Stock market for teens
Who are the participants in the stock markets?
Earlier in the module, we have discussed broad categories of participants in the financial system. Similarly, there are different categories of market participants in the stock market that we will discuss in this section. So, let us begin:
Investors: An investor is the backbone of the capital market of any economy as he is the one lending his surplus resources for funding the setting up of or expansion of companies, in return for financial gain.
Investors in Stock Markets can broadly be classified into Retail Investors and Institutional Investors.
Retail Investors are individual investors who buy and sell securities (stocks) for their personal account, but how to select such stocks for investments? We will learn this in the next unit.
This category also includes High Net worth Individuals (HNI) which comprise of people with large personal financial holdings.
Institutional Investors comprise of domestic Financial Institutions, Banks, Insurance Companies, Mutual Funds and FII’s (Foreign Institutional investor is an entity established or incorporated outside India that proposes to make investments in India).
Clearing Corporation: A Clearing Corporation is a part of an exchange or a separate entity and performs three functions, namely, it clears and settles all transactions, i.e., Completes the process of receiving and delivering shares/funds to the buyers and sellers in the market, it provides financial guarantee for all transactions executed on the exchange and provides risk management functions.
National Securities Clearing Corporation Limited (NSCCL), a 100% subsidiary of NSE, performs the role of a Clearing Corporation for transactions executed on the NSE.
Stock Brokers and Sub-brokers: Stock Broker means a member of a Stock Exchange and Sub-broker means any person not being a member of Stock Exchange who acts on behalf of a Stock broker as an agent or otherwise for assisting the investors in buying, selling or dealing in securities through such stock brokers.
Depository: A bank or company which holds funds or securities deposited by others, and where exchanges of these securities take place.
Depository Participant (DP): The Depository provides its services to investors through its agents called depository participants (DP). These agents are appointed by the depository with the approval of SEBI.
According to SEBI regulations, amongst others, three categories of entities, i.e. Banks, Financial Institutions and SEBI registered trading members can become DPs.