Capital market intermediaries

Every trade needs two kinds of firms. One kind buys, sells or manages money for a client. The other kind makes sure the trade actually settles.

The NISM workbook calls this second kind capital market intermediaries. It names three: Registrars and Transfer Agents, Custodians, and Depositories. None of them trades on its own account. Each one keeps records, holds securities safely, or moves ownership from seller to buyer.

This is a different job from a merchant banker's or a mutual fund's. A merchant banker manages a new issue. A mutual fund invests client money. Capital market intermediaries instead build the plumbing that both jobs run on.

Five laws set the boundaries within which these intermediaries work, as listed in Chapter 1:

• The SEBI Act, 1992 gives SEBI the power to register and regulate every market intermediary, and to penalise one that breaks the rules.
• The Securities Contracts (Regulation) Act, 1956 controls stock exchanges, listing and contracts in securities.
• The Depositories Act, 1996 created the legal basis for holding and transferring securities by book entry rather than paper.
• The Companies Act, 2013 governs how a company issues, allots and transfers securities.
• The Prevention of Money Laundering Act, 2002 requires intermediaries to keep transaction records and to report suspicious transactions to the Financial Intelligence Unit-India.

Registrars and Transfer Agents maintain an issuer's shareholder register. Custodians hold securities and settle trades for large institutional clients. Depositories hold securities in dematerialised, book-entry form and move them between accounts on instruction. All three earn fees for infrastructure services; none takes a trading position of its own.

Mrs Iyer buys 500 shares of a listed company at Rs 640 each — a purchase worth Rs 3,20,000 — through her stockbroker on the NSE.

She never deals directly with a Registrar and Transfer Agent, a Custodian or a Depository, yet all three intermediaries touch her trade. Her Depository Participant, an agent of NSDL or CDSL, credits the 500 shares to her demat account. The company's Registrar and Transfer Agent maintains the register confirming she is now a shareholder. If the counterparty to her trade is a large mutual fund, that fund's Custodian holds and settles the shares on the fund's behalf.

None of these three intermediaries decided whether Rs 640 was a fair price or whether 500 shares was the right quantity. That was Mrs Iyer's and her broker's call. Their job was only to see that the trade settled correctly and the records stayed accurate.

Chapter 1, section 1.2, opens the paper with this classification before Chapters 2 to 11 examine Depositories, Depository Participants and Registrar and Transfer Agents one at a time.

The workbook's own review question tests it directly: which of the following is NOT directly a part of the Primary Market, with Exchanges as the correct answer, since exchanges belong to the secondary market while Registrars and Transfer Agents are named alongside merchant bankers and mutual funds as market participants. Expect a question asking you to sort a list of firms into intermediaries versus participants.

• Capital market intermediaries service the market; they do not trade in it. A stock broker trades. A Registrar and Transfer Agent does not.
• Depositories, Custodians and RTAs sit in this category; merchant bankers, mutual funds and FPIs do not, even though the workbook lists all of them in the same paragraph about capital market participants.
• Do not confuse the SEBI Act's registration requirement, which reaches almost every intermediary in the securities market, with membership of this specific three-firm list.