BSE Limited.
Indian Securities Market
Past, Present & Future
May 29, 2012
Outline
Section
Contents
Page
1
On the Origin of Indian Securities Market
3
2
Market Development Phase
7
3
Present
9
4
Regulatory Evolution
11
5
Future
14
2
On the Origin of the Indian Securities
Market
1
3
Pre-Independence





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Corporate stocks and shares in Bank and Cotton presses started in Bombay, trading carried out under
Banyan Tree – 1830s
Stock Trading in Calcutta practiced under Neem Tree – 1830s
“Share Mania” in India due to advent of Civil War – 1860-61
Native Share and Stock Brokers’ Association of India formed – July 9, 1875
– Membership through Card System
– Admission Fee (Price of Card) in 1900s – Rs. 51; Annual Subscription Fee – Rs. 5
– Committee of Management, Arbitration Committee, Defaulter’s Committee, Corner Committee
– English translation of Rules available to public for Re. 1
– Tentative Scheduled Hours of Operation – 2 hours a day on 144 days and 3 hours a day on 66
days
– Short Selling allowed vis-à-vis Cash Market in Calcutta and Madras Stock Exchange
– Admission for Quotations
– Clearing House – Bank of India
Formation of The Calcutta Stock Exchange Association – 1908
Incorporation of Bombay Stock Exchange Limited (not BSE Ltd.) – 1918
Madras Stock Exchange – 1920
– Madras Stock Exchange reconstituted – 1938
4
Post-Independence
 Bombay, Calcutta, Madras, Ahmedabad, Delhi, Hyderabad and Indore Stock
Exchanges were recognised under the Securities Contracts (Regulations) Act,
1956, with Bangalore Stock Exchange getting its approval in 1963
 The number of stock exchanges remained 8 till 1980, many stock exchanges set
up in the 80s
 SENSEX first compiled on January 2, 1986 (Base Year: 1978-79 = 100)
– Full Market Capitalisation methodology
– Shifted to Free Float methodology on September 1, 2003
 Launch of S&P CNX Nifty – April, 1996 (Base: November 3, 1995 = 100)
– Shifted to Free Float methodology on June 26, 2009
 Shift from floor-based to screen-based trading – 1992 in OTCEI, 1994 in NSE and
1995 in BSE
 NSDL, the first Depository established in 1996, followed by CDSL in 1999
– Shift from Weekly Settlement to Rolling Settlement
 IPF introduced in 1987 in BSE, in 1995 in NSE
 SGF / TGF introduced in 1996 in NSE, 1997 in BSE
5
1992 - A Mixed Bag
Cons &
Conmen
A New
Beginning
6
2
Market Development Phase: 1999 – 2003
7
Introduction of New Products
Interest Rate
Swaps (IRS) /
Forward Rate
Agreements (FRA)
June 1, 1999
Equity Derivatives
June 9, 2000
Index Options
June, 2001
Options on
Individual
Securities
July, 2001
Futures on
Individual
Securities
Retail Debt Market
Exchange Traded
Funds
January 2002
January, 2003
Interest Rate
Futures
June, 2003
November, 2001
VaR Model for Margin Calculation - July, 2001
8
3
Present
9
Highlights
2008
2009
2010
• Launch of Securities Lending & Borrowing Scheme
• Recognition to MCX-SX – Approval for Currency Futures only
• Launch of Currency Futures
• Algo Trading allowed by SEBI
• Re-Launch of Interest Rate Futures
• Launch of Mutual Fund trading platform
• Recognition to United Stock Exchange (USE) – Approval for Currency Futures & Options only
• Launch of Currency Options
• Mobile Based Trading
• Introduction of Smart Order Routing (SOR)
• Introduction of Volatility Index
• Introduction of SIP
10
4
Regulatory Evolution
11
Acts, Rules and Regulations
 Bombay Securities Contracts Control Act – 1925
 The Capital Issues (Control) Act – 1947
– Repealed on May 29, 1992
 Securities Contract (Regulation) Bill – 1954
 Securities Contract (Regulations) Act – 1956
– Bombay Securities Contracts Control Act, 1925 repealed
 Securities Contract (Regulations) Rule – 1957
 SEBI Act – May 1, 1992
 Corporatisation & Demutualization Scheme – 2005
 Manner of Increasing and Maintaining Public Shareholding (MIMPS) in
recognised stock exchanges, Regulations – 2006
12
SEBI Board Press Release: Regulatory Implications

Final Rules expected in 2-3 months

MIIs must form independent Board Committees for regulatory oversight
– Main exchanges already have an independent surveillance committee which can be
repurposed

Regulatory Functions of all MIIs must report to independent committees of their Boards

CRC to be formed by SEBI
– Handle conflicts of interest
– Regular interaction with Independent Committees of MIIs

SEBI proposing future creation of industry-wide SRO along the lines of FINRA in the US
13
5
The Future
14
Future Initiatives
 Interoperability of Clearing Corporations
 Complete Physical Segregation of Client Securities
– Prevent misutilisation of Client securities
– Securities of one client not used to offset default of another
– Seamless Portability of Client from one member to in case of default of
member or otherwise
15
Thank You
16