Published : January 30, 2021
Organizations that help in the transfer of funds from the ones who have surplus funds to those who are in need of that are called financial intermediaries. They act as middlemen between both the parties in the transfer of the funds. There are several corporate entities that play their role in the stock market with the rules made by SEBI (Securities and Exchange Board of India) to ensure effortless transactions for you in the stock market. These financial intermediaries are independent of one another and create an ecosystem in which the financial market exits. We will discuss the financial intermediaries who work behind the scene in making your stock purchase and selling those in the stock market.
It issues a share certificate to you when you buy a share which is the proof of ownership of a share in the particular company. In past, these certificates were issued in paper form while these days the certificates are saved electronically in your DEMAT (Dematerialization). A depository is a financial intermediary in the stock market that keeps your purchased share in digital form in its digital vault. If you want to sell your stock then you have to sell the share from your trading account and the depository will debit the shares which were in your DEMAT account. Currently, there are two depositories in India one is NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited). There is no difference in the two depositories both work in compliance with the SEBI.
The stockbroker is one of the most important financial intermediaries in the stock market that play a key role in making transactions for you. It is a corporate entity that is registered as a trading member of the stock exchange. It holds a stockbroking license and works in compliance with SEBI guidelines to facilitate stock market trading. You need to open a trading account with a stockbroker in order to make financial transactions in the stock market. With the help of a trading account, you can buy or sell securities in the stock market. Stockbrokers provide you all the support you need have in order to transact in the market which includes providing you margin to trade, provide software and calling support, issuing contract notes of your trades, facilitate fund transfer between your trading account and banks, and provide back office login. It charges you some fee for giving all the facilities to make your trading journey smooth.
National Security Clearing Corporation Ltd (NSCCL) is a subsidiary of the National Stock Exchange (NSE) and Indian Clearing Corporation Ltd. is a subsidiary of the Bombay Stock Exchange (BSE). These clearing corporations ensure that the settlement of trades and transactions happen without any counterparty risk. For example, if someone has bought one share of SBI then there must be someone who has sold that one share to you, and the amount which the seller gets by selling his stock must be credited towards the sale. Traders do not directly interact with these entities so they do not hear about them much but these entities always play their work to smoothen the process of settlement and efficient clearing activity.
The sole purpose of banks in your trading mechanism is to transfer funds to your DEMAT account and if you want to withdraw funds from your trading account then the fund will go to your bank account. You can also link multiple accounts to your trading account and add fund from any bank account which is linked but for withdrawal of fund, the money will be transferred to your primary bank account.
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