How BSE and NSE works? – Explained in Simple Steps
BSE stands for Bombay Stock Exchange and NSE stands for National Stock Exchange. Major of the currency trading takes place in these 2 stock exchanges. The establishment of BSE was prior to NSE. It came in existence in the year 1875 whereas NSE was founded in the year 1992. However the trading in NSE started after a gap of 2 years i.e. in 1994. The trading mechanism that is followed for the stock based transactions is same for both the stock exchanges. Thus the transaction hours and settlement process are completely similar.
The working criteria of BSE and NSE
The trading on both BSE as well as NSE can be achieve through electronic medium. There is an open electronic limit order book where computer aided technology helps in accomplishing the tasks on time through matching the order. Everything in these stock exchanges are derived on the basis of orders. The investors place the market orders and these are eventually matched with the limit orders that are the best. Thus there are no market makers as such because the trading is order driven.
The trading in BSE and NSE takes place in such a way that both the parties i.e. the buyer as well as the seller are anonymous to each other. The entire mechanism is transparent and all the transactions can be handled through demat and trading account by the investors. One needs to get in touch with the broker through whom the trading can be done. The investors can request the brokers to buy and sell the desired quantity of a particular stock and at a particular price.
The listed firms and market capitalization
BSE has around 4,700 listed firms and talking about NSE the count is about 1,200. But an important point to note here is that even though the listed firms in BSE are higher but 90% of its market capitalization comes from just 500 firms only. The other firms lie in that category which can be recognized as mainly in liquid type of shares.
The most reputed firms in the country are listed on both the stock exchanges. NSE has a dominant role to play when the spot trading and the trading in derivative market is concerned.
Settlement of transactions
For the equity dealings a rolling settlement period of T+2 days is there. These stock exchanges are open from Monday till Friday and the trading is allowed up to 3:30 pm as per the Indian standard time. Every dealing is done in demat form and clearing house assumes the settlement risk in these stock based transactions.
Both these stock exchanges work under the supervision and regulation of SEBI i.e. the Securities and Exchange Board of India. SEBI is thus the stock market regulator and keeps an eye on all types of practices in this zone. Sensex and Nifty are the market indexes. Sensex represent the market index for 30 reputed firms that are listed on BSE and Nifty represents market index of 50 firms listed on NSE. The stock prices as well as sensex and nifty value fluctuates on a regular basis and the reason is that these values are dependent on various factors like company’s performance, economic conditions in the nation and government policies.