Questions and Answers
Which benchmark index is associated with the NSE?
Which stock exchange is known for introducing electronic trading?
Which of the following is suitable for beginners?
Which of the following is a benchmark index for BSE?
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What is the purpose of the pre-open session in trading?
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What type of order is executed at the best available price?
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What is the purpose of circuit breakers in trading?
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Which entity acts as the central counterparty for trades on NSE?
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What is the duration for which trading is halted when the index moves beyond the prescribed limits?
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What is the purpose of position limits in trading?
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What type of order is converted into a market order when the specified price is reached?
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What is the settlement period for trades in the Indian stock market?
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Study Notes
Indian Stock Exchanges
- NSE (National Stock Exchange) is the largest stock exchange in India.
- BSE (Bombay Stock Exchange) is the oldest stock exchange in India, established in 1875.
- NSE was established in 1992, more than 100 years after BSE.
Benchmark Indices
- NSE's benchmark index is Nifty.
- BSE's benchmark index is Sensex.
Suitability for Investors
- BSE is more suitable for beginners due to its ease of use and accessibility.
- NSE is more suitable for seasoned investors and traders due to its advanced features and complex trading options.
Innovations and Contributions
- NSE introduced electronic trading in India, revolutionizing the way stocks are traded.
- BSE introduced the S&P BSE Sensex, a widely followed benchmark index in India.
Exchange Operations
Trading Mechanism
- Orders are matched based on price and time priority to ensure fair trading practices
- BOLT (BSE On-Line Trading) system and NEAT (National Exchange for Automated Trading) system are used for nationwide trading terminal for BSE and NSE respectively
- Brokers or sub-brokers route orders to the exchange's trading system for execution
Trading Sessions
Pre-Open Session
- Takes place from 9:00 am to 9:15 am
- Orders are collected and matched during this phase
Continuous Trading Session
- Takes place from 9:15 am to 3:30 pm
- Trading is done on a continuous basis during this phase
Post-Close Session
- Takes place from 3:40 pm to 4:00 pm
- Trading is done for settlement purposes during this phase
Order Types
- Market Order: Executed at the best available price to ensure immediate execution
- Limit Order: Executed at a specified price or better to provide a limit to the trader
- Stop Loss Order: Converted into a market order when the specified price is reached to limit losses
- Day Order: Valid for a single trading day to ensure timely execution
- IOC (Immediate or Cancel) Order: Cancelled if not executed immediately to prevent delay
- GTC (Good Till Cancel) Order: Valid until cancelled by the trader to provide flexibility
Risk Management
- Price Bands: Set to prevent excessive volatility, with examples including 10% upper circuit and 10% lower circuit
- Circuit Breakers: Trading halted for a specified duration if the index moves beyond the prescribed limits to prevent market mishaps
- Position Limits: Set to prevent excessive speculation and maintain market stability
Settlement and Clearance
- T+2 Settlement: Trades settled two business days after the trade date to ensure timely settlement
- National Securities Clearing Corporation Limited (NSCCL): Acts as the central counterparty for trades on NSE to ensure smooth clearing
- Indian Clearing Corporation Limited (ICCL): Acts as the central counterparty for trades on BSE to ensure smooth clearing
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Description
This quiz covers the basics of Indian stock exchanges, including the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), and their respective benchmark indices, Nifty and Sensex.
