Nowadays we get a lot of newbies entering in markets due to bull launched by GST. This article helps the newbies in getting started with Share Trading and Investments. The world of shares and bonds is called capital markets as the companies have to tap into this market to get the capital for their businesses. So when a person opens an account with a broker, he needs to remember certain things for smooth sailing. The terminologies used in the markets are very varied. This only covers important ones.

The Organizations:

There are many Intermediaries involved in capital markets. Many newbies don’t know more than the broker. Here is the list. This list can be divided into 2 groups. The first one with whom we interact like line function in a company. The other ones are like staff functions. The Brokers, Depository Participants and KYC Registration Agencies are line function equivalents. The Exchanges, Clearing Corporations, Depository, RTAs, SEBI are all staff function.

The line function organizations:
  • The broker is the main touch point.  One opens a trading account with a broker. The Broker does the KYC as well as providing a terminal for trading. The brokers are of 2 types. A Full-Service Broker provides a wide array of services to the client. A Full-Service Broker has higher brokerage charges because of the services he provides. ICICI Direct is one such example of Full-Service Broker. The other one is called as  Discount Broker. Zerodha is the most popular one of these. A discount broker has very fewer charges. The clients have terminal access to do trading. Unlike Full-Service Brokers, the discount broker doesn’t give any sort of reccos to clients. He allows the clients to do investments on his own. As a result of that, the discount broker has lower brokerage charges. Therefore, while selecting the broker it’s important to know what facilities are required. The broker is just a gateway to Exchange. A client opens a trading account with the broker.
  • When you approach the broker to open an account, he takes lots of proofs. He then submits those to KYC registration agencies like NDML KRA etc… Once you register with KRA, the registration letter can be used to bypass KYC with other entities. Now there is a centralised KYC agency. This central KYC agency is valid for banks too.
  • The broker often times provides another in-house service. That is the depository service. The securities purchased are placed in this account. The Demat account is opened with them.  The demat account provider is called as Depository Participant. The Demat account is operated via Instruction Slips and POA. A broker asks for POA while opening DP account, for the smooth operations with DP. DP is just an agent of the depository.
The staff function organizations:
  • The Exchange is the place where buying and selling of shares happen. Once the account is opened with a broker, he applies to exchange for trading access in your name. The NSE, BSE, NCDEX, MCX are some examples of Indian Exchanges. NASDAQ, NYSE are some examples of foreign stock exchanges. The MCX, NCDEX are commodity exchanges. When We place an order for buying and selling, the broker collects the order and sends it to exchange. Once the order is executed, the transactions are sent to clearing houses/clearing corporations.
  • The clearing companies do the settlement functions. When a newbie is getting started, they often overlook this house. When you buy shares, the clearing corporation sends debit money instruction to your broker. The seller’s Depository Participant is sent debit security instruction. The security is then sent to your broker’s pool account. You get it from brokers pool account. The clearing corporation is the reason why a settlement happens. 
  • The depository stores shares. The DP is just agent of the depository. The demat account holder is called as Beneficial Owner.  The demat account number is comprised of DP ID and BO ID. Company use this ID to send dividends and bonus shares. 
  • Companies outsource the Registration and Transfer Functions of shares to RTAs i.e. Registrar and Transfer Agents. When a company does a corporate action like dividends, bonus, stock split, rights issue., the RTA handles the back office functions.
  • The SEBI is the regulator for all these entities.

In the next part, we discuss account features, types of market orders, cost and other things.