What is the Difference Between BSE and NSE: Which is Better?

A stock exchange is a centralized platform for the buyers to connect with the sellers. Stock exchanges no longer deal only with shares but trade with a host of financial instruments - stocks, derivatives, commodities, etc.

Although you will be trading through a broker, it is essential to understand the relationship between exchanges and companies and how the exchanges protect investors' interests.

What is NSE and BSE?

India's equity share market boasts two exchanges that enjoy the bulk of the trading volume—the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). These are two of the largest stock exchanges in India and also rank among the top five largest exchanges in Asia. The exchanges play a significant role in the entire trading gamut and its impact on the country's economy.

Moreover, it facilitates the transfer of funds between investors and companies within a regulated framework, providing a safe platform for investment. They behave as a barometer for the country's economic condition. Usually, a stable government results in better market performance and vice versa. Investors and traders are offered a buffet of financial products in accordance with their financial goals and risk appetite. It is also a platform for wealth creation.

As an investor or trader, it is vital to understand these stock exchanges and learn the key differences between NSE and BSE.

A company needs to be listed on the stock exchange.

Companies get themselves listed on the stock exchange as a formal admission of the company's equity onto the trading platform of the Exchange. A listed company gives itself the opportunity to raise capital and simultaneously strengthen its structure and reputation. It provides liquidity to investors and ensures effective monitoring of the issuer's compliance and trading of securities in the interest of investors.

Why do companies get listed on exchanges?

• Automated trading and Transparency—In today's scenario, stock exchanges have witnessed a paradigm shift in adopting high-end technology that provides a seamless experience for investors. This leads to transparency in dealings, thereby increasing investors' confidence.
  
• Accountability—A listed company's management is accountable to its shareholders. Listed companies need to ensure timely compliance by disclosing and providing information to the Exchange and its shareholders as laid down in the Listing Agreement or applicable guidelines.
  
• Accessible Platforms—Online trading platforms can be accessed from any device and location. These platforms provide traders and investors with equal opportunities for trading and investing. It also increases the company's visibility.
  
• Higher transaction speed—With the introduction of online trading systems, trade executions have become faster. Due to the high speed at which they occur on the Exchange, transaction efficiency has increased manifold.

Stock exchanges in India

1. BSE Ltd.
2. Calcutta Stock Exchange Ltd.
3. India International Exchange (India INX).
4. Metropolitan Stock Exchange of India Ltd.
5. National Stock Exchange of India Ltd.
6. NSE IFSC Ltd.

Of these active exchanges, NSE and BSE are the two leading stock exchanges. A company can choose to be listed on the BSE as well as the NSE, which is normally referred to as dual listing. One of the reasons for dual listing is that it increases a stock's liquidity and allows investors to choose from the markets, and the bid-ask spread on the stock tends to reduce, making it easier for investors to buy and sell the securities in the market at any time. For a company to be listed on the stock exchange, it needs to fulfil predetermined criteria with respect to its financials and disclosures.

Difference between BSE and NSE

Before we discuss the differences between the NSE and BSE, let's understand the setups of both institutions.

Bombay Stock Exchange (BSE)

This is the oldest stock exchange in India, set up in July 1875, and was known as 'The Native Share and Stock Brokers Association.' It was founded by Mr. Premchand Roychand, who was one of the most influential businessmen at that point in time. Post-1957, the government of India recognized it as the premier stock exchange in the country under the Securities Contract Regulation Act of 1956. It is currently headed by Mr. Ashishkumar Chauhan, the Managing Director and CEO of BSE. The term Sensex was coined by Deepak Mohoni, a stock market analyst, in 1986. At that time, the BSE Sensitive Index then was at about 750 points.

The Sensex was India's first-ever equity index to offer an identifying base for the top 30 exchange trading companies. In 1995, BSE online trading (BOLT) was established, and at that time, its volume of transactions touched 8 million transactions per day. Interest Rate Swaps (IRS) and Forward Rate Agreements (FRA) were allowed in 1999. Bombay Stock Exchange ranks as the 12th largest stock exchange in the world, with a market capitalization of ₹151,970.87 billion (US$2.1 trillion) as of March 2019.

BSE has an efficient and transparent market dealing in Equities, Derivatives, Indices, currency derivatives, Debt, EFTs or Mutual Funds, Interest Rate Derivatives, Commodity derivatives, etc.

BSE's vision is to 'Emerge as the premier Indian Stock Exchange with best-in-class global class practice in technology, product innovation, and customer service.'

National Stock Exchange (NSE)

The NSE was established way back in 1992 as the first electronic Exchange in India, leading to the removal of the paper-based system. It pioneered the setting up of a modern, fully automated screen-based trading system providing access to investors across the country. This brought about a paradigm shift in the trading business scenario, which was earlier handled by only a handful of experienced traders on the floor, now extended to traders who are qualified, experienced, and meet minimum financial requirements across the country's breadth and length giving a person sitting in a remote area, also the facility to trade with ease.

The introduction of a robust risk management system ensured guaranteed settlements that protected the investors. Over 1600 companies are listed on the NSE. It offers trading and investment in Equities, Futures and Options, Retail and Wholesale Debt, currency futures, and Mutual funds. Mr Vikram Limaye is currently at the helm of helping NSE realize its vision of 'Continuing to be a leader, establish a global presence, facilitate the financial well-being of people.'

In 1996, the NSE identified the top 50 stocks and arrived at the Nifty 50 index, which is extensively utilized as a barometer by investors. The National Stock Exchange is the 10th biggest stock exchange marketplace, and as of March 2017, its market capitalization reached over $1.41 trillion.

NSE Vs BSE: Key Differentiators

Now that we have a basic understanding of these two stock exchanges let us highlight the differences between NSE and BSE.

Incorporation

BSE began operating in the 18th century, making it the oldest stock exchange in Asia. In contrast, NSE was set up much later. In the global ranking of stock exchanges, BSE occupies the 10th position, and NSE ranks 11th.

Electronic trading

In terms of technology adoption, the National Stock Exchange has the upper hand with respect to automated trading. Right from its inception, the NSE has always been a fully electronic stock exchange and gradually eliminated the paper trading system. On the other hand, the BSE operated with a paper-based system until it switched to the BSE Online Trading (BOLT) in 1995.

Derivatives contracts

The NSE enjoys a monopoly today in the derivatives contract segment, and it initiated derivative trading on the Exchange early. However, the BSE enjoys far lower volumes among investors and traders alike.

Number of listed companies

The BSE currently has more than 5,000 companies listed on the Exchange, compared to the NSE's 1600+ companies. However, this staggering difference can be attributed to the fact that the BSE has been in operation much earlier.

Criteria for Listing

For a company to be listed on the BSE, the paid-up capital of the company should not be more than 25 crores to the listed, and in the case of a new listing on the NSE, the paid-up capital requirement is 10 crores.

Listing of the stock exchange

The BSE is the only listed Exchange in India, and it is listed on the National Stock Exchange. Though the NSE also had plans to be listed on a stock exchange, it never materialized due to several legal hurdles.

Index

The Nifty 50 takes into consideration the top 50 stock index, while the BSE Sensex covers 30 companies in

Volume of trade

Even though the number of companies listed on the BSE is much higher than that on the NSE, the trading volumes paint a different picture. The volume of trades on a daily basis is far higher on the NSE. As huge volumes are traded on the NSE, price discovery becomes much easier.

Transaction charges

The NSE charges a transaction fee of 0.00325% of the total turnover on Equity and Delivery Trading, while the BSE charges a fee of 0.003% of the total turnover. In the case of Derivatives trading, the BSE doesn't charge any transaction charges. The NSE has fixed its Exchange transaction charge at 0.0019% for futures trading and 0.05% of total turnover for Options Trading.

A summary of the difference between NSE and BSE is highlighted in the below table:

The Bottom Line

The NSE and BSE have grown tremendously since its inception. It is the ideal platform for beginners as well as seasoned traders and investors, and it has an excellent repertoire of products traded. If you have to ask yourself which of the two is better? You would realize that both are excellent choices. Now that you know the main difference between NSE and BSE, you could go right ahead and start investing in the stock exchange of your choice.