ABOUT NSE

National Stock Exchange of India Limited (NSE) was incorporated in 1992 and was
given recognition as a stock exchange in April 1993. It started operations in June
1994, with trading on the Wholesale Debt Market Segment. Subsequently it
launched the Capital Market Segment in November 1994 as a trading platform for
equities and the Futures and Options Segment in June 2000 for various derivative
instruments.
NSE was set up with the following objectives of:
(a) Establishing a nationwide trading facility for all types of securities,
(b) Ensuring equal access to all investors all over the country through an appropriate
communication network,
(c) Providing a fair, efficient and transparent securities market using electronic
trading system,
(d) Enabling shorter settlement cycles and book entry settlements, and
(e) Meeting the international benchmarks and standards.
The broad objective for which the exchange was set up has made it to play a leading
role in enlarging the scope of market reforms in securities market in India. During
last one decade it has been playing the role of a catalytic agent in reforming the
market in terms of microstructure and helping in evolving the best market practices
keeping in mind the stake holders. It became the first exchange in the world to use
satellite communication technology for trading. It uses satellite communication
technology to energise participation from about 2,829 VSATs from nearly 345 cities
spread all over the country. In the global market NSE ranks first in terms of number
of contracts traded in the single stock futures, second in Asia in terms of number of
contracts traded in equity derivatives instrument.
Market Segments
The Exchange operates three market segments, namely Capital Market Segment
(started in November 1994), Wholesale Debt Market Segment (started in June 1994)
and Futures an Options segment (started in June 2000).
Wholesale Debt Market
The Wholesale Debt Market (WDM) segment provides a trading platform for
trading of a wide range of fixed income securities that include government
securities, treasury bills, bonds issued by public sector undertakings, floating rate
bonds, zero coupon bonds, index bonds, CPs, CDs etc. In a bid to encourage wider
participation of all classes of investors, the Retail debt market segment was also
launched by the Exchange on January 16, 2003 to provide a nation wide,
anonymous, order driven, screen based trading system.
The trading value on the WDM segment has been growing rapidly since 1994-95

(June-March) where it recorded a trading value of Rs. 6,781 crore to Rs. 887,294
crore during 2004-05. The average daily trading value have also increased manifold
from Rs. 30 crore to Rs. 3,028 in the same period. The total market capitalization of
the securities available for trading on WDM segment stood at Rs. 1,461,734 crore as
at end March 2005. There were a total of 75 members trading on this segment as at
end-March 2005.
Keeping in mind the requirements of the banking industry, the FIs, MFs etc, who
have a substantial investment in sovereign papers, NSE started the dissemination of
the Zero Coupon Yield Curve which helps in the valuation of securities across all
maturities irrespective of its liquidity in the market. It has also put in place a VaR
system for measuring the market risk inherent in Government of India (GOI)
securities. NSE-VaR system is built on the NSE database of daily yield curves.
The increased activity in the government securities market in India and the
emergence of the MFs has initiated the construction of the Bond index, which
measures the returns in the bond market.
NSE has also been computing and disseminating the NSE MIBID/MIBOR rates
since 1998 which are based on the rates polled by NSE from a representative panel
of 29 banks/institutions/primary dealers. Currently co-branded with FIMMDA, this
rate is used as a benchmark rate for majority of deals struck for interest rate swaps,
FRAs etc.
Capital Market
NSE commenced trading on the CM segment on November 3, 1994 and within a
year it established itself as the largest stock exchange in India in terms of trading
volumes. The CM segment provides a trading platform for equities, preference
shares, ETFs, and retail Government securities etc. NSE today accounts for nearly
68% of the total trading value of all stock exchanges in the India. The trading value
of the CM segment has increased rapidly from Rs. 1,805 crore during the first year
of its operation to Rs. 1,140,072 crore during 2004-05. The average daily trading
value have also increased by leaps and bounds from Rs. 17 crore in 1994-95 to Rs.
4,506 crore during 2004-05. The total market capitalization of securities available
for trading on the CM segment as on March 2005 was Rs. 1,585,585 crore.
The market benchmark index S&P CNX Nifty which is based on the 50 largest and
highly liquid stocks closed at 2035.65 on March 31, 2005. The index touched its
peak of Rs. 2183.45 on March 9, 2005.
Futures and Options Segment
Derivatives trading commenced in India in June 2000. Currently NSE provides
trading in futures and options based on benchmark index S&P CNX Nifty and
CNX-IT as well as options and futures on single stocks (currently 118 stocks) and
futures on interest rate. The turnover in the F&O segment witnessed considerable

growth in the last three years placing. From the very beginning, NSE has
established itself as the sole market leader in this segment in the country with more
than 99.5% market share. The F&O segment reported a total trading value of Rs.
2,547,053 crore during 2004-05.
NSCCL
The National Securities Clearing Corporation Ltd. (NSCCL), a wholly-owned
subsidiary of NSE, was incorporated in August 1995 and commenced clearing
corporation in April 1996. It was the first clearing corporation in the country to
provide novation/settlement guarantee that revolutionized the entire concept of
settlement system in India. It was set up to bring and sustain confidence in clearing
and settlement of securities; to promote and maintain short and consistent settlement
cycles; to provide counter-party risk guarantee, and to operate a tight risk
containment system. It carries out the clearing and settlement of the trades executed
in the equities and derivatives segments of the NSE. It operates a well-defined
settlement cycle and there are no deviations from the same. It also operates
Subsidiary General Ledger (SGL) for settling trades in government securities for its
constituents. It is the first clearing corporation in the country to establish the
Settlement Guarantee Fund (SGF) in June 1996. It has been managing, clearing and
settlement functions since its inception without a single failure or clubbing of
settlements. NSCCL has also introduced the facility of direct payout to clients
account on both the depositories viz., NSDL and CDSL.
Today NSCCL settles trades under the T+2 rolling settlement. It has the credit of
continuously upgrading the clearing and settlement procedures and has also bought
Indian financial markets in line with international markets.
Risk Management System: A sound risk management system is integral to an
efficient settlement system. The NSCCL ensures that trading members obligations
are commensurate with their deposits. It has put in place a comprehensive risk
management system, which is constantly monitored and upgraded to pre-empt
market failures. The system monitors the track record and performance of the
members and their deposits, undertakes online monitoring of members positions and
exposure in the market, collects margins from members and automatically disables
members if the limits are breached. As a part of the risk management system, index
based market wide circuit breakers have also been put in place which operates at
three stages of the index movement either way at 10%, 15% and 20%. As an
additional safety measure, individual scrip-wise price bands have also been
imposed. The robustness of the risk management system of NSE was amply proved
by the timely and default free settlement on highly volatile days like May 14 & 17,
2004, the two days when the market witnessed a fall of nearly 7.87% and 12.24%
respectively. It was due to the tight controls of member positions, stringent
margining etc. the settlements went through smoothly without any disruptions or
disorders in the markets.

NSCCL has also developed a comprehensive risk containment mechanism for the
F&O segment, and the most critical component is the margining system and on-line
position monitoring. The actual position monitoring and margining is carried out online through Parallel Risk Management System (PRISM) using SPAN (Standard
Portfolio Analysis of Risk) system. The objective of NSE-SPAN is to identify
overall risk in a portfolio of all futures and options contracts for each member. This
system provides real time information on initial margin value, exposure margins,
mark to market profit and loss, collateral amounts, contract wise latest prices,
contract wise open interest and limits. This system also tracks online real time client
level portfolio based up front margining and monitoring.
The SPAN is a registered trademark of the Chicago Mercantile Exchange used
here under license.
The NSE Family
IISL: India Index Services and Products Limited (IISL), a joint venture of NSE and
Credit Rating Information Services of India Limited (CRISIL), was set up in May
1998 to provide indices and index services. It has a consulting and licensing
agreement with Standard and Poors (S&P), the worlds leading provider of
investible equity indices, for co-branding equity indices. It maintains over 70 equity
indices comprising broad-based benchmark indices, sectoral indices and customized
indices.
NSDL: In order to solve myriad of problems associated with trading in physical
securities, NSE joined hands with IDBI and UTI to promote dematerialisation of
securities and set up National Securities Depository Limited (NSDL) which
commenced operations in November 1996. This has eradicated physical paper from
trading and settlement of securities, have got rid of risks associated with
fake/forged/stolen/bad paper and made transfer of securities automatic and
instantaneous.
NSE.IT: NSE.IT Limited, a 100% technology subsidiary of NSE, was incorporated
in October 1999 to provide thrust to NSEs technology edge, concomitant with its
overall goal of harnessing latest technology for optimum business use. It provides
the securities industry with technology that ensures transparency and efficiency in
the trading, clearing and risk management systems. NSE.IT have launched a number
of products some of which are NEAT XS, a Computer-To-Computer Link (CTCL)
order routing system, NEAT iXS, an internet trading system and Probos,
professional brokers back office system. NSE.IT also offers an e-learning portal.
NCDEX: In an attempt to provide a world class commodity exchange platform for
market participants to trade in a wide spectrum of commodity derivatives NSE
joined hands with other financial institutions in India viz., ICICI Bank limited,

NABARD, LIC, PNB, CRISIL, Canara Bank and IFFCO to promote the National
Commodity and Derivatives Exchange Limited (NCDEX). Currently facilitates
trading of 40 commodities.