What is NSE? (National Stock Exchange)

Considered one of the world's most technologically advanced, the National Stock Exchange (NSE) is a major Indian financial stock exchange with its headquarters based in Mumbai. NSE holds a significant place in India’s financial landscape. Over the years, NSE has made the process of buying and selling various financial investment instruments accessible and simpler for numerous investors.
Understanding the NSE is crucial for any investor in the Indian financial setup. This article takes you through the various aspects of the NSE including how it functions, the services it provides, the market segments it caters to, and more.
- Table of contents
- What is NSE? (National Stock Exchange)
- How does the NSE stock exchange work?
- Benchmark index of NSE
- Features of national stock exchange
- Market segments of the national stock exchange (NSE)
- NSE listing benefits
- Why do companies list with NSE?
- The national stock exchange of India limited trading process
What is NSE? (National Stock Exchange)
The NSE is India’s leading stock exchange, established in 1992 to bring transparency and efficiency to the Indian capital market. It commenced operations in 1994 its full form – National Stock Exchange – represents the nationwide accessibility it offers, allowing investors from all corners of India to trade in various financial instruments.
Moreover, NSE was the first exchange in India to provide a fully automated, screen-based electronic trading system, which replaced the traditional “open outcry” method of trading.
How does the NSE stock exchange work?
- Trading participants: Investors, traders, and institutions participate in buying or selling stocks, bonds, and derivatives.
- Broker intermediaries: Trades are facilitated through registered brokers who act as intermediaries.
- Electronic trading: All trading is conducted online using an automated system that ensures speed, accuracy, and transparency.
- Price discovery: Prices are determined by supply and demand, with trades executed at market-driven rates.
- Clearing and settlement: After a trade is executed, the clearing corporation ensures smooth settlement by transferring securities to the buyer and funds to the seller.
Benchmark index of NSE
The benchmark index of the NSE is the NIFTY 50. It represents the performance of the top 50 companies listed on the exchange on the basis of market capitalisation. These companies span various sectors, giving investors an insight into the overall health of the Indian economy. The NIFTY 50 is widely used by fund managers, investors, and policymakers as a barometer for the stock market.
Functions of NSE
- Creating a nationwide trading platform for equities, debt instruments and hybrid financial products to enhance market accessibility.
- Ensuring equitable access for investors across India through a robust and efficient communication network.
- Leveraging electronic trading systems to offer a fair, efficient and transparent securities market.
- Facilitating faster settlement cycles, implementing book-entry systems and aligning with international standards of securities markets.
Features of national stock exchange
The NSE uses an order-driven market system instead of a quote-driven one. It operates through an automated trading platform called the National Exchange for Automated Trading (NEAT). Each order is given a unique number and, if not immediately matched, it is added to an order book. The system prioritises orders based on price and time.
When matching orders, the highest buy price is paired with the lowest sell price. If two orders have the same price, the older one is given priority. Matches are made based on the passive value of the order, and partial matches are allowed until the entire order is completed. This system ensures fairness, efficiency, and transparency in trading.
Market segments of the national stock exchange (NSE)
The NSE trades in two key segments, the Wholesale Debt Market and the Capital Market.
Wholesale debt market: This segment facilitates trading in fixed-income instruments such as bonds, treasury bills, certificates of deposit, commercial paper and government securities.
Capital market: This segment allows trading in equity shares, debentures, preference shares, exchange-traded funds, and retail government securities, catering to a wide range of investment options.
NSE listing benefits
- Wider reach: Gain access to a large pool of investors across India, boosting investment opportunities.
- Higher liquidity: Shares can be traded easily, ensuring better liquidity for investors.
- Improved credibility: Being listed on NSE enhances the company’s reputation and trustworthiness.
- Efficient fundraising: Companies can raise capital effectively through public offerings.
- Greater visibility: Listing increases the company’s market presence and brand recognition, attracting more investors and business opportunities.
Why do companies list with NSE?
Access to capital: Listing on NSE allows companies to raise funds efficiently through public issues, supporting their growth and expansion plans.
Increased market presence: Being listed enhances a company’s visibility and credibility among investors and stakeholders.
Efficient trading platform: NSE offers a seamless and automated trading system, ensuring smooth and transparent transactions for investors.
Regulatory compliance: Companies listed on NSE must adhere to strict SEBI norms, building trust and confidence among stakeholders through transparency and accountability.
The national stock exchange of India limited trading process
- The National Stock Exchange of India (NSE) uses an order-driven trading system, removing the need for market makers or specialists.
- When an investor places a market order, it is assigned a unique identification number and instantly matched with an existing limit order.
- The matching process is fully automated, ensuring the anonymity of both the buyer and the seller.
- If a match isn’t found immediately, the order is placed in the order book, where it is prioritised by price and time.
- Orders with the best price are executed first; for orders with the same price, the oldest order is prioritised.
- The system provides transparency to investors by displaying all buy and sell orders in the market.
- Investors can place orders through online trading platforms provided by brokers.
- The NSE operates Monday to Friday, five days a week, except on holidays declared by the exchange.
Conclusion
The National Stock Exchange has played a significant role in India’s financial markets. By introducing advanced technology, transparency, and efficiency, it has made investing accessible to millions of Indians. Whether you are an investor, a trader or a company looking to raise capital, the NSE offers a reliable and robust platform to participate in the growth of the Indian economy.
FAQs
What is NSE?
The National Stock Exchange (NSE) is one of India’s major stock exchanges, providing a platform for trading in equities, derivatives and other financial instruments.
When was NSE established?
The NSE was established in 1992 and commenced operations in 1994.
Is NSE called NIFTY
No, NSE is the stock exchange, while NIFTY 50 is its benchmark index, representing the performance of the top 50 companies listed on NSE on the basis of market capitalisation.
Should I buy BSE stocks or NSE stocks?
This depends on your preference and trading strategy, as both exchanges offer unique advantages. NSE is known for its high liquidity and advanced technology.
Who is the owner of NSE?
The NSE is a publicly owned entity with ownership distributed among financial institutions, banks and other stakeholders.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. This document should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.