What is NSE? Know the main functions of NSE?

The benchmark index of NSE is S&P CNX Nifty (Nifty50) introduced by the exchange in 1996.

Jul 23, 2019 10:07 IST India Infoline News Service

National-Stock-Exchange
The National Stock Exchange of India Ltd. (NSE) is an Indian stock exchange located at Mumbai, Maharashtra, India. National Stock Exchange (NSE) was established in 1992 as a demutualized electronic exchange. It was promoted by leading financial institutions on request of the Government of India. It is India’s largest exchange by turnover. In 1994, it launched electronic screen-based trading. Thereafter, it went on to launch index futures and internet trading in 2000, which were the first of its kind in the country. Mr. Vikram Limaye is the MD and CEO of NSE.

NSE was established as a result of the recommendations made by High Powered Study Group on Establishment of New Stock Exchanges. The group was set up by the government to provide a solution to making stock market participation simple and accessible to all. This was in the aftermath of the Harshad Mehta stock market scam that took place in 1992.

Headquartered in Mumbai, NSE offers companies a platform to raise capital. It also provides investors with access to asset classes like equities, debt, and derivatives as well as currencies and mutual fund units. It allows for new listings, initial public offers (IPOs), debt issuances and Indian Depository Receipts (IDRs) by overseas companies raising capital in India. NSE offers trading, clearing and settlement services in equity, equity derivatives, debt and currency derivatives segments. It was the first stock exchange in India to offer electronic trading facility.

With the help of NSE, you can trade in the following segments:

Equities
  • Equities
  • Indices
  • Mutual Funds
  • Exchange Traded Funds
  • Initial Public Offerings
  • Security Lending and Borrowing Scheme
Derivatives
  • Equity Derivatives
  • Currency Derivatives
  • Interest Rate Futures Debt
  • Corporate Bonds
Benchmark index: The benchmark index of NSE is S&P CNX Nifty (Nifty50) introduced by the exchange in 1996. Nifty50 comprises of top 50 and largest most actively traded stocks on NSE. Nifty50 is nothing but the calculated weighted average of the performance of 50 companies from various sectors. The base period for the Nifty index is November 03, 1995. The base value of the index has been set at 1000, with a base capital of Rs2.06 lakh cr.

Following is the eligibility criteria for companies to be included in the CNX Nifty50.
  • Liquidity – The stock should have traded at an average impact cost of 0.50% or less in the last six months, for 90% of the observations of a Rs2cr portfolio.
  • Float Adjustment – Companies must have at least twice the float-adjusted market capitalization of whatever is the current smallest index constituent.
  • Domicile – The company should be based in India and traded on the NSE.
How is Nifty50 calculated?
NIFTY 50 is computed using free float market capitalization weighted method, wherein the level of the index reflects the total market value of all the stocks in the index relative to a particular base period. The index is calculated in real-time daily whenever the value of any scrip changes.

What are the main functions of NSE?
The NSE was set-up with an express objective to fulfil the following functions:
  • Establishing a nationwide trading facility for equities, debt and other hybrid instruments
  • Ensuring equal access to investors across the nation through an appropriate communication network
  • Providing a fair, efficient and transparent securities market to investors using electronic trading systems
  • Enabling shorter settlement cycles and book entry settlements systems
  • Meeting the current international standards of securities markets
NSE successfully fulfilled these functions by establishing the first electronic stock market of India. NSE was instrumental in creating 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 provided increased transparency. The price information that was earlier available only to a handful of traders present at the exchange, was now widely disseminated and available to everyone at their finger-tips.

Before the system introduced by NSE, an investor who wanted to trade a security not listed on the nearest exchange had to route orders through a series of sub-brokers to the appropriate exchange. This resulted in high transaction costs and elaborate time-consuming actions. NSE made it possible for an investor to access the same market and order book, irrespective of location and at the same cost as every other investor.

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