Tutorial 1: History of Indian Stock Exchange
Indian Stock Market is one of the oldest Stock Market in Asia. East India Company used to transact Loan Securities by the end of 18th Century. In the 1830s, trading on corporate stocks and shares in Bank and Cotton presses took place in Bombay.
Establishment of BSE (Bombay Stock Exchange)
Few informal groups of Stock Brokers organized themselves in 1875 and were formally organized as Bombay Stock Exchange (BSE). In 1956, the Government of India recognized the Bombay Stock Exchange as the first Stock Exchange in the country under the Securities Contracts (Regulation) Act.
But still there was no means to measure the overall performance of the exchange. So, in 1986, Bombay Stock Exchange developed BSE Sensex (Sensex = Sensitive Index), an index of top 30 companies, which gave a means to measure the overall performance of the Exchange.
Establishment of SEBI (Securities and Exchange Board of India)
Until late 1980s, BSE ran with low transparency and an unreliable clearing and settlement systems. Towards the end of the 1980s, new economic forces, the economic growth and currency crisis emphasized the need for modernization of the financial system. Government created the Securities and Exchange Board of India (SEBI) in 1988.
Establishment of NSE (National Stock Exchange)
In April 1992, Bombay Stock Exchange crashed due to Harshad Mehta Scam. Finance minister Mr. Manmohan Singh urged the need of other Stock Exchange in competition to BSE. He tapped the Industrial Development Bank (IDB) to take the lead of the project of creating competition for BSE.
In November 1992, NSE (National Stock Exchange) was established as the first electronically traded Stock Exchange in India. After a few years of operations, the NSE has become the largest stock exchange in India.
BSE also automated the systems in 1995 but it never caught up with NSE Spot Market turnover.
Three segments of the NSE trading platform were established one after another. The Wholesale Debt Market (WDM) commenced operations in June 1994 and the Capital Market (CM) segment was opened at the end of 1994. Finally, the Futures and Options segment began operating in 2000. Today the NSE takes the 14th position in the top 40 futures exchanges in the world.
In 1996, the National Stock Exchange of India launched S&P CNX Nifty. CNX Nifty (Nifty = National Fifty) is a diversified index of 50 stocks from 25 different economy sectors.
In 1998, the National Stock Exchange of India launched its web-site and was the first exchange in India that started trading stock on the Internet in 2000. Today, NSE has roughly 66% of equity spot turnover and roughly 100% of equity derivatives turnover.