Stock Market Participants and the need to regulate them

Stock Market Participants and the need to regulate them The stock market attracts individuals and corporations from diverse backgrounds. Anyone who transacts in the stock market is called a market participant. The market participant can be classified into various categories. Some of the categories of market participants are as follows: 1. Domestic Retail Participants – These are people like you and me transacting in markets 2. NRI’s and OCI – These are people of Indian origin but based outside India 3. Domestic Institutions – These are large corporate entities based in India. Classic example would be the LIC of India. 4. Domestic Asset Management Companies (AMC) – Typical participants in this category would be the mutual fund companies such as SBI Mutual Fund, DSP Black Rock, Fidelity Investments, HDFC AMC etc. 5.Foreign Institutional Investors – Non Indian corporate entities. These could be foreign asset management companies, hedge funds and other investors Now, irrespective of the category of market participant the agenda for everyone is the same – to make profitable transactions. More bluntly put – to make money. When money is involved, human emotions in the form of greed and fear run high. One can easily fall prey to these emotions and get involved in unfair practices. India has its fair share of such twisted practices, thanks the operations of Harshad Mehta and the like. Given this, the stock markets need someone who can set the rules of the game (commonly referred to as regulation and compliance) and ensure that people adhere to these regulations and compliance thereby making the markets a level playing field for everyone. In India the stock market regulator is called The Securities and Exchange board of India often referred to as SEBI. The objective of SEBI is to promote the development of stock exchanges, protect the interest of retail investors, regulate the activities of market participants and financial intermediaries. In general SEBI ensures… 1. The stock exchanges (BSE and NSE) conducts its business fairly 2. Stock brokers and sub brokers conduct their business fairly 3.Participants don’t get involved in unfair practices 4. Corporate’s don’t use the markets to unduly benefit themselves (Example – Satyam Computers) 5. Small retail investors interest are protected 6. Large investors with huge cash pile should not manipulate the markets 7.Overall development of markets Given the above objectives it becomes imperative for SEBI to regulate the following entities. All the entities mentioned below in Table 2.1 are directly involved in the stock markets. A malpractice by anyone of the following entities can disrupt what is otherwise a harmonious market in India. SEBI has prescribed a set of rules and regulation to each one of these entities. The entity should operate within the legal framework as prescribed by SEBI. The specific rules applicable to a specific entity are made available by SEBI on their website. They are published under the ‘Legal Framework’ section of their site.