The Bourses - Institution Building

When in my 9th Standard, I remember, Picking the book 'The Dalal Street' from the library, and a passer-by remarked, what would people this age understand about Dala Street? I loved knowing about stock exchanges since then, but have never understood, or invested there. 

A stock exchange is a place where people buy and sell commodities. India has 8 active National Stock Exchanges, and 21 regional stock exchanges in this only one, i.e. Calcutta is operative but not functional, there is a legal case going on as of 2022. All the regional stock exchanges were closed in the last two decades.  All these exchanges render the facility to trade in numerous financial segments such as equity, currency, derivates, etc. The active stock exchanges are:

A Complete List of active stock exchanges in India

Name                                                                     Location

Bombay Stock Exchange                                     Mumbai

Calcutta Stock Exchange                                     Kolkata

India International Exchange (India INX)             Gandhinagar

Indian Commodity Exchange                                     Navi Mumbai

Metropolitan Stock Exchange of India                     Mumbai

Multi Commodity Exchange of India                     Mumbai

National Commodity & Derivatives Exchange         Mumbai

National Stock Exchange of India                         Mumbai

NSE IFSC                                                         Gandhinagar

Bombay Stock Exchange was started by Premchand Roychand in 1875. While BSE Limited is now synonymous with Dalal Street, it was not always so. In the 1850s, five stock brokers gathered together under a Banyan tree in front of Mumbai Town Hall, where Horniman Circle is now situated. Established in 1875 by cotton merchant Premchand Roychand, a Rajasthani Jain businessman, it is BSE is the oldest stock exchange in Asia,  and also the tenth oldest in the world.  The BSE is the 9th largest stock exchange with an overall market capitalisation of more than ₹276.713 lakh crore, as of January 2022.  With a rapid increase in the number of brokers, they had to shift places repeatedly. At last, in 1874, the brokers found a permanent location, the one that they could call their own. The brokers group became an official organization known as "The Native Share & Stock Brokers Association" in 1875. The Bombay Stock Exchange continued to operate out of a building near the Town Hall until 1928. The present site near Horniman Circle was acquired by the exchange in 1928, and a building was constructed and occupied in 1930. The street on which the site is located came to be called Dalal Street in Hindi (meaning "Broker Street") due to the location of the exchange. On 31 August 1957, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. In 1986, the BSE developed the S&P BSE SENSEX index, giving the BSE a means to measure the overall performance of the exchange. In 2000, the BSE used this index to open its derivatives market, trading S&P BSE SENSEX futures contracts. The development of S&P BSE SENSEX options along with equity derivatives followed in 2001 and 2002, expanding the BSE's trading platform.Historically an open outcry floor trading exchange, the Bombay Stock Exchange switched to an electronic trading system developed by Cmc ltd. in 1995. It took the exchange only 50 days to make this transition. This automated, screen-based trading platform called BSE On-Line Trading (BOLT) had a capacity of 8 million orders per day.

Shri Ashishkumar Chauhan is the MD & CEO of BSE (Bombay Stock Exchange), the first stock exchange of Asia. He is one of the founders of India's National Stock Exchange ("NSE") where he worked from 1992 to 2000. He is best known as the father of modern financial derivatives in India due to his work at NSE. Incorporated in 1992, the NSE has developed into a sophisticated, electronic market, which ranked fourth in the world by equity trading volume. It was recognised as a stock exchange by SEBI in April 1993. Trading commenced in 1994 with the launch of the wholesale debt market and a cash market segment shortly thereafter. 

Dr Ramachandra H Patel Patil had said, “Indian capital market around the early 1990s was akin to the Stone Age.” Patil, then an executive director at state-owned Industrial Development Bank of India, was hand-picked by the lender’s Chairman SS Nadkarni to end the rule of broker-ruled exchanges and to build a bourse run by public institutions. This was a time when the existing exchanges were riddled with bad delivery, fake certificates and price manipulations, all leading to small investors being gypped.  Patil, whose firm belief in automation and paperless trading, would change the way trading would be done in the country. Under him, the NSE linked trading terminals across India using the V-SAT technology and introduced electronic order matching system.

Patil pioneered in creation of not just NSE, but also of National Securities and Depositories and the Clearing Corporation of India. Investors who have been in the market in the last few days would recall the problems of shares in certificates before NSDL- which held and transferred shares in dematerialised form-came into the picture. Patel was open to new ideas and was willing to experiment. 

BSE’s current chief executive officer Ashish Kumar Chauhan, who was part of NSE’s founding team, recalls an incident where imported computer and telecom material meant for NSE was stuck at the Bombay port due to a customs strike. Patil requested the then customs chief commissioner to release the material. Behind the institution builder’s persona was a calm persona, unfazed by brokers’ clubs or any other challenge for that matter. Simplicity was another attribute that defined his success as a manager of the national bourse.

Once, on a trip to Cochin to inaugurate Geojit’s NSE trading terminal, Patil insisted staying in the IDBI guest house which cost about Rs 100 instead of an accommodation in a five-star hotel. His closest colleagues remember him as a person who encouraged young talent. Indeed, when he stepped down from his role as MD & CEO, he passed on the mantle to Ravi Narain, who went on to serve at the position for 12 years. Patil passed away in 2012 after battling lung cancer for over three years. He was 74. At the time of his death, he was the chairman of NSDL and Clearing Corporation of India.

In life, he inspired a change in other organisations and not just NSE.

National Stock Exchange was incorporated in the year 1992 to bring about transparency in the Indian equity markets. Instead of trading memberships being confined to a group of brokers, NSE ensured that anyone who was qualified, experienced, and met the minimum financial requirements was allowed to trade. In this context, NSE was ahead of its time when it separated ownership and management of the exchange under SEBI’s supervision. Stock price information that could earlier be accessed only by a handful of people could now be seen by a client in a remote location with the same ease. The paper-based settlement was replaced by electronic depository-based accounts and settlement of trades was always done on time. One of the most critical changes involved a robust risk management system that was set in place, to ensure that settlement guarantees would protect investors against broker defaults.

Ravi Narain and Chitra Ramkrishna as well as J Ravichandran, were part of NSE’s founding team. Narain occupied the chief executive’s chair after RH Patil, NSE’s founding chairman. Within a few years, NSE, with its electronic trading platform overtook BSE.

Major Difference between BSE and NSE:- 

BSE  is the oldest stock exchange. It was founded in 1875. NSE is Largest stock exchange in India in terms of daily turnover and number of trades.  It was founded in 1992 Benchmark Index of BSE is Sensex 30. Benchmark Index of NSE is NIFTY 50. Total Listed companies in BSE is around 7500. Total Listed companies in NSE is around 1900. BSE is 9th largest in world while NSE is 10th largest in world Indices: – The main Index of BSE is SENSEX while that of NSE is CNX Nifty. The other indices at BSE are: BSE 500, BSE 100, BSE 200, BSE PSU, BSE MIDCAP, BSE SMLCAP, BSE BANKEX, BSE Teck, BSE Auto, BSE Pharma, BSE Fast Moving Consumer Goods (FMCG), BSE Consumer Durables (SYMBOL: Cons Dura), BSE Metal. NSE also set up as index services firm known as India Index Services & Products Limited (IISL) and has launched several stock indices, including: S&P CNX Nifty, CNX Nifty Junior, CNX 100, S&P CNX 500, CNX Midcap (introduced on 18 July 2005 replacing CNX Midcap 200).

NSE was formed with a Purpose Committed to improve the financial well-being of people.

Every once in a while, there occurs an event in the life of institutions that shakes up carefully built reputations and raises questions on their governance and integrity. National Stock Exchange of India Ltd (NSE) managing director and chief executive officer Chitra Ramkrishna’s resignation was one such moment. That it came close on the heels of the publicly unknown, yet forced exit of the NSE group’s chief operating officer, Subramanian Anand, adds to the mystery.

The story that emerges reeks of hubris, favouritism, disregard for corporate governance and a casual approach to institutional processes.

It's sad to see educated Women continuing to be the targets and falling prey to the misdeeds of the society, when the real beneficiary get away with. 

Financial well being of all stakeholders was the mandate - Dharma.  Demutualisation.  Market framework - objective and rule bound. While setting up the process was the learning, none had the domain knowledge. What helped was:

1. Open mind - go out and meet brokers. With absolute no knowledge - so was not sceptical. 
2. Took lot of risk, and experimented, under radar.  Environment then - college learning feeling, true sense of entrepreneurship. Kind of risk taken were - figuring out, where to get members from. Latent demand to become first generation entrepreneur/broker who had no opportunity. People from outside Bombay, took membership, was not sure if they would bring business. There are crossroads, and choices that institutions have to take. We need to have the risk taking ability. No pain, No Gain.
3. Team, not worried about the constraints - consider them of something to be overcome. - Telecom not so popular, needed Satellite communication. First became telecom company before becoming an exchange.- Do whatever it takes mindset. 
4. To install confidence - if we commit to something, we do it. Put in discipline of having a settlement calendar in the beginning of the year. - 52 settlement went through like a clock. - commitment, and culture of discipline - to deliver what is promised. 

Nothing is so sophisticated or path breaking - it's not a great product or technology - but our sense of urgency. 

Quarter to quarter focus is needed from discipline perspective, but that do not build an institution. Short term approach should match the long term approach. 

Strong facet of regulatory responsibility. It runs counter to business development - we can argue. But it is what helps us improve the governance in the sector and manage risk, improve intermediary standing with the end customer. 

Derivetive market in 1997 - It was said to be weapons of mass destruction - it was like letting the Gini out of the box. 

Merck - we create medicine for the wellbeing of the patients - profits follow. Same thing apply for the industry. Conscience keeper. Integrity, fairness, deep social impact, financial well being - are you delivering the same end goal. Keeping up your values. 

Closing - 18 years - every day new opportunity. Do new things - there is progress; Questioning the basics everyday - learning every day. Are we taking risk or is it making us sloppy. Passion, discipline, commitment. These are the things that has worked for NSE, and the lessons learnt. Constituently contributing to the society, to last beyond our times. 

Financial Literacy is a life skill. Lifecycles - Save/Non risk instrument/Mgt. by others/self managed. - Cycle of investment. 

Provide variety of instruments, that satisfy the market appetite. So we teach people. Understand risk/return - Get into non risk products and only then get into risk products. 

NSE - growth and regulatory - Any down turn marking is an opportunity to get into service; and look into new products innovations.  It is the time to look for better opportunity. When going is good nobody has time. 

Takeover, mergers and trends - American market - rate of growth slowed down, so their way was Balance Sheet expansion - go to the market and find more opportunity. Technology integration, people integration are not trivial. Jury is still out. 

In India there is huge opportunity for domestic growth, they should plan that, before any acquisitions. There should be business strategic alliances between countries. But that does not mean we need mergers and acquisitions.  

Beauty of Index is that even the retail investor can make decision without looking at Balance sheet. So Nifty helps. It is the second most widely traded product. 

Business decisions at times by instincts and not by analysis, is it fine - To be completely instinct driven is perils. One has to look at data and understand what the story tells. Data will not give solution. You need to know the point when the data cannot tell anything more, and make decision. 

No SEBI, No NSDL, No Technology. - Parallel Stock Exchange when BSE was there for more than 100 years - is an institutional building. 

Ended up just like Chanda Kochar. Both had god fathers; but no morals or competence