In order to understand how the stock market operates, you should
have knowledge about the role of following institutions / organistions:
a. Stock exchanges,
d. Depository exchanges and their participants, and
e. Securities and Exchange Board of India (Sebi)
a. Stock exchanges
A stock exchange is the marketplace where companies are listed and where the trading happens. There are different stock exchanges in the country, the pre-dominant being the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
A stock exchange functions through its members called brokers. If you want to buy or sell a share, you con-tact a broker. Each stock exchange has a limited set of brokers and these brokers contact each other using trading terminals to find out
who is interested in the share you want to buy or sell. Brokers haveterminals linked to the BSE or the NSE and they directly purchase or sell shares using these erminals.
The entire transaction happens elec- tronically or through websites like
Some brokers also authorise a sub-broker to conduct the transac- tions on behalf of them. Since brokers are providing a service they charge you for the same. This payment is not a flat rate, but a commission of the trans- action value. Brokerages normally range from 0.5% to 1% for deliv- ery-based transactions and from 0.10% to 0.25% for intra-day transactions.
The registrar for each company maintains records of all the share-owners of the company and the number of shares that they own. Whenever a transaction takes place,
the registrar updates the sharehold-ers database.
d. Depository exchanges and their participants
Depository exchanges are organisa-tions that hold shares of investors, on request, in electronic form through a registered depository par-ticipant (DP). It can be compared with a bank as it holds securities in an account, transfers securities
between accounts on the instruction of the account holder, facilitates the
transfer of ownership without the account holder needing to handle
securities and makes the safekeep-ing of shares easy. The agent through which a depository exchange interfaces with the investor is known as a deposito-ry participant.You can create a demat account with a DP, who will keep an
account of all the shares you own. This is much like the banking sys-tem, where you just create an account and have a passbook whichupdates you on the money you own
and the transactions you have made. In your demat account you own shares in an electronic format and your account gets updated as you buy and sell shares.
The regulatory body that governs all stock market transactions is the
Securities and Exchange Board of India. Sebi ensures the legality of all
transactions and that the stock exchange players follow all the rules
and regulations set by it and/or the government. Sebi also looks into investor
complaints against companies. It is quasi-judicial and can try cases and
pass judgments against companies. It also looks into mergers and
acquisitions of companies. Sebi has enacted the Prohibition of Insider Trading Regulations, 2002 which is applicable to all mar-ket intermediaries. SSKI Investor
Services (the parent company of Sharekhan) complies and follows the prescribed procedures in order to prevent the misuse of price sensi-tive information, which an employ-ee/director/officer of the company may have access to.