1.) BANKS
A. FINANCIAL INSTRUMENTS
Financial instruments are assets that can be traded. Banks participate in the capital market and money
They can also be seen as packages of capital that market. Within the capital market, banks take active
may be traded. Most type of financial instruments part in the bond markets. Banks may invest in equity
provide an efficient flow and transfer of capital all and mutual funds as a part of their fund
throughout the worlds investors. management. Banks take active trading interest in
the bond market and have certain exposures to the
TYPES AND FUNCTIONS equity market also. Banks also participate in the
SHARES market as the clearing houses.
These are agencies/organizations regulated and When Ford builds its auto plants. for example, it
licensed by SEBI, the capital market regulator. They cannot know for sure what cash flows those plants
arrange raising of funds through equity and debt will generate.
route and assist companies in completing various This allocation of risk also benefits the firms that
formalities like filling of the prescribed document need to raise capital to finance their investments.
and other compliances with the regulators. When investors are able to select security types with
the risk-return characteristics that best suit their
7. FOREIGN INSTITUTIONAL INVESTOR
preferences, each security can be sold for the best
(FII’s) possible price.
FII’s are foreign based funds authorized by Capital 4.) SEPARATION OF OWNERSHIP AND
Market Regulator to invest in countries equity and MANAGEMENT
debt market through stock exchanges. They are
allowed to repatriate sale proceeds of their holdings, Businesses are owned and managed by the same
provided sales have been made through an individual. This simple organization is well suited to
authorized stock exchange and taxes have been paid. small businesses and, the most common form of
FII’s enjoy de-facto capital account convertibility. business
organization before the Industrial revolution.
8. CUSTODIANS
D. FINANCIAL MARKET PARTICIPANTS
Custodians are organization which are allowed to
hold securities on behalf of costumers and carry out There are two basic financial market participant
operations on their behalf. They handle both funds categories: Investor vs. Speculator and
and securities of Qualified Institutional Borrowers Institutional vs. Retail
(QIBs) including FII’s. They are supervised by the
Action in financial markets by central banks is
Capital Market regulator.
usually regarded as intervention rather than
9. DEPOSITORIES participation.
Institutional investor
An institutional investor is an investor, such as a
bank, insurance company, retirement fund, hedge
fund, or mutual fund, that is financially sophisticated
and makes large investments, often held in very
large portfolios of investments. Because of their
sophistication, institutional investors may often
participate in private placements of securities, in
which certain aspects of the securities laws may be
inapplicable.
Retail
A retail investor is an individual investor
possessing shares of a given security. Retail
investors can be further divided into two categories
of share ownership.
1.) A Beneficial Shareholder is a retail investor who
holds shares of their securities in the account of a
bank or broker, also known as “in Street Name.” The
broker is in possession of the securities on behalf of
the underlying shareholder.
2.) Registered Shareholder is a retail investor who
holds shares of their securities directly through the
issuer or its transfer agent. Many registered
shareholders have physical copies of their stock
certificates.
In the United States, as of 2005 about 57 million
households owned stocks, and in total, individual
investors owned 26% of equities.