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Bombay Stock Exchange Of India Limited (BSE)
Securities’ trading has been in existence for the last 200 years. Incidentally, trading in securities dates back to 1973 – when Loan securities of the East India Company were traded. Rampant speculation was a common feature even during those times. The broking community prospered as there was an increase in prices. This led to the “Share Mania” in 1861-65. This bubble burst in 1865 when the American Civil War ended. The broker realized that investor confidence in the securities market could be sustained only by organizing themselves in a regulated body, with defined rules and regulations. This realization resulted in the formation of “The Native Share and Stock Brokers” association, which later came to be known as the Bombay Stock Exchange. In 1875, these brokers assembled at a place, now popularly known as Dalal Street.
Transformation Of BSE: Demutualization
The Bombay Stock Exchange (BSE) is a voluntary, non-profit making association of broker members. It emerged as a premier stock exchange after the 1960s. The increased pace of industrialization caused by the two World War, protection to the domestic industry, Government’s fiscal policies helped the growth of new issues in the primary market and the trading in secondary market. More than 50% of the turnover in the Indian equity markets was taking place in BSE.
BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act, 1956. BSE’s pivotal and pre-eminent role in the development of the Indian capital market is widely recognized. It migrated from the open outcry system to an online screen-based order driven trading system in 1995. Earlier an Association of Person (AOP), BSE is now a corporatized and demutualized entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). Until the formation of SEBI and the commencement of the process of demutualization, BSE was operating like a closed club of select members. With the securities (Harshad Mehta) scam in 1992 and increasing powers of SEBI, BSE has to incorporate changes in its policies. With demutualization, BSE has two of world’s best exchanges, Deutsche Borse and Singapore Exchange, as its strategic partners.
From Open Outcry To Electronic Trading: BOLT
Until March, 1995, BSE had an open outcry system of trading. Due to stiff competition from NSE, India’s first modern and automated (computerized) stock exchange, that facilitated online trading, BSE had to change its system of trading operations. On 14th March, 1995, BSE commenced electronic trading. Members could trade online using computers – the software is known as BSE Online Trading System (BOLT). Screen based trading was initially confined to 818 major scrips. By 3rd July, 1995, trading in all the 5000 scrips was transferred to the automated system. The introduction of BOLT increased trading volumes and also reduced the bid-ask spread. Trading in odd lot shares was also easier. In 1995, BOLT was limited only within Mumbai. Alternatively, NSE was operating on an All-India basis. Thus, BSE requested SEBI for approval to enable online trading terminals to be established outside Mumbai. After rejecting the request for 4 times, SEBI finally approved the request on 29th Oct, 1996.
BSE And The Indian Corporate Sector
Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps no major corporate in India which was not sourced BSE’s services in raising resources from the capital market. Today, BSE is the world’s number one exchange in terms of the number of listed companies. An investor can choose from more than 4,700 listed companies, which for easy reference, are classified into A, B, S, T, and Z groups.
BSE Indices
The BSE Index, SENSEX, is India’s first stock market index that enjoys an iconic stature, and is tracked worldwide. It is an index of 30 stock representing 12 major sectors. The SENSEX is constructed on a ‘free-float’ methodology, and is sensitive to markets sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has entered into an index cooperation agreement with Deutsche Borse. This agreement has made SENSEX and other BSE indices available to investors in Europe and America. Moreover, Barclays Global Investors (BGI), the global leader in ETFs through its iShares brand, has created the iShares BSE SENSEX India Tracker’ which tracks the SENSEX. The ETF enables investors in Hong Kong to take an exposure to the Indian equity market.
The first Exchange Traded Fund (ETF) on SENSEX, called “SPIcE” listed on BSE. It brings to the investors a trading tool that can be easily used for the purpose of investment, trading, hedging and arbitrage. SPIcE allows small investors to take a long-term view of the market.
Developing Markets
BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives. It has a nation-wide reach with a presence in more than 359 cities and towns of India. BSE has always been at par with the international standards. The systems and processes are designed to safeguard market integrity and enhance transparency in operations. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System (BOLT).
BSE continues to innovate. In recent times, it has become the first national level stock exchange to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has successfully launched a reporting platform for corporate bonds in India, christened the ICDM or Indian Corporate Debt Market and a unique ticker-cum-screen named “BSE Broadcast” which enables information dissemination to the common man on the street.
In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic Reporting System) to facilitate information flow and increase transparency in the Indian capital market. While the Directors Database provides a single-point access to information on the boards of directors of listed companies, the ICERS facilitates the corporates in sharing with BSE their corporate announcements.
Services Offered By BSE
BSE also has a wide range of services to empower investors and facilitate smooth transactions:
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- Investor Services: The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs. 1 million towards the investor protection fund; it is an amount higher than that of any exchange in the country. BSE launched a nationwide investor awareness program – ‘Safe Investing in the Stock Market’ under which 264 programs were held in more than 200 cities.
- The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line screen based trading in securities. BOLT is currently operating in 25,000 Traders Workstations located across over 359 cities in India.
- BSEWEBX.COM: In February, 2001, BSE introduced the world’s first centralized exchange-based Internet trading system, BSEWEBX.COM. This initiative enables investors anywhere in the world to trade on the BSE platform.
- Surveillance: BSE’s On-line Surveillance System (BOSS) monitors on a real time basis the price movements, volume positions and members’ positions and real-time measurement of default risk, market reconstruction and generation of cross market alerts.
Drawing from its rich past and its equally robust performance in the recent times, BSE will continue to remain an icon in the Indian capital market.
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