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In India, there are two primary stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). While numerous other exchanges exist, this discussion focuses on the major exchanges that presently operate effectively within the Indian financial landscape. This raises the question: if BSE manages all investments and investors, what is the necessity for NSE?
Established in 1875, the BSE is the oldest stock exchange in Asia and was the first in India to receive permanent recognition under the Securities Contract Regulation Act, 1956. Over its 143-year history, BSE has made significant strides in the securities market. Here are some key milestones in its journey:
Incorporated in 1992, NSE gained recognition as a stock exchange from the Securities and Exchange Board of India (SEBI) in April 1993 and began operations in 1994. It launched the wholesale debt market and subsequently introduced the cash market segment.
The NSE was created to enhance transparency in the Indian equity markets. Rather than confining trading memberships to a limited group of brokers, NSE allows any qualified individual to trade, facilitating wider market participation. Under SEBI's supervision, NSE pioneered the separation of ownership and management. This development enabled clients, even in remote locations, to access stock price information easily. The exchange also transitioned from paper-based settlements to electronic depository accounts, ensuring timely settlement of trades. A crucial aspect of NSE was the establishment of a robust risk management system, guaranteeing settlement protection for investors against broker defaults.
| Feature | BSE | NSE |
|---|---|---|
| Oldest stock exchange | Yes, established in 1875 | No, established in 1992 |
| Active trading volume | Lower daily turnover | Largest in India |
| Benchmark Index | Sensex 30 | NIFTY 50 |
| Total Listed Companies | Approximately 7,500 | Approximately 1,900 |
| Global Ranking | 9th largest | 10th largest |
BSE’s main index is SENSEX, while NSE operates under CNX Nifty. Other indices for BSE include BSE 500, BSE 100, BSE 200, BSE PSU, BSE MIDCAP, BSE SMLCAP, BSE BANKEX, and others. NSE also offers several indices through its index services firm, India Index Services & Products Limited (IISL), including S&P CNX Nifty, CNX Nifty Junior, and CNX 100.
During the early 1990s, Indian banks were restricted from investing in equity markets, leading to challenges in maintaining profit margins. Harshad Mehta exploited this situation by directing capital from banks into the stock market under false pretenses. This manipulation resulted in significant price hikes for certain stocks, necessitating the establishment of another stock market exchange to restore investor trust amid concerns regarding market integrity.
The implementation of the Securities Laws (Amendments) Act in 1995 expanded SEBI’s jurisdiction, allowing it to regulate depositories, foreign institutional investors (FIIs), and credit-rating agencies. This legislation aimed to enhance transparency and protect investor interests by mandating disclosures from companies issuing securities.
The NSE was established to improve trading facilities across India for diverse securities, ensuring equal access for all investors via an effective telecommunications network. Within a short period, NSE transformed the Indian capital market, prompting broker-owned and managed exchanges to reconsider their structures and react to competitive pressures from NSE.
While both BSE and NSE are secure and provide efficient online services, the choice largely depends on the investor’s trading style and investment strategy. Additionally, the tax structures of both exchanges differ; NSE may be advantageous for lower turnovers, whereas BSE is better for larger trading volumes.
Both the BSE and NSE play crucial roles in the Indian stock market, catering to different types of investors and trading preferences. Understanding their distinctions can help investors make informed decisions.