Meaning And

Functions Of Financial
Participants
By Aishwarya Jibhakate
 ▪ The term financial participant means an entity
that, at the time it enters into a securities contract,
commodity contract, swap agreement,
repurchase agreement, or forward contract, or at
the time of the date of the filing of the petition, has
one or more agreements or transactions.
Financial
▪ Financial participants can include individuals,
Participants institutions, and entities involved in financial
markets. This encompasses investors, traders,
financial institutions, corporations, governments,
and central banks, each playing a unique role in
buying, selling, or managing financial assets.
Examples Of Financial Participants –
1. Clients
2. Exchange
3. Broker
4. Retail Bank
5. Mutual Fund
6. Hedge Funds
7. Government
8. Depository
9. Clearing House
10. Insurance and Pension Funds
11. Custodians Bank
12. Fund Admin
13. Data Provider
 ▪ Investment banking clients can be broadly classified into two
categories: corporate clients and institutional clients.
Corporate Clients: These are typically large companies that
require investment banking services for various reasons,
including mergers and acquisitions, initial public offerings
(IPOs), debt financing, and equity financing. Investment banks
provide advisory services to these clients, helping them to
evaluate various strategic options, raising capital, and
executing transactions. Examples of corporate clients include
Fortune 500 companies,private equity firms,and family-owned
Client businesses.

▪ Institutional Clients: These are typically large institutional

investors, such as pension funds, hedge funds, asset
management firms, and sovereign wealth funds. These clients
require investment banking services to help them manage
their investment portfolios, raise capital, and execute trades.
Investment banks provide a range of services to institutional
clients, including market research, trading services, and
financing solutions.
 Exchange
Exchanges, whether stock markets or derivatives
exchanges, started as physical places where trading
took place. Some of the best known include the New
York Stock Exchange (NYSE), which was formed in
1792, and the Chicago Board of Trade (now part of the
CME Group), which has been trading futures
contracts since 1851. Today there are more than a
hundred stock and derivatives exchanges throughout
the developed and developing world.
Exchanges
Functions
The primary function of an exchange is to ensure that
trading is fair and orderly, and that price information
is efficiently disseminated for any securities trading
on that exchange. some other functions of an
exchange Centralizes communication, Provides
liquidity, Provides price awareness, Ensures safety.
 A broker is a person or company that facilitates transactions
between buyers and sellers. Brokers can work in many
industries, including real estate, finance, insurance, and
trade.

Function

• Provide access to financial markets

• Execute trades on behalf of clients
• Offer investment advice
• Maintain compliance with relevant regulations
• Buy and sell financial products, including stocks, on behalf
of their clients
Broker • Pool resources to help their clients negotiate how things
work in the stock market
• Provide investors with research, investment plans, and
market intelligence
• Cross-sell other financial products and services their
brokerage firm offers
• Help investors wade through the whole investment process
• Provide research-based advice on stocks to facilitate
decision making
• Offer assistance to invest in alternative investment assets,
IPOs and mutual fund schemes
 Retail bank is known as consumer bank or personal bank,
Retail Bank
they provides financial services to individual consumers
rather than businesses.
Retail banks come in a variety of types and sizes, from local
community banks, which are small and locally run to the
retail banking services of large, global corporate banks such
as JPMorgan Chase and Citibank.

Functions
• Provide basic assistance with money and asset management
• Give loans to help people meet their financial goals
• Accept deposits
Retail Banking • Provide money management

Retail banks offer a wide variety of products and

services, including:
• Checking and savings accounts
• Certificates of deposit (CDs)
• Mortgages
• Automobile financing
• Credit cards
• Lines of credit
• Foreign currency and remittance services
 A mutual fund is a company that pools money from
many investors and invests it in securities like stocks,
bonds, and short-term debt.

Function
The most important function of mutual funds is that it
provides investors access to a diversified portfolio of
securities. By pooling money from multiple investors,
mutual funds can invest in various assets, including
Mutual fund stocks, bonds, commodities, and real estate. This
diversification helps reduce the risk associated with
investing in a single security.
Professional ManagementMutual funds are managed
by experienced and qualified fund managers who
make investment decisions. These fund managers
conduct research, analyze market trends, and actively
manage the portfolio to achieve the fund’s investment
objectives.
 A hedge fund is a limited partnership of private investors
Hedge fund
whose money is managed by professional fund managers
who use a wide range of strategies, including leveraging or
trading of non-traditional assets, to earn above-average
investment returns.
Hedge fund investment is often considered a risky
alternative investment choice and usually requires a high
minimum investment or net worth, often targeting wealthy
clients.
Function
Sell short
Hedge Fund Here, the manager, hoping for the prices to drop, can sell shares
to buy-back in future at a lesser price.
Use arbitrage
Sometimes the securities may have contradictory or inefficient
pricing. Managers use this to their advantage.
Invest in an upcoming event
For instance, some major market events like acquisitions,
mergers, and spin-offs among others can influence manager’s
investment decisions.
Invest in securities with high discounts
Some companies facing financial stress or even insolvency will
sell their securities at an unbelievably low price. The manager
may decide to buy after weighing the possibilities.
 • Minting of Money: The government is the only
agency which is authorized to create money
supply in a country. Therefore, it is the
responsibility of the government to ensure
that excess money is not printed and flooded
in the market. Financial systems tend to fail if
there is excessive inflation in the economy
Government • In order to have a financial system, it must be
regulated. It is government's function to do so.
The strength of a currency is dependent on
the strength of its banks. Accordingly, the
government must monitor and regulate each
bank's equity and reserves
 A clearing house is a financial institution that acts as an
intermediary between buyers and sellers of financial instruments.

Clearing
Function house
• Settling trading accounts
• Clearing trades
• Collecting and maintaining margin money
• Regulating delivery
• Reporting trading data
Clearing House
• Settling between parties
• Setting time limits for transactions
• Monitoring trader margins
• Ensuring variable margins are called for
▪ Clearing houses also provide the infrastructure and services that
allow financial institutions to interact and carry out transactions.
 A depository is very similar to a bank. A bank
provides multiple services, the most important one
being the facility to deposit and store money. Just like
a bank, a depository provides multiple services, with
the most important one being the demat account
service. Opening A Demat Account enables investors
and traders to store equity and other securities in an
electronic form.

Function
• Transactions
Depository • All securities transactions on the share market occur with
the depositories’ help, ensuring a seamless transfer of
ownership. This process is carried out quickly with shares
and money exchanging hands in a short period of time.
• Corporate Actions
• Depositories help out companies when they have to issue
dividends, bonus shares, etc. They also assist in e-voting
services and other functions that a depository carries out
effortlessly.
• Pledging of shares
• Multiple investors tend to take loans against their shares by
pledging them. Depositories tend to provide a collateral
account where shares are held upto the time when the
borrowed money is repaid.
 Insurance and pension funds are financial instruments that
can help provide financial stability and security after
retirement.
Function

Insurance
The purpose of insurance is to share the loss resulting from a
certain risk among multiple people exposed to it and agree
to insure themselves against it. The most critical role of
insurance is to disperse risk across a group of people
Insurance and insured against it, share the loss of each member of society
pension fund based on the likelihood of loss to their risk, and protect the
insured from losses.

Pension fund to manage pension schemes in your best

interest as per the regulations, guidelines and circulars
issued by PFRDA. The service levels of pension funds are
monitored by NPS Trust. The Pension Fund is responsible for
providing a high standard of service to you.
 A custodian bank is a financial institution that is
responsible for the safekeeping and management of
financial assets on behalf of institutional clients. These
clients may include pension funds, mutual funds,
hedge funds, and other investment managers. The
role of a custodian bank is to hold and safeguard the
assets of its clients, providing secure storage facilities
and ensuring that assets are held in a safe and secure
Custodian manner.
Bank Custodian banks may also provide a range of other
services to their clients, including settlement of
trades, corporate actions, tax services, compliance
monitoring, and asset servicing. Custodian banks
play a critical role in the functioning of the global
financial system, as they provide the infrastructure
that underpins many financial transactions.
 ▪ Fund Accounting: Fund administrators are responsible for
maintaining theaccounting records of investment funds, including
calculating the net assetvalue (NAV) of the funds and preparing
financial statements.

▪ Investor Services: Fund administrators provide a range of investor

services,including processing subscription and redemption
requests, handlinginvestor inquiries, and preparing investor
reports.

Fund ▪ Trade Settlement: Fund administrators are responsible for settling

tradesexecuted by investment managers, including confirming
Administrativ trades withbrokers and custodians, and reconciling trade details
with the investmentmanager's records.
e ▪ Compliance: Fund administrators help investment managers
comply withregulatory requirements by monitoring investment
restrictions, preparingregulatory filings, and providing support
during regulatory audits.

▪ Risk Management: Fund administrators help investment

managersmanage risk by monitoring investment guidelines and
limits, reconcilingcash and securities balances, and performing
periodic compliance reviews.
 ▪ Data providers play a crucial role in the trade life cycle by
providing real-time and historical market data, news, and
other information that is essential for making informed
investment decisions. Here are some of the key roles
played by data providers in the trade life cycle
▪ Market Data: Data providers offer real-time and historical
market data on various asset classes, including equities,
bonds, commodities, and currencies. This data includes
prices, volumes, bid/ask spreads, and other relevant

Data information that is used by traders and investors to make

informed decisions.
Providers ▪ News and Analysis: Data providers offer news and analysis
on various industries, companies, and economic trends
that can impact the financial markets. This information
helps traders and investors stay up-to-date with the latest
developments and make informed investment decisions.
▪ Research Reports: Data providers also offer research
reports on companies, industries, and sectors that can help
investors identify potential investment opportunities and
risks
THANK YOU