The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000.

NSE's mission is setting the agenda for change in the securities markets in India. The NSE was set-up with the main objectives of:

1. establishing a nation-wide trading facility for equities, debt instruments and hybrids,

2. ensuring equal access to investors all over the country through an appropriate communication network,

3. providing a fair, efficient and transparent securities market to investors using electronic trading systems, enabling shorter settlement cycles and book entry settlements systems, and

4. meeting the current international standards of securities markets.

5. The standards set by NSE in terms of market practices and technology have become industry benchmarks and are being emulated by other market participants. NSE is more than a mere market facilitator. It's that force which is guiding the industry towards new horizons and greater opportunities.

NSE is one of the first de-mutualised stock exchanges in the country, where the ownership and management of the Exchange is completely divorced from the right to trade on it. Though the impetus for its establishment came from policy makers in the country, it has been set up as a public limited company, owned by the leading institutional investors in the country.

From day one, NSE has adopted the form of a demutualised exchange - the ownership, management and trading is in the hands of three different sets of people. NSE is owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries and is managed by professionals, who do not directly or indirectly trade on the Exchange. This has completely eliminated any conflict of interest and helped NSE in aggressively pursuing policies and practices within a public interest framework.

The NSE model however, does not preclude, but in fact accommodates involvement, support and contribution of trading members in a variety of ways. Its Board comprises of senior executives from promoter institutions, eminent professionals in the fields of law, economics, accountancy, finance, taxation, etc, public representatives, nominees of SEBI and one full time executive of the Exchange.

While the Board deals with broad policy issues, decisions relating to market operations are delegated by the Board to various committees constituted by it. Such committees includes representatives from trading members, professionals, the public and the management. The day-to-day management of the Exchange is delegated to the Managing Director who is supported by a team of professional staff.

NSC is able to radically transform the Indian Capital market during the decade of its existence. It has changed the mindset of all market players and has built investor confidence in the secondary markets.

"The NSE is different from most other stock exchanges in India where membership automatically implies ownership of the exchange. The ownership and management of NSE have been totally delinked from the right of trading members. This pattern has been adopted

Since broker owned stock exchanges are also broker managed there is a clear conflict of interest. This is a structurally unstable model, as it inevitably leads to emergence of power groups, and investor interests invariably take a back seat."(Mr.R.H.Patil, former MD, NSE)

The NSE has tried to benefit from the long experience and expertise of its trading members in their advisory capacities. It Board of Directors does not have any representative of brokers.

The Executive Committee, which is concerned with the management of the exchange, has four brokers nominated by the board to reflect different types of interests in the market. But the exchange has appointed different committees to advise in areas such as best market practices, settlement procedures and risk containment systems.

Securities industry professional and trading members man these committees and NSE staff concerned with respective areas of exchange operations also participate in them. The day-t-day management of NSE is delegated is delegated to the Managing Director who is supported by a team of professional staff.

Stock exchanges today have to rely increasingly on information technology to stay competitive in delivering services. This is primarily because of newer trading channels used for communicating and transacting like Internet and On-line security trading.

The IT department of NSE employs 150 IT professionals forming a third of its total staff strength. The exchange has invested close to Rs.400 Crores in computers, software and communication equipment. It is therefore recognized as one of "Top IT User" organizations.

In line with global trends NSE is structured and operates much like an information technology company. It has the largest VSAT network in this part of the world with a huge and complex web of hardware and software. It has a detailed disaster recovery site that mirrors all operating systems. The NSE has set up its own Internet Webster, which is visited daily by four Lakh persons

The modern stock exchange technology does not need the traditional type of brokers to match investors' orders as they used to do on the physical-trading floor. The automated Trading screens can match buy and sell orders without the intervention of brokers. Today brokers are needed only for settlement responsibilities. NSE introduced a nation-wide VSAT driven screen based trading system

Operations commenced in Mumbai and rapidly spread all over India. NSE today offers investors trading facilities in over 280 cities and town through 4000 terminals. For the first time NSE introduced in India screen based trading with automated matching.

The system conceals the identity of the parties to an order or trade. This help better functioning of the market as disclosures of identity would put most members at a disadvantage. The trading system operates on price time priority. This means given the same set or orders, the orders that come first receive priority in matching. When an order does not find an immediate match in remains in the system and is displayed to the whole market, till a fresh order comes in or the earlier order is modified or cancelled. The market screens at any point of time give the members complete information on the total order depth in a security, the high price, the low price, the last traded price and other related information.

Nationwide Trading system of NSE has immensely benefited investors in all places, which do not have a stock exchange nearby. Earlier their orders took three days for confirmation. This time lag is now a thing of the past, as the orders and prices are visible and instantly available to all investors across the country, representing a dramatic change in investor access and protection. "This has served to unify the earlier fragmented market into a single national order book, bringing with it unprecedented increases in liquidity and transparency." (Mr.R.H.Patil, former MD of NSE)

NSE introduced risk containment measures like mark to market margins, exposure limits etc., bringing enormous safety to fast growing and changing electronic market.

NSE has introduced the concept of a clearing corporation, by which the counterparty risk of each member is taken by NSCC and the financial settlement guaranteed by the Corporation. Counterparty risk is being guaranteed through the tight risk management system and an innovative method of on-line position monitoring and automatic disablement. NSE introduced this system of automatic disablement to control grave risks. Under this system each broker of NSC is given a limit up to which he can trade. This limit is fixed in relation to the money he deposits with NSC or its clearing corporation. This money can be cash or pledge of securities or Bank Guarantee. Currently the limit is 8.5 times the money deposited.

The trading system works in such a way that the broker gets warning messages after he crosses 70% of his trading limit and the moment he reaches 100% of his limit NSE computer disconnects all his terminals from the system so that he cannot trade further. He is allowed to trade again only when he brings additional deposits or authorise NSC to reduce his trades either by selling or buying on his behalf