Role of Financial Intermediaries in the financial system:

Having designed the instrument, the issuer should then ensure that these financial assets reach the ultimate investor in order to garner the requisite amount. When the borrower of funds approaches the financial market to raise funds, mere issue of securities will not suffice. Adequate information of the issue, issuer and the security should be passed on to the supplier of funds for the exchange of funds to take place. There should be a proper channel within the financial system to ensure such transfer.

To serve this purpose, Financial Intermediaries came into existence. In the initial stages, the role of the intermediary was mostly related to ensure transfer of funds from the lender to the borrower. This service was offered by banks, FIs, brokers, and dealers. However, as the financial system widened along with the developments taking place in the financial markets, the scope of its operations also widened. Major changes were witnessed in the type of issuers and investors participating in the markets. Financial innovations, technological upgradations and most importantly changing regulatory mechanism made the process of raising funds from the market place a complex task. Investors' preferences for financial assets have also changed. Designing instruments that catch the investors' attention has now become a specialized service. Likewise, proper expertise is also necessary for establishing transactions in the financial markets. Large volume of transactions taking place in the markets will have to be recorded promptly and accurately. Finally, since the money raised through these markets comes from various sectors including the individual investors, there is a need to ensure that these funds flow into proper investment channels.

Change has become a constant phenomena of a financial system as it has to relate to the shifting demands of the lenders and the borrowers, the technological developments etc. Due to this, the dynamics of the financial system keep changing, thereby requiring the services of specialized agencies to operate in the market. Some of the important intermediaries operating in the financial markets include: investment bankers, underwriters, stock exchanges, registrars, depositories, custodians, portfolio managers, mutual funds, financial advertisers, financial consultants, primary dealers, satellite dealers, self-regulatory organizations, etc.