We all know that the Bombay Stock Exchange is the oldest stock exchange in Asia. In contrast to this, the National Stock Exchange of India Limited, NSE, has the reputation of being the latest and most modern exchange in India. NSE is a technologically driven exchange that stood in the 1st position in 2021 in the world in terms of derivatives.
National Stock Exchange is the marketplace that allows companies, governments, and financial institutes to sell securities to investors to buy them. NSE grew its popularity through the dematerialized and modern trading system.
When was NSE Established?
The National Stock Exchange was incorporated in 1992. NSE is the result of a report made by the High Powered Study Group (Pherwani Committee) deployed by the government of India to simplify the process of stock market participation by making it usable to interested individuals or companies. M J Pherwani headed this group of experts, hence the name Pherwani Committee.
NSE was recognized as a stock exchange in April 1993 by SEBI (Securities and Exchange Board of India). After a year, in 1994, it began screen-based operations, i.e., electronic trading. NSE started its operations in the equity and debt market segment and later expanded to the capital market in November 1994, currency market segment, and depositories.
In 1995 National Stock Exchange introduced its first index Nifty 50, also known as S&P CNX Nifty, as a benchmark index. In the same year, NSE launched clearing and settlement of trades.
NSE was the first exchange in India that enabled trading in currency futures in 2007-2008. Their NOW platform for web-based and mobile gave them the reputation of the most modern stock exchange ever in India.
National Stock Exchange Address
NSE has branches all over the major cities in India. The main office of the National Stock Exchange (NSE- Corporate Office) is located in Bandra Mumbai.
Postal address– National Stock Exchange of India Ltd., Exchange Plaza, C-1, Block G, Bandra Kurla Complex, Bandra (E) Mumbai – 400 051
Other than the Mumbai corporate office, NSE has six other branch offices in the country. These are Mumbai Western regional office, Ahmedabad, Delhi, Chennai, Hyderabad, and Kolkata offices.
Why was NSE established?
Why did the National Stock Exchange come into existence even though the Bombay Stock Exchange(BSE) was doing well at that time? There are more than 5500 companies listed on the Bombay Stock Exchange, and the strength of the NSE is near about 2000 companies. Despite that, NSE held a reputable position in India and came into existence when BSE was in full bloom.
Though BSE is the oldest company, built before its independence (1975), due to the lack of technology, it could not excel among Asia’s stock exchanges. Finally, the government formed the Pherwani Committee in 1991, and the committee’s recommendation gave birth to the National Stock Exchange of India Limited.
BSE’s broking community protested for a long period of time to avoid the formation of NSE. According to the broking community, two exchanges in the same country will cause volatility in the Indian stock market, and investors might have to face severe losses as a result of that. In fact, at that time, only the US had two exchanges in the world. However, the government denied the demands, overlooked the protest of broker communities, and established the NSE.
The government decided to favor NSE and dilute the power of BSE in India. The Government invited promoters, including SBI, LIC, IDFC, and investors from Europe and Mauritius. Ultimately, SEBI recognized and approved NSE in 1993, commenced trading in 1994, and introduced its benchmark index (Nifty 50) in 1995.
What is Nifty 50?
There are nearly 2000 companies listed on NSE, making it impossible to track every company to better understand the overall market. NSE introduced the Nifty 50 in 1995, formerly known as S&P CNX Nifty to solve this problem.
Though Nifty 50 does not take into consideration all these 2002 companies listed. It tracks the performance of the best 50 companies that stays at the top of the list in terms of free-float market capitalization. Most of the market tends to follow these 50 leading companies, and the changes in these companies manipulate the market. However, the investor should not blindly follow the Nifty 50 as it gives a general short time idea of the market. An in-depth study of the sector and company fundamentals is recommended before investing.
The Functions and Objectives of NSE
The National Stock Exchange of India Limited has a varied range of objectives, and it has stayed firmly to fulfill these objectives for many years now. These objectives are
- NSE was focused on establishing a nationwide trading facility that would allow traders to trade in all types of securities.
- They tried to establish an appropriate communication network that provides uniformity in accessing the investment process from all over the country. Every investor and seller will get equal opportunity irrespective of wealth and influence.
- Through a fully automated electronic trading system, the NSE wanted to achieve a transaction process that would be transparent, bias-free, and efficient.
- The main objective of NSE is to set up an exchange that will touch the international benchmark.
- Allowing shorter settlement cycles ensured lower risks and comparatively quicker access to funds.
How Does the NSE Work?
NSE’s work is initiated by orders placed in the market. Any company that wants to derive money for the company’s growth list it on NSE. Companies generate money from interested investors for their businesses through issuing IPOs (Initial Public Offering). NSE offers trading in different financial instruments such as equity, derivatives, mutual funds, ETFs, etc.
National Stock Exchange does not sell or buy any share, nor does it manipulate any transaction. NSE works as an intermediary between buyers and sellers. These buyers or sellers can be anyone; financial institutes, government bodies, retail investors, promoters, international companies, etc.
Buyers place market orders through brokers, and NSE executes the operations. After placing a market order, the investor is allotted a unique trading ID by the trading computer. The trading computer then matches this allotted ID with the existing limit order. If the IDs don’t match, the computer executes the order. The exchange does not entertain any kind of influence by experts or brokers. The name of the buyer and seller remains anonymous throughout this entire process.
NSE keeps track of the performance of the market through various indices. One of the most valuable indexes is NIfty 50. As I mentioned earlier, the Nifty 50 shows the status of the best-performing companies listed on the NSE. Other than the Nifty 50, there are the Nifty 500, Nifty 100 index, Nifty Next 50 index, Nifty Smallcap 250 index, Nifty Midcap 50 index, and India Vix Index.
When Does The National Stock Exchange Open?
We all are aware that the Indian stock market’s trading hour is from 9 AM to 3.30 PM. But within these hours, markets are divided into different segments that serve different purposes of which people aren’t much aware. The market stays open 5 days a week, and Saturdays and Sundays are closed. NSE remains closed on all national holidays.
Whenever we talk about stock market timing, this is categorized into four divisions for different types of executions of the market. These categories are
- Pre-Opening Session
- Normal Session
- Closing Session
- Post Closing Session
The pre-opening session is scheduled from 9:00 AM to 9.15 AM, IST. The pre-opening session is further divided into
Order Entry Session
Starts at 9:00 AM and moves till 9.08 AM. Traders have the flexibility to place any buy or sell order within this window. NSE allows two types of orders in this period; limit order and market price order. The trader is also allowed to modify their placed order within this timeframe. However, the exchange prefers orders between actual trading times.
Order Matching Session
Order matching session plays a pivotal role in the stock market. The system will calculate the opening price of any stock based on the orders placed in the Order Entry Session. Every company has different opening prices. Whenever the exchange allows active trading in the market, this calculated price will be displayed as the starting price for a stock to start trading.
The session sustains from 9.08 AM to 9.12 AM.
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This period is also called Buffer Session. From 9.12 AM to 9.15 AM, these three minutes are devoid of any kind of trading. NSE functions all its operations through computers. Hence, it pronto some technical glitches that may occur at any time during the active trading hour. To avoid any such inconveniences, NSE checks all its technical facts.
The Normal Session, also known as Bi-Lateral Session, starts at 9.15 AM and sustains till 3.30 PM. Within this session, traders place orders, and orders get executed immediately, which is not the case for the Order Entry Session. The price of any financial instruments fluctuates heavily during the Normal Session.
This is called a Bi-lateral session because there are two parties that involve in active trading.
In this session closing price is calculated. There is an opening price at the beginning of the market; likewise, there is a closing price for every financial instrument. The system calculates the average price of total traded shares from 3.30 PM to 3.40 PM. This average price is known as the closing price for the concerned financial instrument.
Post Closing Session
Within this window, traders are allowed to buy or sell any financial instruments, but with one condition, the price will be fixed, the closing price. This session is from 3.40 PM to 4 PM.
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Market Segments of NSE
NSE performs in two major segments, namely the wholesale debt market segment and the capital market segment.
Capital Market Segment
The capital market segment deals in equity, exchange-traded funds, preference debentures, and retail government securities. NSE’s capital market segment is one of the biggest segments in the world.
Wholesale Debt Market Segment
Wholesale debt market segment deals in a wide range of fixed-income securities. Fixed income securities suggest those securities that guarantee a certain amount of income upon investment. Fixed income securities comprise treasury bills, bonds issued by the government and public sectors, central government securities, certificates of deposit, commercial paper, and mutual funds. However, mutual funds are subject to market fluctuations.
How Does NSE Make Money?
NSE has several ways of making money. Followings are some major ways NSE uses to make money from the market.
NSE makes a major amount of money from stock listings. NSE charges a specific amount to the companies to get listed on NSE.
On NSE, traders buy and sell securities. Every day lakhs of transaction happens between buyers and sellers. In this case, NSE makes a portion of the traded amount. For example, NSE cuts out 0.000005 percent from the traded amount in the case of debt securities. A transactional charge is also one of NSE’s major income sources.
The National Stock Exchange makes money from the companies listed through several fees. NSE makes money from IPO listing, book building, recertification, and wrong claim fees. More than 70% of the money comes from the core business operations in various asset classes.
Brokers are liable to pay certain charges to avail the facilities of the platform. Brokers are those intermediaries through which common people can get access to different stocks listed on NSE. The broker pays charges like subscription fees, merchant fees, operating fees, transaction fees, and processing fees. These charges add to NSE’s income.
NSE has a pool of company data and market data. NSE sells those valuable data to software companies and makes a huge chunk. Softwares buy those data in order to make analytical software to be used by the traders. Such companies are money control, ET money, Groww, etc.
NSE makes a huge amount of money from its subsidiary companies. It has a total of eleven subsidiary companies that are set up to fulfill various performances such as educating the investors, providing clearing and settlement, managing data & analytics, international transactions, etc. The operations of all subsidiary companies help NSE make an enormous amount of money. These subsidiaries are discussed below.
NSE Academy, formerly known as NSE Strategic Investment Corporation Limited, is a subsidiary company founded by NSE on March 12, 2016. The purpose of the NSE Academy is to spread financial knowledge as an important life skill that everyone should aspire to attend. The subsidiary aims to literate investors and provides necessary certification in the Financial market, Banking, and Insurance.
NSE Academy’s Certified Market Professional is a targeted program to educate people in many areas of finance. They also work in collaboration with Trading Campus, Kredit Academy, and other E-learn markets.
NSE Clearing was formerly known as National Securities Clearing Co. Ltd., providing clearing operations since April 1996 and also maintaining a ‘AAA’ CRISIL rating since 2008. It helps NSE to perform risk management, collateral management, and deposits, along with clearing and settlement of all executed trades on NSE.
NSE brought settlement into the picture way before it became mandatory for regulations. Clearing and settlement bring confidence in dealing with securities, making the settlement cycle short and consistent.
NSE Data & Analytics
The more businesses are coming up in the financial sectors, the more they require real-time market data to run their company products. Different broker apps, such as Money Control, Groww, Zerodha, etc., are in need of real-time market data that they acquire from NSE in exchange for money.
DotEx International Ltd, aka NSE Data & Analytics, provides corporate, historical, and snapshot data to interested companies. This is the sole purpose of NSE Data & Analytics.
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NSE International Exchange
NSE IFSC is yet to get approval from SEBI to set up an international exchange in Gujrat International Finance Tech City. The approval will ensure trade in international securities in any currency except the Indian rupee. Trading will allow equity transactions of global companies.
Other than these above-mentioned companies, there are other subsidiaries of the National Stock Exchange of India Ltd, which are NSE Foundation, NSE Indices, NSE Infotech, NSE Cogencis, NSE Investments, NSE International Clearing, and NSEIT.
NSE strictly monitors the transactions, and they charge fines for any unfair trade or manipulating trades. NSE generates a good amount of money in this way as well.
Question: Who owns the National Stock Exchange?
Answer: Though NSE is an Indian company, many international institutes have invested in NSE along with other domestic investors. NSE is majorly owned by Banking institutions and insurance companies such as LIC, SBI, ICICI Bank, HDFC Bank, and IFCI Ltd. Global investors like Aranda Investments, Morgan Stanley, and Goldman Sachs hold a significant portion of NSE.
Question: What is the market capitalization of NSE
Answer: NSE has a market capitalization of 3.3 trillion USD.
Question: Which one is better, NSE or BSE?
Answer: Both exchanges are equally secure and have the same brokerage and transaction charges.
Question: What is the trading speed of NSE?
Answer: NSE can handle 1.6 lacs orders per second.
Question: What are the indexes that are launched by NSE?
Answer: CNX Nifty or Nifty 50, CNX Nifty Jr, CNX 500.
Question: Who is the chairperson of the National Stock Exchange?
Answer: Girish Chandra Chaturvedi is the chairperson of NSE, and Ashiskumar Chauhan is the MD & CEO.
Question: How to invest in NSE?
Answer: To begin with the stock market, a newbie investor needs to open one Demat account and one trading account. A Demat account is used to store the shares bought by the investors, and the trading account gives the license to trade in the stock market. A trading account can be opened by a broker or banks only. For example, ICICI, Axis, HDFC banks, and brokers like Motilal Oswal, Angel, Anand Rathi, etc. But these are full-service brokers that provide top-notch services with high commissions.
To solve this problem, discount brokers like Zerodha, and Groww came into existence. Always try to be conscious and keep learning while investing.
Question: Why is some trading done after 3.40 PM whereas the market closes at 3.30 PM?
Answer: Though 3.30 is the closing time for the market in India, trading is allowed after 3.40 PM with a simple condition that now investors are allowed to trade on a fixed closing price. Still, people make use of this hour for various reasons. Most companies release their quarterly reports or any other valuable reports after the market is closed because sudden news during the market hour will manipulate the trade significantly. In order to keep the balance and to give a chance to traders who are not allowed to trade during office hours due to some company guidelines.