NSE vs BSE

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PRESENTED

BY)


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Introduction

BSE

BSE Restructuring

NSE

NSE Group Companies

Competitive Landscape

The Road Ahead

Exhibits


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The Bombay Stock Exchange Ltd. (BSE) wasestablished in 1875 and is the oldest exchange inAsia and was the only exchange for investors inIndia to trade in stocks (equity shares) till 1995.

In 1995, National Stock Exchange Ltd. (NSE)promoted by financial institutions was established.Within a short span of time the NSE with remarkableproduct innovations, use of technology andprofessional management was able to overtake BSEand emerge as a leading stock exchange in India.

In 2005, BSE had a market share of 31.11% in thecash segment and 0.63% in the derivatives segment,Corresponding to NSEs 68.39% (cash) and 99.37%

(derivatives) respectively.


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In 2005, BSE converted into a corporate entity (earlier anassociation of brokers) to compete with NSE operations.The ownership and management of the BSE wereseparated from the trading rights.

BSE It was established in 1875 when 318 individuals

contributed Re.1 each and became members to form "TheNative Share & Stock Brokers Association". It was the

first stock exchange in India to obtain permanentrecognition in 1956 from the Government of India underthe Securities Contracts (Regulation) Act, 1956.

BSE a voluntary non-profit association of brokermembers emerged as a premier stock exchange after the

1960s.


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The increased pace of industrialization caused by the twoworld wars, protection to domestic industry andgovernments fiscal policies aided the growth of new

issues which in turn helped the BSE to prosper.

BSE dominated the Indian capital market with over 60% ofthe total turnover of shares traded.

In 1986, the exchange came up with an index calledSENSEX, comprising of 30 representative stocks. The

stock were selected on the basis of their marketcapitalization, number of trades, average value of sharestraded per day (as a percentage of total number ofoutstanding shares), balanced representation of industry,leadership position in the industry, continuous dividend

paying record and track record of promoters.

This index subsequently proved to be the barometer ofthe Indian stock market. Sensex emerged as a prominentbrand in the country. Sensex was scientifically designed

and based on globally accepted construction and reviewmethodology.


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The carry forward system or badla was a unique

selling proposition of the BSE. Badla provided the facility for carrying forward the

transaction from one settlement to another. It wasthe postponement of delivery or payment for thepurchase of securities from one settlement period toanother.

This facility of carry forward provided liquidity andbreadth to the market.

By bringing in outside money to fund the carryforward of long positions, badla acted as a bridgebetween the money market and the stock market.

However, with the securities scam outburst in 1992Securities Exchange Board of India (SEBI) took over

the control of the stock market and banned the badla


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Until March 1995, BSE had an open outcry system oftrading. With the entrance of NSE - the countrys firstmodern, computerized and professionally managedstock exchange in 1994, BSE had to change its

system of trading and operations.

In 1995, BSE adapted itself to the BSE onlineTrading System (BOLT), an electronic trading systemthrough which brokers traded using computers.

The surveillance, clearing and settlement functionsof the exchange were ISO 9001:2000 certified.


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Badlasystem was later revived and resumed in 1996.

In 2001, due to the sharp fall in the prices of ICEscrips across the globe and the recession in theglobal economy resulted in a significant erosion of

market capitalization of stocks on the NASDAQ andat other leading stock exchanges around the world ,the value of the Sensex fell to 3788.

The aftermath of this scam led to SEBI banningbadla once again and possibly for ever.

In 1999, BSE set up the Central Depository ServicesIndia Ltd. (CDSIL) co-sponsored by the State Bank ofIndia, Bank of India, Bank of Baroda and HDFC Bank.


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By 2005, the network of BSE spread across 417 cities,with over 800 members and 14,426 terminals. It registeredabout 1.4 million transactions per day, and an averagedaily turnover of about Rs.25 billion.

Restructuring In 2005, the BSE was de-mutualized and was registered as

a corporate entity under the provisions of the CompaniesAct, 1956.

In 2005, BSE along with Federation of Indian Stock

Exchanges launched a national trading platform calledBSE Indonext, for small and medium enterprises. Thisplatform helped SMEs to raise capital and trade throughBSE Online Trading and its website trading system.


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NSE

Promoted by leading financial institutions wasincorporated in 1992 as a tax-paying company (unlikeother stock exchanges in the country).

NSE was incorporated as a demutualized stock exchangewhere the ownership and management were deprived ofthe trading rights.

It was set up as a public limited company and owned byleading institutional investors in the country.

The Board comprised of senior executives from promoterinstitutions, eminent professionals in the field of law,economics, accountancy, finance, taxation, publicrepresentatives and nominees of the SEBI.


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In 1993, NSE was recognized as a stock exchangeunder the Securities Contracts (Regulation) Act,1956. The exchange commenced operations in 1994with the Wholesale Debt Market (WDM) and achieved

various milestones .

NSE provided fair and transparent services in thesecurities market to investors with the help of screenbased electronic trading systems.

This technology-oriented mechanism ensuredtransparency, shortened settlement cycles and bookentry settlement systems and thereby matched theglobal standards of securities markets.


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In 1996, the exchange came up with an index calledNIFTY, comprising of 50 large, liquid andrepresentative stocks representing 24 sectors of theeconomy and 77% of traded value of all stocks on the

NSE. The stocks were selected on the basis of lowimpact cost, high liquidity and market capitalization.

The base is defined as 1000 as of November 1995.The index was professionally maintained andreviewed every quarter.

In 1998, NSE commenced Automated Lending andBorrowing Mechanism for lending and borrowing ofsecurities (ALBM). ALBM was the answer to BSEsbadla.


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NSE members were connected to the exchange fromtheir work stations to the central computer located atthe exchange through a satellite using VSATs (VerySmall Aperture Terminals). By 2005, NSE had

installed over 2,829 VSATs in over 345 cities acrossthe country.

By 2004, NSE was known as the third best exchangeacross the world.

NSE won the Wharton-Infosys Business

Transformation Award in the Organization-wideTransformation category for the Europe and AsiaPacific region for harnessing technology to create aworld class exchange and bringing a revolution inthe industry as a whole.


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Group Companies

NSDL

NSE along with the Industrial Development Bank of India(IDBI) and the Unit Trust of India (UTI) promoteddematerialisation of securities and set up NationalSecurities Depository Limited (NSDL) the first depositoryof India in 1996. NSDL established a national

infrastructure of international standard to handle tradingand settlement in dematerialised form.

NSCCL

The National Securities Clearing Corporation Ltd.(NSCCL), the first clearing corporation in India, was

incorporated in 1995. NSCCL sustained confidence inclearing and settlement of securities (equity andderivatives), promoted short and consistent settlementcycles, provided counter party risk guarantees andoperated a tight risk containment system. It also operateda Subsidiary General Ledger (SGL) for settling trades in


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NSE.IT Ltd.

The 100% subsidiary, information technology arm of NSE.

NSE.IT provided products and services in areas of brokerfront end and back-office, clearing and settlement, webbased training, risk management, treasury management,asset liability management, banking etc.

IISL

In 1998, Indian Index Services and Products Limited (IISL)was set up by the joint venture of NSE and CRISIL Ltd.(Credit Rating Information Services of India Limited).IISLprovided variety of indices and index related services andproducts for the Indian capital markets.

DotEx International Limited DotEx provided world class Internet trading platforms to

members of NSE to further provide it to their customers.DotEx provided products in two modules: Equity TradingModule and F&O Trading Module.


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NSE with approximately 860 stocks listed on its exchangeprovided stiff competition to BSE which had around 8,500stocks listed on its exchange.

Around 50% of BSE's cash market turnover came from thestocks other than those in the 'A' group. On the otherhand top 100 stocks on NSE contributed approximately

80% of its cash segment turnover. BSE Sensex suffered from hedging effectiveness, higher

impact cost and immense political hiccups. NSE within ashort period of time overtook BSE due to itsadministrative improvements and less systemic costswhich attracted a lot of investors to NSE.

Earlier the governing board of BSE was an elected bodyand therefore its members were worried about brokersentiments; but with the changes that took place and

with competitive pressures from NSE. broker members(who earlier were considered to be roadblocks) no longer


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Technically larger trading volumes and superior bid-askspreads on NSE attracted a large number of traders. Moreinvestors at NSE opened different avenues of investment-for e.g. derivatives. Due to the regulations at BSE, itmerely concentrated in Mumbai, while the NSE spread

along the length and breadth of the country (8,000terminals across the country) and invited a large numberof potential audiences to the exchange.

SEBI allowed exchanges to set up trading terminalsabroad with the help of Internet trading. Internet trading

consisted of two types - order driven trading system andquote driventrading system. BSE provided both thesesystems while NSE provided only the order drivensystem.


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The restructuring at BSE required the memberbrokers to offload their shareholding (i.e. 51%) by2006. The various avenues considered were to offeran IPO, or enter into strategic relationship or both

according to feasibility.

Experts opined that if BSE entered into strategicpartnerships with large private sector banks it wouldbe exposed to a large distribution network and would

also be able to promote new products like derivativeson a large scale.

How and what strategy should BSE adopt to not onlypreserve its historical image but also counter the stiff

competition from NSE needs to be seen in the future.


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NSE vs BSE

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