Understanding Stock Exchanges

Understanding Stock Exchanges
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By AADIL REHMAN

Only a few days ago, Stock Exchanges were hitting the headlines-be it the “SENSEX”, the most sensitive index on stock exchange crossing the all time high 33000 mark or the “NIFTY” registering new records. Investors in securities, traded on stock exchanges, were having a golden run earning a good return on their investments, particularly those holding the shares of Public Sector Banks which crossed new limits attributing their success to the recent recapitalization move by the Government of India which infused a new life to the functioning of these Banks. These institutions were battling with rising NPAs (Non Performing Assets) which was hampering their growth and negating their performance. The performance of every company listed on stock exchange is reflected through its trading volume of shares ultimately impacting the value of its shares. Stock markets serve as one of the best investment avenues where a person having surplus o money can pool the same and earn a good return provided he is well equipped with the knowledge and knowhow of the said market.
Every security market has two main parts- the Primary Market where the shares or securities of the companies are traded or bought for the very first time and the person holding such shares which have been directly purchased from the company is said to be a Primary Shareholder. The other is the Secondary Market where the already issued securities of the Primary Market are traded. Thus, to trade the securities in Secondary Market held by the Primary Shareholders, an institutionalized floor is required which is made available by the Stock Exchanges.
World over, there are a number of stock exchanges operating in their respective economies. In India, there are eight stock exchanges right now governed by the Securities and Exchange Board of India (SEBI); the stock market regulator, in addition to Nine Commodity Derivative Exchanges which are deemed to be recognized stock exchanges under Securities Contract (Regulation) Act 1956 in pursuance to Section 131 of Finance Act, 2015 and Central Government notification F.No. 1/9/SM/2015 dated 28th August, 2015. Other Regional Stock Exchanges such as The Hyderabad Securities and Enterprises Ltd (erstwhile Hyderabad Stock Exchange), Bangalore Stock Exchange Ltd, OTC Exchange of India, Gauhati Stock Exchange Ltd, Pune Stock Exchange Ltd, Saurashtra Kutch Stock Exchange Ltd, Coimbatore Stock Exchange Ltd, Mangalore Stock Exchange, Inter-Connected Stock Exchange of India Ltd, Cochin Stock Exchange Ltd, Ludhiana Stock Exchange Ltd, Bhubaneswar Stock Exchange Ltd, Jaipur Stock Exchange Ltd, Madras Stock Exchange Ltd, etc., which were operating in India at the regional level have been granted exit by the Securities and Exchange Board of India (SEBI) vide orders issued from time to time. In terms of trading volume and market capitalization, India has two major stock exchanges.
Bombay Stock Exchange (BSE): Established as “The Native Share & Stock Brokers’ Association” in 1875 on July 9, BSE is Asia’s first stock exchange. It is the world’s fastest stock exchange with a speed of 6 micro seconds and is also the first listed stock exchange of India to be granted permanent recognition under the Securities Contract (Regulation) Act, 1956 on the 31st of August 1957. Over the past nearly one and half century, BSE has shown tremendous growth and has provided the Indian corporate sector an efficient platform for raising their desired capital. BSE introduced the BSE On-line Trading (BOLT) system on 14th of March 1995 through which it migrated from public outcry to an on-line screen based order driven trading system. The BSE index, SENSEX; an index of 30 stocks of very large companies, launched on 2nd of January 1986 (Base year 1978-79=100), is India’s first stock market index that enjoys an iconic stature, tracked worldwide and is sensitive to market sentiments and market realities. It is traded internationally on the EUREX as well as leading exchanges of the BRCS nations (Brazil, Russia, China, and South Africa). BSE has the largest number of listed companies in the world. As of September 2017, 5119 companies with equities are listed with BSE. As per the data released in August 2017 by World Federation of Exchanges(WFE), BSE ranks 2nd in world in currency options with 25 million contracts approximately, 4th in currency futures with 22 million contracts approximately and 11th in the world with market capitalization of 2.1 trillion USD.
National Stock Exchange (NSE): Recognized in April 1993 as a stock exchange under the Securities Contract (Regulation) Act, 1956 by SEBI, NSE is the leading stock exchange in India. Incorporated in 1992, NSE began screen based trading immediately in 1994. The year 1996 marks a milestone in the history of NSE as it was in this very year that the NIFTY 50 index was launched, which is even traded on foreign exchanges like Osaka Securities Exchange (now part of Japan Exchange Group).NSE offers productive trading opportunities in Capital market (Equities, Mutual Funds, Exchange Traded Funds, Sovereign Gold Bond Scheme etc.), Derivative (Equity Derivative, Currency Derivative and NSE Bond futures) and Debt (Debt segment, Corporate Bonds and NSE Electronic Debt Bidding platform). The NSE has a fully-integrated business model comprising of exchange listings, trading services, clearing and settlement services, indices and market data feeds. NSE has brought about greater transparency, speed, safety and integrity in the markets at national and international level.
Stock Exchanges provide a ready market to investors where the potential and prospective investors can invest in the securities of their choice keeping in view their expected returns and risk appetite. An investor on the stock exchange must do some homework before investing in the securities of a particular company or of different companies. A rational investor always believes in diversification, investing in the securities of different companies operating in different sectors of the economy believing in the golden rule as prescribed by Warren Buffett “Do not put all eggs in one basket”. Before investing, one must thoroughly analyze the fundamental strengths and weaknesses of the company by studying the annual reports and annual financial statements pertaining to different financial years.

—The author is an Assistant Professor of Commerce at Government Degree College, Tral. He can be reached at: rehaadilcom@gmail.com

 

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