Have you ever wondered what really happens when you buy the stock and till it comes to your demat account? There are a number of entities that are involved in the entire process and make this happen for you. The entities work as per the rules lay down by the market regulator and make sure that the experience is smooth for you to transact in the market. Those who are involved in this entire step are known as the financial intermediaries.
These financial intermediaries work independently of each other and they let this market to exist.
The stockbroker is an entity who is registered and has a broking license. The stockbroker is basically your gateway to the stock exchange. You need to have a trading account with the broker. This trading account lets you do to financial transactions in the market and it lets the investor buy and sell the securities.
Whenever you wish to transact in the stock market you will have to interact with the broker. You could visit his office personally, make a telephone call to your broker or do it electronically.
The broker of, this trading software, lets you transact in the market, gives you trading margin, provides support, issues the transaction contract notes, facilitates the transfer of funds between your trading account and your bank account and charges brokerage fee for the services that he offers.
The depository and the depository participants
When you buy a company share then the only way that you can claim that you own the share is by showing the share certificate. This is a document that ensures that you own that many shares of the company. Today this certificate can be accessed digitally and the process in which the paper format of the share certificate is converted to the digital share format is known as dematerialization.
This has to be stored in a digital format and this is the demat account. The depository is the financial intermediary that offers you the demat account service. So when you open your demat account it will have all the shares that you have purchased in an electronic form.
The bank helps to facilitate the transfer of fund from the bank to the trading account. You can now link a number of bank accounts to your trading account. However, the withdrawal can be done in your primary bank account only. The dividend earned is also deposited in your primary bank account.
There is also a security clearing corporation that ensures that the trades and the transactions are settled. They guarantee the transaction.