BSE Limited.

Past, Present & FutureIndian Securities Market

May 29, 2012

Section Contents Page

2

Outline

1 On the Origin of Indian Securities Market 3

2 7

3 Present 9

4 Regulatory Evolution 11

2

5 Future 14

Market Development Phase

3

On the Origin of the Indian Securities Market

4

Pre-Independence

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

5

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

1992 - A Mixed Bag

6

7

Market Development Phase: 1999 – 2003

Introduction of New Products

8

VaR Model for Margin Calculation - July, 2001

9

Present

Highlights

10

11

Regulatory Evolution

12

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

13

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

SEBI Board Press Release: Regulatory Implications

13

14

The Future

15

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

16

Thank You

16