NSE or National Stock Exchange of India is a leading stock exchange of India based in Mumbai. It is the 11th largest stock exchange of the world with a market capitalization of over $2.27 trillion. It is the 4th largest stock exchange in the world based on trading volume.
NSE was established in the year 1992 and is owned and managed by Government of India under the Ministry of Finance division. The National Stock Exchange was the first dematerialized exchange of India. NSE introduced the concept of dematerialization and introduced the automated screed based electronic trading in India, much before the Bombay Stock Exchange (BSE). This new system eased out the trading process for investors and traders.
NSE provides and conducts transactions in a wide range of financial instruments including equities, debt, and derivatives. The Nifty 50 index, which is considered to be the barometer of Indian economy and tracks the largest asses in the Indian financial markets was introduced by the NSE in 1996.
History of the National Stock Exchange
After the famous scam of 1992, in which the Indian stock market was manipulated by a famous investor, the Indian government, under the Ministry of Finance division, decided to setup the NSE with the aim to provide easy access to the market for traders and investors from across the country to ensure participation.
NSE was incorporated in the year 1992 as a tax paying entity. The investors in the incorporation were State Bank of India, Life Insurance Corporation of India, IDFC limited, IFCI limited and Stock Holding Corporation of India. The incorporation was recognized as a stock exchange in the April 1993 under the Securities Contract Act 1956. The exchange first started operating in the Wholesale Debt Market (WDM) in June 1994. In November 1994, the exchange started its operations in the equity segment. Derivatives segments were live in June 2000.
The National Stock Exchange provides trading, clearing and settlement facilities in equity, equity derivatives, commodity derivatives, debt, and currency derivatives segments. It is reported that NSE has a network of over 3000 leased lines and 2500 VSATs spread across the length and breadth of the country.
NSE was instrumental in creating the first electronic security depository of India – NSDL. The National Securities Depository Limited or NSDL was setup in August 1996 to establish a modern infrastructure as per international standards.
Working of the National Stock Exchange
NSE runs and order driven market. This strategy is followed by almost every other stock exchange across the world. The other strategy being the quote driven market. The automated electronic screen trading system of NSE is referred to as NEAT (National Exchange for Automated Trading).
The NEAT uses an order management system which assigns a unique order ID to every placed order. In case an order is not matched instantly, the order is added in an order book which matches the order based on price time priority.
NSE never used paper based or floor trading mechanism. It was always an electronic system, which eased out the trading process for investors, traders, and brokers. The electronic system also helped in eliminating the various loopholes of the conventional trading system.
The ownership, management, and trading on NSE are handled by different set of people and organizations to ensure demutualization. It was the first stock exchange in India to do so. The ownership of NSE is with different financial institutes and the management is done by independent people who are strictly forbidden from trading in the exchange. This ensures the elimination of conflict of interest, which gave rise to various scams in the Indian economic history.
Functions of the National Stock Exchange
NSE was setup for fulfilling various functions and it has been successful in taking care out of all of them. Some of the major functions of the National Stock Exchange include:
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To provide easy access to trading across the nation in equity, debt, and other financial instruments.
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To provide equal access to the thriving population of traders across the length and breadth of the country using improved communication network.
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To utilize the electronic trading system to ensure that the Indian securities market remain fair, efficient, and transparent.
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To speed up the clearing and settlement process resulting in shorter clearing and settlement periods.
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To raise the Indian financial markets up to the International Standards.
The incorporation of NSE in 1992 has been the getaway to electronic screen-based trading in India. It also ensured an easy access to stock markets for traders and investors across the country. It is regarded as one of the most sought-after platforms for investing in India. All you need is a Demat and Trading account with any SEBI registered broker to start trading. But before you trade don’t forget to have your risk profile evaluated from an investment advisor.
Happy Investing!
