The secondary market is where securities once issued are bought and sold between investors.
Before coming into the secondary market a company has to go through Primary Market i.e an IPO (Initial Public Offering).
Secondary market structure and participants.
- Stock Exchange
- Financial Intermediaries
Let’s go through all one by one.
1) Stock Exchange:- It provides a platform for investors to buy and sell securities (shares, f&o, currency, commodities, etc.) from each other.
There are three national-level stock exchanges in India.
- NSE – National Stock Exchange located in BKC, Bandra East, Mumbai.
- BSE – Bombay Stock Exchange located in Dalal Street Fort Mumbai
- MSEI formerly known as MCX-SX where MSEI stands for Metropolitan Stock Exchange of India and MCX-SX stands for Multi-Commodity Exchange Stock Exchange. It is also located in BKC Bandra East Mumbai
Members of the Stock Exchange (Broker).
Investors cannot buy securities from BSE or NSE. They can trade in the secondary market only through brokers i.e members of the stock exchange.
Investors have to open an account with the broker i.e trading, demat and savings account or 3 in 1 account provided by some banks.
An investor is the one who invests money in the stock market.
There are 4 types of investors.
a) Retail Individual Investors (RII):-
This category covers common people like you and me.
b) High Networth Individuals (HNI):-
This category covers normal people but who are rich.
Whenever we apply for an IPO there is a distinction between RII and HNI. Any investor who applies for shares less than 2 lac rupees falls into the RII category and an investor who applies for shares more than 2 lac rupees will fall into the HNI category.
c) Domestic Institutional Investors (DII):-
These are the investors who undertake investment in the financial markets of the country they are in. It includes banks, insurance companies, mutual funds, etc. In our case(India), it will be like ICICI bank, Bajaj Insurance, etc.
d) Foreign Institutional Investors/Foreign Portfolio Investors (FII/FPI):-
Investors that are from other countries and that are investing in the Indian financial market. It also includes investment banks, mutual funds, insurance companies, etc.
Issuers are the companies and other entities that seek admission for their securities (shares) to be listed on the stock exchange.
Eg. Reliance Industries, L&T, HDFC AMC, etc. Here you can name any company that is listed on the stock exchange.
4) Depositories & Depository Participant (DP):-
For securities to be eligible to trade in the secondary market, it should be held in the electronic/dematerialized form.
There are 2 Depositories in India.
a) NSDL (National Securities Depository Limited) which works for NSE.
b) CDSL (Central Depository Services Limited) which works for BSE.
- Depository Participant (DP):- is a agent through which you open a demat account also known as Broker.
DP maps (links) your account with NSDL/CDSL.
The Securities and Exchange Board of India (SEBI) is the regulatory authority established under the SEBI Act 1992 and is the main regulator for stock exchanges in India. Its primary function is to protect investors’ interest, to promote and regulate the Indian securities markets or financial markets.