When the financial industry shifted to digitalization, it brought about numerous transformations. But have you ever wondered who decides the factors that control the supply, demand, and pricing of stocks and other securities? Digitalization, the advanced and most efficient electronic function, has fundamentally changed how data is handled, but it doesn't control human decisions or market behaviors. The complex ecosystem of financial markets is governed by various groups, each playing a crucial role in shaping market dynamics.

Financial markets are heavily influenced by a diverse set of participants, each contributing to the intricate web of supply, demand, and market trends. Here, we explore the roles of the primary market participant groups:

1. Buy Side Institutions

The buy side is represented by large investment institutions, such as mutual funds, index funds, and ETFs, which heavily influence market transactions. These institutions are responsible for accumulating large stocks of various securities. When they are in accumulation mode, it significantly impacts market supply and demand, determining the overall direction of prices. These institutions control approximately 35-40% of daily transactions, making their decisions crucial.

2. Sell Side Institutions

Sell side institutions, including major banks, financial services companies, and underwriting firms, are responsible for IPOs (Initial Public Offerings). Their role in supporting new public companies is critical, as they handle the underwriting process, helping companies go public and raise capital. The market's perception of new IPOs is greatly influenced by these institutions, which can propel a company into the spotlight or leave it under the radar.

3. Index Companies

Index values, which are pivotal in gauging market performance, are determined by the complex averaging and weighting methods set by the companies that own these indices. For instance, the Wall Street Journal is responsible for maintaining the Dow 30, including decisions on which companies to include and exclude. These indices significantly impact retail investors' perceptions and investment strategies.

4. High Frequency Trading (HFT) Companies

HFTs play a significant role in early morning market activity. Leveraging sophisticated algorithms and rapid information processing, HFTs can quickly fill market orders based on triggers from news events and other data sources. While they heavily influence how the market opens, their impact on the day's overall price movement is less pronounced. HFTs are known for their quick decision-making and high volume trading, contributing to liquidity in the market.

5. Market Makers

Market making is primarily automated, often involving HFTs. These market-making mechanisms contribute to liquidity by providing timely bid and ask prices, which helps regulate market prices. They are compensated by exchanges for providing this service, ensuring a stable and liquid market environment.

6. Retail Brokers

Retail brokers, regulated by the SEC, are often categorized as a 'Consortium Dark Pool'. They play a crucial role in fulfilling retail orders, which rarely reach the public exchanges. Retailers can be easily influenced by social media, quick news updates, and rhetoric that provokes emotional responses. This group's role is significant in guiding retail investors' decisions, often leading to short-term emotional trading rather than long-term investment strategies.

Financial markets operate under the careful scrutiny of regulatory bodies such as the SEC, FINRA, and other similar organizations. These regulators ensure transparency, fairness, and integrity in the market. Continuous monitoring and enforcement of rules and regulations help maintain a stable and efficient market ecosystem.

In conclusion, the digitalization of the financial industry has transformed the way data is processed and integrated into market dynamics. However, it is the actions and decisions of the various market participant groups that truly shape supply, demand, and supply prices. Understanding the roles of these groups is essential for investors and market participants.