Overview of Indian Securities Markets

The Indian Securities Market is one of the leading markets in the emerging world. Over the past few years, the financial markets have become increasingly global. The Indian market has gained from foreign inflows through the investment of Foreign Institutional Investors (FIIs). Following the implementation of reforms in the securities industry in the past few years, Indian stock markets have stood out in the world ranking. As per Standard and Poor’s Fact Book 2012, India ranked 11th in terms of market capitalization, 17th in terms of total value traded in stock exchanges, and 30th in terms of turnover ratio, as of December 2011.

The securities market has essentially three categories of participants—the issuer of the securities, the investors in the securities, and the intermediaries. The issuers are the borrowers or deficit savers, who issue securities to raise funds. The investors, who are surplus savers, deploy their savings by subscribing to these securities. The intermediaries are the agents who match the needs of the users and the suppliers of funds for a commission. These intermediaries function to help both the issuers and the investors to achieve their respective goals. There are a large variety and number of intermediaries providing various services in the Indian securities market (Table 1-3). This process of mobilizing the resources is carried out under the supervision and overview of the regulators. The regulators develop fair market practices and regulate the conduct of the issuers of securities and the intermediaries. They are also in charge of protecting the interests of the investors. The regulator ensures a high service standard from the intermediaries, as well as the supply of quality securities and non-manipulated demand for them in the market. 

Market Participants	FY 2011	FY 2012	As on Sep 30, 2012
Securities Appellate Tribunal (SAT)	1	1	1
Regulators*	4	4	4
Depositories	2	2	2
Stock Exchanges
With Equities Trading	19	19	19
With Debt Market Segment	2	2	2
With Derivative Trading	2	2	2
With Currency Derivatives	4	4	4
Brokers (Cash Segment)	10203	10268	10165
Corporate Brokers (Cash Segment)	4774	4877	4827
Brokers (Equity Derivatives)	2111	2337	2416
Brokers (Currency Derivatives)	2008	2173	2201
Sub-brokers	83808	77141	74224
FIIs	1722	1765	1753
Portfolio Managers	267	250	251
Custodians	17	19	19
Registrars to an issue & Share Transfer Agents	73	74	75
Merchant Bankers	192	200	202
Bankers to an Issue	55	57	57
Debenture Trustees	29	31	31
Underwriters	3	3	3
Venture Capital Funds	184	212	211
Foreign Venture Capital Investors	153	176	182
Mutual Funds	51	49	49
Collective Investment Schemes	1	1	1
KYC Registration Agency (KYC)	–	–	4
*DCA, DEA, RBI & SEBI
Source: SEBI

The securities market has two interdependent and inseparable segments, namely, the new issues (primary) market and the stock (secondary) market. The primary market provides the channel for the creation and sale of new securities, while the secondary market deals in the securities that were issued previously. The securities issued in the primary market are issued by public limited companies or by government agencies. The resources in this kind of market are mobilized either through a public issue or through a private placement route. If anybody can subscribe for the issue, it is a public issue; if the issue is made available only to a select group of people, it is known as private placement. There are two major types of issuers of securities—corporate entities, who issue mainly debt and equity instruments, and the government (central as well as state), which issues debt securities (dated securities and treasury bills).

The secondary market enables participants who hold securities to adjust their holdings in response to changes in their assessment of risks and returns. Once new securities are issued in the primary market, they are traded in the stock (secondary) market. The secondary market operates through two mediums, namely, the over-the-counter (OTC) market and the exchange-traded market. The OTC markets are informal markets where trades are negotiated. Most of the trades in government securities take place in the OTC market. All the spot trades where securities are traded for immediate delivery and payment occur in the OTC market. The other option is to trade using the infrastructure provided by the stock exchanges. The exchanges in India follow a systematic settlement period. All the trades taking place over a trading cycle (day = T) are settled together after a certain time (T + 2 days). The trades executed on exchanges are cleared and settled by a clearing corporation. The clearing corporation acts as a counterparty and guarantees settlement. A variant of the secondary market is the forward market, where securities are traded for future delivery and payment. A variant of the forward market is the Futures and Options market. Presently, only two exchanges in India—the National Stock Exchange of India Ltd. (NSE) and the Bombay Stock Exchange (BSE)—provide trading in Futures and Options.