Definition & difference between BSE and NSE trading

The phrase ‘stock exchange’ in India is synonymous with BSE (Bombay Stock Exchange) and NSE (National Stock Exchange). These two premier financial institutions, together with their BSE and NSE index, form the driving factor of the equity market in the nation. Every day they carry out lakhs of transactions in currencies, equity, debt instruments, mutual funds, and derivatives. Let us have a look at the role and functioning of these two financial bodies in detail.

What is BSE in the share market?

BSE, established in 1875, is the oldest share market not only in India but in the entire Asian region. It remains based in Dalal Street, Mumbai and list around 6,000 companies under its umbrella. Currently, BSE is also the Fastest Stock Exchange in the world with a speed of 6 microseconds per transaction. In the last 145 years, it emerged as an efficient and transparent medium for trading in currencies, equities, debt instruments, mutual funds, and derivatives.

In 1886, BSE founded the BSE SENSEX index to determine the overall performance of the exchange. It is the average value of equities of top 30 companies from 12 sectors listed on the exchange. BSE has considerably transformed the Indian capital market and helped the corporate sector of the nation to grow exponentially. Today, it has the most extensive online mutual fund platform for small-and-medium enterprises (SME) under its wings. It processes more than 27 lakh transactions every month and adds approximately 2 lakh new SIPs in the same timeframe.

What is NSE in the stock market?

The National Stock Exchange of India Limited ( NSE India ), founded in 1992 in Mumbai is the most sophisticated electronic share market in India, trading in wholesale debts, derivatives, equities, and exchange-traded funds (ETFs). From 1994 onwards, the apex stock exchange in India commenced transactions with a vision of bringing the highest transparency to the Indian capital market. Today, it is the second-largest equity market globally in terms of the number of trades in shares.

One of the finest offerings of the stock exchange is the NSE NIFTY 50 Index for tracking investments and assets pan India. Launched on April 1 1996, it represents the average stock of 50 exclusive companies in India spread across 17 sectors. Investors, sitting as far as the United States can assess the index through ETFs listed under the ticker symbol INDY.

What is the difference between BSE and NSE trading?

Now that we have already formed a comprehensive idea about the BSE and NSE, let us understand the difference between BSE and NSE stock exchanges in a tabular format.

History of BSE and NSE in India

Bombay Stock Exchange

In the latter half of the 19th-century, an influential business tycoon of Mumbai, Premchand Roychand founded the Native Share and Stock Brokers Association (currently known as the BSE). He was also known as the Cotton King or the Bullion King of India, thanks to the enormous fortune he created out of stockbroking business. In the initial days, a group of 22 stockbrokers started gathering under banyan trees near the Mumbai’s Town Hall in 1855 to discuss trades. Thereafter, the number of brokers began to increase, and the association continually shifted bases to accommodate them. Finally, in 1974, they established a permanent location for the forum at Dalal Street or the Brokers’ Street.

The Indian government recognised the BSE as the first stock exchange of the nation on August 31, 1957, under the Securities Contracts Regulation Act. Then, in 1880, the BSE moved their corporate office to the Phiroze Jeejeebhoy Towers. Today BSE implements an electronic screen-based trading medium, BSE Online Trading (BOLT) for transactions. It boasts of a capacity of 8 million orders per day and is the fastest Stock Exchange in the world.

National Stock Exchange

The NSE came into existence in 1992 to implement transparency in the Indian capital market. Unlike other exchanges, where membership is a privilege of a few selected brokers, NSE wanted to bring in every interested investor under its umbrella. They replaced the physical form of transactions with electronic depository-based accounts so that traders sitting in a faraway land could also participate in the trading. NSE also brought forward a robust risk management system to safeguard investors against default brokers. A team of leading financial institutions under the guidance of Pherwani Committee laid the foundation of the NSE.

LIC, SBI, IDFC, and IFCI are some of the leading domestic investors, while are Gagil FDI Limited, Aranda Investments (Mauritius) Pte Limited, and SAIF II SE Investments Mauritius Limited were some of the crucial international investors. In 1993, NSE got the recognition of a stock exchange under the able leadership of Prime Minister of India, P. V. Narasimha Rao and the Finance Minister, Manmohan Singh. In June 1994, it started trading in the Wholesale Debt Market (WDM), November 1994 in equities, and in June 2000 in derivatives. NSE was also fundamental in establishing National Securities Depository Limited (NSDL) for enabling traders to hold and trade in as few as a single equity. It also abolished the prevalence of paper certificates; thus, minimising the risk of forged or fake bonds. Today, NSE has been instrumental in developing the Indian stock market as an influential equity forum for investors across the globe.

How do BSE and NSE work?

Both the NSE and BSE are fully automated electronic trading platforms of India. These modern exchanges can implement faster execution, have minimal chances of error, and report rare fraudulent activities. In the United States more than a dozen stock markets, including the New York Stock Exchange (NYSE) and Nasdaq run on the digital platform. The NIFTY 50 is the index of the NSE, while the SENSEX is the index of the BSE. They represent the average performance of the stock markets and provide an overall view of the economic status of India.

Objectives of BSE and NSE

Here are the set of objectives of BSE and NSE.

Objectives of the BSE

• The BSE endeavours to inculcate honesty and fair-trade practices in the share market. Their vision is to abolish malpractices in securities transactions.
• The Surveillance Department of the BSE constantly lookout for market manipulations like unusual prices and volumes of trading patterns.
• Circuit filters of the BSE ensures that stock prices do not increase or decrease abruptly beyond a set limit. These dummy filters limit freak transactions due to punching errors in the stock market.
• The stock exchange also keeps a close eye on recently listed companies and those stocks, which reaches a new high or low in the ongoing week.
• BSE also takes disciplinary actions against trading members if they become involved in price manipulation.
• Since July 15, 1999, onwards, the stock exchange has established an Online Real-Time (OLRT) Surveillance System to generate alerts in real-time if they diagnose abnormal price and volume variation in Securities.

Objectives of the NSE

• NSE too strives to establish a transparent and efficient equity market in India with a completely digital trading system.
• They wish to offer equal access to all interested investors spread across the nation through an automated trading system and world-wide communication network.
• NSE endeavours to create a world-class equity market for attracting global investors to the Indian forum.

Frequently Asked Questions

1. What is the full form of BSE?

The full form of BSE is the Bombay Stock Exchange. It is the oldest stock market in Asia operating since 1875.

2. What is the full form of NSE?

The full form of NSE is the National Stock Exchange. Founded in 1992, it was the first electronic screen-based trading platform in India.

3. What is block deal in NSE and BSE?

Block deal or bulk deal in the NSE and BSE takes place when a minimum of 5 lakh shares or equity value of Rs. 5 crore gets traded in a single transaction. Stock exchanges open the ‘Block Deal Window’ for 35 minutes in the morning trading session.

4. What is VIX in NSE and BSE?

VIX or Volatility Index is a parameter which determines if the market will reach volatility the next 30 calendar days. Experts calculate VIX percentage by analysing the values of the best bid-ask quotes and using the computation methodology of CBOE (Chicago Board of Options Exchange).

5. What is after-hour trading in NSE and BSE?

After-hour trading in NSE and BSE help investors to trade even after the closing of the market. The after-hours start from 5.30 pm IST and extends up to 9.12 am of the next day session.

6. What is the pre-open market in NSE and BSE?

The pre-open market for both NSE and BSE starts from 9:00 am and extends until 9:15 am. It facilitates transactions before the standard trading hours. The 15-minute pre-open market remains divided into order collection period (9:00 am - 9:08 am), order matching period (9:08 am -9:12 am), and the buffer period (9:12 am – 9:15 am).

7. What is the trading time for NSE and BSE?

The trading time for NSE and BSE is from Monday to Friday between 9:15 am to 03:30 pm. There is also a pre-opening session between 9:00 am - 9:08 am, and a closing session between 3:30 om to 4:00 pm.