What is the Stock Exchange ?
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| Stock Exchange. |
As you all will be knowing what is a stock market (if not click here to know) so, now it is also important to know what is a stock exchange and why do we need them.
A stock exchange is a centralized platform for buyers to connect with sellers and vice verse. The stock exchange not only deals with shares of different listed companies but also trades with a host of different financial instruments such as currency, derivative, Exchange-traded funds (ETFs), commodities, etc.
Although you will be trading through your broker, you should know also to understand the relationship between the listed companies and stock exchanges and how the exchanges protect the interest of investors.
Stock exchanges: BSE and NSE
The Indian share market mainly has two stock exchanges that enjoy the bulk of the trading volume - Bombay stock exchange and National stock exchange. These are not only the largest stock exchange in India but are also among the top exchanges in all of Asia.
They provide a safe and regulated platform to transfer funds between buyers and sellers. These exchanges also play a significant role in the entire trading system and also it impacts on the country's economy.
Bombay Stock exchange (BSE) :
It is the oldest stock exchange in India. It was established in 1875 and was known as 'The Native Share and Stock Brokers Association. On August 31, 1957, the BSE became the first stock exchange to be recognized by the Indian government under the Securities Contracts Regulation Act. Founded by Mr Premchand Roychand, who was one of the most influential businessmen at that point in time. Currently, it is headed by Mr Ashishkumar Chauhan, the Managing Director and CEO of BSE.
The term sensed for coined by Mr Deepak Mohoni, a stock market analyst in 1986. It was the first equity index of India to offer a base for top 30 listed company in India.
It offers trading in Equities, Derivatives, Indices, currency derivatives, Debt, EFTs, commodity, etc.
National Stock Exchange (NSE) :
The NSE was established in 1992 as the first electronic Exchange in India, leading to the removal of the paper-based system. This modern system was a fully automated screen-based trading system that was providing access to investors across the country. Due to this shift, BSE also introduced its BSE online trading (BOLT) in 1995. This provided a robust risk management system ensured guaranteed settlements that protected the investors.
Mr. Vikram Limaye is the Managing Director and CEO of NSE. In 1996, it identified the top 50 listed companies in India and named it the Nifty 50 index. It is now the barometer of most of the investors. It offers trading and investment in Equities, Future and options, Debt, currency futures, and Mutual funds, etc.
The key difference between NSE and BSE.
Incorporation :
BSE was established way back in the 18th century making it the oldest stock exchange in Asia. Whereas, NSE was established in 1992. In the global ranking, stock exchange Bse holds 10th position and NSE holds11th position.
Derivative contracts :
NSE has a monopoly in the derivative contract segment since it had an early start on this segment.
Criteria for listing :
For a company to be listed on NSE, the paid-up capital (it is the amount of money a company has been paid from shareholders in exchange for shares of its stock) of the company should be 10 crores, whereas in case if the company has to list itself on BSE its paid-up capital should not be more than 25 crores.
Number of listed companies :
BSE has a total of 5000+ companies listed in the exchange. Where as NSE has a total of 1600+ companies listed on the exchange.
Index :
The NSE Nifty 50 Consists of top 50 stocks according to market capitalization in India, BSE has the sense which consists of top 30 companies according to market capitalization in India.
Volume of trade :
Even though the number of companies listed is more on BSE are higher than NSE but the trading volume of stocks is much higher in NSE than BSE
Transaction charges :
National stock exchange (NSE) charges a Fee of 0.00325℅ of the total turnover as transaction charges on equity and Delivery trading. On the other hand, the Bombay Stock Exchange(BSE) Charges a fee of 0.003℅ of the total turnover transaction charges. While BSE doesn't charge anything on derivative trading, NSE has fixed its Exchange transaction charge is 0.0019% for futures trading and 0.05% of total turnover for options trading.
And BSE is the only stock exchange among the two which is listed on the National Stock Exchange as a publicly-traded stock.
Why companies must be listed on Stock Exchanges?
A company is listed on the stock exchange to become a public company I.e opening itself to the public so that the general public can invest in the company and the company could raise capital. Moreover, a company could use the trading platform of the stock exchange and utilize it to increase its reach.
As a listed company it gives the opportunity to raise capital and simultaneously strengthen its structure and reputation. It also provides liquidity to investors and ensures effective monitoring.
Benefits of investors to invest in listed companies.
- Accountability.
- Automated trading and Transparency.
- Accessible Platforms.
- Higher transaction speed.
The different active stock exchange in India.
- BSE.Ltd.
- Calcutta stock exchange.Ltd
- India International Exchange (India INX).
- Metropolitan Stock Exchange of India Ltd.
- National Stock Exchange of India Ltd.
- NSE IFSC Ltd.
Among these active exchanges, NSE and BSE are the two leading stock exchanges. A company can choose to be listed on NSE As well as BSE, which is often called dual listing. The reasons for dual listing is that it increases the liquidity of a stock, allows investors to choose, and the bidding-asking spread on the stock reduces, making it easier for investors to buy and sell the security in the market at any time.
So, it helps both the parties if any company is listed in a stock exchange.
~By Suddha.
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