Securities Market
The securities market is the broad ecosystem in which financial instruments such as equity shares, bonds, derivatives, and mutual fund units are issued, traded, and settled, encompassing both the primary market where new securities are created and the secondary market where existing ones change hands.
When economists speak of 'capital markets,' they typically mean the securities market — the organised system through which savings are transformed into productive investments. In India, this market has grown from a small set of regionally-fragmented stock exchanges in the pre-liberalisation era to one of the world's most sophisticated markets, with real-time settlement, electronic depository systems, and a robust regulatory framework under SEBI, RBI, and IRDAI.
The securities market is not monolithic. It is broadly divided into two segments based on the nature of the instruments traded. The equity segment deals with ownership claims — ordinary shares, preference shares, and derivatives linked to them. The debt segment deals with borrowing instruments — government securities, corporate bonds, debentures, commercial paper, and certificates of deposit. Derivatives markets overlay both, allowing participants to hedge or speculate on price movements without necessarily owning the underlying asset.
In terms of maturity structure, securities markets are further divided into the money market (instruments with maturities of up to one year) and the capital market (instruments with maturities greater than one year). Treasury bills, commercial paper, and certificates of deposit are money market instruments. Shares, corporate bonds, and long-term government securities belong to the capital market.
For the Indian investor, the securities market operates through a chain of intermediaries: stock brokers who execute trades, depository participants who hold securities in electronic form, clearing corporations who guarantee settlement, and registrar and transfer agents who maintain investor records. SEBI regulates most of this ecosystem; RBI regulates the government securities market and currency derivatives; IRDAI oversees insurance-linked products; and PFRDA regulates the pension securities market.
The securities market serves multiple economic purposes beyond just enabling trading. It provides price signals — the market price of a company's shares reflects the collective judgement of thousands of participants about its prospects. It allocates capital — companies and governments that use funds productively attract more investment. It provides risk management tools — hedging via derivatives allows businesses to manage commodity price, interest rate, and currency risks. And it provides an exit option — the knowledge that an investment can be liquidated encourages initial investment in the first place.