Trading Mechanism
Trading Mechanism in National Stock Exchange
1. Introduction
1.1 Meaning of Trading Mechanism
The trading mechanism in the stock exchange is based on a transaction between a buyer, seller, and a trading specialist who actually executes transactions in a stock exchange. In general, the trading mechanism is similar to a simple auction, with investors biddng on a particular stock or security. If the bid is accepted by the owner of the security, the trading specialist executes the sale. Most major stock exchanges trade a collection of stocks, bonds, and other domestic and foreign investments.
1.2 Purpose
The trading mechanism exists because of the constant need to channel money from investors into business entities. Investors range from wealthy individuals and investment funds to small-scale investors saving for retirement. Entities that raise money in the stock market include corporations, governments, and government agencies. The combination of investors and borrowers creates the market for securities. The trading mechanism refines the market by matching buyers and sellers with the prices they are willing to pay or take.
2. Trading Mechanism at National Stock Exchange
The trading on stock exchanges in India used to take place through open outcry without use of information technology for immediate matching or recording of trades. This was time consuming and inefficient. This imposed limits on trading volumes and efficiency. In order to provide efficiency, liquidity and transparency, NSE introduced a nation-wide on-line fully automated screen based trading system (SBTS) where a member can punch into the computer quantities of securities and the prices at which he likes to transact and the transaction is executed as soon as it finds a matching sale or buy order from a counter party.
The screen based trading system offers various advantages such as: • Removes time, cost and risk of error and thereby improves operational efficiency • Faster incorporation
1. Introduction
1.1 Meaning of Trading Mechanism
The trading mechanism in the stock exchange is based on a transaction between a buyer, seller, and a trading specialist who actually executes transactions in a stock exchange. In general, the trading mechanism is similar to a simple auction, with investors biddng on a particular stock or security. If the bid is accepted by the owner of the security, the trading specialist executes the sale. Most major stock exchanges trade a collection of stocks, bonds, and other domestic and foreign investments.
1.2 Purpose
The trading mechanism exists because of the constant need to channel money from investors into business entities. Investors range from wealthy individuals and investment funds to small-scale investors saving for retirement. Entities that raise money in the stock market include corporations, governments, and government agencies. The combination of investors and borrowers creates the market for securities. The trading mechanism refines the market by matching buyers and sellers with the prices they are willing to pay or take.
2. Trading Mechanism at National Stock Exchange
The trading on stock exchanges in India used to take place through open outcry without use of information technology for immediate matching or recording of trades. This was time consuming and inefficient. This imposed limits on trading volumes and efficiency. In order to provide efficiency, liquidity and transparency, NSE introduced a nation-wide on-line fully automated screen based trading system (SBTS) where a member can punch into the computer quantities of securities and the prices at which he likes to transact and the transaction is executed as soon as it finds a matching sale or buy order from a counter party.
The screen based trading system offers various advantages such as: • Removes time, cost and risk of error and thereby improves operational efficiency • Faster incorporation
References: Keim, D.B., and A. Madhavan. 1995. The anatomy of the trading process: Empirical evidence on the behavior of institutional traders Kraus, Alan, and Hans R. Stoll. 1972. Price Impacts of Block Trading on the New York Stock Exchange Madhavan, A. 1995. Consolidation, fragmentation, and the disclosure of trading information National Stock Exchange of India. 2008. NSE Fact book 2007-08. Retrieved from http://www.nse-india.com/. National Stock Exchange of India. 2006. Indian Securities Market – A Review. IX.