ONLINE STOCK TRADING PROCESS WITH THE DIFFERENT

INTERMEDIARY INSTITUTIONS AS IN PRACTICE IN STOCK EXCHANGE IN

INDIA

The stock market refers to public markets that exist for issuing, buying, and selling stocks
that trade on a stock exchange or over-the-counter. Stocks, also known as equities,
represent fractional ownership in a company, and the stock market is a place where
investors can buy and sell ownership of such investible assets.

Role of SEBI- Buying and selling stocks seems like a straightforward process, there needs to be a
governing authority that ensures tight control to keep malpractices and frauds at bay. The governing
authority needs to make sure that no such instances occur. Also, it needs to make investors feel
secure by creating an environment based on control and air-tight processes to improve investments
in securities.
Hence, in 1992, the Securities and Exchanges Board of India (SEBI) was established. It had two simple
objectives :
(l) Protect the interests of investors.
(ll) Regulate and promote securities market in India.
Rules and responsibilities set by SEBI made stock market in India huge success.
Traders/investors started believing that stock market is transparent and if they see a loss in
their trade/investment that’s just because it’s part of the game.
Stock market is made up of financial intermediaries. From the time a security is bought to the
time the security is sold, various financial intermediaries play their assigned roles in the
process. These entire intermediaries are under scrutiny by SEBI and follow the rules strictly set
by SEBI.

Financial Intermediaries- In any transaction there are people or entities involved apart from
buyer and seller, such entities in the stock market are termed as intermediaries.
An intermediary in a stock market is a person or an organization which helps people to invest
their money in various company stocks. A person involved in such intermediary activities is
usually called a Fund Manager.
The financial market is divided into two parts: the primary market and secondary market and
intermediaries for both the markets are different.

Primary market - A primary market is where companies issue new securities and offer them to
the public. Here, companies float shares to the general public in an IPO to raise capital. So, the
transaction happens between issuers and buyers.
Intermediaries that facilitate initial public offering are share transfer agents, registrar,
merchant bankers, underwriters, credit rating agencies, and custodians.

Secondary market – Once the shares are made public with an initial public offering, they are
traded in the secondary market i.e. securities are traded after the company has sold all the
stocks offered on primary market.

Underwriters- Underwriters play an important role at the time of listing any new companies
because they agree to buy all the securities if the share issue is not fully subscribed. They make
sure that the share issue is fully subscribed by themselves or by others. Underwriters are
appointed by the companies in consultation with merchant bankers.

Stock Brokers-The stockbroker is one of the most important financial intermediaries in the stock
market that play a key role in making transactions for you. It is a corporate entity that is
registered as a trading member of the stock exchange. It holds a stock broking license and works
in compliance with SEBI guidelines to facilitate stock market trading. You need to open a trading
account with a stockbroker in order to make financial transactions in the stock market. With the
help of a trading account, you can buy or sell securities in the stock market. Stockbrokers
provide you all the support you need have in order to transact in the market which includes
providing you margin to trade, provide software and calling support, issuing contract notes of
your trades, facilitate fund transfer between your trading account and banks, and provide back
office login. It charges you some fee for giving all the facilities to make your trading journey
smooth.

Depository Participants- It issues a share certificate to you when you buy a share which is the
proof of ownership of a share in the particular company. In past, these certificates were issued
in paper form while these days the certificates are saved electronically in your DEMAT
(Dematerialization). A depository is a financial intermediary in the stock market that keeps your
purchased share in digital form in its digital vault. If you want to sell your stock then you have to
sell the share from your trading account and the depository will debit the shares which were in
your DEMAT account. Currently, there are two depositories in India one is NSDL (National
Securities Depository Limited) and CDSL (Central Depository Services Limited). There is no
difference in the two depositories both work in compliance with the SEBI.
Banks as Stock Market Intermediaries- The sole purpose of banks in your trading mechanism is to
transfer funds to your DEMAT account and if you want to withdraw funds from your trading
account then the fund will go to your bank account. You can also link multiple accounts to your
trading account and add fund from any bank account which is linked but for withdrawal of fund,
the money will be transferred to your primary bank account.

NSCCL & ICCL as Financial Intermediaries- There are two more significant Financial Intermediaries
that you should know – National Security Clearing Corporation Ltd (NSCCL) and Indian Clearing
Corporation Limited (ICCL).
Even though you don’t need to interact with them directly, you should be aware of such
services which do exist.
Now, both NSCCL and ICCL do more or less the same thing, sometimes work in tandem. When
you buy a particular stock, the job of NSCCL and ICCL is to make sure someone sold that specific
shares to you.
This is to ensure there is no dubious buyer or seller, and the traders shouldn’t be a defaulter
when it comes to the payment.

Clearing Corporation- Clearing Corporation in equities ensures that the trade is executed
successfully and the investor’s Demat account is credited or debited with shares. Clearing
Corporation guarantees the delivery of shares and ensures total transparency in buying and
selling shares.

Share Transfer Agents- Share transfer agents is someone appointed by a company who
maintains records of the shareholders of securities issued by companies.
Share transfer agents also deal with the transfer and redemption of securities.

Online Stock Trading

Online trading allows us to buy or sell shares according to our convenience. It offers
advanced interfaces and the ability for investors to see how their money is performing
throughout the day. With the introduction of the World Wide Web (www), almost all
transactions can be carried out using a computer, including stocks, currencies, options
and futures.
Nowadays, companies sell stocks to anyone with a trading account, with the purpose of
raising money. Everyone can go online and do that with ease because the process is
automated. Online stock trading makes the buying and selling of company shares a lot
simpler. We can use our phone, computer etc to evaluate our profit & loss.

ONLINE STOCK TRADING PROCESS: In India, anyone who’s looking to start online
trading will need to first find a broker or a depository participant (DP). The DP is a
registered broker, under the national depositories the NSDL (National Securities
Depository Ltd) and CSDL (Central Depository Services India Ltd). The primary operating
market for the former is the National Stock Exchange (NSE) whereas the CDSL has
Bombay Stock Exchange (BSE) as the primary market.

Steps in Online stock trading

1. Selection of a Stock broker: The buying and selling of securities can only be done through
SEBI registered brokers who are members of the Stock Exchange. The broker can be an
individual, partnership firms, Banks or corporate bodies etc. So the first step is to select a
broker who will buy/sell securities on behalf of the investor or speculator.

2. Opening Demat Account with Depository Participant: DEMAT (Dematerialized) account

refers to an account which an Indian citizen must open with the depository participant (banks
or stock brokers) to trade in listed securities in electronic form. Second step in trading
procedure is to open a Demat account.
The securities are held in the electronic form by a depository. Depository is an institution or an
organization which holds securities (e.g. Shares, Debentures, Bonds, Mutual (Funds, etc.) At
present in India there are two depositories: NSDL (National Securities Depository Ltd.) and CDSL
(Central Depository Services Ltd.) There is no direct contact between depository and investor.
Depository interacts with investors through depository participants only. Depository participant
will maintain securities account balances of investor and intimate investor about the status of
their holdings from time to time.
3. Placing the Order: After opening the Demat Account, the investor can place the order. The
order can be placed to the broker either (DP) personally or through phone, email, etc. Investor
must place the order very clearly specifying the range of price at which securities can be bought
or sold. This is the moment when the terminal operator receives the order from the customer
and he feeds it in the computer. All the terminals of the NSEI established throughout the
country go on feeding their computers continuously.

4. Executing the Order: As per the Instructions of the investor, the broker executes the order
i.e. he buys or sells the securities. Broker prepares a contract note for the order executed. The
contract note contains the name and the price of securities, name of parties and brokerage
(commission) charged by him. Contract note is signed by the broker.

5. Settlement: This means actual transfer of securities. This is the last stage in the trading of
securities done by the broker on behalf of their clients. There can be two types of settlement.

(a) On the spot settlement: It means settlement is done immediately and on spot settlement
follows. T + 2 (trade date plus two days) rolling settlement. This means any trade taking place
on Monday gets settled by Wednesday.

(b) Forward settlement: It means settlement will take place on some future date. It can be T + 5
or T + 7, etc. All trading in stock exchanges takes place between 9.55 am and 3.30 pm. Monday
to Friday.
 Conclusion:
Intermediaries play an important role in the day to day market transactions and ensure that
there are checks at all points of trade and there isn’t any misleading or misrepresentation of
the company. SEBI regulates all the intermediaries and makes sure that none of them are
involved in any kind of malpractices.
Depository Participants (DP) are crucial for the entire stock trading operations. You can say they
are the director of a movie, while the traders are the actors. Everything works in a symmetrical
way as these Intermediaries do their job correctly. Meanwhile, the SEBI issued a guideline for
these entities to work collectively and provide the best service then can.