1.1 The institutions · M01 Market structure

Motivation

When a trade goes wrong, the question "who owes me what?" has a precise answer. Knowing which institution guarantees what tells you where your risk sits: market risk is yours, but counterparty risk on an exchange trade belongs to the clearing corporation, and custody risk on your shares sits with the depository.

1.1.1Who does what#

Definitions

A share (equity share) is a unit of ownership in a company. It carries a residual claim on profits and assets after all creditors, and usually one vote. Each share has a face value (e.g. ₹1, ₹2, ₹10). Face value matters for splits and dividend declarations, not for valuation.
A listed share is admitted to trading on a recognised stock exchange. In India the two national equity exchanges are the National Stock Exchange (NSE) and BSE (formerly the Bombay Stock Exchange). NSE was incorporated in 1992, started equity trading on 3 November 1994 and derivatives trading on 12 June 2000 (NSE history as summarised on Wikipedia, "National Stock Exchange of India", accessed 2026-11-06).
An exchange runs the matching engine: the program that receives orders and pairs buyers with sellers under published rules. It does not take positions.
A clearing corporation (CC) stands between the two sides of every exchange trade through novation: the original buyer–seller contract is replaced by two contracts, buyer–CC and CC–seller. The CC therefore guarantees settlement. It protects itself with margins (collateral posted in advance against possible losses) and a settlement guarantee fund. NSE's CC is NSE Clearing Ltd (historically NSCCL); BSE's is the Indian Clearing Corporation Ltd (ICCL).
A depository holds securities in electronic (dematerialised, "demat") form and moves them between accounts on settlement. India has two: NSDL and CDSL. Your demat account is opened with a depository participant (DP), usually your broker.
A stockbroker (trading member) is registered with SEBI and is a member of the exchange. It routes your orders, collects margin from you, and pays your obligations to the CC. A broker is your counterparty for margin and funds, not for the trade itself.
SEBI (Securities and Exchange Board of India) is the securities regulator. It writes the rules (by regulation and circular), registers intermediaries, and runs enforcement. Exchanges and CCs are "market infrastructure institutions" that implement SEBI rules through their own circulars.

1.1.2From order to settlement#

The life of one trade You buy 100 shares of a stock on NSE at 10:30 on a Monday.

Your broker's order-management system checks your funds or margin, then sends the order to NSE.
NSE's matching engine matches it against a resting sell order (1.4). The trade is now executed.
NSE Clearing novates the trade. Your broker now owes NSE Clearing the money, and NSE Clearing owes your broker the shares.
On T+1 (Tuesday, if it is a trading day) the CC collects funds from buying brokers and shares from selling brokers, through the depositories, and pays out (1.6). The shares land in your demat account.

Practitioner notes

Counterparty risk to the other trader is zero for you, because of novation. Your residual non-market risks are broker risk (misuse of client funds or securities; SEBI's rules on segregation and upstreaming of client funds exist because of past failures) and operational risk (system outages).
"The exchange price" is really a set of prices on two exchanges. Since the closing auction began in August 2026, NSE and BSE publish different closing prices for the same stock, because each runs its own auction on its own order book (SEBI circular of 16 Jan 2026 sets the CAS framework per exchange; differing first-day closes were reported by IANS on 4 Aug 2026; 1.2). For expiring stock derivatives the 15 Oct 2026 circular removes the ambiguity by settling on the VWAP across all exchanges (1.2).