Why two stock exchanges in India?
You might be wondering why I am saying
it that there are two stock exchanges in India (BSE and NSE) however
there are other stock exchanges also exists in India.
But here I am talking about major Stock
exchanges currently operating in India very effectively. Ever wondered
if BSE was handling all the investments and Investors then what the
requirement of NSE was.
What is Bombay Stock Exchange (BSE)
BSE, the first ever stock exchange in
Asia established in 1875 and the first in the country to be granted
permanent recognition under the Securities Contract Regulation Act,
1956, has had an interesting rise to prominence over the past 143 years.
The journey of BSE is as eventful and
interesting as the history of India’s securities market. Following are
some of the key milestones and achievements.
National Stock Exchange (NSE)
NSE was incorporated in 1992. It was recognized as a stock exchange by
SEBI in April 1993 and commenced operations in 1994 with the launch of
the wholesale debt market, followed shortly after by the launch of the
cash market segment.
But Why need has arisen for NSE
National Stock Exchange was incorporated
in the year 1992 to bring about transparency in the Indian equity
markets. Instead of trading memberships being confined to a group of
brokers, NSE ensured that anyone who was qualified, experienced, and met
the minimum financial requirements was allowed to trade.
In this context, NSE was ahead of its
time when it separated ownership and management of the exchange under
SEBI’s supervision. Stock price information that could earlier be
accessed only by a handful of people could now be seen by a client in a
remote location with the same ease. The paper-based settlement was
replaced by electronic depository-based accounts and settlement of
trades was always done on time. One of the most critical changes
involved a robust risk management system that was set in place, to
ensure that settlement guarantees would protect investors against
broker defaults.
Major Difference between BSE and NSE
| BSE | NSE |
| It is the oldest stock exchange. | Largest stock exchange in India in terms of daily turnover and number of trades. |
| It was founded in 1875. | It was founded in 1992 |
| Benchmark Index of BSE is Sensex 30. | Benchmark Index of NSE is NIFTY 50. |
| Total Listed companies in BSE is around 7500. | Total Listed companies in NSE is around 1900. |
| 9th largest in world | 10th largest in world |
Indices
The main Index of BSE is SENSEX while
that of NSE is CNX Nifty. The other indices at BSE are: BSE 500, BSE
100, BSE 200, BSE PSU, BSE MIDCAP, BSE SMLCAP, BSE BANKEX, BSE Teck, BSE
Auto, BSE Pharma, BSE Fast Moving Consumer Goods (FMCG), BSE Consumer
Durables (SYMBOL: Cons Dura), BSE Metal.
NSE also set up as index services firm
known as India Index Services & Products Limited (IISL) and has
launched several stock indices, including: S&P CNX Nifty, CNX Nifty
Junior, CNX 100, S&P CNX 500, CNX Midcap (introduced on 18 July 2005
replacing CNX Midcap 200).
Era of Early 1990’s in Stock Market
In the early 1990’s, banks in India were
not allowed to invest in the equity markets. However, they were
expected to post profits and to retain a certain ratio (threshold) of
their assets in government fixed interest bonds. Harshad Mehta squeezed
capital out of the banking system to address this requirement of banks
and pumped this money into the share market.
He promised the banks higher rates of
interest, while asking them to transfer the money into his personal
account, under the guise of buying securities for them from other banks.
At that time, a bank had to go through a broker to buy securities and
forward bonds from other banks. Harshad Mehta used this money
temporarily in his account to buy shares, hike up demand of certain
shares, sell them off, pass on a part of the proceeds to the bank and
keep the rest for himself. This resulted in stocks like ACC, which was
trading in 1991 for ₹200/share, catapult to nearly ₹9,000 in just 3
months.
Harshad Mehta, a registered and
well-known broker, manipulated the Bombay Stock Exchange (BSE) along
with his partners by taking advantage of loopholes in the banking
system. Hence it was a need of time to setup another Stock market
exchange otherwise Investor was fully worried about their investments as
some key players of market were playing with the law and regulations of
Stock market.
The era of early 90’s, triggered many
changes in India’s financial regulatory system. The Securities Laws
(Amendments) Act was passed in 1995, widening Sebi’s jurisdiction and
allowing it to regulate depositories, FIIs, venture capital funds and
credit-rating agencies. To secure investor interest, Sebi could also
make it mandatory for companies issuing securities to make disclosures
and there was a need to regulate exchange in efficient manner to gain
trust of investors.
How NSE Changed Stock Market of India?
The main objective behind NSE
establishment was to improve functions of trading facility nationwide
for all types of securities. It also ensures equal access to all
investors in the country through the process of an appropriate
telecommunication network. NSE was able to achieve its objectives within
a very short span of time. BSE or Bombay Stock Exchange is the oldest
stock exchange in Asia that was established in 1875. It’s a regional
stock exchange of Maharashtra unlike NSE which is nationwide.
During the early part of the 1990s, the
ranking of the Indian capital market with reference to the standard
global indices relating to efficiency, safety, market integrity, etc.,
was not at all flattering. But after the NSE was set up, the entire
atmosphere changed. The broker-owned and managed exchanges started
worrying more about the competitive threat that NSE posed to their
business and how they should meet investors’ minimum demands so that
they did not lose out completely to NSE.
Which One is Best Exchange for Investment and Trade
BSE is more suitable for beginners,
while NSE is more suitable for seasoned investors and traders. If you
are an investor in India who want to invest in shares of new companies,
BSE would be an ideal choice. But if you are a day trader, risking share
trading with derivatives, futures and options would be the preferred
choice. Also, NSE has better software for high-risk online transactions.
For conservative investors, who like to sit and watch their investments
grow, BSE is the right choice.
NSE and BSE have different methods of
levying a tax. Taking that into consideration, NSE is suitable for
lesser turnovers, and BSE is ideal for more significant turnovers.
Both are secure and provide good online services; hence both are excellent choices.
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