In the broadest sense, participants in the securities market include all its direct participants, as well as state and public bodies regulating and controlling it.
The structural classification of securities market participants is presented in Fig. 2.1.
Rice. 2.1.
It is customary to begin the classification of participants in the securities market by dividing them into its direct participants and bodies of state and public regulation and control.
State control bodies include any government bodies and institutions that perform the functions of a controller or regulator in the securities market. Obviously, this is primarily the Federal Service for Financial Markets (FSFM). The general provision on the FFMS is as follows: The Federal Service for Financial Markets (FSFM of Russia) is a federal executive body that carries out the functions of adopting regulations, control and supervision in the field of financial markets (with the exception of insurance, banking and auditing activities).
The FFMS of Russia is directly subordinate to the Government of the Russian Federation. The service is headed by Vladimir Dmitrievich Milovidov (official website: http://www.fcsm.ru/). The functions of a regulator and controller, including in the field of financial markets and the securities market, for credit institutions (banks) are performed by the Central Bank of the Russian Federation (official website: http://www.cbr.ru/). Another regulator and controller on behalf of the state, as well as a direct participant in the securities market, is the Ministry of Finance of the Russian Federation (official website: http://www.minfin.ru/ru/). The Ministry of Finance of the Russian Federation, as a regulator and controller, is represented mainly in resolving issues related to the taxation of transactions with securities; as a market participant, it acts as an issuer of government securities.
Public regulatory bodies (for this classification) include primarily self-regulatory organizations. Self-regulatory organizations are voluntary associations of professional participants in the securities market in the form of a non-profit organization, created for the purpose of participating in the process of regulating the securities market along with state regulatory bodies. The most representative, according to the author, in Russia are:
- National Association of Stock Market Participants (NAUFOR, official website: www.naufor.ru/), uniting mainly brokerage, dealer and management companies. Created in 1995;
- Professional Association of Registrars, Transfer Agents and Depositories (PARTAD, official website: http://www.partad.ru/). Unites professional participants in the securities market: registrars, depositories and their transfer agents. Created in 1994
Further classification is carried out along the lines of “intermarket and intramarket participants”.
Intermarket participants are individuals involved in their activities in several markets simultaneously. These include investment groups (usually collective forms of investment) that invest in various segments of financial markets, i.e. providing loans operating in the foreign exchange and securities markets. Prominent representatives of such investors in Russia are pooled banking management funds and closed mutual funds (more precisely, their management companies). Intermarket participants also include information, consulting, rating agencies and other professional groups that provide necessary services to participants in many markets at once. For domestic practice, as an example of such a participant, one can indicate the information agency (essentially its main activity is consulting) agency Rosbusinessconsulting (official website: http://www.rbc.ru/).
Intramarket Participants- these are persons (individuals and legal entities) operating exclusively in the securities market. In practice, there are not many participants of this kind. These primarily include index, bond, money market and similar mutual funds (to be more precise, the management companies that founded them). Intramarket participants usually include individuals (citizens) and legal entities (corporations) that carry out transactions exclusively on the securities market. Intramarket participants include issuers of securities (stocks and bonds). Here it is worth making a special reservation regarding credit institutions (banks), which can be issuers of bonds and at the same time operate in the credit and foreign exchange markets.
Reference: The authorship of the proposed classification of securities market participants belongs to Doctor of Sciences, Professor V.A. Galanov. This approach to the classification of market participants is set out in the fundamental textbook “Securities Market”. In fact, there can be as many approaches as desired. The features of a particular classification, as a rule, are dictated by the desire of its author to highlight one or another aspect of the securities market itself. However, the author of this manual considers it necessary to adhere to precisely this classification, which is currently considered “generally accepted.”
Among intramarket participants, it is customary to distinguish between non-professional and professional participants in the securities market. It is important to note the fact that the definition of “professional participant” is a consequence not only of a classification criterion, but a definition introduced by law.
Professional participants- persons engaged in professional activities, as evidenced by a license issued by the Federal Service for Financial Markets (FSFM) for certain types of activities. The absence of a license deprives a person of the status of a “professional participant”. Professional market participants include brokerage and dealer companies, management companies, registrars, depositories, specialized depositories, and trade organizers.
Non-professional market participants- these are issuers and any investors operating in the securities market. These also include private investors. To put it simply, these are any securities market participants who do not have a special license (permit confirming authority) issued by the Federal Financial Markets Service.
Professional participants in the securities market can be divided into professional traders and infrastructure organizations.
Professional traders provide services for concluding purchase and sale transactions on the securities market. These are brokers, dealers and management companies:
- brokers in the securities market are organizations that enter into transactions for the purchase and sale of securities for their clients and at their expense;
- dealers in the securities market are organizations whose main activity is the purchase and sale of securities on their own behalf and at their own expense on the basis of prices announced by them;
- Management companies are organizations that carry out trust management of securities and client funds invested in them.
Infrastructure organizations- these are professional participants in the securities market, servicing the process of concluding and executing market transactions with securities or servicing any processes of changing ownership of securities. These include stock exchanges, including other market organizers, registrars, depositories and clearing (settlement) centers:
- registrars are organizations whose task is to maintain lists (registers) of owners of securities. Registrars keep records of ownership rights to securities on the part of the issuer;
- Depositories are organizations that must store and/or record securities of market participants. An important distinguishing feature of a depository is that it records ownership rights and stores securities on the part of the investor (owner);
- clearing organizations are organizations that provide settlement services to securities market participants. The essence of their activity can be defined as accounting for counter obligations. Clearing organizations that maintain this kind of accounting in the process of exchange trading are called clearing centers;
- market organizers, including the stock exchange, are organizations that facilitate (create the necessary conditions) the conclusion of transactions in the securities market.
Thus, in total there are seven types of professional activities on the Russian securities market, but the number of professional market participants themselves is measured in hundreds of organizations. Professional market participants ensure its uninterrupted functioning and the process of its further improvement and development.
The presence of professional participants in the securities market and their voluntary associations in the form of self-regulatory organizations gives its functioning an orderly, well-organized character, the consequence of which is, first of all, an increase in confidence in the securities market and financial markets in general on the part of its non-professional participants.
Briefly: In a broad sense, participants in the securities market include any person carrying out transactions on it. It is customary to begin the identification of participants in the securities market by dividing them into its direct participants, as well as state and public regulatory and control bodies. Direct participants are divided into intramarket and intermarket participants of the securities market. Intermarket participants are persons carrying out transactions in several markets simultaneously, intramarket participants - only in the securities market. Intramarkets are divided into professional and non-professional participants. Professional participants, in turn, are divided into professional traders who directly conclude transactions, and infrastructure organizations that facilitate the conclusion of transactions and accounting for the transfer of property rights as a result of them.
(market entities) are individuals and legal entities that sell, buy securities or service their circulation and settlements, entering into certain economic relations with each other related to the circulation of securities.
All participants in the securities market can be divided into professionals and non-professionals. In accordance with the Law “On the Securities Market,” professional participants in the securities market are legal entities, as well as citizens (individuals) registered as entrepreneurs who carry out the following types of activities:
- brokerage activities;
- dealer activities;
- securities management activities;
- settlement and clearing activities;
- depository activities;
- activities related to maintaining a register of owners of securities;
- activities related to organizing securities trading.
Depending on the position that participants in the securities market take in relation to the market, they are divided into sellers, buyers and organizations serving market processes.
In their book, V. S. Torkanovsky and V. I. Kolesnikov divide securities market participants into 4 groups:
- the main participants in the securities market (state, municipalities, large national and international companies), whose securities are highly reliable, but do not always provide high returns;
- institutional investors - financial and credit institutions that carry out transactions with securities (banks, insurance companies, pension funds, etc.);
- individual investors - private individuals, including owners of small venture business enterprises;
- securities market professionals (brokers, dealers, etc.).
Depending on the functional purpose, all participants in the securities market can be divided into:
- issuers;
- investors;
- stock intermediaries;
- regulatory and control bodies;
- organizations serving the market.
Issuers of securities- these are business entities seeking to obtain additional sources of financing, as well as government authorities issuing loans to cover part of government expenses. Law of the Russian Federation dated April 22, 1996 No. 39-F3 “On the securities market” establishes that an issuer is “a legal entity or executive authorities or local governments that bear, on their own behalf, obligations to the owners of securities to exercise the rights enshrined in by them."
The issuer is always a seller who supplies the market with a security, the quality of which is determined by its status, economic and financial results of its activities. Issuers include:
- state (central government, regional and municipal authorities, large national companies);
- joint stock companies (corporations in the manufacturing sector, credit sector, large international companies, stock exchanges, financial institutions);
- private enterprises (can only issue debt securities (bonds and bills));
- private individuals (can only issue promissory notes and checks).
Investors- individuals and legal entities who have temporarily available funds and wish to invest them to generate additional income. Investors purchase securities on their own behalf and at their own expense.
There are:
- institutional (collective) investors - 1) state; 2) corporate investors (joint stock companies); 3) specialized institutions: specialized funds and companies (banks, insurance companies, pension funds), investment institutions (investment companies, investment funds);
- market professionals - stock intermediaries (brokers, dealers);
- individual investors - individuals who use their savings to purchase securities;
- other investors - enterprises, organizations.
Depending on the investment goal, the following main investment strategies are distinguished:
strategic - long-term investments, purchase of securities for a period from a month to several years with the aim of making a profit from the sale at the end of the investment period;
- speculative - designed for short-term and frequent transactions of purchase/sale of securities both during the day and for up to a month with the greatest profit from each transaction;
- insurance - the use of securities to insure against possible losses in business or when investing in financial markets.
- Depending on this, investors can be classified into:
- strategic investors who expect to obtain property by taking control of a joint stock company, and expect to receive income from the use of this property that is significantly greater than income from simply owning shares;
- portfolio investors who rely only on income from the securities they own.
According to Alfa Bank experts, at the end of May 2003, management controlled 31.5% of shares, persons close to management - 14.3, strategic investors had 11.6, the state - 13.6, and free float remained 27.7% shares. The concentration of controlling stakes in the hands of insiders leads to a further narrowing of the instrumental base of the Russian stock market, to a reduction in opportunities for investors, and to an expansion of the field for price manipulation.
According to the Ministry of Economic Development and Trade, participants in the Russian stock market in Russia are 0.1% of the population, in South Korea - 8.3, in Japan - 26.6, Australia - 36.5, in the USA - 48.2% of households .
In practice, there is no clear distinction between issuers and investors; often an economic entity or investment institution that issues its own securities can be an investor, i.e., buy securities of other issuers.
Some of the main issuers and investors of securities are:
investment companies
Legal entities whose activities are related to the organization of securities circulation and are carried out on the basis of a special permit issued by the relevant regulatory authorities (in our country this is a license from the Central Bank of the Russian Federation) are called professional participants in the securities market.
The main activities engaged in by professional participants in the securities market include:
- Acting as an intermediary in concluding transactions with securities according to the orders of its clients (and at their expense). Or, in other words, brokerage;
- Activities of buying and selling securities at one’s own expense by issuing one’s own quotes. In other words - dealer activity;
- Activities related to the formation and management of a securities portfolio for its clients. In other words - trust management;
- Activities for conducting mutual settlements between all participants in the securities market. In other words - clearing;
- Organization of storage of securities both in electronic and physical form (for securities issued in documentary form), as well as accounting for the change of their current owners. In other words - depository activities;
- Maintaining a register of owners of securities under an agreement with their issuer;
- Providing a platform for conducting transactions for the purchase and sale of securities and, in fact, the organization of trading in them.
In Russia, the activities of professional stock market participants are mandatory licensed by the Central Bank and regulated by Federal Law No. 39-FZ. The Central Bank of the Russian Federation issues a license for a professional participant in the securities market, and in addition, for registrars and registrar holders, a license to carry out register maintenance activities.
Brokers
Licenses to operate a forex dealer issued by the Central Bank of the Russian Federation (as of 08/16/2019)
It is difficult to clearly judge whether the presence of a license, in this case, is a 100% guarantee of honesty on the part of the dealer in relation to its customers. However, it is worth noting that by issuing this license, the Central Bank undertook to exercise certain control over the activities of the dealer, and this already inspires a certain confidence.
Managers
Not every investor, especially a beginner, is able to competently analyze the market, select the optimal portfolio of securities and quickly manage it in a constantly changing market environment. That is why there has always been, is and probably will be a demand for the services of professional managers in the field of investing in financial markets.
Although, even if you bought securities presented on paper (documentary form), you would not have to put them in neat piles in your home or bank safe. After all, for this purpose, again, there is a depository, which also deals with the storage of documentary securities (such as, for example, deposit and or).
In addition to recording and storing information about the current owners of securities, the functions of depositories also include:
- Mediation in the payment of dividends;
- Mediation in terms of exercising the rights of the owner of securities (for example, his participation in general meetings of shareholders).
Thanks to depositories, there is no need to enter information about each new shareholder into the register of shareholders. All this information is recorded in the depository and transferred to the issuer only when necessary, for example, before the next cutoff in connection with the payment of dividends.
Registrants
The functions of the registrar are somewhat similar to the functions of the depository. It also records and stores information about the current owners of securities. Only for the depositary the starting point is a specific investor (owner of securities) and he opens a deposit account for each of them, and for the registrar - the issuing company with the register of which (which) he works.
The securities register is a collection of information that includes information about the owners of securities, their nominal holders and the encumbrances imposed on them. It includes data on the number and category of securities owned by each shareholder of the company. Can be stored both electronically and in paper form.
Among other things, the responsibilities of the registrar include:
- Accounting for incoming/outgoing documentation (usually in the form of a journal);
- Maintaining personal accounts of all persons registered in the register;
- Accounting of all operations performed (also in the form of a journal);
- Accounting for securities certificates;
- Accounting and storage of all documentation that served as the basis for making changes to the register.
According to the laws of our country, issuers of securities do not have the right to independently maintain their register (in accordance with the provisions of Federal Law No. 142-FZ of July 2, 2013). Therefore, professional registrars (as registrars are sometimes called) who have the appropriate license from the Central Bank of the Russian Federation are quite popular participants in the domestic securities market.
Trade organizers
These securities market participants are divided depending on the type of market in which they provide trading. We are talking about the exchange and over-the-counter markets. Official exchange platforms (exchanges) act as organizers of trade on the exchange market. And organizing trading on , is the prerogative of trading systems, such as: RTS Board, Pink Sheets, OTCBB, etc.
Compared to the over-the-counter market, the exchange market provides investors with greater reliability due to the fact that trade organizers take responsibility for the execution of all transactions concluded on it. All companies represented on the exchange market undergo a fairly strict procedure to filter out potentially unreliable ones.
The activities of the auction organizer in our country also require obtaining a special license from the Central Bank. In addition, there are certain restrictions imposed on the possibility of combining their activities with the functions of other professional participants in the securities market. In particular, they do not have the right to combine their activities with:
- Depository activities;
- Clearing activities.
Issuers of securities are business entities that receive additional sources of financing through the issuance of securities, as well as executive authorities that issue loans to cover government expenses and implement targeted investment projects. The state or municipal authorities issue debt obligations (bonds, treasury bills). Corporations can be issuers of shares, bonds, and option certificates. The issuer supplies the market with a special product - a security - and bears, on its own behalf, obligations to the owners of the securities to exercise the rights assigned to them;
investors .
Investors are individuals and legal entities who have temporarily available funds and want to invest them to make a profit and (or) achieve another useful effect. In addition, investors can invest in investment objects, in addition to their own, also borrowed and raised funds. Investment objects are securities of various types and qualities. We can distinguish individual investors, institutional investors, and other investors (enterprises and organizations).
Individual investor– an individual who uses his savings to independently or through a broker purchase securities at his own expense and on his own behalf.
Institutional investors are commercial banks, insurance companies, investment companies, collective investors (mutual funds, joint-stock investment funds, non-state pension funds, etc.) who invest money in securities in order to generate income based on effective management of the securities portfolio.
Collective investors- these are financial institutions that work with the funds of a large number of investors as a single pool of funds and place funds in securities.
Collective investor:
attracts funds from small investors by placing securities or concluding agreements;
invests raised funds in securities or other property;
receives income in the form of dividends, interest and income from property transactions;
distributes income received from investment among collective investment participants.
Collective investors operate under the management of a professional manager who has the appropriate license. The task of a professional manager is to pool the funds of many individuals, averaging the risks of the latter, in order to form an effective portfolio of securities. A small investor, being a participant in a collective investment scheme, is informed about investment directions;
financial intermediaries . Professional participants securities market mediate between issuers and investors. Among the intermediaries includes brokers, dealers and managers. Each of the professional participants must act on the basis of a license, meet the requirements established by law, and comply with the norms and rules developed by participants in the securities market;
infrastructure organizations . TO infrastructure organizations operating on the securities market include: registrars, depositories, clearing organizations, trade organizers. Infrastructure organizations ensure the functioning of securities accounting, payment, securities settlement, clearing, and information disclosure systems. The objectives of the securities market infrastructure are to distribute risks between market participants and reduce transaction costs, namely the cost of each transaction concluded;
regulatory authorities . These include both state regulatory bodies and self-regulatory organizations. The main government bodies regulating the securities market include the Ministry of Finance of the Russian Federation and the Central Bank of the Russian Federation. Self-regulatory organizations created by professional participants in the securities market include NAUFOR (National Association of Stock Market Participants), PARTAD (Professional Association of Registrars, Transfer Agents and Depositories), NFA (National Securities Association).
Securities market participants combine financial and commodity markets. In addition, the market itself is also divided into separate segments. It sounds a little confusing, but it's not complicated. If you want to become a professional, communicate with the best on equal terms, you must, and simply must, understand the main spheres of influence of each subject.
Participants in the securities market are also called subjects. These are those people, organizations, countries that influence the process itself (in boring textbooks - “enter into economic relations with each other”).
Categories of participants
The structure of the securities market is:
- The securities themselves and operations with them (issue, purchase, sale, redemption);
- participants;
- service infrastructure.
Therefore, I consider participants in relation to the operations of the Central Bank.
Issuers
First, the securities must be released to the market. The one who does this is the issuer:
- joint stock company (shares);
- state, commercial banks (bonds);
- private individuals (derivatives).
Private investors
The one who buys securities is an investor: he actually invests his money in exchange for a promise.
They can also be all participants of the securities market:
- state;
- individuals and legal entities.
According to the law, in each specific case (issue or purchase of a certain type of securities), various restrictions are established.
Please note: the same entity can simultaneously be an issuer and an investor.
Professional participants
Professional participants provide intermediary services (important: they have a license). This:
- registrars (register the issue);
- depositories (main functions: recording rights, storing certificates);
- clearing organization (control of obligations);
- dealers (make their own decisions, risk their own funds);
- brokers (work at the direction of clients at their expense);
- investment funds (the main ones here are investment account managers);
- exchanges;
- analytical agencies.
There is a nuance here: if someone calls himself a professional participant, offers services, but does not have a license, he is a rogue. To obtain a document, you need to meet the requirements (work experience, amount of work in monetary terms, education, compliance with quality standards).
Supervisory authorities
The state has the exclusive right to control work. At different times, control functions were performed by different commissions. Since 2013, the Bank of Russia has been the regulator of activities.
There is also a market self-regulation system (SRO). Associations:
- NAUFOR (for participants of the organized stock market);
- PARTAD (for registrars, transfer agents and depositories);
- AUVER (for the bill market).
They develop standards, monitor compliance, and resolve disputes. A professional participant must be a member of NAUFOR or PARTAD.
