The creation of the National Stock Exchange 30 years ago

With the National Stock Exchange (NSE) in the news for all the wrong reasons following the shenanigans of Chitra Ramkrishna, its former chief executive, its birth almost 30 years ago is worth recounting.

Until 1992, the Bombay Stock Exchange (BSE) established in 1875 as the Native Share and Stock Brokers Association was the undisputed trading center of the country. But the ESB was exactly what it was originally called, a closed club of powerful brokers who between them controlled trade in the country. Although it is the oldest stock exchange in Asia, it has failed to develop the culture of fairness in the country. The country’s other 18 regional exchanges played a minor role, with BSE accounting for 70% of all trading.

By the early 1990s, the Dalal Street giant’s limitations were evident and the need for a modern exchange that would break its hegemony was acute. Therefore, in 1992, the NSE was established, based on the recommendations of the report of the Pherwani Committee on New Financial Instruments, chaired by the former Head of Unit Trust of India, Manohar J. Pherwani.

Read also

A second national exchange was a revolutionary idea for the time. With the exception of New York (which had the New York Stock Exchange as well as the new Nasdaq), all other major stock trading centers had only one exchange.

The entrenched brokerage community led by powerful leaders opposed the new creation and threatened that a two-exchange system would only lead to greater volatility. But fed up with seeing its earlier efforts to reform existing stock markets shattered by such opposition, the government dug in.

He has integrated a group of Indian and global financial institutions including Life Insurance Corporation, State Bank of India, IFCI and IDFC, as well as global investors such as Gagil FDI, GS Strategic Investments, SAIF II SE Investments Mauritius and Aranda Investments ( Mauritius) as promoters of the new institution which was recognized as a stock exchange by Sebi in 1993 while trading started a year later.
The now famous Nifty 50 Index was born in 1995. As a fully automated paperless electronic exchange giving simultaneous access to investors across the country, it paved the way and unleashed a new class of retail investors, eager to earn higher returns on their more savings than they were getting from traditional instruments such as postal savings plans and bank deposits.

Initially, to avoid conflict with the powerful ESB, the NSE was to restrict listing to only mid-sized companies and also focus largely on debentures and bonds rather than stocks. Since these instruments were largely ignored by the BSE and the other regional exchanges, it was felt that the NSE would complement their operation rather than emerge as a rival.

Eventually, the ESB also abandoned the open-outcry trading as well as the paper-based settlement system. Driven by the rise of NSE, it has also professionalized its operations and now lists more than 7400 securities against 1790 listed on NSE. In terms of market capitalization as well, it is now ahead of NSE.

Significantly, the two together have broadened the culture of fairness in the country. Stock trading is no longer the exclusive preserve of a handful of traders and brokers.

—Sundeep Khanna is a former editor and co-author of the recent Azim Premji: The Man Beyond Billions. Views are personal.

(Edited by : Ajay Vaishnav)

About Nicole Harmon

Check Also

Why is the Hold strategy now suitable for international stocks on paper (IP)

international paper company Intellectual property is benefiting from strong demand for corrugated and corrugated board …