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National Stock Exchange Of India (NSE)
NSE was given recognition as a stock exchange in April, 1993 and started operations in June 1994, with trading on the Wholesale Debt Market Segment. Subsequently, it launched the Capital Market Segment in November, 1994 as a trading platform for Equities and the Future and Options segment in June, 2000 for various derivative instruments.
The NSE is owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries. It is managed by professional, who do not directly or indirectly trade on the Exchange. The trading rights are with trading members who offers their services to the investors. The Board of NSE comprises of senior executives from promoter institutions and eminent professionals, without having any representation from trading members. While the Board deals with the broad policy issues, the Executive Committees (EC), which include trading members, formed under the Articles of Association and the Rules of NSE for different market segments, set out rules and parameters to manage the day-to-day affairs of the Exchange. The day-to-day management of the Exchange is delegated to the Managing Director and (CEO) who is supported by a team of professional staff. Therefore, though the rule of trading members at NSE is to the extent of providing only trading services to the investors, the Exchange involves trading members in the process of consultation and participation in vital inputs towards decision making.
NSE provides a trading platform for all types of securities for investor under one roof – Equity, Corporate Debt, Central and State Government Securities, T-Bills, Commercial Paper (CPs), Certificate of Deposits (CD)s Warrants, Mutual Funds, (MFs) Units, Exchange Traded Funds (ETFs), Derivatives like Index Future, Index Options, Stuck Futures, Stock Options. The Exchange provides trading in 3 different segments viz., Wholesale Debt Market (WDM) segment, Capital Market (CM) segment and the Future & Options (F&O) segment.
The Wholesale Debt Market segment provides the trading platform for trading of a wide range of debt securities which includes State and Central Government securities, T-Bills, PSU Bonds, Corporate debentures, CPs, CDs etc. However, along with these financial instruments, NSE has also launched various products e.g., FIMMDA-NSE MIBID/MIBOR owing to the market need. A reference rate is said to be an accurate measure of the market price. In the fixed income market, it is the interest rate that the market respects and closely matches. In response to this, NSE started computing and disseminating the NSE Mumbai Inter-Bank Bid Rate (MIBID) and NSE Mumbai Inter-Bank Offer Rate (MIBOR). Owing to the robust methodology of computation of these rates and its expensive use, this product has become very popular among the market participants. Keeping in mind the requirements of the banking industry, FIs, MFs, insurance companies, who have substantial investments in sovereign papers, NSE also started the dissemination of its yet another product, the ‘Zero Coupon Yield Curve’. This helps in valuation of sovereign securities across all maturities irrespective of its liquidity in the market. The increased activity in the government securities market in India and simultaneous emergence of MFs (Gilt MFs) had given rise to the need for a well defined bond index to measure the returns in the bond market. NSE constructed such a index the, ‘NSE Government Securities Index’. This index provides a benchmark for portfolio management by various investment managers and gilt funds.
The Capital Market Segment offers a fully automated screen based trading system, known as the National Exchange for Automated Trading (NEAT) system. This operates on a price/time priority basis and enables members from across the country to trade with enormous ease and efficiency. Various types of securities e.g., equity shares, warrants, debentures etc. are traded on this systems. The average daily turnover in the CM Segment of the Exchange during 2007-08 was nearly Rs. 14,148 crore (US$ 3,540 million).
Futures & Options segment of NSE provides trading in derivatives instruments like Index Futures, Index Options, Stock Options, Stock Futures. Though only eight years into its operations, the futures and options segment of NSE has made a mark for itself globally. In the Future and Options segment, trading in S&P CNX Nifty Index, CNX IT index, Bank Nifty Index, CNX Nifty Junior, CNX 100 index, Nifty Midcap 50 index and single stocks are available. The average daily turnover in the F&O Segment of the Exchange during 2007-08 was nearly Rs. 52,153 Cr. (US $ 13,048 millions). NSE has also launched the currency futures trading in Aug 2008. Recently in Aug 2009, NSE has re-launched trading in interest rate futures under new guidelines issued by RBI and SEBI.
New Development In NSE
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- Based on the evolving needs of the market and the investors, NSE introduced futures and options trading on Nifty Midcap 50 index in October, 2007. Mini Nifty derivative were available for trading from 1st January, 2008. Index is the most actively traded index based derivative product in India.
- The long term options contract which was introduced in March, 2008 has expected to deepen this market further.
- SEBI issued a SLB scheme on December 20, 2007. NSCCL, as an Approved Intermediary (AI) launched the Securities Lending & Borrowing Scheme from April 21, 2008. Lending & Borrowing is carried on an automated screen based platform where the order matching is done on basis of price time priority.
- During April, 2008, Securities & Exchange Board of India (SEBI) allowed the direct market access (DMA) facility to the institutional investors.
- The India VIX, the volatility Index was launched on 8th April, 2008.
- SEBI has allowed Cross Margining benefit, whereby, positions in the cash and derivatives segment can be set off with each other, for margin computation purpose.
- The currency futures trading at NSE has commenced on 29th Aug, 2009. Presently, the average daily trading turnover of currency futures at NSE has surpassed USD 1 billion.
Power Exchange India Limited (PXI) a joint venture of National Stock Exchange of India Ltd. (NSE) and National Commodity & Derivatives Exchange Ltd (NCDEX) has been set up in response to the guidelines issued by Central Electricity Regulatory Commission (CERC).
Technology
Technology has been the backbone of the Exchange. NSE is the first exchange in the world to use satellite communication technology for trading. It uses satellite communication technology to energize participation from about 2956 VSATs from nearly 245 cities spread all over the country. Its trading system, called National Exchange for Automated Trading (NEAT), is a state of-the-art client server based application.
Other Stock Exchanges In India
In addition to BSE and NSE, the following exchanges also exist in the Indian Financial Markets. These are discussed briefly below:
Over The Counter Exchange Of India Limited (OTCEI)
The OTCEI was recognized as a stock exchange under the SCRA with effect from 23rd August, 1989. It was incorporated under section 25 of the Companies Act on 20th September, 1990. It is based on the model of NASDAQ in USA. It commenced operations on 6th October, 1992.
The OTCEI arose out of the need to have a second tier market in the country. It was established to provide small and medium scale enterprises, easy access to the capital market for raising finance in a cost effective manner, and also investors with a transparent and efficient avenue for capital market investment.
OTCEI was the first electronic national exchange with a screen based trading system, listing an entirely new set of companies – in the SME sector. Even companies with a paid up capital of as low as Rs. 30 Lakhs can be listed on OTCEI. The volumes in OTCEI was not significant due to the stringent measures for allowing listing companies, right from inception. The concept of Counter Receipts (CR) which was introduced in early 1990’s became outdated mode of settlement. In spite of recommendations by the Malegam and Dave Committee (which were set up by SEBI to analyze how the volumes in OTCEI can improve), the volumes continued to be low. In order to minimize the transaction cost, OTCEI established a subsidiary, OTCEI Securities Limited (OSL), which became a member of NSE. Thus, all members of OTCEI registered as sub-brokers of NSE. This resulted in increased business opportunities for members and lower brokerages for investors.
Inter-Connected Stock Exchanges (ICSE)
In the late 1990’s, the competition between BSE and NSE and their national reach threatened the very existence of Regional Stock Exchanges (RSE). Due to this threat, the RSE formed the Federation of Indian Stock Exchange (FISE) in early 1996. The eroding market share, dwindling volumes and declining profitability of members of the RSE provided FISE with the choice of either integrate operations with BOLT or wait for revival of the trading activity in their respective exchanges. It was not possible for RSE to become members of NSE or BSE. Hence, to improve market efficiency and facilitating trading among the RSE, FISE proposed to establish the Interconnected Market System, in early 1996 – this ultimately culminated in the formation of the Interconnected Stock Exchange of India Limited (ICSE). The ICSE was promoted by 15 RSE. It opened a new national segment of trade for all its members, while retaining the regional segment. The ICSE became a stock exchange of all regional stock exchanges – with over 4500 members and 3500 securities listed across all 15 RSE. Ironically, investors preferred dealing directly with NSE or BSE and the volumes in the ICSE was not high.
INDOnext
Due to declining volumes of the Reginal Stock Exchanges (RSE), SEBI issued an order asking them to either collectively form a separate exchange or merge with BSE or NSE. In response to this directive, the Federation of Indian Stock Exchange (FISE), which is representative body of all the Regional Stock Exchanges in India proposed to establish the INDOnext. BSE and FISE proposed to establish a common trading platform to provide small and medium scale enterprises (SME), easy and efficient access to capital markets. BSE launched this market on 7th January, 2005.
The idea behind INDOnext, was to model a trading platform along similar lines to Euronext in Europe – formed due to the merger of stock exchange in Paris, Amsterdam, Brussels, and Lisbon. INDOnext was also aimed at integrating markets across the nation. Members are allowed to issue contracts in the name of the regional exchanges and trades are settled through respective clearing houses. The RSE along with ICSE handle the functions of listing, investor grievances redressal, and investor education.
MCX Stock Exchange (MCX-SX)
MCX-SX, the new generation stock exchange promoted by Multi Commodity Exchange of India Limited, the largest commodity derivatives exchange in India, after obtaining approval from RBI and SEBI, has commenced trading in Currency Futures for USDINR from October 7, 2008. Presently, the average daily turnover in currency futures trading at MCX-SX has surpassed USD 1 billion (single-side).
Other Exchanges
The United Stock Exchanges which has been established by a group of banks is slated to launch trading in currency futures in a few months time. There are also a host of regional exchanges that have been established.
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