So who will be selling their stake in the NSE? Five domestic institutional shareholders: IFCI, IL&FS, ICICI, PNB and General Insurance Corporation of India have entered into an agreement with the NYSE and three financial institutions -- General Atlantic, Goldman Sachs and Softbank Asian Infrastructure Fund -- to sell their holdings in the NSE.

Several foreign investors are keen to buy into Indian exchanges. Some of the biggest global players have already taken a toehold in commodity exchanges. The first such deal happened when Fidelity bought close to 9 per cent in multi-commodity exchange (MCX) and later, Goldman acquired over 7 per cent in National Commodity and Derivative Exchange (NCDEX), the other online commodity exchange.

As the government recently cleared the FDI norms for the stock and commodity exchanges, such a deal was in the offing. The RBI has allowed foreign investment up to 49 per cent in stock exchanges, fixing foreign direct investment (FDI) cap at 26 per cent and foreign institutional investment (FII) limit at 23 per cent.

Also, NYSE, being a global stock exchange, wanted to expand business to other stock exchanges. The NSE being a demutualised company with valuation over $2 billion is worth an investment. In 2006-07, NSE is expected to make a profit of Rs 250 crore due to a fabulous bull run. It is India's largest exchange and ranks third globally by number of trades in the equities market. In this short span of time, NSE has become the largest exchange in single stock futures and ranks fourth in index futures globally. Its flagship index, the Nifty 50, is used extensively by investors in India and around the world as a benchmark index of the Indian equities market.

The Bombay stock exchange (BSE), country’s other leading stock exchange, is also scouting for a strategic partner. It has been reported that BSE is in talks with the London stock Exchange, Nasdaq, Deutsche Bourse and the Singapore stock exchange to sell a 26 per cent stake. But, NYSE seems to be out of the race as Securities and Exchange Board of India has stipulated investment limit for a single foreign investor at 5 per cent, beyond which an FII or any other investor like foreign stock exchange will not raise its stake in stock exchanges of the country. However, when the sale materialises both the principal stock exchanges of the country will figure in one or the other of the world's leading alliances of stock exchanges.

Before it does, BSE has to meet its deadline to go public by May this year. Once listed, the brokers’ and shareholder’s stake will be diluted to 49 per cent and the public will hold the rest 51 per cent. Moreover, such a listing will help improve governance of the exchange and will bring transparency in day-to-day dealings.

What draws a foreign stock exchange to the discussion table is the money earned from share trading. Today, NSE has roughly 66 per cent of equity spot turnover and roughly 100 per cent of equity derivatives turnover. In terms of transactions volume BSE is among the five biggest stock exchanges of the world. And any foreign firm looking for a stake in BSE will be interested in the volumes traded because that’s the exchange’s primary source of earning. With more companies going public, the average daily transaction at both the leading bourses is likely to rise.

After NSE, foreign stock exchanges are now eyeing equity stake in the Over the Counter Exchange of India (OTCEI), as the government is planning to throw a lifeline to the now defunct bourse for small and medium companies. It is reported that London's AIM (Alternative Investment Market) and the South Korean stock exchange may be willing to buy stakes in the exchange. The government wants to position OTCEI on the lines of AIM by allowing easier corporate governance norms for the exchange, which will encourage foreign stock exchanges to buy strategic stakes.

Finally, what are the benefits accruing to NSE from this deal with NYSE? Obviously the association with one of the world's largest exchanges will be of considerable help along with the benefits in terms of technology. The possibility of foreign firms listing in Indian bourses - to gain access to Indian savings - does not seem remote and in such a scenario NSE is sure to exploit its association with NYSE. For now, of course, the most tangible gain for NSE is the recognition of its strengths by the top-notch global investors.