We have discussed about the major functions of the financial markets and types of markets in our last post titled "Functions and Types of Markets". This post shall take it further, so that we all can understand about the market participants, market intermediaries and role of regulators in global financial markets.
Anyone who transacts in the financial market is called a market participant. The main participants in a financial market are the primary market participants and the secondary market participants. The primary market participants are the issuers of the securities, and the secondary market participants are the investors.
Market participants
The issuers are the companies that want to raise money by selling securities. They can be companies that are issuing new shares, or they can be companies that are selling bonds. The investors are the people who buy the securities. They can be individuals, or they can be institutions.
The primary market is the market where the securities are first sold. The secondary market is the market where the securities are traded after they have been issued. Stock market is a great example of a secondary market. The exchange platform is an important part of a financial market. The market participant can be classified into various categories. Some of the categories of market participants are as follows:
1. Resident Retail Investors
2. Foreign Retail Investors
3. Financial Institutions
4. Asset Management Companies
5. Pension Funds
6. Hedge Funds
7. Foreign Institutional Investors
Market intermediaries
Depending upon the financial market, the market participants generally buy and sell financial instruments and securities via intermediaries who perform the Know Your Customer (KYC) checks and Customer Due Diligence (CDD) before the participant can place an order. The major intermediaries involved in the financial ecosystem are:
1. Credit Rating Agency (CRA)
2. Debenture Trustees
3. Depositories
4. Depository Participant (DP)
5. Foreign Institutions
6. Foreign Corporates & Funds
7. Merchant Bankers
8. Asset Management Companies
9. Portfolio Managers
10. Market Makers
11. Liquidity Providers
12. Brokers & Dealers
13. Authorized Person/Agents
Regulators
Every individual or an entity participates in the financial markets with the goal of generating profits and making money for themselves. When money is involved, human emotions of greed and fear typically run high. One can be easily overpowered by these emotions and get involved in unfair practices. There have been numerous cases of security frauds, counter-party defaults, interest rates rigging, and major financial crisis worldwide.
Such incidents have prompted the governments to regulate and supervise most of the financial markets to suit their interests, and to prevent large-scale price manipulations by issuers, and market participants. Regulators such as the SEC in United States and FCA in UK have the primary objective of ensuring that all the ecosystem constituents adhere to their regulations and compliance requirements.
However, every market has its unique set of market participants and intermediaries. For example, digital assets markets don't require many of the traditional market intermediaries for efficient operations. These markets are largely not regulated, and many countries have been working on creating new legislative framework which can effectively cover the new emerging asset classes. The main goals supporting these regulations are to affect capital controls, identify market participants, prevent money laundering, and protect investors and traders.
WealthMark always believes in safeguarding the interests of the investors and traders. We are compliant with the KYC and AML regulations and respect the law of the jurisdiction wherein we operate.
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Disclaimer: All investments are subject to market risk. The statements made in this article are for educational purposes only and should not be considered financial advice or an investment recommendation.
