National Stock Exchange (NSE)

The National Stock Exchange (NSE), founded in 1992 and based in Mumbai, is India’s top stock exchange, offering automated trading to investors nationwide.
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National Stock Exchange (NSE)
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3 mins
02-April-2025

The National Stock Exchange (NSE) is a cornerstone of India’s financial landscape, driving economic growth and investment opportunities since its establishment in 1992. As one of the largest and most technologically advanced stock exchanges globally, it provides a seamless platform for trading equities, derivatives, currencies, and debt securities. Its influence extends across financial markets, shaping the nation’s investment ecosystem and contributing significantly to economic development.

What is National Stock Exchange (NSE)?

The National Stock Exchange (NSE), set up in 1992 and based in Mumbai, is one of India’s biggest stock exchanges. It introduced electronic trading, making buying and selling faster and clearer. It offers stocks, derivatives, bonds, and ETFs. The NIFTY 50 index tracks the top 50 companies in major industries. Regulated by SEBI, it provides a fair and secure trading space. By improving speed, transparency, and access, it has helped modernise India’s financial market.

How does NSE work?

Trading on the National Stock Exchange is led by market orders without interference from market makers or specialists. Trades are placed, processed, and completed via an electronic limit order book. Here, orders are matched by a trading computer. When a market order is placed by an investor, the electronic book matches it with a limit order. In this way, both buyers and sellers maintain anonymity in the financial market.

As this market is driven by orders and all trades are displayed in the trading system, it becomes a transparent avenue for investment. All the orders at the exchange are placed with the assistance of stockbrokers offering online trading facilities to investors. For a select few institutional investors, there is also a facility to directly place orders in the market. This is known as ‘direct market access’.

Equity trading on the NSE is open on weekdays and closed on Saturdays and Sundays. Trading is also closed on other holidays predetermined by the exchange. Trading is conducted in two sessions:

  • Pre-opening: Some orders can be placed before the market opens. This is a brief window that opens at 9 A.M. sharp and closes at 9:08 A.M.
  • Regular session: The regular time that the market opens is set at 9:15 A.M. and closes at 3:30 P.M.

Nifty50 is the most prominent index of the NSE. It covers approximately 63% of the total listed market capitalisation under the exchange. Nifty50 encapsulates stocks of companies from around 12 sectors.

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Functions of NSE

The National Stock Exchange (NSE) was established with the objective of enhancing the efficiency, transparency, and accessibility of India's financial markets. Its key functions include:

  • Nationwide trading platform: Facilitates the trading of equities, debt instruments, and hybrid securities across India.
  • Equal market access: Ensures fair opportunities for investors across the country through a well-developed communication network.
  • Electronic trading system: Provides a transparent, efficient, and technology-driven securities market for investors.
  • Efficient settlement mechanism: Implements faster settlement cycles, book-entry settlement systems, and adheres to international best practices in securities trading.

These functions collectively contribute to a robust and well-regulated financial ecosystem in India.

Features of National Stock Exchange

The National Stock Exchange (NSE) operates on an order-driven trading mechanism, distinguishing it from a quote-driven market. This approach ensures greater transparency by allowing transactions to be executed solely based on matching buy and sell orders, without the intervention of market makers.

A key feature of NSE is its fully automated, screen-based trading system, known as the National Exchange for Automated Trading (NEAT). This system enhances efficiency by processing and executing trades electronically, eliminating manual intervention and ensuring seamless order execution.

Each order entered into the NEAT system is assigned a unique identification number. If an order does not find an immediate match, it is placed in an order book, where it remains queued based on a price-time priority system. This means:

  • Orders with the best price receive higher priority.
  • If multiple orders have the same price, the earlier order takes precedence over later ones.

Order matching follows a buyer-seller optimisation approach, where the best buy order (highest price) is paired with the best sell order (lowest price). A seller always seeks to sell at the highest available price, while a buyer looks for the lowest possible price. If an exact match is not found, partial order execution occurs, ensuring that orders are fulfilled progressively while maintaining the integrity of the price-time priority system.

This structured, technology-driven trading mechanism makes NSE one of the most efficient and transparent stock exchanges globally.

Investment segments of National Stock Exchange

The National Stock Exchange offers three investment segments: equity, equity derivatives, and debt. Let us examine each segment below.

1. Equity

Equity is a comparatively volatile asset class that presents opportunities for investors in the market to maximise the returns from their investments. Equity investments could contain numerous assets, including mutual funds, indices, equities, IPOs, and ETFs.

2. Equity derivatives

There is a broad range of equity derivatives traded on the NSE. These include commodity derivatives, interest rate futures, currency derivatives, and international indices like CNX 500 and Dow Jones. Derivative trading on the NSE began in 2002 as index futures were launched. The exchange also listed derivative contracts on global indexes — Dow Jones Industrial Average and S&P 500, in 2011. With these steps, over time, the exchange has made tremendous progress in the equity derivatives segment.

3. Debt

The debt segment includes mutual funds and ETFs, with asset holdings ranging from corporate bonds (among other short-term and long-term bonds) to securitised products.

India’s first debt platform was launched by the NSE in 2013. It empowers investors with a liquid and transparent platform to invest in the debt segment.

4. Currency derivatives segment:

  • Currency Futures: Investors can trade currency futures contracts, which obligate them to buy or sell a specific foreign currency at a predetermined price and date.
  • Currency Options: Similar to stock options, currency options grant investors the right, but not the obligation, to buy or sell a foreign currency at a specific price within a given timeframe.

5. Debt segment:

  • Government Securities (G-Secs): NSE provides a platform for trading government bonds, considered low-risk investments backed by the government.
  • Corporate Bonds: Investors can trade corporate bonds issued by companies, which generally offer higher potential returns but also carry higher risk.   

6. Mutual fund segment:

  • NSE facilitates the purchase and redemption of mutual fund units, allowing investors to diversify their portfolios through professionally managed funds.

7. Initial Public Offerings (IPOs):

  • NSE provides a platform for companies to list their shares through IPOs, giving investors the opportunity to invest in newly listed companies.

8. Exchange-traded funds (ETFs):

  • ETFs are investment funds that track specific indices or commodities. They can be bought and sold on stock exchanges, offering investors a convenient way to diversify their portfolios.

9. Strategic financial products (SFPs):

  • This segment includes structured products designed to meet specific investment goals or strategies.

Listing benefits of NSE India

Listing with the National Stock Exchange (NSE) of India offers numerous advantages:

  1. Comprehensive visibility: The NSE's efficient trading system provides extensive trade and post-trade data. Investors can swiftly access top buy and sell orders and the total available securities, aiding in market depth assessment.
  2. Premier marketplace: High trading volumes on the exchange reduce impact costs for investors, enhancing trading affordability. The automated trading system ensures transparency and consistency, fostering investor trust.
  3. Largest exchange: With a market capitalisation exceeding $4.79 trillion (as of 06-May-2024), the NSE is India's largest exchange by trading volume, offering unparalleled market access and liquidity.
  4. Fast transactions: The NSE processes orders swiftly, enabling investors to secure optimal prices. For instance, on May 19th, 2009, it recorded its highest daily trades at 11,260,392, facilitating rapid transactions.
  5. Trade statistics: Listed companies receive monthly trade statistics, aiding in performance tracking.
  6. Easy to gauge the market depth: The NSE provides comprehensive information on trading activity, including the best buy and sell orders, the total number of securities available, and the top buyers and sellers. This detailed market data enables investors to gauge market sentiment and make informed decisions.
  7. Transparency: The platform's automated trading system and high trading volumes contribute to increased transparency. Investors can easily access real-time information on price movements, order books, and corporate announcements.

Major indices on NSE

The NSE hosts several major indices representing different segments of the market, including:

In addition to these broad market indices, NSE also offers thematic, strategy, hybrid, and fixed-income indices, providing investors with diverse options to track market performance across various sectors and asset classes.

Why do companies list with NSE?

  1. Capital raising: Companies can raise capital by issuing shares to the public through an Initial Public Offering (IPO).
  2. Enhanced visibility: Listing on NSE increases the company's visibility and credibility, attracting a wider investor base.
  3. Liquidity: NSE provides a liquid market, enabling investors to buy and sell shares easily.
  4. Valuation: The stock price on NSE reflects the market's perception of the company's value.
  5. Regulatory compliance: NSE's stringent listing requirements ensure that listed companies maintain high standards of transparency and corporate governance.

Conclusion

The National Stock Exchange (NSE) reflects India's economic progress and efforts to modernise its financial markets. By offering a strong, tech-driven platform, it has changed how investors, traders, and businesses interact with the capital market. Its role in improving liquidity, price discovery, and investor participation has been key to shaping the financial landscape and strengthening India's global presence. As the economy evolves, this institution will remain vital for investors, regulators, and market participants alike.

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Frequently asked questions

What is NSE?

The National Stock Exchange (NSE), established in 1992, is India's premier stock exchange. It provides an electronic platform for trading stocks, derivatives, and other financial instruments. The NIFTY 50 index is a key benchmark index on the NSE, tracking the performance of India's top 50 companies.

When was NSE established?

The NSE (National Stock Exchange of India) was founded in 1992, gained SEBI recognition in April 1993, and began trading in 1994. Its initial offering was the wholesale debt market, which was quickly followed by the launch of the cash market.

Is NSE called NIFTY?

No, NSE is not called NIFTY. NIFTY is the acronym for the National Stock Exchange Fifty, which represents the NSE's benchmark stock index comprising 50 actively traded stocks.

Should I buy BSE or NSE?

For novice investors in India, the Bombay Stock Exchange (BSE) may be a more appropriate starting point, while the National Stock Exchange (NSE) is generally better suited for experienced investors and traders. If you're looking to invest in the shares of newer companies, the BSE could be a good fit.

Who is the owner of NSE?

The National Stock Exchange (NSE) is owned by a group of financial institutions, including major banks, insurance companies, and other investors. It is governed by a board of directors.

Which is better NSE or BSE?

The NSE is generally considered a better platform for day trading due to its higher liquidity and faster execution speeds. The BSE, while suitable for investing in emerging companies, typically experiences lower trading volumes.

Is NSE government owned?

The National Stock Exchange of India Limited (NSE), a major stock exchange headquartered in Mumbai, is owned by a consortium of financial institutions, including banks and insurance companies.

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