Stock exchanges in India

Introduction

    • It is a physically existing institutionalised set-up where instruments of security stock market (shares, bonds, debentures, securities, etc.) are traded
    • It serves the following major functions:
      • Makes a floor available to the buyers and sellers of stocks. It is the single most important institution in the secondary market for securities
      • Makes available the prices of trading as an important piece of information to the investors
      • By following institutionalised rules and procedures, it ensures that the participants in the stock market live up to their commitments
      • Passes updated information to the enlisted companies about their present stockholders (so that they can pass on dividends etc., to them)
      • By publishing its ‘Index’, it fulfils the purpose of projecting the moods of the stock market

 

Historical evolution of stock market in India

History

    • Security trading in India goes back to the 18th century when the East India Company began trading in loan securities.
      • Corporate shares started being traded in the 1830s in Bombay with the stock of Bank and Cotton presses
      • The simple and informal beginnings of stock exchanges in India take one back to the 1850s when 22 stockbrokers began trading opposite the Town Hall of Bombay under a banyan tree
      • The shift continued taking place as the number of brokers increased, finally settling in 1874 at what is known as Dalal Street
      • This as yet informal group known as the Native Share and Stockbrokers Association organized themselves as the Bombay Stock Exchange (BSE) in 1875
    • The BSE is the oldest stock exchange in Asia and was the first to be granted permanent recognition under the Securities Contract Regulation Act, 1956
      • The BSE was followed by the Ahmedabad Stock Exchange in 1894 which focused on trading in shares of textile mills
      • The Calcutta Stock Exchange began operations in 1908 and began trading shares of plantations and jute mills
      • The Madras Stock Exchange followed, being set up in 1920
    • In post-Independent India
      • The BSE dominated the volume of trading after Independence. However, the low level of transparency and undependable clearing and settlement systems, increased the need for a financial market regulator
        • It was at this time, the Securities and Exchange Board of India(SEBI) was born in 1988 as a non-statutory body, which was further given statutory status in 1992
      • The need for another stock exchange large enough to compete with BSE and need for transparency in stock market, gave birth to the National Stock Exchange(NSE)
    • The Current Stock Exchange scenario
      • After the country gained independence, 23 stock exchanges were added apart from the BSE
      • However, at present, there are only seven recognized stock exchanges, along with BSE & NSE as follows:
        • Calcutta Stock Exchange Ltd.
        • Magadh Stock Exchange Ltd
        • Metropolitan Stock Exchange of India Ltd
        • India International Exchange (India INX)
        • NSE IFSC Ltd
Importance of stock exchanges

The following are the most important functions of stock exchanges:

    • Determining the fair price
      • The stock exchanges facilitate in discovering fair prices of the publicly listed securities. Relentless trading of securities helps in determining the price of the listed securities.
    • Facilitating industrial advancement
      • The industrialisation of a nation is reliant on capital availability. This is ensured by the stock exchanges as the public can invest directly in the companies through stock exchanges
    • Protecting investors’ interest
      • The stock exchanges lay down guidelines for the operation of the listed entities. These norms have to be strictly followed by the companies, thereby protecting investors’ interest as they would have financed the operations
    • Act as secondary markets
      • Stock exchanges will help investors of certain bonds, such as sovereign gold bonds (SGBs), to sell their holdings within the lock-in period or maturity
    • Reduce the dependency on loan for corporates
      • The existence of stock exchanges has helped listed companies avoid availing a loan as they could raise capital by issuing securities. This has helped them save a significant amount in the form of regular interest outgo
Various stock exchanges in India
  • Bombay Stock Exchange (BSE)
    • BSE is the oldest stock exchange in Asia
    • In 1986, Sensex was introduced, as the first equity index to provide a base for identifying the top 30 trading companies of the exchange
    • It ranks amongst the top 10 most valued exchanges globally
    • It offers trading in equities, derivatives and Commodities
  • National Stock Exchange(NSE)
    • It was incorporated in 1992, become recognized as a stock exchange in 1993, and trading began on it in 1994
    • It was the first stock exchange on which trading took place electronically
    • In the year 1995-96, NSE launched NIFTY 50 Index and commenced trading and settlement in dematerialised securities
  • Multi-Commodity Exchange (MCX)
    • MCX is one of the largest commodity exchanges in the country
    • These are predominantly used by hedgers, traders, businessmen and even by companies,
    • But commodities market is yet to make a mark, like equities market.
  • National Commodity and Derivatives Exchange(NCDEX)
    • NCDEX is another largest commodity exchanges in the country, which started its operations around the same time as MCX.
    • NCDCEX, unlike MCX, only offers Agri products for trading
  • India International Exchange (India INX)
    • Opened in January 2017, India INX is India’s first international stock exchange
    • It is also a subsidiary of BSE and is located at the International Financial Services Centre (IFSC), GIFT City in Gujarat
    • Currently, INX offers only derivative products including equity, currency and commodities derivatives and debt instruments including masala bond and foreign currency bond
  • NSE IFSC
    • NSE IFSC Limited (NSE International Exchange) incorporated on 29th November 2016, is a wholly owned subsidiary of the National Stock Exchange (NSE) and is located at the International Financial Services Centre (IFSC), GIFT City in Gujarat.
    • Products offerings are similar to India INX.
  • Indian Commodity Exchange (ICEX)
    • ICEX is a commodity derivative exchange in India. Registered with SEBI, it is a permanent exchange and the only exchange that offers derivatives trading in diamond contracts
    • In addition to diamond contracts, ICEX also offers agri derivatives including spices, oilseeds, plantations, and cereals
  • Calcutta Stock Exchange (CSE)
    • CSE which started under Neem Tree in 1830s has come a long way now. It is among the oldest stock exchange and was once considered among the largest stock exchanges in the country
    • In the year 1980, it was granted permanent recognition by the Government of India under the relevant provisions of the Securities Contracts (Regulation) Act, 1956.
    • CSE also had an index called CSE-40
  • Metropolitan Stock Exchange (MSE)
    • The Exchange was notified as a ‘Recognized Stock Exchange’ under the Companies Act by the Ministry of Corporate Affairs on December 21, 2012.
    • MSE products are similar to any other stock exchange. It offers futures options, currency derivatives, and debt market instruments.