National Stock Exchange of India

A Stock Exchange is a platform that connects the companies and the investors. It acts as a market for buying and selling various financial instruments like stocks, bonds, derivatives, etc. The stock exchange plays a vital role in the entire functioning of the share market. Many of you must have come across the term NSE. Some may be wondering what is NSE in the share market or how to define NSE. It is one of the leading stock exchanges in India.  NSE means the national stock Exchange. Let us know what is NSE and how it functions.

The National Stock Exchange of India, popularly known as the NSE is a premier stock exchange in the country. At present, it ranks 4th in the list of stock exchanges based on the total trading volume. The institution entered the financial domain with its establishment in 1992. During that period, it became the first dematerialized electronic stock exchange platform in the country. It started its operations with the new age of modern fra technology using high-end equipment. It became the first fully automatic trading platform, bringing a revolution to the entire financial market of the country. It started its full-fledged operations in 1994, with the government’s aim of bringing more transparency to the share market.

A group of leading organizations came together to build the NSE. They followed the recommendation of the Pherwani committee to set up the organization. The government of India set up this committee in order to take appropriate measures for simplifying investments in the share market. The goal was to increase participation, bringing it within the reach of a large section of people. The assets of different domestic and global investors give a diversified shareholding pattern to the stock exchange.

Its electronic trading system integrated all the investors across the whole country in a single thread. The stock exchange was quite successful in facilitating the transactions between the different investors.

The NSE brought all the investors on a single and worked platform that supported trading in equities, derivatives, debt market, etc. The operations, however, started in 1994 with the debt market and were followed by the cash market in a short time. Currently, the national stock exchange works on the National Exchange for Automated Trading Trading (NEAT+) system. This is a fully automated screen-based system for trading, working on the principle of order-driven market operations. The system reduced jobbing spreads thus helping in lowering the cost of each transaction. At the present time, the market capitalization of all the companies listed on the NSE is more than $ 2.2 trillion. This makes it one of the largest stock exchanges on the globe.

The national stock exchange, in fact, ranks 11th on the list of all stock exchanges. In countries like the USA, the major portion of the country’s GDP consists of contributions from the industrial sector. Two-thirds of the GDP includes trading done by corporate entities. Nevertheless, it is not the same in India. The industrial sector only contributes to about 12-14% of the country’s GDP. There are about 7000 companies listed on the various stock exchanges. Out of these 7800 companies nearly 4800 of them are currently trading on theNational Stock exchange. This is a great achievement of the NSE as wally share market trading form only about 4% of the entire country’s GDP. The benchmark index of the national stock exchange is the S&P CNX Nifty, commonly known as NIFTY 50. This introduction of the NIFTY 50 index as a benchmark Index took place in the year 1996. The S&P CNX Nifty gives us the weighted average of the 50 best-performing companies. The index consists of companies from as many as 17 sectors of the economy. The base period of the Nifty 50 index was fixed in November 1995. Its base value is 1000 with a base capital of around $ 27 billion. This popular index includes stocks that represent a major part of the NSE’s market capitalization. The value of the stocks in the index trading on the NSE account for nearly half of the total traded value. Apart from this crucial index, the NSE has other indices for various kinds of financial instruments. These indices track companies of various sectors. The index, in fact, forms the basis for figuring out the overall market sentiment in the financial market.

Trading process of the NSE

Trading in the national stock exchange takes place through the electronic limit order book. It matches the trades placed through it in advanced computers. When the investors place their orders these computer systems find a match for them automatically. The order gets a unique code. The system matches it with the limit order. The buyers, as well as sellers, remain completely anonymous in the entire process. This NEAT+ trading system that we earlier discussed, provides greater transparency. The investors can view all the information as the NEAT+ system ensures to display each and every order placed through it. The NSE receives orders from the investors. or traders through the brokers. They provide online trading facilities to investors.

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Once the system finds a successful match it executes the orders. If, for instance, it is unable to find a match the system will add the orders to another list. Here the matching takes place according to the time of placing the orders. The order with the best price gets the maximum priority. If an order receives equal price bids, the ones placed earlier get preference. Trading on NSE takes place in all kinds of financial instruments on all the weekdays except for Saturday and Sunday. In addition, the NSE remains closed for all operations in the holidays as decided by it. The timings of NSE are as follows.

1. Opening Session – Order entry starts at 9:00 am and closes at 9:08 am.

2. Regular Session –

• Market opening time: 9.15.A.M.
• The Market closing time: 3:30 PM.

The national stock exchange has important positions of a CEO and a Managing Director who look after the smooth functioning of all these operations.

Functions of NSE

The NSE works with the following objectives.

1. It provides the opportunity to trade in the share market to as many people as possible. Indian, as well as foreign investors, can invest in a wide range of instruments like debt, bonds, equity, and derivatives.
2. It acts as a genuine medium for all the market participants.
3. The NSE provides the investors with a powerful platform functioning with the highest standards.
4. It facilitates a book-entry settlement system.

What are the Market Segments of the National Stock Exchange?

Equity Segment: This segment includes trading stocks of various companies listed on the exchange.

Equity Derivatives Segment: It consists of trading in derivative contracts based on individual stocks, indices, and exchange-traded funds (ETFs).

Currency Derivatives Segment: This segment facilitates trading in currency futures and options contracts.

Debt Segment: It includes trading debt instruments like government securities, corporate bonds, and debentures.

Interest Rate Futures (IRF) Segment: This segment enables trading in interest rate futures contracts.

Mutual Fund Segment: It allows investors to buy and sell mutual fund units listed on the exchange.

ETF Segment: This segment facilitates trading in exchange-traded funds representing a basket of securities.

Corporate Bonds Segment: It allows trading in corporate bonds issued by various companies.

Retail Debt Market Segment: It caters to trading non-convertible debentures (NCDs) issued by corporates.

Wholesale Debt: Market Segment enables trading in debt instruments like government securities, bonds, and debentures.

NSE Listing Benefits

1. The whole trading process occurs in an automated manner. This gives transparency and more efficiency to the investors.
2. The order-driven NEAT + mechanism gives the investors and traders the necessary confidence to participate in the financial market. The higher volumes of trading taking place on the NSE provide the investors with higher liquidity.
3. The investors can get all the information related to their previous trades. One can find the trending buy and sell orders. The information about the total assets up for trading is also easily accessible.
4. All the execution of trades, processing, and settlements happen in very short intervals. The trading experience on the NSE is pleasant.
5. For the convenience of the investors the NSE comes up with detailed data at regular intervals. The listed companies can get this information on a monthly basis.

Top 10 Companies Listed on the National Stock Exchange by Market Capitalization:

Conclusion

The NSE is the first electronic stock exchange platform in India but also a leading one. With a total traded volume of more than $2.2 billion is the largest stock exchange in the country. The stock exchange enjoys the confidence of a large number of market participants because of its transparent and highly efficient trading platform. The platform enables investing and trading in almost all types of securities. Investors not just from across the entire country but also from foreign territories can invest in the Indian market through NSE. Hence, the stock exchange is among the top-rated ones in the world.

Frequently Asked Questions (FAQs)