capital market

Introduction to national stock exchange (NSE) – capital market in India

NSE was set up by other financial institutions and IDBI with paid equity capital of Rs. twenty five crores. In June 1994 It started operations in the wholesale debt market and inequity in November 1994. The wholesale debt market or money market segments cater to banks and FIs, etc. to encourage high-value transactions in P S U bonds, units of UTI, Treasury bills, Government securities, and call money. There is no trading floor in this exchange. The trading is screen-based, meaning that brokers are connected to the exchange by P C terminals. This makes trading very transparent and it is also cost-effective. The investment counters can be spread wide in the country under the electronic network. The companies who wish to list their shares on this exchange should have a minimum paid capital of Rs 10 crores. The settlement cycle on this exchange is at present T +3. This is likely to become T +2 by April, and sometime in near future it will become T + I. This will mean that transactions on the exchange will be much faster, and sellers will get their money and buyers their securities very quickly.

NSE admits members separately to the wholesale debt market segment and capital market segment. Only corporate members are admitted on the debt market segment whereas individuals and firms are eligible for membership in the capital market segment. The exchange also has capital adequacy norms for both the segments. For WDM this a requirement is Rs. 2 crores, while for stock market the requirement for individuals and registered firms is Rs. 75 lakhs and for corporate bodies, it is Rs.109 Lakhs;

NSE does not look at membership as a property right that can be traded upon. The members do not have to pay any membership fee at the time of becoming members; they pay only an annual subscription fee. The exchange provides the facility of screen-based trading with automated order matching. The system is order driven and conceals the identity of all parties. The trading system operates on a price-time priority. All orders received are sorted with the best-priced order getting the first priority for matching i.e. the best buy order matches the best sell order. Within similarly priced orders, they are sorted on time, i.e. the one that came in earlier than the other, get the priority. The matching of the orders is done by the computers, thus making the whole process transparent, objective and fair. When an order does not find a match, it remains in the system and is displayed to the whole market, until a fresh order comes in or this pending order is canceled.

This trading system is very flexible, and this enables the investors to place several time, price and volume related orders. The system provides complete market information online. All key information is updated on a real-time basis. Due to this, it is possible for the investor to know the actual position of the market, before placing the order. Investors can also know the status of their orders almost as soon as they are placed.
Wholesale Debt Market

WDM or money market is a market where pure debt instruments such as government securities, treasury bills, public sector bonds, corporate debentures, commercial paper, certificates of deposits etc. are traded.

• A few large usually institutional investors and a very high volume of trade dominate this segment.

• The exchange has set up systems to contain market risk by ensuring that the primary responsibility of settlements rests with the participants. The exchange authorities closely monitor the settlements. Every participant sets up counterpart exposure limits, which are automatically adjusted each time a trade takes place.

• Trades on this market are settled on the basis of trade for trade i.e. each transaction is settled individually. Each trade has a settlement date specified upfront at the time of order entry and is used as a matching parameter. The actual settlement of funds and securities are affected directly by participants.

• Gilt securities are immobilized with the RBI and they maintain a book entry of holders. The RBI through book-entry adjustments effects all transfers in these securities.

• Recently, the RBI has allowed the individuals to buy and sell government securities. It will be interesting to see how this market develops in the coming days.

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