Intermediaries in Stock Market, Meaning, Role and Responsibilities

Intermediaries in the Stock Market are institutions and individuals that act as a bridge between investors and the market, facilitating the smooth buying and selling of securities. They ensure transparency, efficiency, and trust in trading and settlement processes. Key intermediaries include stockbrokers, sub-brokers, merchant bankers, underwriters, depositories, registrars, transfer agents, and portfolio managers. Each plays a vital role — from executing trades and managing public issues to maintaining investor accounts and ensuring regulatory compliance. These intermediaries are registered and regulated by the Securities and Exchange Board of India (SEBI) to protect investor interests and maintain market integrity. Their coordinated functioning ensures the orderly operation of the Indian stock market and supports its stability and growth.

Role of Intermediaries in Stock Market:

• Stock Exchanges (NSE, BSE)

Stock exchanges provide the essential, regulated trading platform where buyers and sellers meet. They facilitate price discovery through a transparent, electronic, and auction-based system. By setting strict listing and continuous disclosure standards, they ensure that only credible companies can raise public funds. Exchanges also monitor trading activity in real-time to prevent market manipulation and ensure fair play. As the core infrastructure, they provide the liquidity and trust necessary for the entire market to function, making them the central pillar around which all other intermediaries operate.

• Stock Brokers

Stock brokers act as the crucial bridge between investors and the stock exchanges. They are registered members of the exchanges and are authorized to execute buy and sell orders on behalf of their clients. For this service, they charge a commission or brokerage fee. They provide investors with trading terminals, research reports, and margin trading facilities. By handling the complex back-end process of order routing, confirmation, and settlement, brokers make market participation seamless, secure, and accessible for retail and institutional investors alike.

• Depository Participants (DPs)

Depository Participants (DPs), such as banks and brokers registered with depositories (NSDL, CDSL), manage the electronic demat accounts of investors. Their primary role is to hold securities (shares, bonds) in dematerialized (demat) form, eliminating the risks of holding physical certificates. They facilitate the electronic transfer of securities during settlement—a process known as delivery versus payment (DVP). By ensuring the safe custody and effortless transfer of ownership of securities, DPs are fundamental to the modern, paperless, and efficient functioning of the stock market.

• Registrars and Transfer Agents (RTAs)

Registrars and Transfer Agents (RTAs) act as outsourced record-keepers for companies. They maintain a detailed register of shareholders, track changes in ownership, and process corporate actions like dividends, bonus issues, and stock splits on behalf of the company. When you buy or sell shares, the RTA updates the company’s records to reflect you as the new owner. They also handle investor communications and grievance redressal related to these actions. Their role ensures the accurate and efficient administration of a company’s investor base.

• Asset Management Companies (AMCs) / Mutual Funds

AMCs pool money from numerous investors to create professionally managed portfolios, known as mutual funds. They act as professional investment managers, making decisions on behalf of their unit holders. By investing in a diversified basket of securities, they provide retail investors with access to expert management and diversification that would be difficult to achieve individually. They play a vital role in channeling household savings into the capital market, providing stability and depth, and promoting a culture of disciplined investing.

• Investment Bankers / Merchant Bankers

Investment bankers are key intermediaries in the primary market. They manage the entire process of a company’s public issue (IPO/FPO), including due diligence, drafting the prospectus (DRHP), pricing the issue, and marketing it to investors. They often underwrite the issue, guaranteeing the company that the capital will be raised. By ensuring regulatory compliance and facilitating the capital-raising process, they help companies access public funds and enable investors to discover and invest in new investment opportunities.

Responsibilities of Intermediaries in Stock Market:

• Stockbrokers

Stockbrokers act as licensed agents who buy and sell securities on behalf of investors through recognized stock exchanges. Their main responsibilities include executing client orders promptly, maintaining transparency in transactions, and charging fair brokerage fees. They must provide accurate information, confirm trades, and issue contract notes to clients. Brokers are required to follow SEBI regulations and maintain ethical conduct, avoiding any conflict of interest. They also assist investors with research, investment advice, and grievance redressal. By ensuring fair and efficient trading, stockbrokers play a crucial role in maintaining investor confidence and market integrity.

• Merchant Bankers

Merchant bankers manage and facilitate the issue of securities in the primary market, especially public issues such as Initial Public Offerings (IPOs) and Rights Issues. Their responsibilities include conducting due diligence, preparing prospectuses, obtaining regulatory approvals, and ensuring compliance with SEBI norms. They act as financial advisors, helping companies determine the issue price and structure. Merchant bankers also coordinate with underwriters, registrars, and stock exchanges for smooth fund-raising processes. By ensuring transparency, accuracy, and investor protection during public issues, merchant bankers enhance credibility and efficiency in the capital market and support corporate capital formation.

• Underwriters

Underwriters play a vital role in ensuring the success of new security issues by guaranteeing the subscription of shares. If the public does not fully subscribe to an issue, underwriters agree to purchase the unsubscribed portion. This minimizes risk for the issuing company and ensures capital-raising success. Their responsibilities include assessing market conditions, evaluating the issuer’s credibility, and setting realistic terms for the issue. Underwriters must comply with SEBI regulations, maintain financial soundness, and disclose underwriting obligations clearly. By providing assurance of full subscription, they enhance market confidence and promote stability in the securities issuance process.

• Depositories and Depository Participants (DPs)

Depositories such as NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited), along with their Depository Participants (DPs), are responsible for holding investors’ securities in electronic or dematerialized (Demat) form. Their main responsibilities include maintaining accurate records of ownership, facilitating transfers, and ensuring the safety of investor holdings. DPs act as a link between investors and depositories by opening and managing Demat accounts. They also handle settlement of trades and corporate actions like dividends and bonuses. By replacing physical certificates, depositories and DPs enhance security, reduce fraud, and ensure faster, more efficient trading and settlement processes.

• Registrars and Transfer Agents (RTAs)

Registrars and Transfer Agents (RTAs) manage and maintain records of investor transactions and ownership details. Their primary responsibilities include processing share allotments, handling investor correspondence, transferring securities, and managing dividend or interest payments. RTAs ensure that investors receive their securities, statements, and updates accurately and on time. They work closely with issuing companies, stock exchanges, and depositories to maintain transparency and accuracy in recordkeeping. By efficiently handling investor services and corporate actions, RTAs play a crucial role in maintaining investor trust and ensuring the smooth functioning of the securities market.

• Portfolio Managers

Portfolio Managers professionally manage investment portfolios on behalf of clients to achieve specific financial goals. Their key responsibilities include assessing client risk profiles, formulating investment strategies, diversifying assets, and regularly monitoring portfolio performance. They must disclose all charges, risks, and returns transparently as per SEBI (Portfolio Managers) Regulations, 2020. Portfolio managers also provide periodic reports and ensure that investments align with the client’s objectives. Their fiduciary duty requires them to act in the best interest of clients, maintaining ethical standards and compliance. By offering expert management, they help investors maximize returns while minimizing financial risks.