What is the National Stock Exchange: Functions, Features & Benefits of the NSE

A stock exchange is a centralised platform that facilitates the purchase and sale of a wide range of securities like stocks, bonds, exchange-traded funds (ETFs) and derivatives, among others. Among the four stock exchanges currently operational in India, the National Stock Exchange (NSE) is one of the largest in terms of daily trading volume. Continue reading to find out more about the exchange, its various functions, features and how it exactly works.

What is the NSE?

Founded in 1992 and officially recognised by the Securities and Exchange Board of India (SEBI) in 1993, the National Stock Exchange is one of the two premier exchanges in India. The NSE was the first ever exchange in the country to have introduced a fully electronic trading system, ushering in the era of online trading as we know it today.

As of March 2023, more than 2,100 companies are listed on the exchange and the total market capitalisation of all of the companies exceeds $3.26 trillion as of April 2023. The exchange has also created one of the most used broad-market indices in India - the Nifty50, which is a collection of 50 of the top companies in terms of market capitalisation listed on the exchange.

Functions of the National Stock Exchange

Now that you’re aware of what the National Stock Exchange is, let’s take a look at some of its key functions.

• Trade Facilitation

  The primary function of the National Stock Exchange is to be a platform for easy and seamless trading of financial instruments. Through the use of sophisticated electronic trading systems, the exchange ensures that it provides equitable access to all kinds of investors.

• Clearing and Settlement of Trades

  In addition to facilitating online trading of securities, the NSE also operates a comprehensive clearing and settlement system through its subsidiaries. Through this system, the exchange ensures that all of the trades executed on it are fulfilled and settled in due time without any delays or counterparty risks.

• Market Surveillance

  Another major function of the National Stock Exchange is to continuously and thoroughly monitor the market and the various activities that take place within it. If market manipulation or abuse is detected, the exchange steps in to prevent unfair trading practices and maintain integrity.

• Investor Education

  The NSE routinely engages in comprehensive investor education and awareness programs. It hosts a plethora of educational resources on its official website and routinely takes up initiatives to make investors aware of how the market works.

• Market Data Dissemination

  The National Stock Exchange also provides real-time market and trading data to its members, investors, stockbrokers and market participants.

Features of the National Stock Exchange

As an investor, you shouldn’t just stop with knowing what the NSE is. It is equally important for you to be aware of the various features that the exchange offers. Let’s quickly look at some of its key features.

• Demutualised Structure

  One of the primary features of the National Stock Exchange is the demutualised structure on which it operates. A demutualised exchange is not owned by its trading members, but rather by third-party entities. This ensures that there’s no conflict of interest and encourages fair and unbiased operations.

• Electronic Trading Platform

  The NSE operates a fully electronic and automated screen-based trading system known as the National Exchange for Automated Trading (NEAT). The online trading system promotes transparency in price discovery, accessibility and efficiency.

• Multiple Financial Instruments

  The National Stock Exchange facilitates the trading of not only stocks of companies but also other financial instruments. This includes debt instruments, derivative contracts like futures and options and exchange-traded funds (ETFs).

• Benchmark Indices

  A major feature of the NSE is the various broad-market and sector-specific benchmark indices that it maintains. These indices are used by analysts, investors, mutual fund houses and other market participants to track the performance of the market as a whole.

How Does the National Stock Exchange Work?

To make well-informed trading and investment decisions, you should know how the stock exchange works. Here’s an example to help you understand.

Assume you wish to purchase a company’s stock that’s listed on the National Stock Exchange. You log into a stockbroker’s trading platform and place a buy order specifying the price and the quantity you wish to purchase. The stockbroker, being a member of the NSE, sends your buy order to the exchange.

The exchange’s system attempts to find a corresponding sell order matching your buy order specifications. If the system finds a match, the exchange executes the trade. The exchange then sends the executed trade information to its clearing and settlement arm at the end of the trading session.

The clearing and settlement arm debits the requisite number of shares from the demat account of the seller and credits the same to your demat account by the end of the T+1 settlement cycle.

What are the Different Market Segments of the National Stock Exchange?

The National Stock Exchange operates three different market segments in India. Let’s look at each of these segments in more detail.

• Capital Market

  The exchange facilitates trading of equity shares, exchange-traded funds and sovereign gold bonds through its capital market segment. In addition to this, the NSE also offers services like Securities Lending & Borrowing Scheme (SLBS), equity indices and a Mutual Fund Service System.

  The capital market of the exchange includes the Emerge platform, which is a market segment dedicated for small and medium-sized enterprises (SMEs). Here, stocks of SMEs are listed and traded freely between investors.

• Derivatives Market

  Through the derivatives market segment, the NSE facilitates the trade of futures and options contracts of assets such as equity, commodities, currencies and interest rates.

• Fixed Income & Debt Market

  The fixed-income and debt market segment of the National Stock Exchange facilitates the trade of corporate bonds, government securities and other debt instruments.

Benefits of Listing with the National Stock Exchange of India

As an investor, you’ve seen what the NSE is. Now, let’s take a look at the benefits that companies get to enjoy by listing their shares on the exchange.

• Enhanced Visibility

  The NSE is one of the biggest stock exchanges in not only India but the entire world. This makes it one of the premier marketplaces for trading. Companies can enjoy better visibility by listing their shares on the exchange.

• Enhanced Liquidity

  The trading volumes on the National Stock Exchange are very high, which can be very advantageous for companies since it would boost the liquidity of their shares.

• Quick Transaction Execution and Settlements

  The sophisticated automated electronic trading system of the exchange ensures that trades are matched and executed quickly with few technical snags. Also, since the settlement and transfer of shares are done automatically by the exchange, it frees up the resources of the company.

What are Some of the Major Indices of the National Stock Exchange?

The primary index of the NSE is the Nifty50, which is a broad-market index consisting of 50 of the top companies listed on the exchange. The index consists of companies across 14 different sectors, providing investors and other market participants with a quick overview of the performance of the stock market as a whole. In addition to the Nifty50, the National Stock Exchange also has other key indices, which are as follows.

• Nifty Next 50
• Nifty 100
• Nifty Bank
• Nifty IT
• Nifty Commodities
• Nifty Alpha 50
• Nifty AAA Corporate Bond Index
• India VIX Index

Top 10 Companies Listed Under NSE According to Market Capitalisation

As of November 28, 2023, the top 10 companies listed in NSE according to the descending order of market capitalisation are as follows.

Conclusion

With this, you should now be well aware of what the National Stock Exchange is, how it works and its various functions. The NSE is an integral part of the Indian financial markets and has played a crucial role in its development. In addition to fostering a well-regulated and efficient environment for trading, the exchange is also constantly innovating by bringing new and unique financial instruments to India.