NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Introduction to Securities Markets

Market Participants and Intermediaries in the Securities Market

Updated 11 October 2026 · Fact-checked

Market participants are the investors and issuers who use the securities market. Intermediaries are SEBI-registered firms that connect them, such as stock brokers, depositories, depository participants, custodians, clearing corporations and merchant bankers. To solve questions, match each function (trading, holding, clearing, safekeeping) to the right entity.

Understand Market Participants and Intermediaries

The securities market brings together people who need money and people who have money. Issuers (companies, governments) raise funds. Investors put money in. They rarely deal directly. Intermediaries sit between them and make the process safe and orderly.

Start with the participants. Issuers sell securities. Investors buy them. Investors can be retail individuals, HNIs, or institutions such as mutual funds, insurers, banks and FPIs (foreign portfolio investors). Institutions are often called institutional investors.

Now the intermediaries. A stock broker is a member of an exchange and executes trades for clients. A stock exchange (such as NSE or BSE) provides the platform where buyers and sellers are matched. A clearing corporation guarantees and settles trades, so each side is protected from the other's default. A depository (NSDL or CDSL) holds securities in electronic form. You deal with it through a depository participant (DP), which works like a bank branch for your demat account.

A custodian safekeeps securities and handles settlement and income collection for large clients such as FPIs and mutual funds. Other intermediaries include merchant bankers (manage public issues), registrars and transfer agents (RTAs), bankers to an issue, debenture trustees, credit rating agencies, and portfolio managers. All of these must be registered with SEBI, which regulates them.

Think of one trade. You tell your broker to buy. The exchange matches the order. The clearing corporation settles it. The depository credits shares to your demat account through your DP. Each body does one job. Exam questions test whether you can assign the job to the right body.

Key formulas to remember

Broker: Broker = member of exchange who executes trades for clients; Trading function. Registered with SEBI and a member of the exchange.
Depository and DP: Depository (NSDL, CDSL) → DP → investor's demat account; Investors cannot open an account with the depository directly. They go through a DP.
Clearing corporation: Clearing corporation = trade guarantee + settlement; It becomes the counterparty to trades and manages risk through margins and a settlement guarantee fund.
Custodian: Custodian = safekeeping + settlement support for institutions; Mainly serves FPIs, mutual funds and other large institutions. It does not trade on its own.
Sub-broker vs authorised person: Sub-broker registration discontinued; now called authorised person; SEBI ended sub-broker registration. Earlier sub-brokers act as authorised persons of a broker, who stays responsible for them.

How to solve Market Participants and Intermediaries questions

Most questions ask who does what. Use the function-first method below.

1Read the question and underline the activity: trading, holding, clearing, settling, safekeeping, issuing, rating or advising.
2Name the entity that performs that function, using the one-job-per-entity rule.
3Check who the client is. Institutions point towards a custodian. Retail investors point towards a DP.
4Check the word 'registered' or 'regulated'. Intermediaries need SEBI registration.
5Eliminate options that describe a different function, even if the entity name sounds right.
6For 'except' or 'not' questions, find the one option with the wrong function and mark it.
7Re-read the final choice against the question before you submit.

Quickest way: One-word function match

When to use it: Use when you have under a minute and the question names an entity or a function.

Link each entity to one word: broker = trade, exchange = platform, clearing corporation = guarantee, depository = hold, DP = access, custodian = safekeep, RTA = records, merchant banker = issue.
Find the word in the question stem.
Pick the matching entity and skip options that need long reasoning.
Mark and move on if two options still fit; return if time permits.

Common mistakes in Market Participants and Intermediaries

Saying the stock exchange settles and guarantees trades.
Exchange and clearing corporation are often owned by the same group, so they seem the same.
Fix: The exchange matches orders. The clearing corporation guarantees and settles.
Thinking an investor opens a demat account directly with NSDL or CDSL.
The depository is named on the account statement.
Fix: The account is opened through a DP. The depository only keeps records through DPs.
Confusing a custodian with a depository.
Both involve holding securities.
Fix: A depository is a market infrastructure institution that holds securities electronically. A custodian is a service provider to institutional clients and may also be a DP.
Treating sub-brokers as a current registration category.
Older books and notes still use the term.
Fix: Remember that sub-broker registration was discontinued. The broker now works through authorised persons and is responsible for them.
Assuming all intermediaries trade on the exchange.
The word 'market intermediary' sounds like trading.
Fix: Only brokers (members) trade. Registrars, trustees, rating agencies and merchant bankers perform other functions.

Worked examples

Example 1

Which entity guarantees the settlement of trades executed on a stock exchange? (a) Depository participant (b) Clearing corporation (c) Registrar and transfer agent (d) Merchant banker

Show the solution

The activity is guaranteeing settlement.
Match the function: guarantee and settlement belong to the clearing corporation.
A DP provides demat access. An RTA keeps issuer records. A merchant banker manages issues.
So only option (b) fits.

Answer: (b) Clearing corporation

Example 2

An FPI wants its securities safekept and its trades settled by a SEBI-registered service provider. Which intermediary is most suitable? (a) Custodian (b) Debenture trustee (c) Credit rating agency (d) Bankers to an issue

Show the solution

The client is an institution, an FPI.
The needs are safekeeping and settlement support.
This is the custodian's function.
A debenture trustee protects debenture holders. A rating agency assesses credit risk. Bankers to an issue collect application money.

Answer: (a) Custodian

Exam tips

Learn the list of intermediaries as function pairs. Most questions are direct matches.
Watch for 'except' and 'not' in the stem. Wrong-function options are the usual trap.
Note the trap in depository questions: NSDL and CDSL are depositories, while banks and brokers act as DPs.
Check whether the client is retail or institutional when choosing between a DP and a custodian.
Since negative marking is only 10% in this exam, attempt every question after eliminating options.

Practice questions from Introduction to Securities 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 are the main securities market intermediaries in India?

They include stock brokers, stock exchanges, clearing corporations, depositories, depository participants, custodians, merchant bankers, RTAs, bankers to an issue, debenture trustees, credit rating agencies and portfolio managers. SEBI regulates them. Each performs a distinct function.

What is the role of a depository and a custodian?

A depository holds securities in electronic form and transfers them by book entry. Investors access it through DPs. A custodian safekeeps securities for institutional clients and supports their settlement and income collection.

What is the difference between a stock broker and a sub-broker?

A stock broker is an exchange member who executes trades. A sub-broker acted for a broker but was not an exchange member. SEBI discontinued sub-broker registration, and such persons now work as authorised persons of the broker.

Are NISM questions on market participants hard?

They are mostly direct definition and function-matching questions. You do well by knowing each entity's one core job and by watching 'except' wording.