What role do stockbrokers play in the stock market?
Stockbrokers act as intermediaries between investors and stock exchanges, facilitating the buying and selling of securities. They are registered with SEBI (Securities and Exchange Board of India) and are essential for market participation.
Key Roles of Stockbrokers:
✔ Executing Trades – Buy and sell stocks, bonds, and derivatives on behalf of investors.
✔ Providing Investment Advice – Offer market insights, research reports, and trading recommendations.
✔ Managing Client Portfolios – Assist in investment planning and asset allocation.
✔ Ensuring Compliance – Follow SEBI regulations and safeguard investor interests.
✔ Offering Trading Platforms – Provide online/mobile platforms for self-trading.
✔ Margin Trading & Leverage – Allow clients to trade with borrowed funds.
What is a depository? How does it work?
A depository is an institution that holds securities (such as stocks, bonds, and mutual funds) in electronic or dematerialized (demat) form, ensuring safe storage and smooth transactions. In India, the two major depositories are:
- NSDL (National Securities Depository Limited)
- CDSL (Central Depository Services Limited)
How Does a Depository Work?
- Investor Opens a Demat Account – With a Depository Participant (DP) (e.g., banks, brokers).
- Dematerialization – Physical securities are converted into electronic form.
- Holding & Safekeeping – Securities remain in the investor’s Demat account.
- Trading & Settlement – When securities are bought or sold, the depository facilitates seamless transfer.
- Corporate Benefits – Investors receive dividends, bonuses, and rights issues directly in their accounts.
What role do clearing houses play in the stock market?
Clearing houses play a crucial role in the stock market by ensuring the smooth settlement of trades, reducing counterparty risk, and maintaining market stability. They act as intermediaries between buyers and sellers, guaranteeing the completion of transactions.
Key Roles of Clearing Houses:
✔ Trade Settlement – Ensure the transfer of securities and funds between buyers and sellers.
✔ Risk Management – Act as a counterparty to both sides of a trade, reducing default risk.
✔ Margin Management – Collect margins from traders to cover potential losses.
✔ Trade Clearing – Match trade details and confirm settlement obligations.
✔ Ensuring Compliance – Follow SEBI regulations and maintain market integrity.
Major Clearing Houses in India:
- NSCCL (National Securities Clearing Corporation Ltd.) – For NSE trades.
- ICCL (Indian Clearing Corporation Ltd.) – For BSE trades.
- MCXCCL (Multi Commodity Exchange Clearing Corporation Ltd.) – For commodity trading.
What is the role of a custodian in the stock market?
A custodian in the stock market is a financial institution responsible for safeguarding and managing securities on behalf of investors, such as institutional investors, mutual funds, and foreign portfolio investors (FPIs). They ensure that securities are securely held and settled as per regulatory guidelines.
Key Roles of a Custodian:
✔ Safe-Keeping of Securities – Hold stocks, bonds, and other assets in electronic or physical form.
✔ Trade Settlement – Ensure proper transfer of securities and funds after a trade.
✔ Corporate Actions Management – Handle dividends, interest payments, stock splits, and rights issues.
✔ Regulatory Compliance – Ensure adherence to SEBI and other regulatory norms.
✔ Reporting & Record-Keeping – Maintain transaction history and provide reports to investors.
Major Custodians in India:
- SBI-SG Global Securities Services
- HDFC Bank
- ICICI Bank
- Standard Chartered Bank
- Deutsche Bank
What is the difference between a depository and a depository participant?
| Feature | Depository | Depository Participant (DP) |
|---|---|---|
| Definition | A central institution that holds securities in electronic form and enables transactions. | An intermediary (bank, broker, or financial institution) that offers depository services to investors. |
| Role | Maintains records of securities and facilitates transactions. | Acts as a link between investors and the depository. |
| Examples in India | NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited) | Banks (HDFC, ICICI), brokers (Zerodha, Angel One), and other financial institutions. |
| Account Type | Does not directly open accounts for investors. | Investors must open a Demat account with a DP to access depository services. |
| Regulation | Regulated by SEBI (Securities and Exchange Board of India). | Registered with NSDL/CDSL and follows SEBI guidelines. |
Key Takeaway:
- Depository = Stores and maintains securities.
- DP = Provides access to depository services for investors.
Who are registrars and transfer agents (RTAs)?
Registrars and Transfer Agents (RTAs) are SEBI-registered intermediaries that manage record-keeping, investor services, and corporate actions for companies and mutual funds. They act as a bridge between companies, investors, and depositories.
Key Roles of RTAs:
✔ Maintain Investor Records – Keep track of shareholder and mutual fund unit-holder details.
✔ Handle Corporate Actions – Manage dividends, interest payments, stock splits, and bonus issues.
✔ Process IPO & Mutual Fund Transactions – Handle applications, allotment, and refunds.
✔ Manage Transfers & Dematerialization – Convert physical shares to Demat and process ownership transfers.
✔ Investor Support Services – Address queries, update KYC details, and reissue lost certificates.
Major RTAs in India:
- KFin Technologies
- CAMS (Computer Age Management Services)
- Link Intime India
- Bigshare Services
What is the significance of a Demat account?
A Demat (Dematerialized) account is essential for investing in the stock market as it allows investors to hold securities in electronic form, eliminating the need for physical certificates. It is required for trading in stocks, bonds, ETFs, mutual funds, and other securities.
Significance of a Demat Account:
✔ Safe & Secure – No risk of theft, loss, or damage like physical certificates.
✔ Easy & Quick Transactions – Enables seamless buying, selling, and transferring of securities.
✔ Cost-Effective – Eliminates stamp duty and handling charges on physical shares.
✔ Access to Corporate Benefits – Dividends, bonuses, and stock splits are credited automatically.
✔ Essential for Online Trading – Required for trading on NSE & BSE through brokers.
✔ Linked with Bank & Trading Accounts – Ensures smooth settlement of funds.
What are the charges associated with stock market intermediaries?
Stock market intermediaries charge various fees for their services. Here’s a breakdown of key charges:
1. Charges by Stockbrokers
Brokerage Fees – Charged on buy/sell transactions (varies by broker & segment).
Account Opening Fee – One-time charge for opening a Demat & trading account.
Annual Maintenance Charges (AMC) – Yearly fee for maintaining the Demat account.
Transaction Charges – Fees per trade, levied by stock exchanges.
Margin Trading Charges – Interest on borrowed funds for leveraged trading.
2. Charges by Depositories & Depository Participants (DPs)
Demat Account AMC – ₹200–₹1000 per year (varies by DP).
Dematerialization Charges – Fees for converting physical shares to electronic form.
Rematerialization Charges – For converting electronic shares back to physical form.
Pledging Charges – Fees for pledging securities as collateral for loans.
3. Regulatory & Statutory Charges
SEBI Turnover Fee – A small charge per transaction, collected by SEBI.
Stamp Duty – Levied by the government on buy transactions.
GST (Goods & Services Tax) – 18% tax on brokerage and other fees.
Securities Transaction Tax (STT) – Charged on the purchase/sale of stocks & derivatives.
How does the settlement process work in the Indian stock market?
The settlement process in the Indian stock market follows a T+1 cycle, meaning trades are settled the next working day. After a trade is executed on NSE/BSE, the Clearing Corporation (NSCCL/ICCL) determines obligations, ensuring buyers pay funds and sellers deliver securities. On T+1 day, securities are credited to the buyer’s Demat account, and funds are transferred to the seller’s bank account. The process involves stock exchanges, clearing corporations, depositories (NSDL/CDSL), and banks to ensure smooth transactions.
