PARTICIPANTS IN THE SECURITIES

MARKET
• There are number of participants in Indian Securities Market who link
demanders of funds with supplier of funds.
• Regulators
• The overall responsibility of development, regulation, and supervision
of the stock market rests with the Securities and Exchange Board of
India (SEBI), which was formed in 1992 as an independent authority. 
• Stock Exchanges : NSE & BSE
• Listed Securities
• Depositories: NSDL & CSDL
• Brokers
• Foreign Portfolio Investors
• Merchant Bankers
• Primary Dealers
• Mutual Funds
• Custodians
• Registrars and Transfer Agents
• Underwriters
• Bankers
• Debenture Trustees
• Venture Capital Funds
• Credit Rating Agencies
Functions of Stock Exchange
• Maintaining Active Trading
• Fixation of Prices
• Ensures safe and Fair dealing
• Aids in financing the industry
• Dissemination of information
• Performance Inducer
• Self-Regulating Organization
Regulatory Framework of Securities
Market
• The Ministry of Finance (MoF), the Securities & Exchange Board of
India (SEBI) and the Reserve Bank of India (RBI) are the three
regulatory authorities governing Indian capital market.
Ministry of Finance (MoF)
• The Department of Economic affairs(DEA) directly manages the Capital
Markets segment under the directions of MoF. This segment formulates
the rules for the efficient growth of the Stock Market which includes
derivatives, debt, and equity. It also formulates regulations for
safeguarding the interest of the investors.
• This segment regulates the Indian Capital Markets through the
following laws:
• Depositories Act, 1996
• Securities Contract (Regulation) Act, 1956
• Securities and Exchange Board of India Act, 1992
Reserve Bank of India (RBI)
• The Reserve Bank of India Act, 1934 governs policies framed by the
Reserve Bank of India. The functions of RBI in this regard are as follows:
• Implementation of Monetary and Credit policies
• Issuance of Currency Notes
• Government’s Banker
• Banking System Regulator
• Foreign Exchange through Foreign Exchange Management Act, 1999
• Managing payment & settlement system
• Apart from the above functions, RBI is also actively involved in
developing the financial market.
Securities & Exchange Board of India (SEBI)
• The Securities & Exchange Board of India (SEBI) Act, 1992 regulates the
functioning of SEBI. SEBI is the apex body governing the Indian stock exchanges.
• The primary functions of SEBI are as follows:
• Protective Functions
• I. It checks Price rigging
II. Prohibits insider trading
III. Prohibits fraudulent and Unfair Trade Practices
• Development Functions
• I. SEBI promotes training of intermediaries of the securities market.
II. SEBI tries to promote activities of stock exchange by adopting a flexible and
adaptable approach.
• Regulatory Functions
• I. SEBI has framed rules and regulations and a code of conduct to regulate
the intermediaries such as merchant bankers, brokers, underwriters, etc.
II. These intermediaries have been brought under the regulatory purview
and private placement has been made more restrictive.
III. SEBI registers and regulates the working of stock brokers, sub-
brokers, share-transfer agents, trustees, merchant bankers and all those
who are associated with stock exchange in any manner
IV. SEBI registers and regulates the working of mutual funds etc.
V. SEBI regulates takeover of the companies
VI. SEBI conducts inquiries and audit of stock exchanges.
Stock Exchange in India: Governing
Body and Membership
• Governing Body:
• The stock exchanges in India are managed by a governing board
or executive committee or council of management.

• The governing board consists of 16 members of the exchange

elected on general election basis by the members of the exchange,
three persons appointed by the Central Government as its
representatives, one representative of the Reserve Bank of India
appointed by the Central Government, three persons nominated
as public representatives and a chairman or executive director.
• The executive members alert from among themselves the
president or chairman of the stock exchange. In day-to-day
management, the governing board is assisted by a number of
committees such as listing committee, arbitration committee,
defaulters committee, admission committee, etc. The governing
board is empowered to make rules and regulations in
consultation with the Government and the members of the stock
exchange.
Membership:
• The members only enter into trading of stock exchange and
carry on business. A non-member can buy or sell securities
through a member. Every stock exchange has its own rules and
regulations for the admission of members. Member of a stock
exchange are allowed to appoint certain agents to do business
on their behalf.
• The non-members who can carry on business on the floor of a
stock exchange on behalf of the members are of three types:
• (a) Remisiers:
• They are agents of full-fledged members of a stock exchange. They are
appointed to secure business for the members. They cannot carry
business on their own name. They are paid commission out of the
brokerage collected by members on the business procured by the
remisiers. They also known as half-commission men or sub-brokers.
• (b) Authorised Clerks:
• A member of the stock exchange can appoint authorised clerks or
assistants to assist him. The authorised clerks are merely employees of
the members, and cannot do business in their own name.
• c) Brokers and Jobbers:
• A broker is a commission agent who buys and sells securities on
behalf of non-members. He executes the order of his clients and
earns commission from them.
• A Jobber is an independent dealer in securities who buys and sells
securities in his own name. He cannot enter into contract with non-
members. He derives his income from the profit made through
difference in prices.
Types of Orders
• MARKET ORDER
• A market order is an order to buy or sell a security immediately. This type of order
guarantees that the order will be executed, but does not guarantee the execution
price. A market order generally will execute at or near the current bid (for a sell
order) or ask (for a buy order) price. However, it is important for investors to
remember that the last-traded price is not necessarily the price at which a market
order will be executed.
• LIMIT ORDER
• A limit order is an order to buy or sell a security at a specific price or better. A buy
limit order can only be executed at the limit price or lower, and a sell limit order
can only be executed at the limit price or higher. Example: An investor wants to
purchase shares of ABC stock for no more than $10. The investor could submit a
limit order for this amount and this order will only execute if the price of ABC stock
is $10 or lower.
• STOP ORDER
• A stop order, also referred to as a stop-loss order is an order to
buy or sell a stock once the price of the stock reaches the
specified price, known as the stop price. When the stop price is
reached, a stop order becomes a market order.
• A buy stop order is entered at a stop price above the current
market price. Investors generally use a buy stop order to limit a
loss or protect a profit on a stock that they have sold short. A
sell stop order is entered at a stop price below the current
market price. Investors generally use a sell stop order to limit a
loss or protect a profit on a stock they own.
TRADING IN SECURITIES MARKET
• TWO WAYS

• OPEN OUTCRY SYSTEM

• SCREEN BASED SYSTEM
Open Outcry System of Trading
• A traditional way of communicating information across the trading
floor of a stock, commodity or futures contract exchange.
• Although it may appear chaotic, open outcry is the original way of
matching buyers and sellers.
• Open outcry is a trading method used in futures pits
and stock exchanges where traders use verbal and
nonverbal signals to communicate. Before the advent of
electronic trading, nearly all financial trading was conducted
via open outcry.
• In order for the matching of buyers and sellers in stock exchanges to
be possible despite all the shouting and yelling, hand signals are used.

• Open outcry has been praised for the fact it gives traders the chance to see each
other in person. This means they can take into account facial expressions and
body language when making buying or selling decisions. More specifically,
traders look for emotions like greed and fear, something that cannot
be seen in electronic trading.
• This was time consuming and inefficient. The practice of physical trading
imposed limits on trading volumes as well as, the speed with which new
information was incorporated into prices.
Electronic Trading or Screen Based Trading
• Screen-based trading system (SBTS) is a system where a member
can punch into the computer the quantities of shares and the
prices at which he wants to transact. The transaction is executed
as soon as the quote is punched by a trading member finds a
matching sale or buys quote from counterparty.
• SBTS electronically matches the buyer and seller in an order-
driven system or finds the customer the best price available in a
quote-driven system, and hence cuts down on time, cost and
risk of error as well as on the chances of fraud.
Benefits of SBTS:
• SBTS enables distant participants to trade with each other, improving the
liquidity of the markets.
• The high speed with which trades are executed and the large number of
participants who can trade simultaneously allows faster incorporation of
price-sensitive information into prevailing prices.
• This increases the informational efficiency of markets. With SBTS, it
becomes possible for market participants to see the full market, which helps
to make the market more transparent, leading to increased investor
confidence
• The NSE started nation-wide SBTS, which have provided a completely
transparent trading mechanism. Regional exchanges lost a lot of business to
NSE, forcing them to introduce SBTS
Open outcry vs. Electronic trading
• There’s a lot of discussion going on as to the differences between open
outcry and electronic trading.
• Some traders say that electronic trading is better than open outcry because it
gives better access to the marketplace, allowing for more transparency in
terms of the bids and offers. Also, since it is electronic, traders can look into
the history of the market from anywhere they are.
• In terms of the length of time it takes for trading to occur, electronic trading is
more time-efficient. What usually minutes in pit trading can be finished in just
seconds in electronic trading.
• Electronic trading makes documented trade records easier to keep. Every
order, option, or contract is documented and is accessible from wherever one
is. There are no worries about orders scribbled down incorrectly or order
sheets getting lost in the shuffle of trading.
Circuit Breakers
• In order to check excessive price volatility, SEBI has mandated that
exchanges like BSE & NSE should use MWCB (Market Wide Circuit
Breakers)