National Stock Exchange of India Limited (NSE) was incorporated in 1992 and was given recognition as a stock exchange in April 1993. It started operations in June 1994, with trading on the Wholesale Debt Market Segment. Subsequently it launched the Capital Market Segment in November 1994 as a trading platform for equities and the Futures and Options Segment in June 2000 for various derivative instruments.
NSE was set up with the following objectives of:
(a) Establishing a nationwide trading facility for all types of securities,
(b) Ensuring equal access to all investors all over the country through an appropriate communication network,
(c) Providing a fair, efficient and transparent securities market using electronic trading system,
(d) Enabling shorter settlement cycles and book entry settlements, and
(e) Meeting the international benchmarks and standards.
The broad objective for which the exchange was set up has made it to play a leading role in enlarging the scope of market reforms in securities market in India. During last one decade it has been playing the role of a catalytic agent in reforming the market in terms of microstructure and helping in evolving the best market practices keeping in mind the stake holders. It became the first exchange in the world to use satellite communication technology for trading. It uses satellite communication technology to energise participation from about 2,829 VSATs from nearly 345 cities spread all over the country. In the global market NSE ranks first in terms of number of contracts traded in the single stock futures, second in Asia in terms of number of contracts traded in equity derivatives instrument.
The Exchange operates three market segments, namely Capital Market Segment (started in November 1994), Wholesale Debt Market Segment (started in June 1994) and Futures an Options segment (started in June 2000).
Wholesale Debt Market
The Wholesale Debt Market (WDM) segment provides a trading platform for trading of a wide range of fixed income securities that include government securities, treasury bills, bonds issued by public sector undertakings, floating rate bonds, zero coupon bonds, index bonds, CPs, CDs etc. In a bid to encourage wider participation of all classes of investors, the Retail debt market segment was also launched by the Exchange on January 16, 2003 to provide a nation wide, anonymous, order driven, screen based trading system.
The trading value on the WDM segment has been growing rapidly since 1994-95 (June-March) where it recorded a trading value of Rs. 6,781 crore to Rs. 887,294 crore during 2004-05. The average daily trading value have also increased manifold from Rs. 30 crore to Rs. 3,028 in the same period. The total market capitalization of the securities available for trading on WDM segment stood at Rs. 1,461,734 crore as at end March 2005. There were a total of 75 members trading on this segment as at end-March 2005.
Keeping in mind the requirements of the banking industry, the FIs, MFs etc, who have a substantial investment in sovereign papers, NSE started the dissemination of the Zero Coupon Yield Curve which helps in the valuation of securities across all maturities irrespective of its liquidity in the market. It has also put in place a VaR system for measuring the market risk inherent in Government of India (GOI) securities. NSE-VaR system is built on the NSE database of daily yield curves.
The increased activity in the government securities market in India and the emergence of the MFs has initiated the construction of the Bond index, which measures the returns in the bond market.
NSE has also been computing and disseminating the NSE MIBID/MIBOR rates since 1998 which are based on the rates polled by NSE from a representative panel of 29 banks/institutions/primary dealers. Currently co-branded with FIMMDA, this rate is used as a benchmark rate for majority of deals struck for interest rate swaps, FRAs etc.
NSE commenced trading on the CM segment on November 3, 1994 and within a year it established itself as the largest stock exchange in India in terms of trading volumes. The CM segment provides a trading platform for equities, preference shares, ETFs, and retail Government securities etc. NSE today accounts for nearly 68% of the total trading value of all stock exchanges in the India. The trading value of the CM segment has increased rapidly from Rs. 1,805 crore during the first year of its operation to Rs. 1,140,072 crore during 2004-05. The average daily trading value have also increased by leaps and bounds from Rs. 17 crore in 1994-95 to Rs. 4,506 crore during 2004-05. The total market capitalization of securities available for trading on the CM segment as on March 2005 was Rs. 1,585,585 crore.
The market benchmark index S&P CNX Nifty which is based on the 50 largest and highly liquid stocks closed at 2035.65 on March 31, 2005. The index touched its peak of Rs. 2183.45 on March 9, 2005.
Futures and Options Segment
Derivatives trading commenced in India in June 2000. Currently NSE provides trading in futures and options based on benchmark index S&P CNX Nifty and CNX-IT as well as options and futures on single stocks (currently 118 stocks) and futures on interest rate. The turnover in the F&O segment witnessed considerable growth in the last three years placing. From the very beginning, NSE has established itself as the sole market leader in this segment in the country with more than 99.5% market share. The F&O segment reported a total trading value of Rs. 2,547,053 crore during 2004-05.
The National Securities Clearing Corporation Ltd. (NSCCL), a wholly-owned subsidiary of NSE, was incorporated in August 1995 and commenced clearing corporation in April 1996. It was the first clearing corporation in the country to provide novation/settlement guarantee that revolutionized the entire concept of settlement system in India. It was set up to bring and sustain confidence in clearing and settlement of securities; to promote and maintain short and consistent settlement cycles; to provide counter-party risk guarantee, and to operate a tight risk containment system. It carries out the clearing and settlement of the trades executed in the equities and derivatives segments of the NSE. It operates a well-defined settlement cycle and there are no deviations from the same. It also operates Subsidiary General Ledger (SGL) for settling trades in government securities for its constituents. It is the first clearing corporation in the country to establish the Settlement Guarantee Fund (SGF) in June 1996. It has been managing, clearing and settlement functions since its inception without a single failure or clubbing of settlements. NSCCL has also introduced the facility of direct payout to clients account on both the depositories viz., NSDL and CDSL.
Today NSCCL settles trades under the T+2 rolling settlement. It has the credit of continuously upgrading the clearing and settlement procedures and has also bought Indian financial markets in line with international markets.
Risk Management System: A sound risk management system is integral to an efficient settlement system. The NSCCL ensures that trading members’ obligations are commensurate with their deposits. It has put in place a comprehensive risk management system, which is constantly monitored and upgraded to pre-empt market failures. The system monitors the track record and performance of the members and their deposits, undertakes online monitoring of members positions and exposure in the market, collects margins from members and automatically disables members if the limits are breached. As a part of the risk management system, index based market wide circuit breakers have also been put in place which operates at three stages of the index movement either way at 10%, 15% and 20%. As an additional safety measure, individual scrip-wise price bands have also been imposed. The robustness of the risk management system of NSE was amply proved by the timely and default free settlement on highly volatile days like May 14 & 17, 2004, the two days when the market witnessed a fall of nearly 7.87% and 12.24% respectively. It was due to the tight controls of member positions, stringent margining etc. the settlements went through smoothly without any disruptions or disorders in the markets.
NSCCL has also developed a comprehensive risk containment mechanism for the F&O segment, and the most critical component is the margining system and on-line position monitoring. The actual position monitoring and margining is carried out on-line through Parallel Risk Management System (PRISM) using SPAN ® (Standard Portfolio Analysis of Risk) system. The objective of NSE-SPAN is to identify overall risk in a portfolio of all futures and options contracts for each member. This system provides real time information on initial margin value, exposure margins, mark to market profit and loss, collateral amounts, contract wise latest prices, contract wise open interest and limits. This system also tracks online real time client level portfolio based up front margining and monitoring.
The SPAN ® is a registered trademark of the Chicago Mercantile Exchange used here under license.
The NSE Family
IISL: India Index Services and Products Limited (IISL), a joint venture of NSE and Credit Rating Information Services of India Limited (CRISIL), was set up in May 1998 to provide indices and index services. It has a consulting and licensing agreement with Standard and Poor’s (S&P), the world’s leading provider of investible equity indices, for co-branding equity indices. It maintains over 70 equity indices comprising broad-based benchmark indices, sectoral indices and customized indices.
NSDL: In order to solve myriad of problems associated with trading in physical securities, NSE joined hands with IDBI and UTI to promote dematerialisation of securities and set up National Securities Depository Limited (NSDL) which commenced operations in November 1996. This has eradicated physical paper from trading and settlement of securities, have got rid of risks associated with fake/forged/stolen/bad paper and made transfer of securities automatic and instantaneous.
NSE.IT: NSE.IT Limited, a 100% technology subsidiary of NSE, was incorporated in October 1999 to provide thrust to NSE’s technology edge, concomitant with its overall goal of harnessing latest technology for optimum business use. It provides the securities industry with technology that ensures transparency and efficiency in the trading, clearing and risk management systems. NSE.IT have launched a number of products some of which are NEAT XS, a Computer-To-Computer Link (CTCL) order routing system, NEAT iXS, an internet trading system and Probos, professional broker’s back office system. NSE.IT also offers an e-learning portal.
NCDEX: In an attempt to provide a world class commodity exchange platform for market participants to trade in a wide spectrum of commodity derivatives NSE joined hands with other financial institutions in India viz., ICICI Bank limited, NABARD, LIC, PNB, CRISIL, Canara Bank and IFFCO to promote the National Commodity and Derivatives Exchange Limited (NCDEX). Currently facilitates trading of 40 commodities.
|NATIONAL STOCK EXCHANGE OF INDIA LIMITED
Exchange Plaza, Bandra-Kurla Complex, Bandra (E)
Phone : (91 22) 26598100, 56418100
Fax : (91 22) 26598120
Email : email@example.com