Market Participants and their Activities

The Indian securities market is a multi‑layered ecosystem comprising issuers, investors, intermediaries, and regulators. Issuers are companies or governments that raise capital by issuing equity or debt securities. Investors include retail, high‑net‑worth, and institutional players who provide the funds needed for capital formation.

Intermediaries such as brokers, dealers, merchant bankers, and portfolio managers facilitate the flow of securities between issuers and investors. They perform activities like order execution, underwriting, market making, and advisory services. Finally, regulators like SEBI, RBI, and the Stock Exchanges set the rules, monitor compliance, and protect investor interests.

For the NISM exam, you must be able to quickly recognise which entity belongs to which category and what its core duties are. Questions often present a scenario and ask you to identify the responsible participant, so memorising the classification table is a high‑yield strategy.

• Remember: Issuers create securities; Intermediaries move them; Regulators supervise the process.
• Common trap – confusing a broker (who executes client orders) with a dealer (who trades on its own account).

The primary market is where new securities are created and sold for the first time. Issuers engage investment bankers or merchant bankers to underwrite the issue, determine pricing, and prepare the prospectus. Underwriters guarantee a portion of the issue, thereby reducing the issuer’s risk of undersubscription.

SEBI monitors the entire process through the Issue of Capital and Disclosure Requirements (ICDR) regulations. It ensures that the prospectus contains full and fair disclosure, that pricing is not manipulative, and that the issue complies with eligibility criteria. Failure to meet these standards can lead to penalties or withdrawal of the issue.

For PMS distributors, understanding primary market mechanics matters because many high‑net‑worth clients prefer to participate in fresh issues through the distributor’s network. The exam may ask which participant is responsible for pricing – answer: the underwriter, in consultation with the issuer and SEBI.

Once securities are listed, the secondary market enables their continuous trading. Brokers receive client orders, route them to the exchange, and earn a commission. Dealers act as market makers, providing bid‑ask quotes and ensuring liquidity, especially in less‑traded stocks.

Investors—both retail and institutional—use brokers to buy or sell holdings, while portfolio managers and PMS distributors may execute trades on behalf of clients, adhering to the client’s investment mandate. The exchange’s surveillance systems monitor for manipulative practices such as front‑running or wash trades.

Exam questions frequently present a trade‑execution scenario and ask you to identify the participant responsible for best‑execution compliance. Remember: the broker must obtain the best price for the client, while the dealer’s primary duty is to maintain market liquidity.

SEBI is the principal regulator for securities markets in India. It issues guidelines on market conduct, disclosures, and the registration of intermediaries such as brokers, PMS distributors, and merchant bankers. SEBI’s regulations, like the Portfolio Management Services Regulations, 2020, dictate the eligibility, capital adequacy, and reporting obligations of distributors.

The Reserve Bank of India (RBI) oversees the banking side of capital markets, especially when banks act as custodians or when foreign portfolio investors (FPIs) bring funds into the market. RBI’s Foreign Exchange Management Act (FEMA) rules intersect with SEBI’s when cross‑border investments are involved.

Stock Exchanges (NSE, BSE) enforce listing standards and operate surveillance mechanisms to detect market abuse. For the exam, remember that any breach of SEBI or exchange rules can lead to penalties, suspension of registration, or criminal prosecution. PMS distributors must maintain separate client accounts, periodic reporting, and audit trails as per SEBI’s PMS regulations.