Secondary market and it’s structure

  • by

In the previous Article, we discussed IPO. IPOs are issued in the primary market. Secondary market is where securities once issued are bought and sold between investors.

Market structure of Secondary Market: 

  • Stock exchange
  • Investors
  • Issuers 
  • Financial intermediaries
  • Regulatory Authority 

Stock Exchange : 

It provides a platform to buy and sell securities from each other. Major 3 national exchanges in India are NSE , BSE and MSEI.

Investors : 

Investors can trade in exchange only through members of stock exchange i.e Broker. 

There are Various categories of investors: 

  • Retail individual investors – Common public – when people invest less than Rs. 2 lakh.
  • HNI – High Net worth Individual – When people invest more than Rs.2 lakh . 
  • DII – Domestic Institutional Investors  like Domestic Banks , Insurance ( like LIC ) etc ., LIC is one of the largest investors in Indian market. 
  • FII – Foreign Institutional Investors. 

Issuers : 

The companies which get listed on the exchange are the issuers of the shares. 

Financial intermediaries : 

Clearing House : Each exchange has a seperate clearing house to settle the day to day transactions ( buying and selling of shares of various investors ) . For example NSCCL ( National securities Clearing Corporation Ltd ) is the clearing house of NSE. 

Depositories and DPs : There are 2 depositories in India. NSDL ( National securities Depository Ltd ) and CDSL (Central Depository Service Ltd ). They perform the most important service that is to  enable the physical shares to be held in electronic or dematerialised form (demat). Having shares in electronic format helps for quicker settlement. Currently the settlement happens in T+2 days. 

Depository Participants (DP)  – They are known as  brokers who are the middleman between investors and depositories. For example Zerodha have CDSL as their Depository. If I have an account with Zerodha. Then Zerodha is my broker or DP. CDSL is my Depository. 

Regulatory authority : 

SEBI ( Securities and Exchange Board of India ) is the regulatory authority of securities and commodity  market in  India. It monitors and regulates the securities market and protects the interests of the investors by enforcing certain rules and regulations on regular intervals as and when required. 

Leave a Reply