Stock Exchange in India Explained | BSE vs NSE

Stock Exchange in India Explained

Stock Exchange in India is typically referred as Stock Market. Stock Exchange is derived from two words: first is Stock and second one is Exchange. Stock means share in ownership of company. Exchange means trade one thing for another. Therefore, in simple words stock exchange is a place where trading of shares of company takes place. Earlier stock exchanges work physically where traders buy/sell share to each other on open floor. But now-a-days, this buying and selling takes place on computer terminals connected over network to central terminal of stock exchange.

What is Stock Exchange?

The stock exchange is a facility through which stockbrokers and traders can buy and sell securities such as shares of stock and bonds and other financial instruments. Stock exchange is often known as stock market, but actually It is an organization which provides a platform for buying and selling of existing securities. Thus, it facilitates in conversion of security to money and vice-versa.

It facilitates companies to raise capital by pooling funds from different investors. Therefore, it is a tool for companies to raise capital from public efficiently and effectively.

According to Securities Contracts (Regulation) Act 1956, stock exchange means anybody of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying and selling or dealing in securities.

London Stock Exchange is the oldest stock exchange in the world whereas Bombay Stock Exchange is the oldest stock exchange in India.

Functions of Stock Exchange

The functions of stock exchange are:

  • It is a reliable barometer to measure the economic condition of a country. The rise or fall in share price indicates the boom or recession cycle of the economy.
  • It helps in discovering the actual value of securities on the basis of demand and supply. The securities of profitable and growth oriented companies are valued higher as there is more demand for such securities.
  • It ensures safety in dealing of securities. The securities are listed on stock exchange only after verifying the soundness of company.
  • It ensures healthy speculation of securities on the basis of demand and supply
  • It provides liquidity to securities by providing ready market for sale and purchase of securities. It gives investors the chance to disinvest and reinvest. Therefore, it creates conductive environment for an active and growing primary market for new issues.
  • Due to investment and disinvestment process, the savings get channelised into most productive investment avenues. Thus, stock exchange helps in capital formation and economic growth. Therefore, it helps companies to raise funds.

Regulator of Stock Exchange in India

Under the SEBI Act, 1992, the SEBI has been empowered to conduct inspection of stock exchanges.

Stock Exchange in India

There are seven stock exchanges recognized by SEBI in India. These are:

  1. Bombay Stock Exchange Ltd
  2. Calcutta Stock Exchange Ltd
  3. Metropolitan Stock Exchange of India Ltd
  4. Multi Commodity Exchange of India Ltd
  5. National Commodity & Derivative Exchange Ltd
  6. Indian Commodity Exchange Ltd
  7. National Stock Exchange of India Ltd

Out of these seven, the two major stock exchanges in India are Bombay Stock Exchange Ltd (BSE) and National Stock Exchange of India Ltd (NSE).

BSE vs NSE

Let’s discuss the difference between BSE vs NSE in detail.

Bombay Stock Exchange

The Bombay Stock Exchange, formerly known as The Native Share & Stock Brokers Association was established in 1875. It was the first stock exchange of Asia and is the oldest stock exchange of India. It is the leading and fastest stock exchange in India. It is situated at Dalal Street, Mumbai. More than 5,000 companies are listed on BSE. The main index of Bombay stock exchange is Sensex which comprises of 30 stocks. Prior to March 1995, BSE had an open outcry system of trading, but on March 14, 1995 it adopted electronic trading known as BSE on-line Trading System (BOLT). Sensex is the benchmark index of BSE. The BSE launched BSE sensitive index (SENSEX) in 1986. BSE Sensex was the first index launched by BSE.

National Stock Exchange

The National Stock Exchange (NSE) was incorporated in 1992 under the Securities Contracts (Regulation) Act 1956. It was incorporated as a tax paying company and recognized as stock exchange in 1993. It is situated at Mumbai. It was the first exchange to provide fully automated screen based electronic trading system. It is the biggest stock exchange of India in terms of market capitalization. More than 1,600 companies are listed on NSE. The main index of National stock exchange is Nifty50 which comprises of 50 stocks. NSE was the first exchange to grant permission to brokers for Internet trading

Stock Exchange FAQ

Q1. Which is the oldest stock exchange in India?
        Bombay Stock Exchange (BSE) is the oldest stock exchange in India. It was founded in 1875.

Q2. How many stock exchanges are there in India?
       There are seven SEBI recognized Stock Exchanges are there in India.

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