Here is an essay on the ‘National Stock Exchange (NSE)’ especially written for school and college students.
Essay on National Stock Exchange (NSE)
- Essay on the Origin and Development of National Stock Exchange (NSE)
- Essay on the Benefits of National Stock Exchange
- Essay on the Operation of NSE
- Essay on the Stock Holding Corporation of India Limited
- Essay on the Bombay Stock Exchange (BSE)
Essay # 1. Origin and Development of National Stock Exchange (NSE):
The capital market in our country has grown enormously in the recent decade. It now constitutes a significant segment of our financial system. As the size of the operations grows enormously, the inefficiencies and inadequacies too grow making the capital market system complicated.
To reduce the difficulties in it, the concept of the National Stock Exchange (NSE) was created. It provides nationwide trading facility with access to investors all over the country. It is automated screen based trading system using computers and modern technologies to make the operations more transparent.
National stock exchange is basically a stock exchange without a trading floor. Quotations come on the screen. Anybody can sit in any city and can be hooked to the system and can trade. There is only one exchange and all other centers are electronically hooked to the main exchange.
NSE was established in 1994 in Bombay as a move to professionalize Indian Capital Market. It was an important step in upgrading trading facilities of investors and bringing Indian Financial market up to the international market standard. Automation of the trading function brings efficiency and transparency into the market.
NSE is a brain-child of Pherwani Committee – a high power committee appointed by government of India in 1991. It is a registered company under the companies Act 1956. IDBI, ICICI, IFCI, QIC, LIC, SBI etc. are the promoters. IDBI is the lead promoter. Key-policy decisions are taken by the Board of directors. Operational decisions are taken by the executive committee. The NSE market is a fully automated screen based trading systems.
1. NSE is promoted by Financial Institutions, Mutual, Funds and financed on a self-sustaining basis through levy of member-ship fees. The capital outlay of 30 crores of rupees is financed by admitting 1,000 members with an entry fee of 10 Lakhs each.
2. NSE is a company incorporated under the Companies Act of 1956. It is constituted by the Board of Directors and managed by it. 50 % of the Managing Board of the Exchange should comprise of professionals from a cross section of finance and industry.
3. It is trading on medium-sized securities of equity shares and debt instruments.
4. It is a separate ring altogether. For the first time in our country, debt instruments would be traded to become an active part in the secondary market of the nation.
5. NSE is making its debut with the debt market. The debt market is predominantly a market in Government Securities.
6. It has full support from the National Clearing and Settlement divisions, SHCIL and the securities Facilities Support Corporation. It is using modern computer technology for the clearance and settlement procedures.
7. Better transparency system for the securities.
8. NSE will provide nationwide computerized debt and stock trading facility to investors. NSE will operate in two segments i.e., the debt market and the capital market.
The main objective of NSE is to ensure comprehensive nationwide securities trading facilities to investors. It accomplishes this through automated screen based trading and automatic post trade clearing and settlement facilities. The NSE will be encouraging corporate trading members with dealer networks, computerized trading and short settlement cycles.
It proposes to have two segments, one dealing with wholesale debt instruments and the other dealing with capital market instruments. The electronic clearing and Depository System (ECDS) set up by the Stock Holding Corporation of India Limited (SHCIL) would provide the requisite clearing and settlement system.
The major objectives can be listed as follows:
1. To establish a nationwide trading facility for equities and debt instruments.
2. To ensure equal access to investors all over the country through computer network system.
3. To provide a fair, efficient and transparent securities market to investors.
4. To enable shorter settlement cycles.
5. To meet the current international standards of security market.
Essay # 2. Benefits of National Stock Exchange:
The benefits of NSE to the trading members, Issuers, and Investors have been described as follows:
1. They can provide efficient service to their clients.
2. The system will assure best price to participants in the market.
3. Settlement will be quick and efficient.
4. Increased efficiency of trading and resultant higher liquidity will allow greater flexibility in money management.
5. The system will be better monitored and ensure fairness amongst members.
6. Their back office load is reduced considerably as the system generates details of trade undertaken.
7. They can benefit from high growth in trading volumes which typically takes place when an automated trading system is introduced.
8. They can trade from their respective offices and can make use of full back office support for trading.
9. There is no need to occupy office premises near a stock exchange unlike at present, and this can lead to reduced establishment costs.
10. They can install a computer network of their own to receive their client orders which they can interface with the exchange, leading to a large increase in business.
11. Large growth opportunities will also emerge on the NSE as Foreign Financial Institutions may prefer the automated and regulated market which NSE will provide.
Benefits to Issuers:
Following are the benefits to issuers:
1. By a single listing they can provide nation-wide access to their investors. As a result their listing costs are reduced considerably.
2. Issuers will have high visibility.
Benefits to Investors:
Following are the benefits to investors:
1. The investor is assured of the best price in the market.
2. Price and brokerage are separately shown on contract notes.
3. Date and time of trade are indicated.
4. The system will be better monitored and regulated ensuring a fair deal to investors.
5. Settlement is quick and money / securities are received fast. This enhances liquidity.
6. Safety of securities is enhanced in a depository. There will be no problems of bad delivery, loss, theft or forgery.
Operations of NSE are divided into two segments- viz. Wholesale Debt Market (WDM) segment and Capital Market segment.
WDM segment provides trading facilities for a variety of debt instruments like Government Securities, Treasury bills, Bonds of PSUs, units of MF’s, Certificates of Deposits, Commercial paper etc. Trading can be done only by members, recognized by the NSE.
For obtaining recognition they must satisfy a comprehensive selection criterion. They should possess at least two years’ experience in banking or other financial and a minimum net worth Rs. 2 crores. The applicant should engage only in securities business. These institutions are the “trading members” of the NSE. In WDM segment, membership is open only to, body corporates, subsidiaries of banks, and financial institutions.
Capital market segment covers trading in equities and convertible debentures. The players in the market include individuals, registered firms, corporates and institutions. In addition to these two
segments there is also an institutional lot segment and trade for trade (T -T) segment. T-T segment allows trades in any size. As of now, NSE has trading segment in derivatives (Future & Option Segment – Index options, currency derivatives, interest rate futures etc.) in addition to WDM and Capital Market Segments.
The important subsidiaries of NSE include:
1. National Securities Clearing Corporation Ltd. (NSCCL) Estd. 1995
2. National Securities Depository Ltd. (NSDL) -Estd. 1996.
3. India Index Services & Products Ltd. (IISL) Estd. 1998.
4. NSE.IT Ltd. Estd. in 1999.
The NSE series of indices includes Nifty, Nifty Junior, CNX Midcap, CNX 100 etc.
Stock exchanges in our country have now become an integral part of economy. There are 21 stock exchanges including NSE whereby they provide liquidity to investors. Since the capital has grown tremendously during the last ten or fifteen years, work load on all agencies have grown much including share Registration and Transfers.
To reduce the paper work, financial institutions felt the need for Stock Holding Corporation of India (SHCIL), a company incorporated under the Companies Act, 1956. It has an authorized capital of Rs. 250 million subscribed by seven all-India financial institutions, namely, IDBI, IFCI, ICICI, UTI, GIC and IRBI. The SCHIL’s operations are computer aided and have officers at New Delhi, Calcutta and Madras with headquarters in Mumbai. The prime aim of it is to simplify and expedite the transactions eliminating most of the paper work and thus simplifying the job.
Major Objectives are:
1. To make easy for an investor to buy/sell securities,
2. To keep share and debenture certificates in safe custody,
3. To computerize trading among active investors such as institutions, mutual funds etc.,
4. To create regional SHC’s as volume grows,
5. To credit dividend and other payment directly to investors through central collection,
6. To act as a bank/custodial for shares.
1. Clearing and settlement services;
2. Registration and Transfer Processing;
3. Depository services;
4. Corporate actions and benefits;
5. Management information system.
Considering the important services rendered by the SHCIL, NSE decided to use the services of it for the investors. SHCIL is complimentary to NSE and it acts as a Depository.
The first stock exchange in India was started in 1875 in Bombay, under the name ‘Native share and stock brokers Association of Bombay’. Later this came to be known as Bombay Stock Exchange (BSE). It is also known as Dalai Street. Bombay Stock Exchange is the oldest stock exchange in Asia. It is the first stock exchange in India to obtain permanent recognition from the Government.
Over the past 141 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient capital raising platform. Today, BSE is the world’s number 1 exchange in terms of the number of listed companies (over 4900). It is the world’s 5th most active in terms of number of transactions handled through its electronic trading system. And it is in the top ten of global exchanges in terms of the market capitalization of its listed companies. As of now, more than 7,700 scrips are traded in BSE on a daily basis.
The world most tracked and country’s first index, SENSEX is launched by BSE in 1986. To facilitate smooth transactions, BSE had replaced its open outcry system with the BSE On-line Trading (BOLT) facility in 1995. BSE has also introduced the world’s first centralized exchange based Internet trading system.
The initiative enables investors anywhere in the world to trade on the BSE platform. BSE during Sept 2010 launched mobile-based trading, using its proprietary Fastrade mobile application and a wireless access protocol browser-based mobile trade portal.
BSE is managed by a Board of Directors, consisting of professionals, representatives of public, market intermediaries and SEBI. In addition to this there is a management team consisting of 9 executive directors as the head of various Departments and divisions. In addition to this there is a “Derivatives-Governing and Clearing Council” for managing the derivatives segment of the market.
BSE has Equity, Debt and Derivatives segments. The trading system of BSE is based on BOLT. In this system the members’ brokers enter orders to buy/sell the securities, from trader work stations installed in their offices, instead of assembling in the trading ring. Trading is done from Monday to Friday. The scrips traded in BSE are classified into Group A, B, S, TS, Z etc. on the basis of qualitative and quantitative parameters like volume of trade, market capitalization etc.
For the purpose of listing on BSE, Companies have been classified as large cap companies and small cap companies. A large cap company is a company with a minimum issue size of Rs. 10 Cr. and market capitalization of not less than Rs. 25 Cr. A small cap company is a company with a minimum issue size of Rs. 3 Cr. and minimum market capitalization of Rs. 5 Cr.
SENSEX, BSE 100, BSE Dollex, BSE 200, BSE IPO Index are the important BSE series of indices. Though many other exchanges exist, BSE and the NSE account for most of the trading in shares in India.