Regulators of Share Market (Share Market Part- 3)
Welcome back to our Share Market blog Part 3. in Share Market Part 2 we have learned Where you should invest. Now make a step forward to know the Regulators of Share Market.
The Indian stock market is a marketplace where investors can buy and sell shares of publicly traded companies. It plays a crucial role in the Indian economy by facilitating:
Capital Formation: Companies can raise funds for expansion, innovation, and other needs by issuing shares on the stock market.
Investment Opportunities: Investors can participate in the growth of companies and potentially earn returns on their investments through dividends and capital appreciation.
Economic Growth: A healthy stock market can contribute to economic growth by promoting efficient allocation of capital and encouraging entrepreneurship.
Investing in equities is an important investment that we make in order to generate inflation beating returns. This was the Learning from the previous chapter. Having said that,
how do we go about investing in equities? Clearly before we dwell further into this topic, it is extremely important to understand the ecosystem in which equities operate.
Just like the way we go to the Kirana store or a supermarket to shop for our daily needs, similarly we go to the stock market to shop (read as transact) for equity investments.
Stock market is where everyone who wants to be buying and selling. For all practical purposes, you can’t buy/sell shares of a public company like Reliance without transacting through the stock markets.
The main purpose of the stock market is to help you facilitate your transactions. So, if you are a buyer of a share, the stock market helps you meet the seller and vice versa.
Now unlike a supermarket, the stock market does not exist in a brick-and-mortar form. It exists in electronic form. You access the market electronically from your computer and go about conducting your transactions (buying and selling of shares).
Also, it is important to note that you can access the stock market via a registered intermediary called the stockbroker. We will discuss more about the stockbrokers at a later point.
Market Participants:
1. Stock Exchanges:
There are Two Major Stock Exchanges:
- National Stock Exchange of India (NSE): The largest stock exchange in India, known for its electronic trading platform and a wide range of indices like the Nifty 50.
- Bombay Stock Exchange (BSE): The oldest stock exchange in Asia, known for its traditional trading system and the Sensex index.
2. Investors: Individuals and institutions who buy and sell stocks.
The stock market attracts individuals and corporations from diverse backgrounds. Anyone who transacts in the stock market is called a market participant. The market participant can be classified into various categories. Some of the categories of market participants are as follows:
1. Domestic Retail Participants – These are people like you and me transacting in markets.
2. NRI’s and OCI – These are people of Indian origin but based outside India.
3. Domestic Institutions – These are large corporate entities based in India. Classic example would be the LIC of India.
4. Domestic Asset Management Companies (AMC) – Typical participants in this category would be the mutual fund companies such as SBI Mutual Fund, DSP Black Rock, Fidelity Investments, HDFC AMC etc.
5.Foreign Institutional Investors – Non-Indian corporate entities. These could be foreign asset management companies, hedge funds and other investors.
3. Issuers (Companies): Companies that issue and list their shares on the stock exchange to raise capital for various purposes like expansion, innovation, and debt repayment.
4. Intermediaries: These include stockbrokers, depository participants, and custodians who facilitate the buying and selling of shares between issuers and investors. Brokers who connect investors with the market and facilitate transactions. Example would be Groww, Zerodha, Upstox, Angle One etc.
5. Regulators: The Securities and Exchange Board of India (SEBI) regulates the stock market to ensure fair and transparent practices.
The objective of SEBI is to promote the development of stock exchanges, protect the interest of retail investors, regulate the activities of market participants and financial intermediaries. In general SEBI ensures…
1. The stock exchanges (BSE and NSE) conducts its business fairly.
2. Stock brokers and sub brokers conduct their business fairly.
3.Participants don’t get involved in unfair practices.
4. Corporates don’t use the markets to unduly benefit themselves (Example – Satyam Computers).
5. Small retail investors interest are protected.
6. Large investors with huge cash pile should not manipulate the markets.
7.Overall development of markets.
We Learned from this Finance Gurukul blog post:
- Stock market is the place to go to if you want to transact in equities.
- Stock markets exists electronically and can be accessed through a stock broker.
- There are many different kinds of market participants operating in the stock markets.
- Every entity operating in the market has to be regulated and they can operate only within the framework as prescribed by the regulator.
- SEBI is the regulator of the securities market in India. They set the legal framework and regulate all entities interested in operating in the market.
- Most importantly you need to remember that SEBI is aware of what you are doing, and they can flag you down if you are up to something fishy in the markets!
Now we will know about the Financial Intermediaries of Share Market in Our Share Market Part 4 article.
It’s important to note that investing in the stock market carries inherent risks. Before making any investment decisions, it’s crucial to conduct thorough research, understand your risk tolerance, and consult with a financial advisor if needed.
