Stock Exchanges and Indices of the World: Sensex to Nikkei

A stock exchange is an organised market where shares, debentures and other securities are bought and sold, and an index is a basket of selected shares whose weighted value is reported as a single number so that the direction of the whole market can be read at a glance. Examiners ask three things from this topic and almost nothing else: which exchange belongs to which country, which index belongs to which exchange, and the founding facts of the two Indian exchanges. This note states all three.

The Indian exchanges

The Bombay Stock Exchange was established in 1875 as the Native Share and Stock Brokers Association and works from Dalal Street in Mumbai. It is the oldest stock exchange in Asia and was the first exchange in India to be granted permanent recognition by the Government under the Securities Contracts (Regulation) Act, 1956. Its benchmark index is the SENSEX, short for Sensitive Index, which was launched in 1986, takes 1978-79 as its base year with a base value of 100, and is made up of 30 large and actively traded companies. Since 2003 the Sensex has been calculated on the free-float market capitalisation method, which counts only the shares available for trading and leaves out promoter holdings.

The National Stock Exchange was incorporated in 1992 on the recommendation of the Pherwani committee, was recognised as a stock exchange in 1993 and began trading in 1994, first in the wholesale debt segment and then in equities. It was India's first exchange to offer fully screen-based electronic trading, which ended the open outcry system of the trading ring. Its benchmark is the NIFTY 50, which covers 50 companies, uses 3 November 1995 as its base date with a base value of 1000, and is also computed on free-float market capitalisation. Other Indian market institutions worth remembering are the Ahmedabad exchange of 1894 and the Calcutta exchange of 1908, the Multi Commodity Exchange and the National Commodity and Derivatives Exchange for commodities, the depositories NSDL and CDSL created under the Depositories Act, 1996, and India INX at GIFT City in Gandhinagar, the country's first international exchange.

The regulator is the Securities and Exchange Board of India, set up in 1988 and given statutory powers by the SEBI Act, 1992, with its head office in Mumbai. It protects investors, regulates the exchanges, brokers and mutual funds, and prohibits insider trading and unfair trade practices. Appeals against its orders go to the Securities Appellate Tribunal.

The major exchanges and indices of the world

Founding facts asked in papers

• The Amsterdam exchange, started in 1602 by the Dutch East India Company, is regarded as the world's first stock exchange.
• The New York Stock Exchange on Wall Street traces itself to the Buttonwood Agreement of 1792, and the Dow Jones Industrial Average, the oldest index still in use, was created by Charles Dow in 1896 and covers 30 companies.
• NASDAQ, opened in 1971, was the world's first electronic stock market and lists most of the large technology companies.
• The FTSE 100 of London dates from 1984, and the Nikkei 225 is named after the newspaper that computes it.
• The Bombay Stock Exchange of 1875 is Asia's oldest, and the Ahmedabad exchange of 1894 is the second oldest in India.

Terms that go with the topic

A bull market is one in which prices are rising and a bear market one in which they are falling, the names coming from the way the two animals attack. A primary market is where a company raises fresh capital, through an initial public offering of shares for the first time or a follow-on public offer later; a secondary market is where those shares then change hands, which is what a stock exchange provides. A blue chip is the share of a large, long established and financially sound company. A circuit breaker halts trading when an index or a share moves beyond a set percentage, and it is the exchange's protection against panic. Dematerialisation means holding shares in electronic form in a demat account with a depository instead of as paper certificates. Market capitalisation is the number of shares of a company multiplied by its market price, and it decides whether a company is counted as large cap, mid cap or small cap.