NSE: Functions of NSE & Features of National Stock Exchange

What is NSE?

The National Stock Exchange (NSE) is the leading stock exchange in India, headquartered in Mumbai, Maharashtra. It was incorporated in the year 1992 as the first dematerialised electronic stock exchange in the country. An assembly of leading financial experts set it up and at the recommendations formulated by the Pherwani committee. Also, it was the first to provide a fully automated screen-based trading system to facilitate easy trading. Later in 1993, NSE registered itself as a stock exchange under the Securities Contract Regulations Act. 

In 1994, NSE commenced its operations on the order of the Indian government to bring transparency to the capital market. By 2015, NSE became the fourth largest stock exchange in the world by its trading volume. Also, this exchange comprises diverse shareholding assets from both global and domestic investors. 

NSE allows investors to invest in domestic and global securities. The total number of companies listed on the NSE is approximately 1741, with a total market capitalisation of $3.4 trillion. Thus, it is among the list of largest stock exchanges in the world. 

Functions of National Stock Exchange

The following are the major functions of NSE – 

• Establishing a nation-expansive trading facility for debt, equity and other asset classes accessible to investors. 
• Providing investors with an equal opportunity to participate in the trading system through an appropriate communication network. 
• Ensuring a fair, efficient and transparent securities market to investors using electronic trading systems.
• Enabling shorter trade settlement periods and book-entry settlement systems. 
• Meeting the current international standards set for the financial securities markets. 

NSE was the first to create the National Securities Depository Limited (NSDL), allowing investors to hold and trade securities electronically. Thus, this made investing simple and provided increased transparency. Also, the price information was available only to a handful of traders present at the exchange, but now it is widely broadcasted and available to everyone at their fingertips. 

How Does NSE Work?

Trading on NSE happens through an ‘electronic limit order book’ method. This means when an investor places an order to buy or sell securities in the market, the order is matched through a trading computer. Thus, the entire process has no intervention from specialists or market makers. So the investor’s market order is automatically matched with the limit order. Moreover, the buyers and sellers have the advantage of remaining anonymous. 

Additionally, the stock exchange offers more transparency to investors by displaying every buy and sell order on the trading system. Investors place these orders via stockbrokers, who provide an online trading facility. Also, few investors can avail the “direct market access” facility, where they can place orders directly into the trading system. 

The NSE is operational from Monday to Friday except for Saturday, Sunday, or any other declared holidays. The stock market timings are – 

1. Pre-opening session: Order entry opens at 9:00 am and closes at 9:08 am. 
2. Regular session: The market opens at 9:15 am and closes at 3:30 pm. 

The Nifty 50 is the benchmark index of the NSE, which constitutes 63% of the total market capitalisation of the NSE. The index includes 12 different sectors of the economy under 50 variable stocks. 

Advantages of Listing with NSE

The following are several advantages of listing with NSE – 

• Transparency: The trading system is very efficient in providing all details about the trade and post-trade information. Also, investors can quickly check the buy and sell orders on the trading system along with the total number of securities available for the transaction. This helps investors to understand the market depth. 
• Feasibility and Convenience: The volume of trading activity on the NSE helps lower the trading costs for investors. Also, the automated trading system makes it easy and convenient to trade. 
• Largest Exchange in the Country: In terms of trading volume, the National Stock Exchange (NSE) is the country’s largest exchange, with a total market capitalisation of $3.4 trillion. 
• Quick Response: The quicker response of the trading system allows investors to buy and sell securities at the best prices. 
• Trade Statistics: The companies listed on NSE can avail the provision of receiving trade statistics every month to track their performance on the stock exchange. 

Investment and Trading Segments

The following are investment and trading segments on NSE – 

• Equity: Equity comprises volatile assets that have the potential to maximise returns for investors. Equity investment consists of several types of assets: mutual funds, stocks, exchange-traded funds, security lending and borrowing scheme, initial public offering, etc. 
• Equity Derivatives: The NSE started its derivative trading in 2002 with the launch of index futures. In 2011, it launched derivatives contracts trading on the world’s most followed index, i.e. Dow Jones Industrial Average and S&P 500. Examples of derivatives under this exchange include global indices like Dow Jones, CNX 500, etc. Therefore, NSE remarked on the equity derivatives market. 
• Debt: The debt trading and investment segment include various mutual funds, exchange-traded funds, etc., where the primary asset holding comprises short and long-term bonds, corporate bonds, securitised products, etc. Moreover, in 2013, NSE launched the first debt platform providing investors with a transparent and liquid trading platform for all debt products. 

Major Indices in National Stock Exchange

The primary benchmark index of NSE is the Nifty 50, which was introduced in the year 1994. Nifty 50 comprises the top 50 stocks that are most actively traded on NSE. It is a weighted average of the performance of 50 companies from various sectors. However, the other important indices of NSE include the – 

• Nifty 100 index
• Nifty Next 50 index
• Nifty 50 Midcap index
• Nifty Small cap 250 index
• India Vix index

NSE also comprises other indices under thematic, strategy, hybrid and fixed income. 

Recommended Read: Stock Market Indices

Frequently Asked Questions