NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to the Indian Financial Markets

Market Participants and Intermediaries in Indian Securities Markets

Updated 11 October 2026 · Fact-checked

Market participants are the investors, issuers and intermediaries who make securities markets work. Intermediaries such as stock brokers, depositories, depository participants, custodians, clearing corporations, mutual funds and registrars each perform one distinct job. To answer exam questions, match the function in the question to the entity that performs it.

Understand Market Participants and Intermediaries

A securities market connects people who have money with people who need money. Investors put money in. Issuers (companies, governments) raise money. In between sit intermediaries, who make the exchange safe, fast and orderly. SEBI regulates most of them and requires them to be registered.

Start with who does what in a single share trade. The investor places an order with a stock broker, who is a member of a stock exchange and executes the trade. The stock exchange provides the platform. The clearing corporation guarantees and settles the trade: it works out the obligations of each member and ensures delivery and payment. The depository holds the shares in electronic (demat) form. The investor deals with the depository through a depository participant (DP), who acts as the agent of the depository.

India has two depositories: NSDL and CDSL. A depository does not deal with investors directly. It records ownership and transfers securities by book entry. The DP opens your demat account and processes your instructions. Think of the depository as a bank for securities and the DP as its branch.

A custodian is different. It safekeeps securities and handles settlement and related services for large clients such as foreign portfolio investors, mutual funds and institutions. A clearing corporation settles trades between members; a custodian serves the institutional client behind the trade. Do not mix the two.

Other intermediaries include mutual funds (pool money from many investors and invest in securities), registrars and transfer agents (RTAs) (handle applications, allotment and unit or share records for issuers and funds), merchant bankers (manage public issues), credit rating agencies, investment advisers, research analysts, portfolio managers and trustees. Learn each by its one core function.

Key formulas to remember

Broker: Broker = member of exchange who executes trades for clients; Earns brokerage. Does not hold your securities; the depository does.
Depository and DP: Depository → Depository Participant → Investor; Two depositories in India: NSDL and CDSL. The investor's demat account is opened through a DP, not directly with the depository.
Clearing corporation: Clearing corporation = determines obligations + guarantees and settles trades between members; Acts as the counterparty guarantee for trades on the exchange. Works with clearing members, not retail investors.
Custodian: Custodian = safekeeping + settlement support for institutional clients; Typical clients: FPIs, mutual funds, banks and other institutions.
RTA: Registrar and Transfer Agent = maintains records of investors and processes applications, allotments and transfers; Appointed by issuers and mutual funds.

How to solve Market Participants and Intermediaries questions

Most questions give you a function or a situation and ask which entity is involved. Work from the function.

1Read the question and underline the action: trading, guaranteeing settlement, holding securities, safekeeping for an institution, pooling money, or maintaining records.
2Decide whether the action is at the investor level or the institutional level. Investor holding points to a DP; institutional safekeeping points to a custodian.
3Match the action to one core entity: broker executes, clearing corporation settles and guarantees, depository holds in demat form, RTA keeps records.
4Check who deals directly with the investor. For demat, it is the DP, not NSDL or CDSL.
5Eliminate options that describe a different function, even if the entity sounds related.
6For 'NOT' or 'EXCEPT' questions, find the three true statements first and pick the one that is false.
7Confirm the answer by asking: does this entity regulate, trade, settle, hold or advise? Pick the one that fits.

Quickest way: One-word function match

When to use it: When you have under a minute for a one-line 'which entity does X' question.

Give each entity a one-word tag: broker = executes, exchange = platform, clearing corporation = guarantees and settles, depository = holds, DP = gateway, custodian = safekeeps for institutions, RTA = records, mutual fund = pools.
Find the verb in the question and pick the matching tag.
Drop any option that matches a different tag, then choose from the rest.

Common mistakes in Market Participants and Intermediaries

Saying the investor opens a demat account directly with NSDL or CDSL.
The names are well known, so students assume direct dealing.
Fix: Remember the chain: the investor goes to a DP, and the DP is the agent of the depository.
Treating a custodian and a clearing corporation as the same.
Both are linked with settlement.
Fix: The clearing corporation settles and guarantees trades between members. The custodian safekeeps securities and supports settlement for institutional clients.
Thinking a stock broker holds the client's securities.
Brokers often provide trading and demat accounts together.
Fix: The broker executes trades. Securities sit with the depository in the client's demat account.
Confusing the stock exchange with the clearing corporation.
Both appear in the trade-to-settlement flow.
Fix: The exchange provides the trading platform. The clearing corporation handles obligations and settlement.
Mixing up the RTA with the depository.
Both maintain records of holdings.
Fix: The depository records electronic holdings of securities. The RTA maintains issuer or fund records and handles allotments and transfers.

Worked examples

Example 1

Which entity determines the obligations of trading members after trades on the exchange and guarantees their settlement?
A) Depository
B) Clearing corporation
C) Custodian
D) Registrar and transfer agent

Show the solution

The verbs are 'determines obligations' and 'guarantees settlement'.
These match the clearing corporation's function.
A depository holds securities. A custodian safekeeps for institutions. An RTA keeps records.
Only option B fits.

Answer: B) Clearing corporation

Example 2

An investor wants to hold shares in dematerialised form. Through whom does the investor open the demat account?
A) Stock exchange
B) Clearing corporation
C) Depository participant
D) Credit rating agency

Show the solution

Demat accounts are held with a depository, which is NSDL or CDSL.
The investor does not approach the depository directly; it works through its agents.
These agents are depository participants.
The exchange, clearing corporation and rating agency do not open demat accounts.

Answer: C) Depository participant

Exam tips

Expect one-line function-match questions. Learn one core function per entity.
Watch for the DP versus depository trap. The DP deals with the investor.
Custodian questions usually mention institutions, FPIs or mutual funds. Link those words to custodian.
In 'NOT' questions, read all four options before choosing; the false one often swaps two entities' roles.
Do not guess without reasoning. Wrong answers carry negative marking of 25% of the marks for that question.

Practice questions from Introduction to the Indian Financial Markets

Market Participants and Intermediaries in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Market Participants and Intermediaries: frequently asked questions

What is the role of NSDL and CDSL?

They are the two depositories in India. They hold securities in electronic form and transfer ownership by book entry. Investors access them through depository participants.

What is the difference between a clearing corporation and a custodian?

A clearing corporation determines obligations and guarantees settlement of trades between exchange members. A custodian safekeeps securities and supports settlement for institutional clients such as mutual funds and FPIs.

Is a stock broker an intermediary?

Yes. A stock broker is a registered member of an exchange who executes trades on behalf of clients. The broker is regulated by SEBI and the exchange.

Which intermediaries should I know for NISM-Series-X-A?

Know the investors, brokers, exchanges, clearing corporations, depositories, DPs, custodians, mutual funds, RTAs and other registered intermediaries. Focus on what each one does and how they fit together in a trade.