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NSE National Stock Exchange of India: The Backbone of Indian Capital Markets

13 Mins 19 May 2023 0 COMMENT 4 LIKES

A stock exchange is a platform where shares and other financial instruments are bought and sold by investors. It acts as a mediator between buyers and sellers, providing a transparent and regulated marketplace for trading. The National Stock Exchange of India (NSE) is one of the leading stock exchanges in the country, with a wide range of financial instruments, including stocks, bonds, and derivatives, traded on its platform. In this article, we will take a closer look at the functioning and importance of the NSE in the Indian financial system.

What is NSE?

Headquartered in Mumbai, the NSE was established in 1992 and began its operations in 1994. The exchange offers a fully automated screen-based trading system, which operates on a national scale. The NSE has more than 1,600 companies listed on its platform, and the exchange has a market capitalization of over $3.27 trillion as of January 2023.

The NSE provides a wide range of services to investors, including equity trading, derivatives trading, mutual funds, exchange-traded funds (ETFs), and bonds. It has a reputation for being a transparent, efficient, and technologically advanced exchange, which has helped to attract investors from all over the world.

Moreover, the NSE has played a significant role in shaping the Indian financial markets, and it continues to be an important driver of growth and development in the country. It has also been instrumental in promoting investor education and improving corporate governance practices in India.

Functions of NSE

The NSE functions as a fully automated electronic trading platform. The list of functions that NSE performs are as follows:

As all the stock market trading is done electronically via a unique order matching system, the NSE's system matches these orders placed based on the price and time priority, and the trade is executed
It provides a range of services, including trading, clearing, and settlement of securities, as well as market data dissemination and surveillance. The exchange operates on a T+1 settlement cycle, which means that trades executed on Monday are settled on Tuesday, and so on
It also has several trading segments, including Equity, Futures and Options, Currency Derivatives, and Debt, each with its own set of rules and regulations. NSE also has various market indices, including the Nifty 50, Nifty Bank, Nifty IT, Nifty Pharma, Nifty Midcap 100, and so on.
It also provides a range of services to market participants (brokers, investors, and issuers). Brokers can access the NSE's trading platform through their respective trading terminals, investors can track market movements, access market data, and execute trades through various online trading platforms, Issuers can raise capital through initial public offerings (IPOs) or follow-on public offerings (FPOs) by listing their securities on the exchange.

Overall, the NSE's functioning is based on providing a transparent and efficient platform for market participants to trade in a range of securities, with a strong focus on ensuring the safety and stability of the securities market.

Features of NSE

The National Stock Exchange (NSE) operates on an order-driven basis rather than a quote-driven market basis. It uses an automated and screen-based trading system called the National Exchange for Automated Trading (NEAT).
When NEAT receives an order, it assigns a unique number to it. If an immediate match is not found, the order is placed in the order book and is sequenced on time-price priority.
If two orders are made into the system, the order offering the best value takes precedence. However, if an order has identical prices, the one placed earlier is given preference.
Ideally, order matching is done by comparing the most suitable buy order with a higher value to the best-sell order with a lower value. Orders can be partly matched until the entire order is granted, but this depends on the order's passive value and not the active price during the match.

Benefits of Listing on NSE

The benefits of listing on NSE are:

A company gets access to a large pool of potential investors, which can increase the liquidity of its shares
Improves company's transparency and corporate governance standards, which in turn enhances its reputation and credibility
Provides a company with opportunities to raise additional capital through follow-on public offerings or debt issuances.
Companies listed on NSE are subject to greater scrutiny, which can help identify and address any potential issues or shortcomings.
It increases a company's visibility and helps in gaining a competitive edge in the marketplace

Market Segments of NSE

There are two market segments in the National Stock Exchange (NSE): The Whole Sale Debt Market Division and the Capital Market Division.

Whole Sale Debt Market

· The Whole Sale Debt Market Division provides traders with a trading system for various fixed-income instruments such as Certificates of Deposit, Bonds, Commercial Paper, Treasury Bills, and other securities.

Capital Market Division

· Conversely, the Capital Market Division provides traders with a platform for trading securities, such as debentures, equity shares, exchange-traded funds, preference shares, and retail government securities.

National Stock Exchange Timings

Trading on the National Stock Exchange (NSE) in the equities segment occurs throughout the week. This excludes Saturdays, Sundays, or any other holidays, as the stock exchange specifies. The stock market timings as follows:

Pre-opening Session:

- Order entry begins at 9:00 AM

- Order entry concludes at 9:08 AM

Regular Trading Session:

- Trading commences at 9:15 AM

- Trading ends at 3:30 PM

The NSE's premier index, the Nifty50, plays a pivotal role in the stock market. It represents around 63% of the total market capitalization listed on the exchange. This index spans around 12 sectors of the economy, incorporating a diverse selection of 50 stocks. By including stocks from various sectors, the Nifty50 offers a comprehensive overview of the stock market's performance, making it a valuable tool.

Different Investment Segments in NSE

There are 3 major investment segments in the NSE: Equity, Equity Derivatives, and Debt.

Equity

It comprises a volatile class of assets that could potentially help investors maximize their returns on investment.
Equity investment is diversified across various asset types such as Mutual Funds, individual equities, indices, Exchange Traded Funds (ETFs), Securities Lending and Borrowing schemes, and Initial Public Offerings (IPOs).

Equity Derivatives

The National Stock Exchange (NSE) initiated its derivatives trading journey in 2002 with the introduction of index futures. Expanding its global footprint, in 2011, the NSE launched derivative contracts on two of the world's most closely watched indices – the Dow Jones Industrial Average and the S&P 500.
The derivatives available for trading on this stock exchange encompass a wide array, including global indices such as the Dow Jones and CNX 500, along with commodity derivatives, currency derivatives, and interest rate futures, among others.

Debt

On May 13, 2013, the National Stock Exchange (NSE) introduced India's first debt trading platform, offering investors a transparent and efficient marketplace for trading a comprehensive range of debt-related products.
This category of funds consists of Mutual Funds, Exchange Traded Funds (ETF), Long- and Short-term bonds, Corporate Bonds, and more.

Major Indices in National Stock Exchange

NSE has several indices that represent different sectors of the Indian economy. Some of the major indices in NSE include:

Nifty 50:

The Nifty 50 is the flagship index of the NSE and comprises 50 large-cap stocks across 12 sectors of the Indian economy.

Nifty Next 50:

The Nifty Next 50 is the next set of 50 large-cap stocks in the NSE after the Nifty 50.

Nifty Bank:

The Nifty Bank represents the banking sector of the Indian economy and includes 12 banking stocks.

Nifty IT:

The Nifty IT represents the Information Technology sector and includes 10 IT stocks.

Nifty Pharma:

The Nifty Pharma represents the Pharmaceutical sector and includes 10 Pharma stocks.

Nifty FMCG:

The Nifty FMCG represents the Fast-Moving Consumer Goods sector and includes 15 FMCG stocks.

Nifty Metal:

The Nifty Metal represents the Metals sector and includes 10 metal stocks.

Conclusion

NSE is one of the leading stock exchanges in India with advanced technology, transparency, and various benefits for companies looking to get listed. The major indices of the NSE are widely used by investors and traders as a barometer of the Indian economy. As the Indian market continues to grow, NSE is poised to play a crucial role in the development of the country's financial landscape.

There are two market segments in the National Stock Exchange (NSE): The Whole Sale Debt Market Division and the Capital Market Division.