What is the difference between BSE & NSE in India??

Question

BSE ---> Bombay Stock Exchange

NSE ---> National Stock Exchange

Please explain in detail.

Answer 1

the following are the major areas of diffrences b/w NSE & BSE:

OWNERSHIP

NSE has been incorporated as a tax paying company and is owned by a group of

large developmental financial institutions. On the other hand, BSE is organized as a

brokers’ association. The broker members who “own” seats on the exchange own and

operate BSE.

GOVERNANCE

NSE is professionally managed by a fulltime Managing Director who reports to a

Board of Directors, and is, as such, managed by professionals who do not directly or

indirectly trade on the exchange; ownership and management of the exchange are,

therefore, completely separated. Until NSE emerged, most of the stock exchanges in

India were owned, controlled and managed by brokers who held seats on the various

exchanges. This mutualized form of organization was prevalent in Indian stock

exchanges, and BSE was no exception. In the case of BSE, one of the broker members is

elected to administer the exchange and is designated as the president of BSE, who also

owns a seat on the exchange, like the other broker members. Unlike BSE, NSE is the

first demutualized exchange in India.

TRADING SYSTEM

NSE uses the latest innovations in computing and network technologies to bring the

best available trading system to its customers, and endeavours to constantly improve the

quality of its trading system in its bid to attract and retain its customers. A fully

automated screen based trading system, referred to as NEAT and developed by NSE,

enables members from all over the country to trade with one another on a real-time basis

with ease and efficiency. Three of the more prominent features of NEAT are discussed

below. First, NEAT is a completely automated system for order matching that is

completely order driven and provides complete anonymity to its trading members.

Second, NEAT operates on a strict price time priority such that all buy orders received on

the system are sorted with the best-priced order getting the first priority for matching with

an incoming market sell order. For instance, within orders which have the same price,

time priority is enforced, that is, orders placed first are executed first. This matching

process is computerised, keeping the system transparent, objective and fair. Each order

remains in the system until it is matched with an incoming market order or until it is

cancelled, whichever occurs earlier. Third, is the tremendous flexibility afforded by

NEAT that provides users with several time related orders such as Good-Till-Cancelled,

Good-Till-Day, Immediate-or-Cancel. Moreover, traders are able to take advantage of

price-related and volume-related orders that may be built into an order. Fully accessible

information on total order depth in a security, last traded price, quantity traded during the

day, amongst others, allows traders to make informed decisions regarding price and order

quantity. BSE has, however, been a laggard in the use of technology. Floor trading was still

the prevalent mode of transacting when NSE commenced operations in November 1994.

Since then, a rapid erosion of market share forced BSE to establish its own computerized trading system. This move was a strategic response to a comparatively superior trading

system established by NSE. By June 1995, BSE inaugurated its own electronic trading

system known as BOLT. BOLT adopted many of the features that were built into NEAT.

BSE is a laggard compared to NSE; NSE stands out clearly as the originator of various

new initiatives. In fact, whenever NSE unveils a new initiative, BSE usually responds,

rather reluctantly after a time lag, with a view to protect its market share rather than a

genuine effort to increase customer satisfaction.

LEADERSHIP

From the outset, NSE behaved like a leader – it set the trend for other regional

exchanges including BSE to follow. This leadership status bestowed NSE with the firstmover

advantages that BSE sadly lacked. After ceding its position as the premier

exchange in the country, BSE has had little choice but to trail behind NSE. NSE has

managed to maintain its position by being the innovator since its inception; its moves are

carefully thought out and flawlessly executed. Moreover, NSE is motivated by its

ambition to meet or exceed current international standards pertaining to the provision of

trading services whereas BSE has had to consider appropriate responses to major NSE

initiatives. Frequently, BSE’s ability to react has been stalled by the actions of its own

members whose private incentives conflict with those of the exchange as a whole.

the ownership

structure is considered to be the main driving force distinguishing both markets. In fact,

we argue that it is the difference in ownership that determines the characteristics of each

exchange. Everything that NSE has achieved since inception, BSE potentially could have

accomplished in a superior manner. As the premier exchange in India, BSE had firstmover

advantage and the resources to pursue excellence and to maintain its dominant

status. That BSE chose not to pursue NSE’s strategy of creating a high quality automated

nationwide market for trading securities, needs to be emphasized. Had BSE adopted

NSE’s approach, it would have pre-empted the creation of NSE. BSE’s adherence to its

status quo in trading technology becomes apparent once its ownership structure is

detailed. Essentially, BSE is organized as a mutualized exchange or a broker’s

association, where ownership is not separated from exchange membership. As exchange

members receive their profits from intermediating non-member transactions, these

members have vested financial interests in resisting innovations that may actually

increase the value of the exchange, especially if these innovations reduce their potential

profits. The brokers of BSE resisted automation and the attendant improvements in market quality as they perceived that automation would lead to market transparency. In a

transparent system, these brokers would be precluded from certain rent-seeking activities

which are deemed illegal. Unlike the automated system, a manual trading system would

not easily detect the illegal activities of these brokers. It is with these considerations that

the floor trading system continued in spite of alleged inefficiencies. This culture of

pleasing the brokers at the cost of investors is very strong in BSE.

Answer 2

Sanaa: NSE is promoted by financial institutions, managed by professionals, and its members have only trading rights. Thus, ownership, management and trading rights are independent of each other. On the other hand, BSE is a mutual benefit organisation promoted, owned and managed by member brokers.

Due to its wider reach and larger number of participants, liquidity and trading volume on NSE are normally higher than on BSE. Therefore, you stand a better chance of making a higher profit is there onthe NSE