National Stock Exchange Archives

What is Stock Market?

A stock exchange plays a crucial role in facilitating the buying and selling of financial securities/instruments between investors and traders. The Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) are the leading stock exchanges in the Indian market. These exchanges operate under the rules and regulations set by the Securities and Exchange Board of India (SEBI), an authoritative body dedicated to safeguarding investor interests and fostering the growth of the Indian stock market. Read on to learn more about the difference between NSE and BSE!

What is Bombay Stock Exchange (BSE)?

The Bombay Stock Exchange (BSE) was established way back in 1875. Located on Dalal Street, Mumbai, it is the oldest stock exchange in Asia. There are more than 5,400 companies listed on the BSE. Its benchmark index, the S&P BSE Sensex, is widely tracked by investors across the globe. The Sensex (Sensitive Index) tracks the performance of 30 of the largest and most actively traded stocks on the BSE. As of 2020, BSE is the 10th largest exchange in the world in terms of the cumulative market capitalisation of all companies listed on its platform.

What is National Stock Exchange (NSE)?

The National Stock Exchange (NSE) was incorporated in 1992. It is also located in Mumbai. NSE is ranked the third-largest stock exchange globally in terms of the total number of trades in equity shares. There are more than 1,600 companies listed on the NSE. It is the first exchange in India to implement electronic or screen-based trading. The Nifty 50 is NSE’s benchmark index that represents the weighted average of 50 of the largest companies listed on its platform.

What are the Differences Between NSE and BSE?

Both NSE and BSE provide a platform for companies to raise funds efficiently. The exchanges allow investors to trade in equities, currencies, debt instruments, derivatives (F&O), and mutual funds. Moreover, they provide services such as risk management, clearing and settlement, and investor education.

Basis of Difference	NSE	BSE
Brief	National Stock Exchange is the biggest stock exchange marketplace in India. They introduced the fully automated, electronic, and screen-based trading system in India.	BSE or Bombay Stock Exchange is the oldest and the first stock exchange, not just in India but in the whole of Asia. They offer high-speed trading for their customers.
Number of Companies Listed	NSE has nearly 2100 companies listed on it.	BSE has about 5300 companies listed on it.
Benchmark Indices	NSE’s benchmark index is the Nifty 50, which is based on the market capitalization of top 50 companies.	BSE’s benchmark index is the Sensex, which is calculated based on the market capitalization of 30 companies.
Derivates Contract	NSE has a higher market share in the derivatives market than BSE with a market share of about 94%.	BSE has a comparatively lower market share in derivatives with nearly 6%.
Liquidity	Of all the Indian stock markets, NSE has the greatest average daily turnover for equity shares.	Low liquidity in comparison to NSE.
Products Offered	Equity, Mutual Funds, Exchange-Traded Funds, Corporate Bonds, Initial Public Offering (IPO), Offer for Sale, and also Equity, Currency, and Commodity Derivatives.	Equity, Mutual Funds, Exchange-Traded Funds, Security Lending & Borrowing Schemes, Corporate Bonds, Initial Public Offering (IPO), Institutional Placement Program (IPP), Offer for Sale, and also Equity, Currency, and Commodity Derivatives.

Which is better, NSE or BSE?

While we cannot state specifically which is better, the choice will ultimately depend on your investing and trading styles/preferences. NSE is the preferred exchange for intraday, swing, and derivatives trading due to high liquidity. If you are a long-term investor, it does not matter where you buy/sell shares. However, BSE gives access to more than 5,000 stocks across various sectors. There could be a minor difference in the prices of stocks in NSE and BSE. The costs related to investing and trading are similar for both exchanges.

In conclusion, the investor’s profile ultimately determines which stock exchange they choose among the NSE and BSE. The NSE may be preferred due to its bigger trading volume, cutting-edge technology, and wide range of product offerings, while the BSE offers advantages due to its historical relevance and several specialized markets. Investors should carefully choose which exchange best fits their profile by evaluating their investment objectives, risk tolerance, and specific needs.

Scams have taken place within exchanges and the stock market, but have you ever heard of a stock exchange itself scamming someone? The National Stock Exchange did exactly that in what is called the ‘NSE co-location Scam’. This scam involved close to 62 brokers, advisories, traders, and the employees of the National Stock Exchange. Here’s a quick brief on what the co-location scam was all about.

What is Co-location?

Generally, brokers and proprietary traders have machines at their offices which are connected to a primary server at the National Stock Exchange through which they place orders. Sometimes, because of too many people trading on this server and technical glitches, there was a delay in placing orders which caused losses to these brokers and proprietary trading firms.

The National Stock Exchange, in the year 2009, started providing ‘co-location services’ to brokers for a fee. In this, brokers and firms were allowed to place their servers within the premises on the National Stock Exchange for a premium. This provided them tick-by-tick price data, faster than others and hence giving an advantage over them. A tick by tick data is the most detailed data available showing each and every trade, every second, that is made on the exchange.

Even though this was a question of a few seconds, this led to huge amounts of profits for the firms that availed of the co-location services. Most of these firms used algorithmic trading or high-frequency trading (HFT), where machines and computers buy and sell shares within a matter of seconds based on algorithms. A faster price feed caused them to profit almost every day out of this.

Co-location services are completely legal and NSE had done nothing wrong in offering these services. However, the Securities and Exchanges Board of India (SEBI) had decided to turn a blind eye to the regulation of this service. SEBI did not launch any ‘working paper’ or strict guidelines regarding these services. Some say that there was a political nexus behind this motive.

The Co-location Scam

Secondary Server: There are two kinds of servers at NSE that process all the trades, primary servers and backup secondary servers. In co-location, broker’s servers were connected with a primary server and in case of a technical snag, they were connected with the backup servers.

Preferential Treatment: Some brokerages tied up with the employees of the National Stock Exchange (NSE) in order to know which secondary server would be switched on and when. These brokers would therefore be the first ones to connect to the secondary server and would later populate the server by connecting more than twice. This would cause the server to act slowly for other brokers due to increased traffic, giving an advantage to them. Mainly, one firm called OPG Securities is said to have taken advantage of the above-given situation. Many brokers were given preferential connections to the servers of NSE. It is said that the senior management of NSE plus some politicians had their personal interests in these firms.

A company named AlphaGrep with the help of a company named Sampark Infotainment set up ‘dark-fiber’ links connecting the NSE servers with its own. A dark-fiber is an unused optical fiber. There is no traffic or disturbance on the dark fiber, which means that AlphaGrep could get the tick-by-tick data faster than others. This was done with irregularities. The company, Sampark Infotainment did not have the necessary licenses from the Department of Telecommunications.

How the Scam Got Public

A whistleblower by the name of ‘Ken Fong’ from Singapore wrote to SEBI in 2015 regarding irregularities in the co-location system in NSE and the use of dark fiber lines. As time passed, the whistleblower wrote more such letters to SEBI and business-media houses. Sucheta Dalal who exposed the Harshad Mehta scam published the first letter on her website MoneyLife, you can check it out here.

Fun Fact: NSE filed a Rs 100 crore defamation suit against MoneyLife for the article regarding the co-location scam, but itself ended up paying 3 Lakhs to MoneyLife in restitution. They were also fined another Rs 47 lakhs to be paid to Tata Memorial Hospital and Masina Hospital in Mumbai.

SEBI formed an Expert Committee (EC) for the preliminary investigation of the claims. The Technical Advisory Committee (TAC) of SEBI investigated the technical matters of the claim. Ironically, the NSE formed a Disciplinary Action Committee(DAC) to act against brokers who were involved in the scam.

Deloitte, Ernst and Young, and the Indian School of Business were appointed to perform a forensic audit of the scam. The Income Tax Department and CBI probed the co-location ‘scam’.
In December 2016, NSE’s then CEO Ms. Chitra Ramakrishna and Vice Chairman, Ravi Narain, resigned. The National Stock Exchange’s IPO was stalled and still has not happened. The NSE was ordered to pay close to Rs 1,300 crores in fines which it tried to recover by fining other brokers and firms involved in the co-location scam.

The Current Situation

In January of this year, regulatory body SEBI dropped charges on nine current and former officials of the exchange, including ex-MD and CEO Ravi Narain, saying they cannot be held responsible for any misconduct or non-compliance in the so-called ‘dark-fibre issue’. Then who can be held responsible?

What happens when the people and institutions who are supposed to protect us turn villains? Are these fines enough to stop or scare them? Is this not comparable to cheating retail consumers? And why was no one sent to jail even after clearly profiteering and getting caught? A lot of questions remain unanswered. NSE is even saying that it has ‘strong grounds to contest the above orders including monetary liability raised by SEBI’.

Would certainly love to get more clarity on who actually are involved, with the top courts of the country taking strict action against officials trying to loot us.

You can read more about the co-location scam in the official SEBI order over here.