BSE, NSE, ISE, OTCEI and NSDL

Chapter Objectives

To know the functioning of the various stock exchanges:

Bombay Stock Exchange (BSE)

National Stock Exchange (NSE) Inter-connected Stock Exchange (ISE) Over The Counter Exchange of India (OTCEI) National Securities Depository Limited (NSDL)

To understand the concept of dematerialisation and rematerialisation

Bombay Stock Exchange

It is one of the oldest stock exchanges in Asia. It was formally established in the year 1875. It was recognised on a permanent basis in the year 1957. The objectives of BSE are as follows:

To provide a market place for the purchase and sale of securities. To promote, maintain and develop a well-regulated market for its dealing in securities. To establish and promote honourable and just practices in securities transactions.

Trading System

BSE has designed an online trading system popularly known as BSE On-line Trading (BOLT). It has been designed to get the best buy and sell orders from the investors. It has been expanded successfully in various other cities such as Ahmedabad, Rajkot, Pune, Vadodra and Kolkata.

Surveillance System

BSE has created a surveillance system for checking the unfair trade practices and for managing risks. These are two types of surveillance systems:

Price surveillance

Circuit fillers Margins

Position monitoring Outstanding market position Monitoring concentrated purchase or sales

Pre-monitoring

National Stock Exchange

NSE was set up by IDBI and other financial institutions in the year 1992 and started functioning in1993. It was established to provide nationwide facilities to the investors for trading securities. The various objectives of NSE are:

To establish a nationwide trading facility for equities and debt instruments. To provide fair and efficient securities market to the investors. To meet the current international standards of securities market.

Membership of NSE

The membership of NSE is based on a number of factors such as capital adequacy, track record, education and experience. An applicant has to go through two stages of admission in order to become a member of NSE. S/He has to appear for a written test which is followed by an interview. The segments in which the applicants are admitted:

Wholesale debt market Capital market Derivative market

Capital Market Segment

It is a segment in which the persons and corporate entities are admitted. Following are the eligibility criteria an individual must possess in order to become a member of the capital market segment:

The applicant must be a graduate. The applicant must be solely engaged in the business of securities. The applicant must have two years of experience in handling securities.

Advantages of NSE
NSE provides the following advantages:

Wider accessibility
Screen-based trading

Transparent transactions
Matching of orders Effective settlement of corporate benefit

Recent Trends in NSE

The following are the recent trends in NSE:

Expansion
Quality More liquidity Less brokerage Insurance against risk Quick clearing and settlement

Inter-connected Stock Exchange

ISE started its operations from August 29, 1998. The main objective of ISE is to interlink 15 regional stock exchanges in order to ensure better liquidity. It helps in minimizing the cost of the regional stock exchanges.

Over the Counter Exchange of India

OTCEI was established in the year 1992. It allows listing of small and medium sized companies. A company that wants to be listed in OTCEI must have a minimum issued share capital of Rs. 3 crores. Financial institutions, scheduled banks, mutual funds and other non-banking financial companies can be its members. The dealers of OTCEI can be individuals, partnership firms and corporate entities with a minimum net worth of Rs. 5 lakhs.

National Securities Depository Ltd.

NSDL is the largest depository of India established in the year 1996. It is promoted by Industrial Development Bank of India, the Unit Trust of India and the National Stock Exchange of India Limited. It handles most of the securities held and settled in a dematerialised form in the capital market. The following are the functions that NSDL performs:

It maintains the holdings of the investor in the electronic form. It carries out the settlements of the trader.

Individual Investor and NSDL

An individual investor has to open an account in order to become the member of NSDL. An individual investor enjoys the following benefits in becoming the member of NSDL:

If the shares are bought in the depository mode then the investor can become the owner of the shares without loss of time.

The paper work is reduced to minimum in selling of shares.

Transactions of NSDL
Two categories of transactions are undertaken in NSDL:

New issue: In this, the investor can either take the shares in physical mode or in electronic mode.

Secondary market: In this, the method of trading shares remains the same but there is a difference in the settlement and clearing procedures. Trades are settled in demat mode.

Dematerialisation and Rematerialisation

Dematerialisation is a process in which the physical share certificates of the investor are converted into electronic form. Rematerialisation is a process in which the electronic holdings are converted back into physical share certificates.

Chapter Summary
By now, you should have:

Understood the functioning of the various stock exchanges

Bombay Stock Exchange (BSE) National Stock Exchange (NSE) Inter-connected Stock Exchange (ISE) Over The Counter Exchange of India (OTCEI) National Securities Depository Limited (NSDL)

Learnt the concept of dematerialisation and rematerialisation