Investors. As the name suggests, FIIs refer to those investors located outside India’s financial market. From hedge funds insurance companies to pension funds & investment banks, FIIs could be any entity registered with SEBI as a Foreign Financial Investor. 
  • Financial Institutions: Financial institutions are companies or organizations that deal with financial transactions, including loans, deposits, currency exchange, and investments. They include banks, pension funds, insurance companies, investment companies, and trust banks, among many others.  
  • Companies, Societies, and Trusts: A company can also participate as an investor and invest in companies that seem beneficial in terms of rewards. Societies and trusts are bodies of multiple individuals that invest together in the security market. Whatever return societies or trusts get from their investments, they invest the funds in the cause for which they were formed. 
  • Partnerships and HUFs: A partnership is between two different parties, where both the parties agree to the terms and conditions and sign a contract. Everything related to the investments and distributions of finance is mentioned in the contract. HUFs stands for Hindu Undivided Families.

Stock Broker

A stockbroker is an individual/organization that executes buy/sell orders on behalf of its clients. Securities and Exchange Commission (SEC) provides licenses to stock broker to trade. Only after getting the license from the Securities and Exchange Commission, a stockbroker becomes authorized to do so. However, a stock broker does not analyze the market for you but can give recommendations. In return for executing your orders, a stock broker takes a commission. Stockbrokers are regulated, and to operate as a stock broker, they have to register with SEBI.

There are three different types of stock brokers in India, which vary in terms of their client’s services. Some offer personalized services to investors, like retirement planning, and others provide basic services like brokerage mutual funds and passive portfolio management. You can find the three types below. 

  • Full-service Stock Brokers: A full-service stock broker offers a wide range of services besides trading at stock exchanges. These services include research reports, retirement planning, and management and advisory services. In addition, they offer customized support and help in managing portfolios and financial planning. They also distribute a myriad of financial products. Such brokers have high fees but are well-established and offer services all across the country. 
  • Discount Stock Brokers: Discount Stockbrokers are modern brokers. They provide an online trading platform to clients and carry buy and sell orders at a reduced commission rate compared to a full-service broker. Such brokers do not offer research facilities and advisory services. Marker participants do not have in-person interactions with discount brokers. All the process takes place on the Internet. 
  • Direct Access Stock Brokers: Direct Access Stockbrokers focus on the speed and execution of the investments rather than investment research and advice. They are the type of brokers that, with the help of online trading platforms, give traders a direct way to execute orders on specific exchanges. Their advanced trading platforms help in fast trade execution. In addition, direct Access Stocbrokers give complete access to the securities market, unlike other brokers. Zerodha, Upstox, Angel Broking, ICICI Direct trade are some of the Direct Access Brokers in the country. 
stock broker types

Financial Intermediaries

Issuers, investors, and regulators are important participants in the financial market. All three are different bodies, and in order to run smoothly among the three participants, we require financial intermediaries. They act as a vital link between issues, investors, and regulators. Without them, the stock market can’t function properly. 

There are many types of financial intermediaries. Some vital financial intermediaries are depositories, merchant banks, and underwriters. Let’s look at some of them one by one. 

  • Depositories: A depository is a specialized financial organization responsible for holding securities, like shares, of investors in a digital format or a dematerialized form. The purpose of a depository is the easy transfer of ownership through a book entry rather than a transfer of a physical certificate. Like a bank holds funds for its clients, a depository holds securities for its clients. Currently, there are two types of depositories registered with SEBI in India: National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). 
  • Depository Participant: A depository participant acts as an agent to the depository through which it interacts with investors and provides them depository services. Functions of a depository participant include opening accounts for investors, making digital securities certificates, transferring securities, and settling trades. They are also responsible for re-materializing securities certificates. 
  • Clearing Corporation: The primary objective of a clearing corporation is to protect the interest of the investors in the securities market. They ensure the settlement and delivery of funds or securities. All the transactions on the stock exchanges pass through them. They also confirm that the investors do not lose any money in transactions. 
  • Clearing Banks: Clearing banks act as a bridge between a clearing member and a clearing corporation. A clearing bank is a commercial bank. The main objective of the clearing bank is to quickly transfer the funds from the payer’s account to the payee’s account. Therefore, each clearing member must have an account with the clearing bank. 
  • Merchant Bankers: A merchant banker is a financial entity that helps large corporations and High Networth Individuals with financial services, including underwriting, loan services, financial advising, and fundraising services. They are not like traditional banks and do not operate for the general public. Instead, they are registered with SEBI and act as issue managers, bank managers, and lead managers. Kotak Investment Bank and Goldman Sachs are examples of merchant bankers. 

Other Stock Market Participants

Other than the above stock market participants, there are a few participants that also play a vital role in the stock market. Some of them are listed below with their roles. 

  • Transfer Agents: The task of a transfer agent is to maintain an investor’s financial records and keep a repository of its account balance. In addition, a stock transfer agent ensures that shareholders receive dividend payments from time to time.
  • Investment Advisors: Investment Advisors are professionals who advise their clients in meeting their financial goals. In addition, they guide their clients on how, when, and where to invest. Their task is to understand their client’s financial goals, analyze different investment strategies & market conditions, and find the most suitable investment option for their clients. 
  • Credit Rating Agencies: A credit rating agency tells about a company’s credibility or an organization to return its debts. These agencies assess companies and determine their ability to pay back the debt and the possibility of default. Credit rating agencies provide ratings to various companies, which help in distinguishing between investment and non-investment grades. For example, AAA indicates that the company is worth investing in.
  • Underwriters: In case investors don’t buy a company’s issue (securities), underwriters act as intermediaries and ensure that they will subscribe to whatever is not subscribed. It is an arrangement between the company and intermediaries. Underwriting is mandatory for a public issue. However, it is not a compulsion on underwriters to subscribe to public issues unless there are some obligations. But in case of problems that are not fully subscribed, it is the responsibility of underwriters to either subscribe to public issues or find some party that does. 
  • Custodians: Custodians are financial institutions or banks responsible for safeguarding funds or securities of their clients, including banks, large corporations, and foreign investors. A custodian protects securities, settles transactions in them, and maintains a record of all financial transactions on behalf of its clients. However, they are not necessarily engaged in traditional, commercial, or consumer/retail banking. 

Key Takeaways

From traders, regulators, financial intermediaries to other financial institutions, we have discussed the working of each and how they are an integral part of the market. But, first, let us recall the chief participants. 

  • Investor– an investor is an individual/ an organization/a group of individuals that purchase a company’s stock so that they can reap financial benefits when the value of stocks increases. They sell shares after their value increases.
  • Retail investors- a retail investor is a non-professional investor who invests in the stock market to gain financial returns. With the help of brokers or advisory services, they invest in companies that can help them meet their financial goals.
  • Stock Exchange– a stock exchange has a list of companies, and investors invest in those companies after their analysis. 
  • Stock market regulators– a market regulator, is a government body that prevents illegal activities from happening in the market. SEBI is the stock market regulator in India.
  • Traders– they are professional or stock market enthusiasts who buy/sell stocks in the market. They analyze the growth of the stock. And with the help of fundamental and technical analysis, they try to benefit from the constant rise and fall of the stocks. 
  • Stockbrokers– traders can’t directly trade through the stock exchange. They do so with the help of brokers, who execute buy/sell orders for them. Stockbrokers offer various financial services to investors.
  • Financial intermediaries– ensure the smooth functioning among investors, issuers, and regulators. SEBI can question the financial intermediaries. They include participants like merchant banks, custodians, depositories, and depository participants. 
  • Depository- a depository is a financial intermediary responsible for holding securities. Like a bank holds funds for us, a depository holds securities. 
  • Other stock participants– include advisory agencies
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