The National Stock Exchange of India Limited (NSE) was set up by leading institutions to provide a modern, fully automated screen-based trading system with national reach. The Exchange has brought about unparalleled transparency, speed & efficiency, safety and market integrity. It has set up facilities that serve as a model for the securities industry in terms of systems, practices and procedures.
The National Stock Exchange of India Limited has played a catalytic role in reforming the Indian securities market in terms of micro-structure, market practices and trading volumes. The market today uses state-of-art information technology to provide an efficient and transparent trading, clearing and settlement mechanism, and has witnessed several innovations in products & services viz. demutualisation of stock exchange governance, screen based trading, compression of settlement cycles, dematerialisation and electronic transfer of securities, securities lending and borrowing, professionalization of trading members, fine-tuned risk management systems, emergence of clearing corporations to assume counter party risks, market of debt and derivative instruments and intensive use of information technology.
The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges,which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000.
The National Stock Exchange of India Limited’s mission is setting the agenda for change in the securities markets in India. The NSE was set-up with the following objectives:
- establishing a nation-wide trading facility for equities, debt instruments and hybrids,
- ensuring equal access to investors all over the country through an appropriate communication network,
- providing a fair, efficient and transparent securities market to investors using electronic trading systems,
- enabling shorter settlement cycles and book entry settlements systems, and
- meeting the current international standards of securities markets.
The standards set by The National Stock Exchange of India Limited in terms of market practices and technologies have become industry benchmarks and are being emulated by other market participants. NSE is more than a mere market facilitator. It’s that force which is guiding the industry towards new horizons and greater opportunities.
Till the advent of The National Stock Exchange of India Limited, an investor wanting to transact in a security not traded on the nearest exchange had to route orders through a series of correspondent brokers to the appropriate exchange. This resulted in a great deal of uncertainty and high transaction costs. One of the objectives of NSE was to provide a nationwide trading facility and to enable investors spread all over the country to have an equal access to NSE. NSE has made it possible for an investor to access the same market and order book, irrespective of location, at the same price and at the same cost. NSE uses sophisticated telecommunication technology through which members can trade remotely from their offices located in any part of the country. NSE trading terminals are present in 363 cities and towns all over India.
The National Stock Exchange of India Limited has been promoted by leading financial institutions, banks, insurance companies and other financial intermediaries NSE is one of the first demutualised stock exchanges in the country, where the ownership and management of the Exchange is completely divorced from the right to trade on it. Though the impetus for its establishment came from policy makers in the country, it has been set up as a public limited company, owned by the leading institutional investors in the country. From day one, NSE has adopted the form of a demutualised exchange – the ownership, management and trading is in the hands of three different sets of people. NSE is owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries and is managed by professionals, who do not directly or indirectly trade on the Exchange. This has completely eliminated any conflict of interest and helped NSE in aggressively pursuing policies and practices within a public interest framework.
The NSE model however, does not preclude, but in fact accommodates involvement, support and contribution of trading members in a variety of ways. Its Board comprises of senior executives from promoter institutions, eminent professionals in the fields of law, economics, accountancy, finance, taxation, etc, public representatives, nominees of SEBI and one full time executive of the Exchange. While the Board deals with broad policy issues, decisions relating to market operations are delegated by the Board to various committees constituted by it. Such committees include representatives from trading members, professionals, the public and the management. The day-to-day management of the Exchange is delegated to the Managing Director who is supported by a team of professional staff.
The National Stock Exchange replaced open outcry system, i.e. floor trading with the screen based automated system. Earlier, the price information can be accessed only by few people but now information can be seen by the people even in a remote location. The paper based settlement system was replaced by electronic screen based system and settlement of trade transactions was done on time. NSE also created National Securities Depository Limited (NSDL) which permitted investors to hold and manage their shares and bonds electronically through demat account. An investor can hold and trade in even one share. Now, the physical handling of securities eliminated so the chances of damage or misplacing of securities reduced to minimum and to hold the equities become more convenient. The National Security Depository Limited’s electronically security handling, convenience, transparency, low transaction prices and efficiency in trade which is affected by NSE, has enhanced the reach of Indian stock market to domestic as well as international investors.
Promoters of National Stock Exchange of India (NSE)
Following financial institutions were the promoters of National Stock Exchange :
- Industrial Development Bank of India(IDBI).
- Industrial Finance Corporation of India(IFCI).
- Industrial credit and Investment corporation of India(ICICI).
- Life Insurance Corporation of India(LIC).
- General Insurance Corporation of India(GIC).
- SBI Capital Markets Limited.
- Stock Holding Corporation of India Limited.
- Infrastructure Leasing and Financial services Limited.
Market Segments of National Stock Exchange of India (NSE)
The National Stock Exchange of India Limited was intended to establish a viable and vibrant debt market which was in an under developed stage. Now, it provides the traditional retail market for securities and also operates a Wholesale Debt Market (which may be termed as money market segment). The NSE consists of three mutually exclusive segments :
- Wholesale debt market segment, started operations in June 1994.
- Capital market segment, started operations in November 1994, and
- Derivatives (Futures and Options) Trading, started operations in June 2000.
The Wholesale Debt Market segment of The National Stock Exchange of India Limited is a facility for institutions including subsidiaries of banks engaged in financial services and corporate bodies including companies to enter into high value transactions in instruments such as Public Sector Undertakings (PSUs) bonds, Treasury Bills (T-BilIs), Governments Securities, Units of UTI, Commercial Papers (CPs), Certificate of Deposits (CDs), Floating yields bonds, etc. Members on the Wholesale Debt Market segment can trade on their own behalf and on behalf of their clients. NSE trading system facilitates making of two ways quotes in a highly flexible manner.
The Capital Market segment covers trading in equities and retail trade in convertible or non-convertible debentures and hybrids. This particular segment comprises the securities of medium and large companies with nation-wide investors base. These will also include securities which are being traded on their stock exchanges. By virtue of equal access nationwide, such securities can be traded at the same price from any part of the country. This provides good trading and investment opportunities, increases the volume of the trade and increases the liquidity considerably.
Besides the capital market segment, The National Stock Exchange of India Limited also provide opportunity to the investors to deal in the derivative products, i.e., futures and options. At present, NSE provides facility to trade in Nifty Futures, Nifty Options, Individual Stock Options and Individual Stock Futures.