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.
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.
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.
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)