A deep history in India
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 (now Mumbai) 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 tree still stands in the area which is now known as Horniman Circle.
The venue then shifted to banyan trees at the Meadows Street junction, which is now known as Mahatma Gandhi Road, a decade later. 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 the post-independence era, the BSE dominated the volume of trading. However, the low level of transparency and undependable clearing and settlement systems, apart from other macro factors, increased the need of a financial market regulator, and the SEBI was born in 1988 as a non-statutory body. It was made a statutory body in 1992.
After the Harshad Mehta scam in 1992, there was a pressing need for another stock exchange large enough to compete with the BSE and bring transparency to the stock market. This gave birth to the 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 response to this competition, BSE also introduced an electronic trading system known as BSE On-line Trading (BOLT) in 1995.
The BSE launched its sensitivity index, the Sensex, now known as the S&P BSE Sensex, in 1986 with 1978–79 as the base year. This is an index of 30 companies and is a benchmark stock index, measuring the overall performance of the exchange. The index reached the level of 1,000 in July 1990, 2,000 in January 1992, 4,000 in March 1992, 5,000 in October 1999, and 6,000 in February 2000. The exchange introduced equity derivatives in 2000. Index options were launched in June 2001, stock options in July 2001, and stock futures in November 2001. India’s first free-float index, BSE Teck, was launched in July 2001.
Its competitor, NSE, launched its benchmark exchange, the CNX Nifty, now known as Nifty 50, in 1996. It comprises of 50 stocks and functions as the performance measure of the exchange. In terms of electronic screen-based trading and derivatives, it beat BSE by launching first of its kind products and services.
The current stock exchange scenario
BSE and NSE are not the only stock exchanges in India. After the country gained independence, 23 stock exchanges were added not including the BSE. However, at present, there are only seven recognized stock exchanges. Apart from the BSE and NSE, they are:
• Calcutta Stock Exchange Ltd.
• Magadh Stock Exchange Ltd.
• Metropolitan Stock Exchange of India Ltd.
• India International Exchange (India INX)
• NSE IFSC Ltd.
All other exchanges have been granted exit by SEBI.
Key facts about how market evolved worldwide-
• While the New York Stock Exchange (NYSE) is arguably the most powerful stock exchange in the world, it was not the first exchange to exert influence on the markets.
• In the 1300s, Venetian moneylenders began to sell debt issues to other lenders and to individual investors.
• In the 1500s, Belgium’s exchange dealt exclusively in promissory notes and bonds.
• In the 1600s, the emergence of various East India companies that issued stock led to a financial boom, which was followed by a bust when it was revealed some companies conducted very little actual business.
• Competition from the Nasdaq, which was formed in 1971 to trade securities electronically, has caused the NYSE to evolve and innovate in order to cement its dominance as the premier Global Exchange.
History of World:
The first stock exchange in London was officially formed in 1773, a scant 19 years before the New York Stock Exchange. Whereas the London Stock Exchange(LSE) was handcuffed by the law restricting shares, the New York Stock Exchange has dealt in the trading of stocks, for better or worse, since its inception. The NYSE wasn’t the first stock exchange in the U.S., however, that honor goes to the Philadelphia Stock Exchange, but it quickly became the most powerful.
Formed by brokers under the spreading boughs of a buttonwood tree, the New York Stock Exchange made its home on Wall Street. The exchange’s location, more than anything else, led to the dominance that the NYSE quickly attained. It was in the heart of all the business and trade coming to and going from the United States, as well as the domestic base for most banks and large corporations. By setting listing requirements and demanding fees, the New York Stock Exchange became a very wealthy institution.
The NYSE faced very little serious domestic competition for the next two centuries. Its international prestige rose in tandem with the burgeoning American economy and it was soon the most important stock exchange in the world. The NYSE had its share of ups and downs during the same period, too. Everything from the Great Depression to the Wall Street bombing of 1920 left scars on the exchange – the 1920 bombing left 38 dead and also left literal scars on many of Wall Street’s prominent buildings. The less literal scars on the exchange came in the form of stricter listing and reporting requirements. On the international scene, London emerged as the major exchange for Europe, but many companies that were able to list internationally still listed in New York. Many other countries including Germany, France, the Netherlands, Switzerland, South Africa, Hong Kong, Japan, Australia and Canada developed their own stock exchanges, but these were largely seen as proving grounds for domestic companies to inhabit until they were ready to make the leap to the LSE and from there to the big leagues of the NYSE.
Some of these international exchanges are still seen as dangerous territory because of weak listing rules and less rigid government regulation.
Despite the existence of stock exchanges in Chicago, Los Angeles, Philadelphia and other major centers, the NYSE was the most powerful stock exchange domestically and internationally. In 1971, however, an upstart emerged to challenge the NYSE hegemony.