Participants in the Financial Market
Banks participate in the capital market and money market. Within the capital market, banks take
active part in bond markets. Banks may invest in equity and mutual funds as a part of their fund
management. Banks take active trading interest in the bond market and have certain exposures to
the equity market also. Banks also participate in the market as clearing houses.
2. Primary Dealers (PDs):
PDs deal in government securities both in primary and secondary markets. Their basic responsibility
is to provide two-way quotes and act as market makers for government securities and strengthen the
government securities market.
3. Financial Institutions (FIs):
FIs provide/lend long term funds for industry and agriculture. FIs raise their resources through
long-term bonds from financial system and borrowings from international financial institutions like
International Finance Corporation (IFC), Asian Development Bank (ADB) International Development
Association (IDA), International Bank for Reconstruction and Development (IBRD), etc.
4. Stock Exchanges:
Stock exchange is duly approved by the Regulators to provide sale and purchase of securities by
“open cry” or “on-line” on behalf of investors through brokers. The stock exchanges provide
clearing house facilities for netting of payments and securities delivery. Such clearing houses
guarantee all payments and deliveries. Securities traded in stock exchanges include equities, debt,
Currently, in India, only dematerialized securities are allowed to be traded on the stock exchanges.
Settlement in securities account is made by depositories through participants’ accounts. It is
essential that stock exchanges are corporatised and de-mutualised so that there can be greater
transparency in the trades and better governance in markets.
Only brokers approved by Capital Market Regulator can operate on stock exchange. Brokers
perform the job of intermediating between buyers and seller of securities. They help build up order
book, price discovery, and are responsible for a contract being honoured. For their services brokers
earn a fee known as brokerage.
6. Investment Bankers (Merchant Bankers):
These are agencies/organisations regulated and licensed by SEBI, the Capital Markets Regulator.
They arrange raising of funds through equity and debt route and assist companies in completing
various formalities like filing of the prescribed document and other compliances with the Regulator
They advise the issuing company on book building, pricing of issue, arranging registrars, bankers to
the issue and other support services. They can underwrite the issue and also function as issue
managers. They may also buy and sell on their account.
As per regulatory stipulations, such own account business should be separately booked and
confined to scrip’s where insider information is not available to the investment/merchant banker.
7. BForeign Institutional Investors (FIIs):
FIIs are foreign based funds authorized by Capital Market Regulator to invest in countries’ equity
and debt market through stock exchanges. They are allowed to repatriate sale proceeds of their
holdings, provided sales have been made through an authorized stock exchange and taxes have
been paid. FIIs enjoy de-facto capital account convertibility.
FII operations provide depth to equity and debt markets and result in increased turnover. In India,
these activities have brought in technological advancements and foreign funds in equity and debt
Custodians are organizations which are allowed to hold securities on behalf of customers and carry
out operations on their behalf. They handle both funds and securities of Qualified Institutional
Borrowers (QIBs) including FIIs.
Custodians are supervised by the Capital Market Regulator. In view of their position and as they
handle the payment and settlements, banks are able to play the role of custodians effectively. Thus
most banks perform the role of custodians.
Depositories hold securities in demat (electronic) form, maintain accounts of depository participants
who, in turn, maintain accounts of their customers. On instructions of stock exchange clearing
house, supported by documentation, a depository transfers securities from buyers to sellers’
accounts in electronic form.