What is the difference between NSE and BSE?

24 Jul 2020  Read 2974 Views

A stock exchange is a centralized platform for the buyers to connect with the sellers. The stock exchanges no longer deal with only shares but trades with a host of financial instruments - stocks, derivatives, commodities, etc.

Although you will be trading through a broker, it is essential to understand the relationship between exchanges and companies and the manner in which the exchanges protect the interest of the investors.

Stock Exchange: BSE and NSE

India's equity share market boasts of two exchanges that enjoy the bulk of the trading volume - the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). These are two of the largest stock exchanges in India and also rank among the top 5 largest exchanges in all of Asia. The exchanges play a significant role in the entire trading gamut and its impact on the country's economy.

Moreover, it facilitates the transfer of funds between investors and companies within a regulated framework providing a safe platform for investment. They behave as a barometer for the country's economic condition. Usually, a stable government results in better performance of the markets and vice versa. Investors and traders are offered a buffet of financial products in accordance with his financial goals and risk appetite. It is also a platform for wealth creation.

Being an investor or a trader, it is vital to understand about these stock exchanges and learn the key difference between NSE and BSE. 

Need for a company to be listed on Stock Exchanges

Companies get themselves listed on the stock exchange as a formal admission of the company's equity onto the trading platform of the Exchange. A listed company gives itself the opportunity to raise capital and simultaneously strengthen its structure and reputation. It provides liquidity to investors and ensures effective monitoring of compliance of the issuer and trading of the securities in the interest of investors.

Let us first delve into the reasons why companies get listed on exchanges

  • Automated trading and Transparency - In today's scenario, stock exchanges have witnessed a paradigm shift in adopting high-end technology that provides a seamless experience for the investors. This leads to transparency in dealings, thereby increasing investor's confidence.
     
  • Accountability - The management of a listed company has accountability towards its shareholders. Listed companies need to ensure timely compliance by disclosure and provision of information to the Exchange and its shareholders as laid down in the Listing Agreement or applicable guidelines.
     
  • Accessible Platforms - Online trading platforms can be accessed from any device and location. These platforms provide an equal opportunity to the traders and investors for trading and investing. It also adds to the visibility of the company.
     
  • Higher transaction speed - Trade executions have garnered speed with the introduction of online trading systems. The efficiency of transactions has increased manifold due to the high speed in which they happen over the Exchange.

There are 6 active stock exchanges in India

  1. BSE Ltd.
  2. Calcutta Stock Exchange Ltd.
  3. India International Exchange (India INX).
  4. Metropolitan Stock Exchange of India Ltd.
  5. National Stock Exchange of India Ltd.
  6. NSE IFSC Ltd.

Of these active exchanges, NSE and BSE are the two leading stock exchanges. A company can choose to be listed on the BSE as well as the NSE, which is normally referred to as dual listing. One of the reasons for dual listing is that it increases a stock's liquidity, allows investors to choose from the markets, and the bid-ask spread on the stock tends to reduce, making it easier for investors to buy and sell the security in the market at any time. For a company to be listed on the stock exchange, it needs to fulfill predetermined criteria with respect to its financials and disclosures.

The Stalwarts - BSE & NSE

Before we draw out the differences between the NSE and BSE, let us understand both the institutions' setup.

Bombay Stock Exchange 

This is the oldest stock exchange in India, set up in July 1875, and was known as 'The Native Share and Stock Brokers Association.' It was founded by Mr. Premchand Roychand, who was one of the most influential businessmen at that point in time. Post-1957, the Government of India recognized it as the premier stock exchange of India under the Securities Contract Regulation Act, 1956. It is currently headed by Mr. Ashishkumar Chauhan, the Managing Director and CEO of BSE. The term Sensex was coined by Deepak Mohoni, a stock market analyst in 1986. At that time, the BSE Sensitive Index then was at about 750 points. 

The Sensex was the first-ever equity index of India to offer an identifying base for the top 30 exchange trading companies. In 1995, BSE online trading (BOLT) was established, and at that time, its volume of transactions touched 8 million transactions per day. Interest Rate Swaps (IRS) and Forward Rate Agreements (FRA) were allowed in 1999. Bombay Stock Exchange ranks as the 12th largest stock exchange in the world, with a market capitalization of ₹151,970.87 billion (US$2.1 trillion) as of March 2019. 

BSE has an efficient and transparent market dealing in Equities, Derivatives, Indices, currency derivatives, Debt, EFTs or Mutual Funds, Interest Rate Derivatives, Commodity derivatives, etc. 

The vision of BSE is to 'Emerge as the premier Indian Stock Exchange with best - in - global class practice in technology, products innovation, and customer service.'

National Stock Exchange

The NSE was established way back in 1992 as the first electronic Exchange in India, leading to the removal of the paper-based system. It pioneered the setting up of a modern, fully automated screen-based trading system providing access to the investors across the country. This brought about a paradigm shift in the trading business scenario, which was earlier handled by only a handful of experienced traders on the floor now extended to traders who are qualified, experienced, and meet minimum financial requirements across the country's breadth and length giving a person sitting in a remote area, also the facility to trade with ease.

The introduction of a robust risk management system ensured guaranteed settlements that protected the investors. Over 1600 companies are listed on the NSE. It offers trading and investment in Equities, Futures and Options, Retail and Wholesale Debt, currency futures, and Mutual funds. Mr. Vikram Limaye is currently at the helm helping NSE to realize its vision of 'Continue to be a leader, establish a global presence, facilitate the financial well being of people'

In 1996 NSE identified the top 50 stocks and arrived at the Nifty 50 index, which is extensively utilized as a barometer by investors. National Stock Exchange is the 10th biggest stock exchange marketplace, and as of March 2017, its market capitalization reached over $1.41 trillion.

BSE vs NSE Key Differentiators: 

Now that we have a basic understanding of these two stock exchanges, let us highlight the differences between NSE and BSE.

Incorporation

BSE commenced its operation way back in the 18th century, making it the oldest stock exchange in Asia. In contrast, NSE was set up much later. In the global ranking of stock exchanges, BSE occupies the 10th position, and NSE ranks 11th.

Electronic trading

In the case of the adoption of technology, the National Stock Exchange has the upper hand with respect to automated trading. Right from its inception, the NSE has always been a fully electronic stock exchange and gradually did away with the paper trading system. On the other hand, BSE had been operating with the paper-based system until they switched to the BSE Online Trading (BOLT) in 1995.

Derivatives contracts

NSE enjoys a monopoly today in the derivatives contract segment, and it had an early start of initiating derivative trading on the Exchange. However, the BSE enjoys far lower volumes among investors and traders alike.

Number of listed companies

The BSE currently has more than 5000+ companies listed on the Exchange in comparison to NSE 1600+ companies. However, this staggering difference can be attributed to the fact that the BSE has been in operation much earlier.

Criteria for Listing

For a company to be listed on the BSE, the paid-up capital of the company should not be more than 25 crores to the listed, and in the case of a new listing on the NSE, the paid-up capital requirement is 10 crores.

Listing of the stock exchange

The BSE is the only listed Exchange in India and is listed on the National Stock Exchange. Though the NSE also had plans of being listed on a stock exchange, it unfortunately never materialized due to several legal hurdles.

Index

The Nifty 50 takes into consideration the top 50 stock index, while the BSE Sensex covers 30 companies in 

Volume of trade

Even though the number of companies listed on BSE is much higher in comparison to the NSE, the trading volumes paint a different picture. The volume of trades on a daily basis is far higher on the NSE. As huge volumes get traded on NSE, price discovery becomes much easier.

Transaction charges

The NSE charges a fee of 0.00325% of the total turnover as Transaction charges on Equity and Delivery Trading, while the BSE charges a fee of 0.003% of total turnover. In the case of Derivatives trading, BSE doesn't charge any transaction charges. While the NSE has fixed its Exchange transaction charge is 0.0019% for futures trading and 0.05% of total turnover for Options Trading.

A summary of the difference between NSE and BSE is highlighted in the below table:

Features

NSE

BSE

Incorporated

1992

1875

Benchmark Index

Nifty

Sensex

Known as

The largest stock exchange

The oldest stock exchange

Listed companies

1696

5000+

Led By

Mr. Vikram Limaye

Mr. Ashish Kumar Chauhan

Final Thoughts         

The NSE and BSE have grown tremendously since its inception. It is the ideal platform for beginners as well as seasoned traders and investors with an excellent repertoire of products traded. If you have to ask yourself which of the two are better? You would realize that both are excellent choices. Now that you know the main difference between NSE and BSE, you could go right ahead and start investing in the stock exchange of your choice.

About the Author: Bernadine | 33 Post(s)

An MBA Finance graduate, having worked in the Telecom and Banking sector as a Risk and Compliance Manager. An avid blogger with a penchant for traveling

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