Page 25 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes Act, 1956 to include: shares, scrips, stocks, bonds, debentures, debenture stock or other marketable
securities of a like nature in or of any incorporated company or body corporate; derivatives;
units of any other instrument issued by any collective investment scheme to the investors in
such schemes; security receipt as defined in clause (zg) of section 2 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; units or any
other such instrument issued to the investors under any mutual fund scheme; any certificate or
instrument (by whatever name called), issued to an investor by any issuer being a special
purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned
to such entity, and acknowledging beneficial interest of such investor in such debt or receivable,
including mortgage debt, as the case may be; government securities. Such other instruments as
may be declared by the Central Government to be securities; and rights or interest in securities.
There are a set of economic units who demand securities in lieu of funds and others who supply
securities for funds. These demand for and supply of securities and funds determine, under
competitive market conditions in both goods and securities market, the prices of securities
which reflect the present value of future prospects of the issuer, adjusted for risks and also prices
of funds.
It is not that the users and suppliers of funds meet each other and exchange funds for securities.
It is difficult to accomplish such double coincidence of wants. The amount of funds supplied by
the supplier may not be the amount needed by the user. Similarly, the risk, liquidity and
maturity characteristics of the securities issued by the issuer may not match preference of the
supplier. In such cases, they incur substantial search costs to find each other. Search costs are
minimised by the intermediaries who match and bring the suppliers and users of funds together.
These intermediaries may act as agents to match the needs of users and suppliers of funds for a
commission, help suppliers and users in creation and sale of securities for a fee or buy the
securities issued by users and in turn, sell their own securities to suppliers to book profit. It is,
thus, a misnomer that securities market disintermediates by establishing a direct relationship
between the savers and the users of funds. The market does not work in a vacuum; it requires
services of a large variety of intermediaries. The disintermediation in the securities market is in
fact an intermediation with a difference; it is a risk-less intermediation, where the ultimate risks
are borne by the savers and not the intermediaries. A large variety and number of intermediaries
provide intermediation services in the Indian securities market as may be seen from Table 2.1.

Table 2.1: Market Participants in Securities Market

Market Intermediaries 2008-09 2009-10 2010-11
Securities Appellate Tribunal 1 1 1
Regulators* 4 4 4
Depositories 2 2 2
Stock Exchanges
Cash Market Segment 19 19 19
Debt Market Segment 2 2 2
Derivative Market Segment 2 2 2
Currency Derivatives Segment 3 4 4
Brokers (Cash Segment) 9,628 9,772 10,203
Corporate Brokers (Cash Segment) 4,079 4,194 4,774
Brokers (Derivatives) 1,587 1,705 2,111
Brokers (Currency Derivatives) 1,154 1,459 2,008
Contd...

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