Why does India have NSE and BSE both?

Ever wondered why we have two exchanges in the country, when they both do the same job? Before getting to the answer, you should know that these are not the only exchanges India has. There are a number of other exchanges like the Calcutta Stock Exchange and the MCX.

To answer why, let’s clear up a common misconception first: both the NSE and BSE are private entities and not government institutions. Stock exchanges are businesses which provide platforms for companies and potential investors to interact for a fee.

BSE or Bombay Stock Exchange is one of Asia’s oldest exchanges, having been started by a group of brokers under a banyan tree in the 1800s. It eventually got established at Dalal Street in Mumbai. BSE essentially possessed control of the market since there were no competitors. So it was deemed necessary to bring up new exchanges to not let a monopoly prosper. BSE at the time apparently charged a considerable fee for transactions on the platform, so increased competition would decrease this cost for investors.

With the advent of technology in the 1900s, it seemed as though due to the monopolistic nature of the market, BSE wasn’t bringing technological innovations to the Indian market fast enough.

Since the BSE was controlled by a small group of brokers at that time, these guys had too much of an influence on the country’s largest stock exchange. Also, the rules at that time were such that new brokers had quite a few hoops to jump through to be able to participate.

We’ve only discussed the problems with BSE before we had both exchanges to compare. But the NSE brought some advantages of its own too. The NSE or National Stock Exchange was set up in 1992.

And it used computer-based systems to provide accessibility of real-time trading data to everyone, which was earlier reserved for a small number of brokers who were dealing on the floor of the exchange. This inclusivity drove a lot of traffic their way and it would have forced the BSE to bring these changes too.

The entry barriers to broking that we discussed before were loosened for more people to enter the industry. Before NSE, either recommendations from existing members or a deposit of one crore rupees as membership fees was required. NSE said anyone with the required qualifications could complete the process and become a broker.

The NSE also reduced the settlement period of stocks. You might have seen in the Scam 1992 series that they had a 15-day settlement period in the 1980s, NSE came in with a 7-day settlement period. And the establishment of the NSCCL also helped the NSE, since the clearing corporation meant a guarantee of settlements. So the NSE came in and increased the speed and security for the traders, obviously driving more and more people to their platform.

Which exchange do you use to buy securities? BSE or NSE? Anyways, thanks for reading! And while that’s it for this article, you can more articles from me here. And do let me know if you want a specific topic covered! Subscribe for free to receive more posts like this every day!