Page 43 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management

Notes 1.3.9 National Stock Exchange of India Ltd.

The National Stock Exchange of India Limited (NSE) was promoted by IDBI, ICICI, IFCI, GIC,
LIC, State Bank of India, SBI Capital Markets Limited, SHCIL and IL & FS as a Joint Stock
Company under the Companies Act, 1956, on November 27, 1992. The Government of India has
granted recognition with effect from April 26, 1993, initially for a period of five years. The GOI
has appointed IDBI as a lead promoter. To form the infrastructure of NSE, IDBI had appointed a
Hongkong Bound consulting firm M/s International Securities Consulting Limited for helping
in setting of the NSE. The main objective of NSE is to ensure comprehensive nationwide securities
trading facilities to investors through automated screen-based trading and automatic post trade
clearing and settlement facilities. The NSE will be encouraging corporate trading members with
dealer networks, computerised trading and short settlement cycles. It proposes to have two
segments, one dealing with wholesale debt instruments and the other dealing with capital
market instruments. The Electronic Clearing and Depository System (ECDS) proposed to be set
up by the Stock Holding Corporation of India Limited (SHCIL) would provide the requisite
clearing and settlement systems.

Features

The recommendations of the high-powered committee on setting up of the National Stock
Exchange, a 'model exchange' at New Mumbai to act as a National Stock Exchange (NSE) would
provide access to investors from all across the country on an equal footings, and work as an
integral component of the National Stock Market System. Such an NSE has the following vital
features:
1. NSE is promoted by financial institutions, mutual funds, and financed on a self-sustaining
basis through levy of membership fees. The capital outlay of 30 crores of rupees could be
financed by admitting 1,000 members with an entry fee of 10 lakhs each. Fees for corporate
and institutional members could be pegged at a higher level of 25 lakhs.
2. NSE is a company incorporated under the Companies Act of 1956. It is constituted by the
Board of Directors (Board) and managed by it. 50% of the Managing Board of the Exchange
should comprise of professionals who are not members. These professionals must be
from a cross-section of finance and industry, and must actively contribute to ensuring that
the stock exchange functions in a balanced and fair manner.

3. It trades on medium sized securities of equity shares and debt instruments.
4. It is a separate ring altogether. For the first time in our country, debt instruments would
be traded to become an active part in the secondary market of the nation.

5. NSE made its debut with the debt market. The debt market is predominantly a market in
government securities. The Central Government moving over to auctions at
market-related rates of interest, the primary market has become active with the well-
informed and fine-tuned bidding at the auctions.
6. It has the full support from the National Clearing and Settlement Divisions, SHCIL and
the Securities Facilities Support Corporation. It uses modern computer technology for the
clearance and settlement procedures.

7. Better transparency system for the securities.
NSE will provide nationwide computerised debt and stock trading facility to investors. NSE
will operate in two segments i.e., the debt market and the capital market in the debt segment,
there would be transactions in securities such as Government Securities, Treasury Bills, PSU
bonds, Units of the UTI-64 Scheme of UTI, Commercial Papers (CP), and Certificates of Deposit

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