National Stock Exchange:The National Stock
Exchange of India Limited was set upon the basis of the recommendations
of the High Powered Study Group on Establishment of New Stock Exchanges.
On its recognition as a stock exchange under the Securities Contracts
(Regulation) Act, 1956 in April 1993, NSF commenced operations in the
Wholesale Debt Market (WDM) seg7ment in June 1994. The Capital Market
(Equities) segment commenced operations in November 1994 and operations
in Derivatives segment commenced in June 2000.
The National Stock Exchange (NSE) was incorporated in November 1992 with an equity capital of Rs. 25 crores. It was promoted by the International Securities Consultancy (ISC) of Hong Kong in association with financial institutions, insurance companies, banks, SBI Capital Markets Ltd., Infrastructure Leasing and Financial Services Ltd., and Stock Holding Corporation Ltd. ISC has prepared the detailed business plan, including the installation of hardware and software systems. It aims at promoting professionalism in the capital market and providing better securities trading facilities to investors nationwide. NSE transcends geographical barriers and overcomes fragmentation by providing a screen-based trading system instead of the conventional trading ring. This results in greater depth and liquidity of the market and reduces the transaction costs.
The NSE is not an exchange in the traditional sense of the term, where brokers own and manage the exchange. Its two tier administrative set up involves a company board and a governing board of the exchange.
NSF is a professionally managed national market for shares, PSU bonds., debenture and government securities with all the necessary infrastructure and trading facilities.
THE MISSIONNSF was set up to realize the following objectives:
I Establishing a nationwide trading facility for equities, debt instruments and hybrids
2. Ensuring equal access to investors all over the country through an appropriate communication network
3. Providing a fair, efficient and transparent securities market to investors using electronic trading systems
4. Enabling shorter settlement cycles and book entry settlements systems, and
5. Meeting the current international standards of securities markets
The standards set by NSE in terms of market practices and technology has become industry benchmarks and is being emulated by other market participants as well. NSE is more than a mere market facilitator. It guides the industry towards new horizons and greater opportunities.
Trading MechanismIn order to encourage an institutional market where large volume trades come up for settlement in jumbo lots, two exclusive additional market segments, the institutional lot segment and trade-for-trade segment have been setup. NSF has an order driven system, which allows members to undertake jobbing in securities of their choice. Several members undertake jobbing on account of the cease of entry and exit, and narrow margins which results in improved liquidity and reduced transaction costs.
SettlementThe settlement cycle is completed within eight days from the last day of the trading cycle. The trading period is a week (Wednesday to Tuesday) and the settlement of trades takes place in the ensuing week.
Counter GuaranteeNSE’s Clearing Corporation stands guarantee to all trades done in the cash market on the exchange. The counter guarantee of the Clearing Corporation ensures that no default, either in payment or delivery takes place for trades done on NSF.
Price BandsThe price bands are based on the liquidity of a company’s shares as well as its volatility. The chances for price manipulation are more in the case of liquid securities. The factors, which determine the measure of liquidity of a security, are:
1. Frequency of trading
2. Average daily volume of trading
3. Average daily value of trading
4. Average daily number of trades
Listing RequirementThe exchange has also modified two of its listing clauses. The minimum paid-up capital requirement for initial public offerings has been increased from Rs.10 crores to Rs. 20 crores. With regard to companies whose shares are already listed on another exchange, there will now be a requirement of a minimum market capitalization of Rs. 20 crores (for companies with a paid-up capital of at least Rs. 10 crores) or of Rs. 40 crores (for companies with a paid-up capital of less than Rs. 10 crores). Companies, which have not paid dividend for at least two of the last three years, will not be required to have a net worth of at least Rs. 50 crores for seeking listing on the house.
TRADINGThe National Stock Exchange of India started its trading operations in debt market segment from June 30, 1994. The NSE has adopted a fully automated screen-based trading system, which allows trading members to trade from their offices through a communications network. Price, time and volume conditions are quite flexible. Securities like the government bonds, treasury bills, PSU bonds, CPS, floating rate bonds and Unit 64 of UTI are traded on the exchange. The capital market segment covers the trading done in convertible/non-convertible debentures and hybrids, both in equities and retail trade.
Wholesale Debt MarketTwo distinctive segments representing Wholesale Debt Market (W’DM) and Capital Market have started operations in 1994-95, providing secondary market trading facilities. WDM is a facility for institutions and corporate bodies to enter into high value transactions in instruments such as government securities, treasury bills, PSU bonds, Unit 64 of UTI, CPS and CDs. Few large investors and a high average trade volume characterize the segment. The principal participants are banks, corporates and mutual funds.
There are two types of entities on WDM, Trading Members and Participants. Trading members are the recognized members of NSE. They can either trade on their own account or on behalf of their clients, including participants. In the WDM segment of the exchange more than nine categories of instruments are allowed for trading. The capital market segment of NSE commenced operations on November 3, 1994 to provide trading facilities for institutions and retail investors. The exchange has allowed for trading 1,300 securities of medium and large companies with nationwide investor bases. Because of the nationwide equal access, such securities can be traded anywhere in country at the same price.
Electronic Trade Monitoring SystemThe Stock-Watch s is a computer system designed and programmed to monitor market activity and identify aberrations from historical patterns. The algorithm for the NSF system is similar to the one prevalent at NASDAQ in the United States. However, the trading systems at NASDAQ and NSE are totally different. The algorithm 0fNASDAQ has been adapted to NSF trading conditions. The system enables NSE to electronically monitor the trading patterns, which would lead to a more effective surveillance. Currently, NSE officials have to manually screen the trading patterns to ascertain any strange price fluctuations. The electronic track monitoring S stem will automatically kick off alerts. It will make the task of surveillance easier and more effective. There is a great need to enhance information flow and this will go hand-in-hand with better monitoring of trading patterns to reduce eases of price manipulation. SEW will define the kind of information the stock exchanges need to furnish so as to make their enforcement job more effective,
CORPORATE STRUCTURENSF is one of the first demutualized stock exchanges in the country, where the ownership and management of the Exchange is completely divorced from the right to trade on it. Though the impetus for its establishment came from policy makers in the country, it has been set up as a public limited company, owned by the leading situational investors in the country.
The ownership, management and trading is in the hands of three different sets of people. NSF is owned by set of leading financial institutions, banks, insurance companies and other financial intermediaries and is managed by professionals, who do not directly or indirectly trade on the Exchange. This has completely ruminated any conflict of interest and helped NSE in aggressively pursuing policies and practices within a public interest framework.
BoardThe Board of NSF comprises of senior executives from promoter institutions, eminent professionals in the fields of law, economics, accountancy, finance, taxation, etc public representatives, three nominees of SEBI including a senior official of SEBI and one full time executive of the Exchange.
Executive CommitteeWhile the Board deals with broad policy issues, decisions relating to market operations are delegated by the Board to an Executive Committee (EC) formed under the Articles of Association and Rules. The EC includes representatives from trading members, the public and the management. The EC has four broker-members who are nominated by the Board of NSEI based on their experience in stock market and represent different regions. The day-to-day management of the Exchange is delegated to the Managing Director who is supported by a team of professional staff
PromotersNSE was promoted by leading financial institutions, banks, insurance companies and other financial intermediaries such as the following:
1. Industrial Development Bank of India
2. Industrial Finance Corporation of India Limited
3. Life Insurance Corporation of India
4. State Bank of India
5. CICI Bank Limited
6. Infrastructure Leasing and Financial Services Limited
7. Stock Holding Corporation of India Limited
8. SBI Capital Markets Limited
9. Unit Trust of India
10. Bank of Baroda
11. Canara Bank
12. General Insurance Corporation of India
13. National Insurance Company Limited
14. The New India Assurance Company Limited
15. The Oriental Insurance Company Limited
16. United India Insurance Company Limited
17. Punjab National Bank
18.. Oriental Bank of Commerce
19. Corporation Bank
20. Indian Bank
21. Union Bank of India
CommitteesThe Exchange has constituted various committees to advise it on areas such as good market practices, settlement procedures, risk containment systems, etc. Industry professionals. These committees, are manned by industry trading members, exchange staff as also representatives from the market regulator.
1. Executive Committee
2. Committee on Settlement Issues (COSI)
3. Dispute Resolution Committee (DRC)
4. Committee On Trade Related Issues (COTI)
5. Advisory Committee—Listing of securities
PRODUCTSNSE has played a catalystic role in bringing about a favorable transformation in the securities market in terms of microstructure, market practices and trading volumes. The market has witnessed several innovations in products and services. NSE offers a wide range of products and services in the equities, debt and derivative segments of the market as shown below:
I. Indices: Major Indices/Other Indices
2. Derivatives—Futures/Options
3. Computer to Computer Link (CTCL) facility: Equities Derivatives
4. Internet-based Trading: Equities Derivatives
5. Initial Public Offering (IPO)
6. Mutual Funds
7. Mutual Fund Service System (MFSS)
8. Exchange Traded Funds (ETFs)
9. Index Funds
10. Working Capital Funding
11. Direct Payout to Investors
Debt MarketI. References Rates (MIBID/MIBOR)
2. Zero-coupon Yield Curve (ZCYC)
3. Var for Government Securities
4. Constituent SGL Account
Major Indices
The NSE deals with the following major indices:
1. S&P CNX Nifty
2. CNX Nifty Junior
3. S&PCNX500
4. S&P CNX Defty
5. CNX Midcap 200
6. Other IISL Indices
7. CNX IT Sector Index
8. CNX FMCG Index
9. CNX Millennium Index
10. CNX Segment Indices CNX PSE Index/CNX MNC index /CNX IBG Index
I. S & P CNX Industry Indices
12. Customized Indices
DerivativesThe derivatives that are dealt in include:
I. S&P CNX Nifty Futures
2. S&P CNX Nifty
3. Futures on Individual Securities
4. Options on Individual Securities
Computer-to-Computer Link (CTCL) FacilityNSE offers a facility to its trading members by which members can use their own trading front-end software in J order to trade on the NSE trading system. This facility called Computer-to-Computer Link (CTCL) facility is available only to trading members of NSE.
Trading Members can use their own software running on any suitable hardware/software platform of their choice. This software would be a replacement of the NEAT front-end software that is currently used by members to trade on the NSF trading system. Members can use software customized to meet their specialized needs like provision of on-line trade analysis, risk management tools, integration of back-office operations. etc. The dealers of the member may trade using the software remotely through the members own private networks subject to approvals from Department of Telecommunication, etc as may be required in this regard.
Internet-based TradingThe Securities and Exchange Board of India (SEBJ) approved the report on Internet Trading brought out by the SEBI Committee on Internet Based Trading and Services. Internet trading can take place through order routing systems, which will route client orders to exchange trading systems for execution. Thus a client sitting in any part of the country would be able to trade using the internet as a medium through brokers’ internet trading systems. SF81-registered brokers can introduce Internet based trading after obtaining permission from respective stock exchanges. SEBI has stipulated the minimum conditions to be fulfilled by trading members to start internet based trading and services.
NSE became the first exchange to grant approval to its members for providing internet based trading services. In line with SEBI directives, NSE has issued circulars detailing the requirements and procedures to be complied with by members desirous of providing internet based trading and services. Members can procure the internet trading software from software vendors who are empanelled with NSE or they may develop the software through their own in-house development team or may procure the software from other non-empanelled vendors. Members can also avail of services provided by Application Service Providers(ASP) (which may inter-alia include providing/maintaining software/hardware other infrastructure etc.) for providing Internet based trading services subject to the Application Service Provider being empanelled with the exchange for providing such services.
WWW.1MBAPOM.BLOGSPOT.COM
The National Stock Exchange (NSE) was incorporated in November 1992 with an equity capital of Rs. 25 crores. It was promoted by the International Securities Consultancy (ISC) of Hong Kong in association with financial institutions, insurance companies, banks, SBI Capital Markets Ltd., Infrastructure Leasing and Financial Services Ltd., and Stock Holding Corporation Ltd. ISC has prepared the detailed business plan, including the installation of hardware and software systems. It aims at promoting professionalism in the capital market and providing better securities trading facilities to investors nationwide. NSE transcends geographical barriers and overcomes fragmentation by providing a screen-based trading system instead of the conventional trading ring. This results in greater depth and liquidity of the market and reduces the transaction costs.
The NSE is not an exchange in the traditional sense of the term, where brokers own and manage the exchange. Its two tier administrative set up involves a company board and a governing board of the exchange.
NSF is a professionally managed national market for shares, PSU bonds., debenture and government securities with all the necessary infrastructure and trading facilities.
THE MISSIONNSF was set up to realize the following objectives:
I Establishing a nationwide trading facility for equities, debt instruments and hybrids
2. Ensuring equal access to investors all over the country through an appropriate communication network
3. Providing a fair, efficient and transparent securities market to investors using electronic trading systems
4. Enabling shorter settlement cycles and book entry settlements systems, and
5. Meeting the current international standards of securities markets
The standards set by NSE in terms of market practices and technology has become industry benchmarks and is being emulated by other market participants as well. NSE is more than a mere market facilitator. It guides the industry towards new horizons and greater opportunities.
Trading MechanismIn order to encourage an institutional market where large volume trades come up for settlement in jumbo lots, two exclusive additional market segments, the institutional lot segment and trade-for-trade segment have been setup. NSF has an order driven system, which allows members to undertake jobbing in securities of their choice. Several members undertake jobbing on account of the cease of entry and exit, and narrow margins which results in improved liquidity and reduced transaction costs.
SettlementThe settlement cycle is completed within eight days from the last day of the trading cycle. The trading period is a week (Wednesday to Tuesday) and the settlement of trades takes place in the ensuing week.
Counter GuaranteeNSE’s Clearing Corporation stands guarantee to all trades done in the cash market on the exchange. The counter guarantee of the Clearing Corporation ensures that no default, either in payment or delivery takes place for trades done on NSF.
Price BandsThe price bands are based on the liquidity of a company’s shares as well as its volatility. The chances for price manipulation are more in the case of liquid securities. The factors, which determine the measure of liquidity of a security, are:
1. Frequency of trading
2. Average daily volume of trading
3. Average daily value of trading
4. Average daily number of trades
Listing RequirementThe exchange has also modified two of its listing clauses. The minimum paid-up capital requirement for initial public offerings has been increased from Rs.10 crores to Rs. 20 crores. With regard to companies whose shares are already listed on another exchange, there will now be a requirement of a minimum market capitalization of Rs. 20 crores (for companies with a paid-up capital of at least Rs. 10 crores) or of Rs. 40 crores (for companies with a paid-up capital of less than Rs. 10 crores). Companies, which have not paid dividend for at least two of the last three years, will not be required to have a net worth of at least Rs. 50 crores for seeking listing on the house.
TRADINGThe National Stock Exchange of India started its trading operations in debt market segment from June 30, 1994. The NSE has adopted a fully automated screen-based trading system, which allows trading members to trade from their offices through a communications network. Price, time and volume conditions are quite flexible. Securities like the government bonds, treasury bills, PSU bonds, CPS, floating rate bonds and Unit 64 of UTI are traded on the exchange. The capital market segment covers the trading done in convertible/non-convertible debentures and hybrids, both in equities and retail trade.
Wholesale Debt MarketTwo distinctive segments representing Wholesale Debt Market (W’DM) and Capital Market have started operations in 1994-95, providing secondary market trading facilities. WDM is a facility for institutions and corporate bodies to enter into high value transactions in instruments such as government securities, treasury bills, PSU bonds, Unit 64 of UTI, CPS and CDs. Few large investors and a high average trade volume characterize the segment. The principal participants are banks, corporates and mutual funds.
There are two types of entities on WDM, Trading Members and Participants. Trading members are the recognized members of NSE. They can either trade on their own account or on behalf of their clients, including participants. In the WDM segment of the exchange more than nine categories of instruments are allowed for trading. The capital market segment of NSE commenced operations on November 3, 1994 to provide trading facilities for institutions and retail investors. The exchange has allowed for trading 1,300 securities of medium and large companies with nationwide investor bases. Because of the nationwide equal access, such securities can be traded anywhere in country at the same price.
Electronic Trade Monitoring SystemThe Stock-Watch s is a computer system designed and programmed to monitor market activity and identify aberrations from historical patterns. The algorithm for the NSF system is similar to the one prevalent at NASDAQ in the United States. However, the trading systems at NASDAQ and NSE are totally different. The algorithm 0fNASDAQ has been adapted to NSF trading conditions. The system enables NSE to electronically monitor the trading patterns, which would lead to a more effective surveillance. Currently, NSE officials have to manually screen the trading patterns to ascertain any strange price fluctuations. The electronic track monitoring S stem will automatically kick off alerts. It will make the task of surveillance easier and more effective. There is a great need to enhance information flow and this will go hand-in-hand with better monitoring of trading patterns to reduce eases of price manipulation. SEW will define the kind of information the stock exchanges need to furnish so as to make their enforcement job more effective,
CORPORATE STRUCTURENSF is one of the first demutualized stock exchanges in the country, where the ownership and management of the Exchange is completely divorced from the right to trade on it. Though the impetus for its establishment came from policy makers in the country, it has been set up as a public limited company, owned by the leading situational investors in the country.
The ownership, management and trading is in the hands of three different sets of people. NSF is owned by set of leading financial institutions, banks, insurance companies and other financial intermediaries and is managed by professionals, who do not directly or indirectly trade on the Exchange. This has completely ruminated any conflict of interest and helped NSE in aggressively pursuing policies and practices within a public interest framework.
BoardThe Board of NSF comprises of senior executives from promoter institutions, eminent professionals in the fields of law, economics, accountancy, finance, taxation, etc public representatives, three nominees of SEBI including a senior official of SEBI and one full time executive of the Exchange.
Executive CommitteeWhile the Board deals with broad policy issues, decisions relating to market operations are delegated by the Board to an Executive Committee (EC) formed under the Articles of Association and Rules. The EC includes representatives from trading members, the public and the management. The EC has four broker-members who are nominated by the Board of NSEI based on their experience in stock market and represent different regions. The day-to-day management of the Exchange is delegated to the Managing Director who is supported by a team of professional staff
PromotersNSE was promoted by leading financial institutions, banks, insurance companies and other financial intermediaries such as the following:
1. Industrial Development Bank of India
2. Industrial Finance Corporation of India Limited
3. Life Insurance Corporation of India
4. State Bank of India
5. CICI Bank Limited
6. Infrastructure Leasing and Financial Services Limited
7. Stock Holding Corporation of India Limited
8. SBI Capital Markets Limited
9. Unit Trust of India
10. Bank of Baroda
11. Canara Bank
12. General Insurance Corporation of India
13. National Insurance Company Limited
14. The New India Assurance Company Limited
15. The Oriental Insurance Company Limited
16. United India Insurance Company Limited
17. Punjab National Bank
18.. Oriental Bank of Commerce
19. Corporation Bank
20. Indian Bank
21. Union Bank of India
CommitteesThe Exchange has constituted various committees to advise it on areas such as good market practices, settlement procedures, risk containment systems, etc. Industry professionals. These committees, are manned by industry trading members, exchange staff as also representatives from the market regulator.
1. Executive Committee
2. Committee on Settlement Issues (COSI)
3. Dispute Resolution Committee (DRC)
4. Committee On Trade Related Issues (COTI)
5. Advisory Committee—Listing of securities
PRODUCTSNSE has played a catalystic role in bringing about a favorable transformation in the securities market in terms of microstructure, market practices and trading volumes. The market has witnessed several innovations in products and services. NSE offers a wide range of products and services in the equities, debt and derivative segments of the market as shown below:
I. Indices: Major Indices/Other Indices
2. Derivatives—Futures/Options
3. Computer to Computer Link (CTCL) facility: Equities Derivatives
4. Internet-based Trading: Equities Derivatives
5. Initial Public Offering (IPO)
6. Mutual Funds
7. Mutual Fund Service System (MFSS)
8. Exchange Traded Funds (ETFs)
9. Index Funds
10. Working Capital Funding
11. Direct Payout to Investors
Debt MarketI. References Rates (MIBID/MIBOR)
2. Zero-coupon Yield Curve (ZCYC)
3. Var for Government Securities
4. Constituent SGL Account
Major Indices
The NSE deals with the following major indices:
1. S&P CNX Nifty
2. CNX Nifty Junior
3. S&PCNX500
4. S&P CNX Defty
5. CNX Midcap 200
6. Other IISL Indices
7. CNX IT Sector Index
8. CNX FMCG Index
9. CNX Millennium Index
10. CNX Segment Indices CNX PSE Index/CNX MNC index /CNX IBG Index
I. S & P CNX Industry Indices
12. Customized Indices
DerivativesThe derivatives that are dealt in include:
I. S&P CNX Nifty Futures
2. S&P CNX Nifty
3. Futures on Individual Securities
4. Options on Individual Securities
Computer-to-Computer Link (CTCL) FacilityNSE offers a facility to its trading members by which members can use their own trading front-end software in J order to trade on the NSE trading system. This facility called Computer-to-Computer Link (CTCL) facility is available only to trading members of NSE.
Trading Members can use their own software running on any suitable hardware/software platform of their choice. This software would be a replacement of the NEAT front-end software that is currently used by members to trade on the NSF trading system. Members can use software customized to meet their specialized needs like provision of on-line trade analysis, risk management tools, integration of back-office operations. etc. The dealers of the member may trade using the software remotely through the members own private networks subject to approvals from Department of Telecommunication, etc as may be required in this regard.
Internet-based TradingThe Securities and Exchange Board of India (SEBJ) approved the report on Internet Trading brought out by the SEBI Committee on Internet Based Trading and Services. Internet trading can take place through order routing systems, which will route client orders to exchange trading systems for execution. Thus a client sitting in any part of the country would be able to trade using the internet as a medium through brokers’ internet trading systems. SF81-registered brokers can introduce Internet based trading after obtaining permission from respective stock exchanges. SEBI has stipulated the minimum conditions to be fulfilled by trading members to start internet based trading and services.
NSE became the first exchange to grant approval to its members for providing internet based trading services. In line with SEBI directives, NSE has issued circulars detailing the requirements and procedures to be complied with by members desirous of providing internet based trading and services. Members can procure the internet trading software from software vendors who are empanelled with NSE or they may develop the software through their own in-house development team or may procure the software from other non-empanelled vendors. Members can also avail of services provided by Application Service Providers(ASP) (which may inter-alia include providing/maintaining software/hardware other infrastructure etc.) for providing Internet based trading services subject to the Application Service Provider being empanelled with the exchange for providing such services.
WWW.1MBAPOM.BLOGSPOT.COM
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