Structure and Trading System in Secondary Market

The securities market has essentially three categories of participants, viz., the issuer of securities, investors in securities and the intermediaries. The issuers are the borrowers or deficit-units, who issue securities to raise funds for their business activities. The investors, who are surplus savers, deploy their savings by subscribing to these securities and issue funds for the business activities. The intermediaries are the agents who match the needs of users and suppliers of funds for a commission. The secondary market or the stock exchange system in India is represented by 23 stock exchanges including the National Stock Exchange of India(NSE), the Over The Counter Exchange of India, the Inter connected Stock Exchange of India and 20 other stock exchanges located at different places. However at present, trades take place only at NSE and BSE and other stock exchanges have become redundant. The operations of stock exchanges are regulated, supervised and controlled by the  Securities and Exchange Board of India (SEBI). SEBI uses 3 types of controls in respect of stock exchanges as follows :

  • It makes stock exchanges to impose minimum capital requirements on the members.
  • It prohibits and checks the price of a security from rising or falling too fast. The prices are allowed to move within fixed limits over a day. The circuit-breakers are applied to cool down the volatility in prices of a particular share.
  • It makes the stock exchanges to impose various types of margins on their members. The SEBI has imposed 6 types of margins on the transactions of the share brokers. These are :
    1. Carry forward margins,
    2. Incremental carry forward margins,
    3. Mark to market margins,
    4. Concentrations margins,
    5. Volatility margins, and
    6. Special ad-hoc margins.

The trading mechanism at all stock exchanges is on-Iine fully automated Screen Based Trading system (SBTS) in which orders from customers are matched electronically on a strict price/time priority. The system is highly efficient and allows a large number of participants to trade with one another.