FMFS - History of Indian Capital Markets

8/4/2019 FMFS - History of Indian Capital Markets

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History of Indian Capital

Markets

VARAD AROLE 3054

HARISH OBERAI 3015


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The Origin Indian Stock Markets are one of the oldest in

Asia. Its history dates back to nearly 200 yearsago.

The concept of borrowing from the public inIndia was pioneered by the East India Company

to finance its campaigns in South India (theAnglo French wars) in the eighteenth century.


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By 1830's business on corporate stocks andshares in Bank and Cotton presses took place inBombay.

The 1850's witnessed a rapid development of

commercial enterprise and brokerage businessattracted many men into the field and by 1860the number of brokers increased into 60.

In 1860-61 the American Civil War broke out

and cotton supply from United States of Europewas stopped.


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The number of brokers increased to about 200

to 250. t the end of the American Civil War, the brokers

who thrived out of Civil War in 1874, found aplace in a street (now appropriately called as

Dalal Street) where they would convenientlyassemble and transact business.

In 1887, they formally established in Bombay,the "Native Share and Stock Brokers'

Association" (which is alternatively known as "The Stock Exchange ").


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In 1895, the Stock Exchange acquired a premisein the same street and it was inaugurated in1899. Thus, the Stock Exchange at Bombay wasconsolidated.

Ahmedabad gained importance next to Bombaywith respect to cotton textile industry.

"The Ahmedabad Share and Stock Brokers'Association formed in 1894 .


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On June 1908, some leading brokers formed"The Calcutta Stock Exchange Association".

In 1920 "The Madras Stock Exchange" with 100members was formed but was closed in 1923.

In 1935, the stock market activity improved,especially in South India where there was a rapidincrease in the number of textile mills and many

plantation companies were floated.


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In 1937, a stock exchange was once againorganized in Madras - Madras Stock ExchangeAssociation (Pvt) Limited.

Lahore Stock Exchange was formed in 1934 andit had a brief life. It was merged with the PunjabStock Exchange Limited, which wasincorporated in 1936.


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Growth

The Second World War broke out in 1939 & in1943, the situation changed radically, whenIndia was fully mobilized as a supply base.

On account of the restrictive controls on cotton,bullion, seeds and other commodities, those

dealing in them found in the stock market as theonly outlet for their activitie


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The Uttar Pradesh Stock Exchange Limited

(1940), Nagpur Stock Exchange Limited (1940)and Hyderabad Stock Exchange Limited (1944)were incorporated.

In Delhi two stock exchanges - Delhi Stock and

Share Brokers' Association Limited and theDelhi Stocks and Shares Exchange Limited -were floated and later in June 1947,amalgamated into the Delhi Stock ExchangeAssociation Limited.


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Post-independence

Controller of Capital Issues Act (CCI) was passedin 1947.

Bangalore Stock Exchange Limited wasregistered in 1957 and recognized in 1963.

Till 1957, Only Bombay, Calcutta, Madras,Ahmedabad, Delhi, Hyderabad, Bangalore and

Indore, the well established exchanges, wererecognized under the ecurities Contracts(Regulation) Act, 1956.


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The imposition of wealth and expenditure tax in

1957 by Mr. T.T. Krishnamachari, the thenfinance minister, led to a huge fall in themarkets.

During early sixties there were eight recognized

stock exchanges in India which virtuallyremained unchanged, for nearly two decades.

War with China in 1962 & resultant shortagesled to a ban on forward trading in commodity

markets in 1966, together with the introductionof the Gold Control Act in 1963.


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Retail investors began participating in the stockmarkets in a small way with the dilution of theFERA in 1978.

During eighties many stock exchanges were

established to present tally of 22. The removal of estate duty and reduction of

taxes led to a swell in the new issue market andthere was a deluge of companies in 1985.


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Trading Pattern

Trading in Indian stock exchanges are limited tolisted securities of public limited companies.

They are broadly divided into two categories,namely, specified securities (forward list) and

non-specified securities (cash list).


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Two types of transactions can be carried out on

the Indian stock exchanges:a) spot delivery transactions "for delivery andpayment within the time or on the datestipulated when entering into the contract which

shall not be more than 14 days following the dateof the contract

b) forward transactions "delivery and paymentcan be extended by further period of 14 dayseach so that the overall period does not exceed90 days from the date of the contract


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The nature of trading on Indian Stock Exchangeswas that of age old conventional style of face-to-face trading with bids and offers being made byopen outcry.

From 1993 involved the shift of all exchanges toscreen-based trading, motivated primarily by theneed for greater transparency.


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Mutual funds were opened to the private sector

in 1992. Earlier, in 1987, banks were allowed toenter this business, breaking the monopoly ofthe Unit Trust of India (UTI)

The Securities and Exchange Board of India

(SEBI) was established in 1988 as anadministrative arrangement.


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Reforms since 1992

The setting up of the Securities and ExchangeBoard (SEBI) in 1992 was a landmark

development.

Reforms by SEBI in the primary market includeimproved disclosure standards, introduction of

prudential norms, and simplification of issueprocedures.


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Listing agreements of stock exchanges amendedto require listed companies to furnish annual

statement to the exchanges showing variationsbetween financial projections and projectedutilization of funds in the offer document andactual figures.


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Introduction of a code of advertisement forpublic issues to ensure fair and truthful

disclosures. Disclosure norms further strengthened by

introducing cash flow statements.

Regulations further revised and strengthened in

1996.

NSE setup in 1993, first to start dealing on ascreen based system of transactions.

Foreign institutional investors (FIIs) allowedaccess to Indian capital markets on registrationwith SEBI.


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Other Reforms

The introduction of online trading in 1995.

Introduction of the establishment of thedepository in 1996.

Introduction of trade guarantee funds andderivatives trading in 2000.

Introduction of the Fraudulent Trade PracticesAct, Prevention of Insider, Trading Act,Takeover Code and Corporate, GovernanceNorms.


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Capital markets Key Developments

Simplified debt list agreement for debt

securities

SEBI has permitted stock exchanges to set

the trading hours (in cash and derivative

segments) between 9 am to 5 pm subject

to specified conditions


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Portfolio managers to segregate client funds and

securities vis--vis own funds and securities

Allocation methodology for debt investment

limit prescribed for FIIs

FIIs allowed to trade in interest rate futures

within permissible limits FIIs allowed to invest in IDRs as per guidelines

prescribed by RBI

FMFS - History of Indian Capital Markets

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