The fact that stock markets enable investors to gain financial success is just one of the many fascinating attributes of a stock exchange. These institutions are the centrepiece of India’s economy and have extremely complex functioning.
A stock exchange is defined by the Securities Contracts (Regulation) Act of 1956 as “any body of individuals, whether incorporated or not, constituted before corporatization and demutualization” or “a body corporate incorporated under the Companies Act, 1956, whether under a scheme of corporatization and demutualization or otherwise,” with the aim of assisting, regulating, or controlling the business of buying, selling, or dealing in securities.
Here, “demutualization” refers to a plan approved by the Securities and Exchange Board of India (SEBI) that separates ownership and management from the trading rights of members of a registered stock exchange.
The History Of Stock Exchanges In India
The East India Company started trading in loan securities in the 18th century, which is when security trading in India first started. In Bombay (now Mumbai), the trading of corporate shares began in the 1830s with the stock of banks and cotton presses.
The earliest stock exchanges in India may be traced back to the 1850s when 22 stockbrokers started trading in front of Bombay’s Town Hall under a banyan tree. In the region that is now known as Horniman Circle, the tree is still standing.
Ten years later, the location was changed to the banyan trees at the Meadows Street intersection, which is now known as Mahatma Gandhi Road. As the number of brokers expanded, the shift continued, eventually settling in 1874 at what is now known as Dalal Street. In 1875, the Bombay Stock Exchange (BSE) was founded by this informal group known as the Native Share and Stockbrokers Association.
The Securities Contract Regulation Act of 1956 was the first to offer permanent recognition to the BSE, the oldest stock exchange in Asia. Following the BSE in 1894, the Ahmedabad Stock Exchange specialised in trading shares of textile manufacturers. In 1908, the Calcutta Stock Exchange started doing business, dealing in stocks in jute mills and plantations. The Madras Stock Exchange was founded in 1920.
What Is BSE?
The BSE dominated the trade volume in the years following independence. But in addition to other macro reasons, the lack of transparency and the reliability of clearing and settlement systems heightened the need for a financial market regulator, and the SEBI was established as a non-statutory agency in 1988. In 1992, it became a statutory entity.
A second stock exchange, with the size to rival the BSE and increase transparency in the stock market, was desperately needed following the Harshad Mehta fraud in 1992. As a result, the National Stock Exchange (NSE) was founded.
It was incorporated in 1992, it attained stock exchange status in 1993, and trading on it started in 1994. It was the first stock exchange where electronic trading was allowed. In 1995, BSE also unveiled BSE On-line Trading (BOLT), an electronic trading platform in response to this rivalry.
BSE In Stock Market
In 1986, the BSE introduced the Sensex, which is today referred to as the S&P BSE Sensex, using 1978–1979 as the base year. This benchmark stock index, which includes 30 companies, tracks the exchange’s overall performance.
In July 1990, the index hit 1,000, then 2,000, then 4,000, then 5,000, then 6,000 in January and February of the following years. Equity futures were introduced by the exchange in 2000. Stock options, index options, and stock futures were introduced in June 2001, July 2001, and November 2001, respectively. BSE Teck, India’s first free-float index, was introduced in July 2001.
In 1996, its rival NSE introduced the CNX Nifty, now known as the Nifty 50, as its benchmark exchange. It consists of 50 stocks and serves as the exchange’s performance indicator. By introducing first-of-a-kind products and services, it defeated BSE in terms of electronic screen-based trading and derivatives.
What Is National Stock Exchange?
The National Stock Exchange is India’s top stock exchange and ranks third globally in terms of the volume of equity shares traded as of 2019. It was ranked as the tenth largest stock exchange and has a market capitalization of 2,352 million dollars in 2017.
The improvement of people’s financial well-being is NSE’s primary goal. Additionally, it has the aim to continue as the market leader, forging a global footprint, and promoting people’s financial security.
History and Important Dates
As per the Pherwani Committee’s recommendations, the NSE was founded in 1992 with the intention of giving investors across the nation access to the stock market. The report acknowledged the need for reform because there was a lack of liquidity, inadequate service provided to small investors, an increase in scams and frauds, and a large concentration of brokers trading on the BSE.
NSE In Stock Market
NSE has been active in India for 22 years, during which time it has achieved many milestones. The first was the start of its electronic screen-based trading in 1994, which was the first of its kind. This was followed by the introduction of the NIFTY 50 Index in 1996, which is still the most dependable investment index in India.
The start of the NSE certification for the “Financial Markets Certification Program,” which was the first step in informing investors and brokers of what is the necessary degree of knowledge required to invest, is another significant turning point in the development of the NSE.
After starting online trading in 2000, NSE introduced the NOW trading platform for web-based trading in 2008. A platform designed specifically for the trading of Small and Medium Enterprises was also introduced by the NSE in 2012. To further their collaboration in 2015, the exchange and the London Stock Exchange signed a Memorandum of Understanding. The next year, NSE also introduced a platform for the private placement of debt instruments and an e-book building platform.
How Does NSE Function
The issuer corporation, the investors, and the intermediaries are all registered on the NSE at the national level. To ensure that only legitimate participants trade and there are no fraudulent practices, the standards for registration are stringent.
The National Exchange for Automated Trading system (NEAT) is where issuers list their securities, and trades operate on the basis of an order-driven system, in which a buyer of securities places an order through the system and a seller of securities does the same. When the prices of both parties match, the trade is completed.
Both perfectly matched orders and partially matched orders are subject to the order matching rules; while there is only one order in the former case, there are numerous trades in the latter. Both the highest and lowest prices for a sell order are the optimal prices for a sell order. Members enter their orders into the system, which is visible to everyone and remains active until the entire size is traded (whether in one trade or by multiple trades). Passive orders are those that are left unmatched, and active orders are those that arrive and match with them.
The Normal Market, The Odd Lot Market, and the Auction Market are three of the markets available on NEAT.
The standard market segregates orders into categories such as ordinary lot orders, special term orders, negotiated trade orders, and stop-loss orders. Trading orders for the odd lot market are smaller than those for standard lots; in these deals, the price and order size of the buyer and seller must match. Trading members have the ability to impose three different sorts of conditions on orders placed in accordance with their needs. These restrictions can be connected to the time of the trade, the price of the trade, or the quantity of the transaction.
The time requirement specifies the duration of the trade offer’s validity and comes in the following varieties:
- A Good Till Date (“GTD”): The trade is good for the specified date or the specified number of days, which days include weekends and NSE holidays.
- A Good Till Cancelled (“GTC”) trade is one that continues indefinitely until the total quantity is exchanged.
- Immediate or Cancel (“IOC”): The trade is only possible at the time the order is placed, and if it is not, the order is removed.
The following are some examples of possible price conditions:
- Price cap: The order itself includes the price.
- Market Price: The top obtainable market price at the time the order is placed.
- Stop Loss Price: Only when the price of the securities drops below the threshold price does the order go into effect. This is done to protect the trading member from potential losses.
The following sorts of quantity conditions can also exist:
- Disclosed Quantity (“DQ”): Only the disclosed quantity of the order is released, and when that quantity is traded, only that quantity is released once again, and so on, until the complete order is traded. For instance, if the order is for 100 shares and the DQ is for 20, the market will show 20 shares as available for trading. Once those 20 shares are traded, another 20 shares will be shown as available for trading, and so on until all 100 shares have been exchanged. If there are 100 shares available for sale and the minimum fill (“MF”) is specified as 25, then even if an order is placed for 20 shares at the same price, the trade will not go through. When the quantity of the buyer and seller perfectly matches, All Or None (“AON”) orders are only practical.
Awards And Acclaim
NSE has garnered numerous accolades over the past 28 years, including the CII-Exim Price for Business Excellence and the Indian Exchange of the Year award from Futures & Options World in 2014. Additionally, it received the 2014 Best Derivatives Providers Award from the Global Finance Awards.
It won the Asan Banker Achievement Award, the Golden Peacock Innovative Product and Service Award, and the FOW Awards for Asia’s Best Technology Product for Market Surveillance in 2015. For the new service effort, it was once more given the CII Exim Bank Prize for Business Excellence and the Global Architecture Excellence Award in 2016. NSE subsequently received the FICCI CSR Award for outstanding innovation in 2017 and received ISO Certification.
Online Trading: NSE was the first stock exchange in the country to offer investors a platform for online trading. The NIFTY 50 index, which offers the average of the 50 largest firms listed on the NSE and is used by investors as a gauge of the performance of the Indian capital market globally, was introduced by the NSE in 2016.
Direct Access To Markets: Through a computer-to-computer link, the members also have direct market access, which gives institutional clients quicker access to the markets.
Gold Sovereign Bond Platofrom: The NSE launched a platform for sovereign gold bond issuances as another service in 2016.
Management Of Risk
By upholding standards for members, including capital adequacy, performance trade records, margin requirements, and automatic disablement from trading when requirements are not fulfilled, the NSE provides a crucial capability for risk management.
Settlement and Clearing
Another service offered by the NSE is clearing and settlement, NSDL (NSE’s subsidiary) acts as a legitimate counterparty to all exchange-based transactions.
Key Statistics & Facts About NSE
- The Investor Protection Fund Corpus had a 548 crore turnover on March 31, 2016, and it will have a 1,38,04,601 crore turnover in June 2020. From 2000 to 2020.
- The FO Segment saw phenomenal business growth, increasing its revenue from 1,01,926 crore to 34,53,91,355 crore. The average deal size on the Negotiated Platform rose from 6.64 crores in 1995 to 57.8 crores in 2020.
- NSE is a PAN India organisation with 9 offices in total. Eight additional branch offices are located in Mumbai, Ahmedabad, Chennai, Delhi, Hyderabad, Indore, Kanpur, and Kolkata in addition to the head corporate office in Bandra, Mumbai. The NSE has the most offices on any stock exchange, and these offices improve accessibility for local investors. Five BSE offices are second-highest.
Advantages Of Listing On NSE and BSE
The top benefit of listing on NSE and BSE is access to a large pool of investors, which increases a company’s exposure to investors across all asset classes, including equities, derivatives, and the commodity market. Because NSE and BSE offer a single market for many asset classes, listed companies are not only visible to everyone, but they are also a part of a comprehensive market where they can list all of their securities.
Both NSE and BSE operate on a very large scale, and the exchanges offer a wide range of services. The size of NSE’s and BSE’s investor pool helps listed businesses in accessing finance in a convenient manner.
Stock Market Performance
Any stock exchange’s index, which measures a specific stock listed on the exchange and is chosen such that it covers the majority of the market, is used to compute the performance of the stock exchange and that of the stock market. The value of the index is determined from the value of the stock constituting the index, so every change in stock price results in a change in the index’s value, making it a good indicator of market movements.
NSE’s main index is NIFTY 50, and BSE’s benchmark is SENSEX. Both have grown consistently and have given a return of approximately 14% Compound Annual Growth Rate in the past 10 years.
NSE and BSE Which Is Better?
From the perspective of an investor, there is little to no difference between the NSE and BSE. Most stocks are listed on both of these exchanges, there is generally no difference between the price of a particular stock on these two stock exchanges. Both of them are regulated by SEBI. However, it is important to note that NSE has historically been the leader in introducing new technologies as well as new segments in the stock market.
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