We’ve talked about a lot of things so far. We started at the bare basics, discussed shares, and debt, saw the company’s funding cycle, and several other things. Now, let’s talk about the concept that we’ve been talking about all along: ‘The Share Market’.
As discussed earlier, the shares are no longer physically traded in a marketplace, although there are buildings for the stock exchanges. We get the shares in a Dematerialized (Demat) form which is credited into our trading account which we have with our broker.
But what kind of a market is this?
It certainly is not a shop where you simply pay and you get the desired shares. The following are some of the most well-known and important exchanges in India:-
- National Stock Exchange= Starting off with the biggest, youngest, and most well-known stock exchange of India, the NSE was established in 1992 and was India’s first dematerialized stock exchange. It is credited with the launch of the famous NIFTY 50 index and is the fourth-largest stock exchange by equity trading volume. The NSE was also the first Indian exchange to introduce screen-based trading which is commonly used today.
- Bombay Stock Exchange= The BSE is not just India’s, but Asia’s oldest stock exchange which was established in 1875 by Mr. Premchand Roychand. It is also the fastest stock exchange in the world with a speed of 6 microseconds. The exchange operates the famous SENSEX index, which had been the benchmark of stock market performance before the establishment of NIFTY 50.
Interestingly, NSE is used a lot more than BSE. BSE has well over 5,000 companies listed on it while the NSE has less than 2,000.
So why is NSE a preferred exchange?
The biggest reason is that the liquidity is significantly higher at NSE than at BSE. This means that selling your securities and converting them to cash is a lot easier and faster in the NSE. Moreover, the trading volume in NSE is several times higher than that of the BSE.
- Calcutta Stock Exchange= Other than these 2 national level stock exchanges, there are other stock exchanges. Earlier, there were several stock exchanges in India, most of them regional in nature. However, with the passage of time, 28 stock exchanges were unable to survive the increasing regulations and ended up closing down. One of these exchanges which managed to survive was the Calcutta Stock Exchange in Kolkata. Some suggest the CSE is older than the BSE itself. This exchange followed the normal ‘open outcry’ method of trading we see in literary media today but turned to the Computer Trading method in 1997. It operates an index called the CSE 40.
- Metropolitan Stock Exchange of India= A lesser-known stock exchange, MSE was incorporated in 2008. It offers an electronic, transparent, and high-speed trading platform to investors and operates the SX40 index. Unlike NSE & BSE, this exchange is not permitted to offer Commodity derivatives.
Other than these 4, there are 3 other exchanges, but they do not trade shares, debt instruments, or equity derivatives. They trade exclusively in Commodity Derivatives:
- Multi Commodity Exchange of India= The MCX is India’s first listed exchange and the largest commodity exchange in our country. It was established in 2003 and provides derivatives contracts in several segments such as Metals, Agro products, Energy, and Bullion. It also operates a flagship index series called the MCX iCOMDEX.
- National Commodity and Derivatives Exchange= The NCDEX is one of India’s most prominent commodity exchanges. It began operations in 2003 and is India’s largest agricultural derivatives exchange, having a market share of 75% in agricultural derivatives.
- Indian Commodity Exchange= ICEX is another commodity exchange regulated by SEBI which began operations in 2017. The exchange is the first in the world to have introduced derivatives contracts for 1-carat diamonds. Currently, ICEX is fighting for its survival as it was almost de-recognized by SEBI for failing to maintain certain net worth and infrastructure requirements.
These are the main exchanges that are recognized by the Indian markets regulator SEBI. But what is the purpose of these exchanges?
Exchanges are, simply put, marketplaces where one can trade in financial securities. Their main purpose is to connect sellers to buyers for an orderly trade carried out at an appropriate price. The platform they provide for investors enables them to trade in the securities they desire at an adequate price. In the absence of an exchange, we won’t be able to buy or sell our desired securities whenever we want at a price beneficial to both parties.
Moreover, these markets are a great source of funds for companies who are in need of funds but do not wish to bear the burden of debt. The platform provided by these companies allows the public to invest in companies that they are interested in while improving the public reach of the company.
Commodity exchanges, on the other hand, serve a different purpose. No company stands to raise money from commodity derivatives, so what is the purpose of a commodity exchange? These exchanges serve a variety of purposes. Individuals like us who seek returns from our investments, give us a chance to diversify our portfolio (bag of investments) by investing in a new type of asset. They are also a means for profitable returns at lower margins, provide a hedge against inflation and help cushion the effects of market fluctuations.
At this point, we have an idea about the stock exchanges but do you know there also exist different kinds of trades?
Read more about them in the next blog!