NSE, or the National Stock Exchange of India Limited, is India’s main stock exchange. Set up in 1992 and located in Mumbai, this exchange brought a paradigm shift to the Indian financial market right after it had suffered a setback due to an unprecedented scam that hit the Bombay Stock Exchange. This article, divided into 4 major sections highlighted below, will address you to the legacy of NSE.
History of National Stock Exchange of India
After the outbreak of 1992 security scam in which a BSE member, Harshad Mehta, came import of the world manipulating the market, the government of India decided to promote establishing NSE based on recommendations made by High Powered Study Group on Establishment of New Stock Exchanges. The immediate goal was to give equal access to investors from all across the nation and make participating in stock market easier.
In November 1992, NSE was established as a tax-paying company with key investors covering Life Insurance Corporation of India, State Bank of India, IFCI Limited, IDFC Limited and Stock Holding Corporation of India Limited. It was recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993 and started operations in the Wholesale Debt Market (WDM) segment in June 1994. Operations in the equity segment were initiated in November 1994 followed by Derivatives segment in June 2000.
NSE was the pioneer stock exchange in India where ownership, management, and trading were handled by three independent set of people. While the leading is with various financial institutions and banks, the management is handled by independent professionals who are forbidden from directly or indirectly trading on the exchange. This demutualization has excluded the kind of conflict of interest that was at the root of the 1992 security scam.
Functions of NSE
- The NSE was established with an express objective to fulfill the following functions:
- Set up a nation-wide trading facility for equities, debt, and other hybrid instruments
- ensuring equal access to investors across the nation through a proper communication network
- Giving a fair, efficient and transparent securities market to investors using electronic trading systems
- Maintaining shorter settlement cycles and book-entry settlements systems, and
- Full filling the current international standards of securities markets
NSE successfully met these functions by establishing the first electronic stock market of the nation. NSE was instrumental in making National Securities Depository Limited (NSDL), the first depository in India, allowing investors to hold and trade securities electronically. This not only made investing simple but also granting increased transparency. The price information that was earlier available only to a few of traders present at the exchange, was now widely broadcasted and available to everyone at their own remote location.
Before the system established by NSE, an investor who wanted to trade a security not listed on the nearest exchange had to route orders through a series of correspondent brokers to the appropriate exchange. This outcome in increased uncertainty and high transaction costs. NSE made it possible for an investor to access the same market and order book, irrespective of place and at the same cost as every other investor. NSE trading terminals now work in 363 cities and towns across India and can be accessed through brokers from anywhere on the globe.