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National Stock Exchange of India Limited (NSE)

Introduction

There were 22 stock exchanges in India, with each of them having earmarked areas of operation which precluded competition among them and fragmented the market. Trading used to take place through open outcry in the trading halls of the exchanges which imposed limits on volumes and efficiency. Settlement of trades involved physical movement of securities from the seller to ultimate buyer with the risk of undue delay somewhere in the chain. Transfer of securities involved physical movement of securities to the issuer for registration. A significant proportion of transactions ended up as bad delivery. All this added to costs and delays in settlement and restricted liquidity. The operations on exchanges namely trading, clearing, settlement, risk management did not use available technology. This imposed limits on access to market, efficiency, transparency, audit trail and consequently investor confidence, and depth and liquidity in the market. The exchanges were inward looking and there were strong barriers to entry and exit of membership.

Establishment of NSE

The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions, Banks and Insurance Companies at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000. The Currency Derivatives segment at NSE commenced operations on August 29, 2008 with the launch of currency futures trading in US Dollar-India Rupee (USD-INR).


NSEIL was set up with the objectives of:

(a) establishing a nation-wide trading facility for all types of securities

(b) ensuring equal access to all investors all over the country through an appropriate communication network

(c) providing a fair, efficient and transparent securities market using an electronic trading system

(d) enabling shorter settlement cycles and book entry settlement, and

(e) meeting the current international standards

The standards set by NSE in terms of market practices, products and technology have become industry benchmarks and are being emulated by other market participants.

Catalytic Role

a. From its inception it adopted the purest form of demutualised exchange where the ownership, management and trading are in the hands of three different sets of people. This completely eliminated any conflict of interest and helped NSE to aggressively pursue policies and practices within a public interest framework.
b. It shifted trading platform from the trading hall in the premises of an exchange to computer terminals at the premises of the brokers, then to the personal computers in the homes of the investors and then to hand-held portable devices for the convenience of mobile investors.
c. NSE’s innovative endeavours in the area of clearing and settlement - compression of settlement cycle, dematerialisation and electronic transfer of securities, professionalisation of trading members, fine-tuned risk management system and the establishment of Clearing Corporation to assume the counterparty risk for settlement – have nearly eliminated settlement risks.
d. NSE believes that technology provides the necessary impetus for the organisation to retain its competitive edge and ensure timeliness and satisfaction in customer service. In recognition of the fact that technology will continue to redefine the shape of the securities industry, NSE stresses on innovation and sustained investment in technology to remain ahead of competition. NSE is one of the largest users of satellite based communication technology in the financial services industry and has set up its own dedicated satellite communication network to provide connectivity to all its brokers who operate through the trading terminals in different cities.
e. NSE offers it’s electronic market infrastructure for conducting online Initial Public Offerings (IPOs) through book building. It helps to discover price as well as demand for a security to be issued through a process of bidding by investors. This system provides for certain advantages viz., (a) the investor parts with money only after allotment (b) it eliminates refunds except in case of direct applications and (c) reduces the time and cost taken for issue process.
f. Due to the innovations adopted by NSE, the securities market in India today uses the state-of-the art information technology to provide an efficient and transparent trading, clearing and settlement mechanism and has witnessed several innovations in products and services.


Facts and Figures:

Record number of trades January 7, 2009 8,959,510
Record daily turnover (value) January 7, 2009 12,599.46 lakh
Record daily turnover (quantity) Nov 01, 2007 Rs.28,476.07 crores
Record market capitalization Jan 07, 2008 Rs.67,45,724 crores
Record value of S&P CNX Nifty Index Jan 08,2008 6357.10

No. of companies listed on NSE as on April , 2009 - 1,470


NSEs Worldwide Ranking for the period Jan-April 2009

  • NSE Ranks 1st in terms of Number of Contracts traded in Single Stock Futures


  • NSE Ranks 3rd in terms of Number of Contracts traded in Stock Index Futures.


  • NSE Ranks 3rd in terms of Number of Contracts traded in Stock Index Options.


  • NSE Ranks 4th in Number of Trades in Equity Shares.


  • NSE is the 8th Largest Derivatives Exchange in the World.


Source:WFE & FIA


Milestones:

  • Demutualised Governance (1992): Adopted demutualised governance structure

  • Electronic Trading (1994): Started with anonymous electronic trading

  • Risk Management Systems (1995): Introduced the mark to market and several other margin requirements including capital adequacy norms

  • Counterparty Guarantee (1996): Set up a clearing corporation to guarantee financial settlements through novation

  • Dematerialisation (1996): Promoted dematerialized trading and settlement

  • MIBID/MIBOR (1998): Computed and disseminated the inter-bank bid/offer rates

  • Certification Program (1998): Introduced a web based certification program for personnel working with market intermediaries

  • ZCYC (2000): Disseminated the Zero Coupon Yield Curve (ZCYC) for valuation of securities across all maturities

  • Derivatives Trading (2000): Provided trading of a wide range of derivatives like Index Futures, Index Options, Stock Options and Stock Futures. It accounts for a market share of more than 98%

  • Internet Trading (2000): Launched internet based trading facilities

  • VaR for Government securities (2002): Disseminates VaR for government securities

  • Internet Based Derivatives Trading (2002): Provided access through Internet to F&O segment

  • Disaster Back up site (2002): Setting up of Business Continuity Plan (BCP) site at Chennai

  • GOI Index (2002) : Launch of Government Securities Index (GOI Index)

  • Electronic Issuer interface (2004): Launch of NSE’s electronic interface for listed companies

  • ‘Wharton-Infosys business Transformation Award’ (2002)

  • India Innovation Award (2005)

  • Derivatives Exchange of the Year (2006) : Awarded by Asia Risk Magazine

  • Launch of NSE CNBC TV-18 media centre (January 2007).

  • NSE, CRISIL announce launch of IndiaBondWatch.com in March 2007

  • Launch of derivatives on Nifty Junior & CNX 100 (June 2007)

  • Launch of derivatives on Nifty Midcap 50 (October 2007)

  • Introduction of Mini Nifty derivative contracts on 1st January 2008.

  • Introduction of long term option contracts on S&P CNX Nifty Index in March 2008.

  • Launch of India VIX* - volatility index based on the Nifty 50 Index Option prices on April 8, 2008.

  • Launch of Securities Lending & Borrowing Scheme in April 2008.

  • Direct Market Access in April 2008

  • Setting up of Power Exchange India Ltd. in June 2008

  • Launch of NOW ‘ Neat on Web’ in July 2008

  • Launch of ASBA ‘Application supported by Blocked Amount’ in September 2008.

  • Launch of Derivative contracts on S&P CNX Defty Index in December 2008.

  • Launch of NSE E-Bids for Debt Segment



The NSE Group:
  • National Securities Clearing Corporation Ltd (NSCCL)
  • NSE Infotech Services Ltd
  • NSE.IT Limited,
  • India Index Services and Products Limited (IISL)
  • Dotex International Ltd.
  • National Securities Depository Limited (NSDL)
  • National Commodity and Derivatives Exchange Limited (NCDEX)
  • National Commodity Clearing Limited (NCCL)
  • Power Exchange India Limited (PXI)

* “VIX” is a trademark of Chicago Board Options Exchange, Incorporated ("CBOE") and Standard & Poor’s has granted a license to NSE, with permission from CBOE, to use such mark in the name of the India VIX and for purposes relating to the India VIX.


NATIONAL STOCK EXCHANGE OF INDIA LIMITED
Exchange Plaza, Bandra-Kurla Complex, Bandra (E) 
Mumbai-400051 
Phone : (91 22) 26598100, 56418100
Fax : (91 22) 26598120
Email : cc_nse@nse.co.in
Website www.nseindia.com
 
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