A glimpse at the different Financial Market Intermediaries.

1. Financial Market
Intermediaries
Prepared by
Vini Jacob
MACFAST

2.  Financial intermediation consists of
“channelling funds between surplus and deficit
agents”. A financial intermediary is
a financial institution that connects surplus and
deficit agents. The classic example of a
financial intermediary is a bank that
consolidates bank deposits and uses the funds
to transform them into bank loans.

3. Financial intermediaries include :
1. Stock Exchange : NSE, BSE
2. OTCEI
3. SEBI
4. Derivatives
5. Money Market Mutual Fund

4.  A stock exchange is a form of exchange which
provides services for stock brokers and traders to
trade stocks, bonds, and other securities. Stock
exchanges also provide facilities for issue and
redemption of securities and other financial
instruments, and capital events including the
payment of income and dividends. Securities
traded on a stock exchange include shares issued
by companies, unit trusts, derivatives, pooled
investment products and bonds. E.g.- NSE, BSE

5.  OTC Exchange Of India (OTCEI) also known
as Over-the-Counter Exchange of India based
in Mumbai. It is the first exchange for small
companies. It is the first screen based
nationwide stock exchange in India. It was set
up to access high-technology enterprising
promoters in raising finance for new product
development in a cost effective manner and to
provide transparent and efficient trading
system to the investors.

6.  The Securities and Exchange Board of
India (SEBI) is the regulator for
the securities market in India. It was established
on 12 April 1992 through the SEBI Act, 1992.
 SEBI has to be responsive to the needs of three
groups, which constitute the market:
1. the issuers of securities
2. the investors
3. the market intermediaries

7. Powers of SEBI
For the discharge of its functions efficiently, SEBI has been
invested with the necessary powers which are:
 to approve by−laws of stock exchanges.
 to require the stock exchange to amend their by−laws.
 inspect the books of accounts and call for periodical returns
from recognized stock exchanges.
 inspect the books of accounts of a financial intermediaries.
 compel certain companies to list their shares in one or more
stock exchanges.
 levy fees and other charges on the intermediaries for
performing its functions.
 grant license to any person for the purpose of dealing in certain
areas.
 delegate powers exercisable by it.
 prosecute and judge directly the violation of certain provisions
of the companies Act.
 power to impose monetary penalties.

8.  A derivative is a broad term covering a variety
of financial instruments whose values
are derived from one or more underlying
assets, market securities or indices. In
practice, it is a contract between two parties
that specifies conditions under which
payments are to be made between the
parties. The most common underlying assets
include: commodities, stocks, bonds, interest
rates and currencies.

9. Usage of Derivatives
Derivatives are used by investors for the following:
 hedge or mitigate risk in the underlying, by entering into a
derivative contract whose value moves in the opposite
direction to their underlying position and cancels part or all of
it out
 create option ability where the value of the derivative is linked
to a specific condition or event (e.g. the underlying reaching a
specific price level)
 obtain exposure to the underlying where it is not possible to
trade in the underlying (e.g., weather derivatives)
 provide leverage (or gearing), such that a small movement in
the underlying value can cause a large difference in the value
of the derivative
 speculate and make a profit if the value of the underlying asset
moves the way they expect (e.g., moves in a given
direction, stays in or out of a specified range, reaches a certain
level).

10.  Money market mutual funds invest money in
specifically, high-quality and very short maturity-
based money market instruments. The RBI has
approved the establishment of very few such
funds in India. In 1997, only one MMMF was in
operation, and that too with very small amount of
capital. Money market funds are generally the
safest and most secure of mutual fund
investments. The goal of a money-market fund
is to preserve principal while yielding a modest
return.