Tenth Anniversary Special
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Stock Exchanges
National Stock Exchange: The real bull
S. Vaidya Nathan
IF India today boasts of what is perhaps the most advanced stock market trading and settlement system in the world, it is quite simply thanks to the National Stock Exchange. Off the starting block in 1993, the NSE had set the benchmark of stock market architecture: A fully automated trading and clearing system; a nationwide trading platform that offers instant trade execution by order matching; a settlement mechanism where it (the NSE) acts as a guarantor for counter parties, eliminating settlement risk; a subsidiary, National Securities Depository Ltd, which has ensured a paperless market; a derivatives market; and a professionally managed index products. In ushering in paperless trading, the NSE was helped by the Securities and Exchange Board of India (SEBI) edict on a time-bound programme of dematerialisation.
When the NSE began operations in late 1993, the market was different. Awash with paper, there was adequate room for forgery, fraud and delay. Brokers dominated stock exchange managements; their operations, too, were opaque. Except high-net worth clients, other investors were not assured even of orders getting executed and reported at best prices. Settlements often took place in a manner that suited vested interests. Transparency was conspicuous by its absence. The NSE changed all that, and quickly too.
In other stock exchanges, broker-members, as shared-owners, dominated the Governing Board and played an active role in the day-to-day management. Conflict of interest was, thus, integral to the system. In contrast, owned by institutions, the NSE has an independent, professional management. It offers a comprehensive trading and settlement platform, with brokers as service providers. Initially, it was perceived as being indifferent to the broking community.
It has, however, over a period, set up area-specific committees, offering brokers a forum. The success of the NSE has also been brought about by the quality and integrity of its top management.
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