SEBI, the Securities Exchange Board of India, was established in 1988 and is one of the key players in the stock market. Other key players include stock exchanges, depository and depository participants, stockbrokers, banks, and investors.
Overview on Share Market:
During specific hours of the day, buyers and sellers trade publicly listed shares on the share market. The terms ‘stock market’ and ‘share market’ are often used interchangeably. The key difference between the two is that, while the former is used for trading only shares, the latter allows you to trade bonds, derivatives, forex, and other financial instruments.
| Note:’ NSE has more than 1600 registered companies, but only 1328 are actively traded’ |
In India, there are two principal stock exchanges:
- National Stock Exchange (NSE)
- Bombay Stock Exchange (BSE).
Types of Share Markets
It is possible to further divide the stock market into two parts: the primary and secondary markets.
- Primary Share Markets
A company enters the primary market after registering for the first time on the stock exchange to raise funds through shares. During this process, the company will become publicly registered, and its shares will be available for trading.
- Secondary Market
New securities issued by a company are traded on the secondary stock market after selling them on the primary market. As a result, investors can buy and sell shares among themselves at the prevailing market prices. Typically, investors conduct these transactions through a broker or another intermediary who can facilitate the process.
What Is Traded On The Share Market?
The stock exchange trades four types of financial instruments. The following are among them:
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Shares
Shares represent equity ownership in a company. Dividends are paid to shareholders in the form of profits earned by the company. Furthermore, they are responsible for any losses incurred by the company.
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Bonds
A company will need a significant amount of capital to undertake long-term and profitable projects. It is possible to raise capital by issuing bonds to the public. The bonds represent a ‘loan’ taken by the company. Bondholders become creditors and receive timely interest payments in the form of coupons. Bondholders view bonds as fixed-income instruments, where they receive interest on their investment and their investment amount at the end of the investment period.
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Share Market– Mutual Funds
Mutual funds are professionally managed funds that pool the money of many investors and invest it in various financial instruments. Mutual funds offer a variety of financial instruments, including equity, debt, and hybrid funds.
There are a number of mutual fund schemes that issue units of a certain value, similar to shares. You become a unit-holder when you invest in such funds. As instruments within the mutual fund scheme earn revenue over time, the unit-holder receives it either as dividends or as a reflection of the fund’s net asset value.
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Derivatives
Derivatives are securities that derive their value from underlying securities. Shares, bonds, currencies, commodities, and many other types can be included in this category. Buyers and sellers of derivatives have opposing expectations of an asset’s price, and they enter into a ‘betting contract’ regarding the asset’s future value.
Regulation of the Indian Stock Markets
The Securities and Exchange Board of India regulates and supervises the Indian stock market. By the SEBI Act of 1992, SEBI was formed as an independent entity with the power to conduct inspections of stock exchanges. A market inspection examines the operations of the market and the organisational structure and aspects of administrative control.
SEBI performs the following functions:
- Make sure investors have access to a fair and equitable market
- Ensure compliance with the Securities Contracts (Regulation) Act (SC(R) Act), 1956, by the exchange organisation, its system, and its practices
- Ensure that SEBI guidelines and directions are implemented
- As per Section 4 of the SC(R) Act of 1956, verify that the exchange has complied with all conditions and has renewed the grants, if necessary.
- How do the Share Markets work
The Stock Exchange Platform: An Overview
In essence, a stock exchange is a marketplace for trading financial instruments such as stocks and derivatives. The Securities and Exchange Board of India regulates activities on this platform. To conduct trades, participants must register with SEBI and the stock exchange. Brokering, the issuance of company shares, and other trading activities are included in trading activities.
Listing of the Company in the Secondary Market
Through an Initial Public Offering or IPO, shares of a company are listed on the secondary market for the first time. Stocks are allotted prior to listing, and investors who bid for the stocks receive their shares based on the number of bidders.
Trading in the Secondary Market
Stocks can be traded on the secondary market once a company is listed on the stock exchange. Markets are places where buyers and sellers transact and make profits or losses.
Stock Brokers in Share Market
Since there are thousands of investors, gathering them at one location takes a lot of work. To conduct trades, stockbrokers and brokerage firms are required.
These entities are registered with the Stock Exchange and serve as intermediaries between investors and the exchange. To purchase any share at a given price, your broker processes the order at the exchange, where multiple parties are involved.
Share Market – The passing of your order
The broker transmits your buy order to the exchange, where it is matched with a sell order for the same instrument. The order is confirmed when the seller and buyer agree on a price and finalise it.
Settlement
Once the price for the transaction has been finalised, the exchange confirms the transaction details to prevent default. As part of the settlement process, the exchange facilitates the transfer of ownership of the shares. You will receive a notification once this process has been completed. This message is communicated by a number of parties, including the brokerage order department, exchange floor traders, etc.
The settlement time used to be weeks, but now it is T+2 days. If you trade today, the shares will appear on your Demat account within two working days. Investing in the share market involves market risks. Prior to investing, it is recommended that you consult with an investment advisor.
Conclusion
Vakilsearch can be a valuable resource for individuals looking to invest in the share market for several reasons:
- Expert advice: Vakilsearch offers expert advice on investment strategies, risk management, and financial planning to help individuals make informed decisions about their investments in the share market.
- Compliance: Vakilsearch can help ensure compliance with regulations and laws related to share market investments, which can reduce the risk of legal or financial consequences.
- Convenience: Vakilsearch provides a one-stop platform for all services related to share market investments, making it easier and more convenient for individuals to manage their investments.
- Reliability: Vakilsearch is a trusted and reliable platform, providing individuals with peace of mind that their investments are in good hands.
- Cost-effectiveness: By utilising the services offered by Vakilsearch, individuals can save time and money compared to navigating the complex regulations and procedures associated with share market investments on their own.
In summary, Vakilsearch can be an important resource for individuals looking to invest in the share market. With its range of services and expert advice, Vakilsearch can help individuals make informed decisions and maximise the potential of their investments.
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