Academic journal article IUP Journal of Applied Finance

Contribution of Market Intermediaries to the Growth of Securities Market in India: Assessing the Relationship and Impact

Academic journal article IUP Journal of Applied Finance

Contribution of Market Intermediaries to the Growth of Securities Market in India: Assessing the Relationship and Impact

Article excerpt

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Securities markets play an important role in channelizing funds from savers to investors. To channelize the savings of these investors, there are economic agents who act as intermediaries between those who demand securities and those who supply securities. These intermediaries help in matching preferences of risk, liquidity and maturity characteristics of both suppliers and buyers of securities. The growth of the capital market depends upon the active participation of the investors, availability of investment instruments and prominent role of market intermediaries, and in this regard, market intermediaries have special significance as they tend to act as a link between capital providers and seekers across the country. Therefore, it is necessary that the securities market provides a well developed, efficiently administered and properly regulated market system.

The term 'securities marked, as used in the paper, refers to the component of financial market wherein financial securities are issued and traded by economic agents. Thus, it constitutes the channel through which the capital resources generated in the society are made available for the economic development of the nation. It provides long-term financial resources, which are required for the development of different sectors of the economy. It comprises both new issues and stock or secondary market.

Further, since investors as well as issuers in a mature securities market are quite heterogeneous in their nature and operations, for managing them, a market needs informed, experienced and qualified mediators. Further, secondary market intermediaries like brokers, sub-brokers and the like provide adequate information to the retail investors and assist them in investing their funds in various investment alternatives. Therefore, there is a need for strong intermediaries network in the securities market.

Market intermediaries both at the national and international levels are growing in numbers and volumes. Therefore, they are significant for the health of the economy and securities market. They are also important for issuers and investors. During the last decade, there have been substantial regulatory, structural, institutional and operational changes in Indian securities market. Further, the average annual capital mobilization from the primary market has grown tremendously and trading volume on stock exchanges has been witnessing phenomenal growth over the past years.

Complementing this, the number of market intermediaries operating both in primary and secondary markets has also grown manifold in the last two-three decades, i.e., from 1992 to 2013, as is evident from Figure 1. Particularly, there is phenomenal growth in the intermediaries operating in secondary market like brokers, corporate brokers, sub-brokers, FIIs and portfolio managers.

Regulating primary and secondary market intermediaries is complicated, and SEBI through its detailed guidelines, continuous monitoring and specified code of conduct, inspections, and actions has drastically groomed the functioning of market intermediaries. This has directly or indirectly given volumes to the flow of funds from investors to demanders of money.

NSE (2004) defines intermediaries as "the agents who match the needs of users and suppliers of funds for a commission. These intermediaries pack and unpack securities to help both the issuers and investors to achieve their respective goals. There are a large variety and number of intermediaries providing various services in the Indian securities market." They also intend to create efficiencies by maximizing returns, minimizing costs and by exploiting arbitrage possibilities in the market. Hence, intermediaries play a very crucial and sensitive role in securities market as well as in the economy.

Their importance has been well explained by Jaiswal (2013) thus: "Economies that are able to match their available resources/savings to appropriate investment opportunities are successful in the creation of novel business avenues and the generation of more wealth and progress. …

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