A stock exchange is an organized and regulated financial marketplace where the investors can trade their securities, such as bonds and stocks, with the other investors for money. This is done with the help of agents or stockbrokers. It can be considered as a marketplace where activities like buying, selling and issuing of shares take place.
Stock exchanges allow organizations to raise capital. With the help of real-time pricing information, organizations and investors can take important investment decisions. However, the companies listed on the stock exchange have to adhere to the guidelines issued by the regulating bodies.
As it is an important platform for selling derivatives, securities debt, the stock exchange plays an important role in strengthening the economy of a nation. The two most important stock exchanges of India are BSE and NSE.
In this article, we will get into the details of the two stock exchanges to understand them better.
What is BSE?
The full form BSE is the Bombay Stock Exchange and is the oldest stock exchange of Asia. It was established in the year of 1875 and was called The Native Share & Stock Brokers Association. The institution was founded by Premchand Roychand. The Central Government of India recognized it in 1957 under the Securities Contract Regulation Act.
In 1986, SENSEX was introduced as the first-ever equity index of the country. It acted as the platform for the identification of the top 30 trading companies covering more than 10 sectors. In 1995, the BSE online trading system was introduced, and around 8 million transactions took place per day. Today, nearly 6000 companies are listed under the BSE.
It is among the top stock exchanges of the world having thousands of users. Some of the top trading companies that work along with BSE are Reliance Industries, HDFC Bank, Hindustan Unilever, and ITC. The different securities listed by BSE include stock futures, index futures, stocks, weekly opinions and index options. Its performance is analysed by SENSEX.
The chairman of BSE is Vikramajit Sen and the MD and CEO is Ashishkumar Chauhan.
The term SENSEX was coined by Deepak Mohoni, and is derived from the words Sensitive and Index. It is the official benchmark index of the BSE and consists of the most commonly traded stocks of the market. This provides an analysis of the financial health of the country. Every year in the month of June and December, the index composition of SENSEX is reviewed.
In the year of its foundation, 1986, the market capitalization-weighted methodology was used to measure SENSEX. But the free float capitalization method has been in use since September 2003. This is a variation of the market capitalization method that measures the weighting of an index on an organization. Instead of using the organization’s outstanding shares, the method uses freely available shares and excludes restricted shares and stocks.
The SENSEX has been on the rise since 1991 due to the growth of India’s GDP (Gross Domestic Product).
Facilities provided by BSE
- It provides a transparent system of trading currencies, equities, debt instruments, mutual funds, and derivatives.
- It offers a variety of services such as market data services, depository services by the help of CDSL (Central Depository Services Limited).
- The firm acts as a regulatory body for providing surveillance mechanisms and monitoring services in the securities market. These systems are used to detect discrepancies and manipulations in the stock market.
- It provides risk management services for the different transactions that take place on the platform. This is achieved by its clearing and settlement facilities.
- SENSEX introduced by BSE is used as the benchmark index for analyzing the movements of the stock prices in the market. It is also used to understand market sentiment.
It is the analysis of the current attitude of the investors towards a particular stock or security.
What is NSE?
The full form of NSE is the National Stock Exchange, it is also India’s youngest stock exchange. It was established in 1992 and was recognized as a stock exchange in 1993. It was the first body to introduce the advanced electronic trading system in the country.
In 1995, the National Securities Depository Limited that offered a safe platform for exchanging the shares and bonds electronically. As of March 2017, the NSE accumulated more than 1.41 trillion dollars. This made it the world’s 12th largest stock exchange. Its stock index NIFTY 50 covers 50 stocks across 12 sectors of the country.
The companies that trade with NSE include Infosys Ltd, Indiabulls Housing Finance and Reliance Industries. The exchange facilitates more than 3000 VSAT terminals that are ground stations capable of receiving and sending data from satellites.
Vikram Limaye is the MD and CEO of National Stock Exchange.
NIFTY was introduced on April 21, 1996. The term is a combination of the words “National” and “fifty”. It is used for benchmarking index funds, fund portfolios and derivatives.
The IISL (India Index Services and Products) owns the firm.
Since 2009, the NIFTY benchmarks organizations based on the free-float market capitalization method. The concepts measure the index while excluding the shares withheld by the investors and traders. The method considers the alterations in the index and corporate actions like rights and stock splits.
The NIFTY index lists only high liquid stocks. The liquidity of the stocks is analysed based on impact cost, which is the cost a stock seller or buyer incurs during the transaction. So according to the index, the impact cost of the stock must be less than 0.5 % for a trade of around 10 crores.
As NIFTY only considers the companies enlisted under the NSE when the index is calculated, the firms listed under foreign exchanges will not be considered.
Facilities provided by NSE
- The benchmark index called NIFTY 50 depicts the 50 most liquid and frequent traded companies in the country. This is used by investors for deciding the best shares to invest.
- It offers a trading platform for organizations for derivatives, equities, debts, mutual funds, and currencies. It provides capital raising assistance for many companies.
- For international companies looking to raise capital in India, it offers initial public offers, new listings, Indian Depository Receipts (IDRs) and debt issuances.
- The high trading activity and availability of automated systems help the corporations in their settlement processes.
BSE vs NSE
Now let us compare the two financial bodies to figure out their differences.
Bombay Stock Exchange was founded in 1875 and is the oldest stock exchange in the country. On the other hand, the National Stock Exchange is the largest stock exchange but is the youngest in terms of age.
The BSE stands at the 10th position of the best stocks exchanges of the globe, which is followed by NSE placed at 11th position.
The benchmark for BSE is called SENSEX and it lists the top 30 trading companies of the country. The stocks include FMCG, Banking, Finance, Oil and natural gas. For NSE, the benchmarking index is called NIFTY that enlists 50 of the top trading companies.
Online Trading System
The online trading system for NSE was launched in the year 1992 and is very powerful. The online trading facility of BSE was introduced in 1995.
As of March 2018, the market capitalization of BSE is USD 2.3 trillion whereas the measure for NSE is approximately USD 2.27 trillion.
Number of listed entities
The total number of entities in BSE is 5089 whereas the number is approximately around 2000 in the case of NSE.
The BSE is operational in more than 417 cities whereas the NSE works across 2000 cities.
Although BSE is the oldest stock exchange of the country, the first electronic trading system was launched by NSE, which is considered very powerful. In terms of the world ranking, the BSE and NSE hold 10th and 11th position respectively.
Both the corporate offices of NSE and BSE are located in Mumbai. The firms are recognized by the Securities Exchange Board of India. Over the years, they have a crucial role in providing many companies to trade diverse financial securities.