Bombay Stock Exchange (BSE)

Table of Contents

I. Introduction

Bombay Stock Exchange (BSE) is a premier stock exchange located in Mumbai, India. It is the oldest stock exchange in Asia and was established in 1875 as the Native Share and Stock Brokers Association. Initially, it was a small group of brokers who traded under a banyan tree in front of the Town Hall in Mumbai. Over the years, it has grown to become one of the leading stock exchanges in the world.

BSE has played a crucial role in the growth of the Indian economy and financial markets. It is the first stock exchange in India to be recognized by the government under the Securities Contracts (Regulation) Act, 1956. Since then, it has been the primary platform for trading in equities, bonds, and other securities.

BSE has witnessed several significant milestones in its history. In 1986, it launched the BSE SENSEX, which is India’s most widely tracked stock market index. The index tracks the performance of the top 30 companies listed on the BSE based on market capitalization. The BSE SENSEX is considered to be the barometer of the Indian stock market and is used by investors, analysts, and policymakers to gauge the performance of the economy.

Over the years, the BSE has introduced several new products and services to meet the changing needs of investors and traders. It has launched several new indices, including sector-specific indices and indices based on market capitalization. It has also introduced online trading and settlement systems, which have made trading more efficient and transparent.

Today, the BSE is an integral part of the Indian financial system and is a symbol of the country’s economic progress. Its history and significance in the Indian financial market make it an essential institution for investors, traders, and policymakers.

II. The history of the BSE

The Bombay Stock Exchange (BSE), also known as BSE Limited, is the oldest stock exchange in Asia and was initially conceived in the 1850s. At that time, the brokers used to gather under the canopy of Banyan trees in Bombay near Town Hall at Bombay Green for trade. As the number of brokers increased, the trade was moved to different larger places to accommodate them. By 1860, the number of brokerages increased to 60 and their acknowledged leader was Shri Premchand Roychand.

Shri Premchand Roychand

In the early years, most of the listed entities in the stock market of Bombay were banks. Brokers would borrow loans from banks and trade in the stock market. Some of the early shares were from industries such as Backbay Reclamation, Colaba Land Company, The Mazgaon Land, Asiatic Bank, Bank of Bombay, Apollo Press, and Elphinstone Land.

During the American Civil War, which started in 1861 and lasted for four years, the Indian cotton market boomed due to the increasing demand for cotton from the United States, which had been cut off from its traditional supply sources. This led to a rise in the price of cotton, which in turn led to a rise in the share prices of cotton mills.

The share market, which until then had been mainly confined to the trading of bank stocks, saw a sudden influx of new investors seeking to make a quick profit. The number of brokers increased rapidly, and the volume of shares traded rose sharply.

The frenzy around the shares of cotton mills reached its peak in 1865, when the shares of the Backbay Reclamation Company, which was involved in the reclamation of land in Bombay, saw a huge increase in value. The company’s shares were trading at Rs. 250 in January 1865 and reached a high of Rs. 23,000 in July of the same year, before crashing down to Rs. 1,500 by November.

The share mania of the 1860s had a profound impact on the Bombay Stock Exchange. It transformed the exchange from a relatively small market, dominated by a few established players, to a vibrant and dynamic exchange with a large number of brokers and investors.

The rise in share prices during this period had a significant impact on the Indian economy as well. The profits made by cotton mills were reinvested in the market, leading to the creation of new industries and the expansion of existing ones.

However, the share mania also had its downside. Many investors lost their savings, and some even went bankrupt. The crash of the Backbay Reclamation Company’s shares in 1865 was a clear example of the risks involved in investing in the stock market.

During the Share Mania of the 1860s in Bombay, there was a surge in the prices of various company shares. Here are some examples of the effects of share mania on the stocks of different companies:

  1. Back Bay Reclamation: The Back Bay Reclamation Company was established in 1864 with the aim of reclaiming land from the sea in Bombay’s Back Bay area. During the share mania, the company’s shares became highly sought-after, and their price skyrocketed. In 1865, the shares were offered at a face value of Rs. 100, but by 1866, they were trading at a whopping Rs. 15,000 per share.
  2. Port Canning Share: The Port Canning Company was formed in 1862 with the objective of developing a port in Canning, near Calcutta. During the share mania, the company’s shares witnessed a surge in demand, and their price rose sharply. In 1865, the shares were offered at a face value of Rs. 100, but by 1866, they were trading at Rs. 1,500 per share.
  3. Asiatic Bank: The Asiatic Bank was established in 1862 as a joint-stock bank, and its shares were among the most actively traded during the share mania. The bank’s shares witnessed a sharp rise in price, and by 1865, they were trading at Rs. 2,200 per share, up from the face value of Rs. 100.
  4. Bank of Bombay: The Bank of Bombay was one of the oldest banks in India, having been established in 1840. During the share mania, the bank’s shares witnessed a surge in demand, and their price rose significantly. In 1865, the shares were offered at a face value of Rs. 100, but by 1866, they were trading at Rs. 1,500 per share.
  5. Colaba Land Company: The Colaba Land Company was established in 1863 to develop land in the Colaba area of Bombay. During the share mania, the company’s shares became highly sought-after, and their price rose significantly. In 1865, the shares were offered at a face value of Rs. 100, but by 1866, they were trading at Rs. 1,100 per share.
  6. Elphinstone Press Company: The Elphinstone Press Company was established in 1859 as a printing press company. During the share mania, the company’s shares witnessed a sharp rise in price, and by 1865, they were trading at Rs. 900 per share, up from the face value of Rs. 100.
  7. Apollo Press: The Apollo Press was another printing press company that saw a surge in demand for its shares during the share mania. In 1865, the shares were offered at a face value of Rs. 100, but by 1866, they were trading at Rs. 1,000 per share.
  8. Mazgaon Land: The Mazgaon Land Company was established in 1864 with the objective of developing land in the Mazgaon area of Bombay. During the share mania, the company’s shares became highly sought-after, and their price rose significantly. In 1865, the shares were offered at a face value of Rs. 100, but by 1866, they were trading at Rs. 1,500 per share.
  9. Elphinstone Land: The Elphinstone Land Company was established in 1864 to develop land in the Elphinstone area of Bombay. During the share mania, the company’s shares witnessed a sharp rise in price, and by 1865, they were trading at Rs. 1,200 per share, up from the face value of Rs. 100.

    Table summarizing the change in price of different company shares during the Share Mania of the 1860s in Bombay:

Despite the risks, the share mania of the 1860s laid the foundation for the growth of the Indian stock market, which continues to be an important driver of the Indian economy

Company NameFace ValuePrice in 1861Price in 1865-66
Back Bay ReclamationRs. 100Rs. 40Rs. 15,000
Port Canning ShareRs. 100Rs. 28Rs. 1,500
Asiatic BankRs. 100Rs. 205Rs. 2,200
Bank of BombayRs. 100Rs. 220Rs. 1,500
Colaba Land CompanyRs. 100Rs. 48Rs. 1,100
Elphinstone Press Co.Rs. 100Rs. 85Rs. 900
Apollo PressRs. 100Rs. 42Rs. 1,000
Mazgaon LandRs. 100N/ARs. 1,500
Elphinstone LandRs. 100N/ARs. 600

Please note that some of the prices in the table may be adjusted for inflation and are provided for informational purposes only.

The Great Depression in the 1930s led to the transformation of the stock market. In 1875, the brokers formally established the Native Share & Stock Brokers Association in Bombay. In 1895, the stock exchange acquired land, and the building was inaugurated on 19th January 1899.

The building was expanded in 1920, and in 1968, then Finance Minister Shri Morarji Desai laid the foundation for a new building. In 1977, Shri Dhirubhai Ambani entered the stock market with his scrip of Reliance Textiles, marking a significant milestone in the history of the BSE.

In the 1990s, major capital market scams took place, which had a disastrous effect on the capital market. This saw the emergence of the Securities and Exchange Board of India (SEBI) as a regulator.

On October 9, 1999, the Sensex, the benchmark index of the BSE, crossed the 5,000 mark for the first time. Today, the BSE is a modern exchange with state-of-the-art technology and global best practices. It continues to be a significant player in the Indian financial market, offering investors access to a wide range of financial instruments, including equities, debt securities, mutual funds, and exchange-traded funds.

III. Trading on the BSE

The Bombay Stock Exchange (BSE) is a leading stock exchange in India, where trading in equities, bonds, and derivatives takes place. Here is a brief overview of how trading works on the BSE:

  1. Trading Mechanism: The BSE uses an electronic trading system called BOLT (BSE On-Line Trading), which allows for efficient and transparent trading of securities. The system matches buy and sell orders to arrive at a fair price for the securities being traded.
  2. Types of Securities: The BSE provides a platform for trading in various types of securities, including equities, bonds, and derivatives. Equities are shares of ownership in a company, while bonds are debt securities that pay a fixed interest rate. Derivatives are financial contracts that derive their value from an underlying asset, such as a stock or an index.
  3. Trading Hours: The trading hours on the BSE are from Monday to Friday, between 9:15 am to 3:30 pm. There are also pre-opening and post-closing sessions, which allow traders to place orders before and after the regular trading hours.
  4. Settlement Process: The settlement process on the BSE is T+2, which means that the trades executed on a particular day have to be settled within two business days. Settlement involves the transfer of securities and funds between the buyer and the seller.
  5. Regulatory Environment: The BSE is regulated by the Securities and Exchange Board of India (SEBI), which is responsible for overseeing the functioning of stock exchanges in India. SEBI ensures that the trading on the BSE is fair, transparent, and in compliance with the rules and regulations governing the securities market.

In conclusion, the BSE provides a platform for trading in various types of securities, and its electronic trading system ensures efficient and transparent trading. The regulatory framework ensures that trading on the BSE is fair and transparent, thereby promoting investor confidence in the Indian securities market.

IV. Regulatory environment

Regulatory bodies play a crucial role in ensuring fair and transparent trading practices on the Bombay Stock Exchange (BSE). In India, the Securities and Exchange Board of India (SEBI) is the primary regulatory body for the securities market, including the BSE. SEBI was established in 1988 with the aim of regulating and promoting the development of the securities market in India.

SEBI’s main functions include overseeing the registration of brokers, ensuring compliance with securities laws and regulations, investigating insider trading and market manipulation, and promoting investor education and awareness. SEBI has the power to take legal action against individuals or companies who violate securities laws, including imposing fines and initiating legal proceedings.

In recent years, SEBI has implemented several regulatory changes that have impacted the BSE. For example, in 2015, SEBI introduced a new risk management framework for the derivatives segment of the BSE. The new framework mandated that brokers must set up risk management systems that could identify potential risks and take appropriate measures to mitigate them.

SEBI has also implemented measures to enhance market transparency and prevent insider trading. In 2019, SEBI introduced new rules requiring companies to disclose any information that could impact their share prices within 24 hours. The rules were introduced to prevent insiders from profiting from non-public information.

In addition to SEBI, the BSE is also subject to regulations from other bodies, such as the Reserve Bank of India (RBI) and the Ministry of Corporate Affairs (MCA). The RBI regulates the banking sector and has the power to set monetary policy and issue licenses for banks and other financial institutions. The MCA is responsible for regulating corporate affairs and overseeing the registration of companies.

Overall, regulatory bodies like SEBI play a critical role in ensuring that the BSE operates in a fair and transparent manner. By monitoring trading activities, investigating potential violations, and enforcing securities laws and regulations, these bodies help to protect investors and maintain market integrity.

V. Market performance

In recent years, the BSE has performed well, reflecting India’s strong economic growth and the country’s increasing importance in the global economy. The BSE’s benchmark index, the S&P BSE Sensex, has shown strong growth over the past decade, increasing from around 16,000 in 2011 to over 50,000 in 2021.

One major factor that has influenced the BSE’s performance is India’s economic growth. India has emerged as one of the world’s fastest-growing major economies, with GDP growth rates averaging around 7% in recent years. This has attracted significant foreign investment into the country, boosting the performance of Indian companies listed on the BSE.

Geopolitical events have also had an impact on the BSE’s performance. For example, tensions between India and Pakistan in 2019 caused a temporary dip in the market. The COVID-19 pandemic also had a significant impact on the BSE, causing a sharp decline in early 2020, but the market has since recovered.

In terms of recent trends, one notable development has been the increasing participation of retail investors in the market. The rise of online trading platforms has made it easier for individual investors to access the market and trade shares. Another trend has been the growth of the derivatives market on the BSE, with increasing volumes of trading in futures and options contracts.

Overall, the BSE has shown strong performance in recent years, driven by India’s economic growth and increasing global importance. While there have been fluctuations due to geopolitical events and other factors, the long-term trend has been positive, and the BSE remains an important market for investors seeking exposure to India’s growing economy.

BSE Building, Dalal Street Mumbai

Geopolitical events have also had an impact on the BSE’s performance. For example, tensions between India and Pakistan in 2019 caused a temporary dip in the market. The COVID-19 pandemic also had a significant impact on the BSE, causing a sharp decline in early 2020, but the market has since recovered.

In terms of recent trends, one notable development has been the increasing participation of retail investors in the market. The rise of online trading platforms has made it easier for individual investors to access the market and trade shares. Another trend has been the growth of the derivatives market on the BSE, with increasing volumes of trading in futures and options contracts.

Overall, the BSE has shown strong performance in recent years, driven by India’s economic growth and increasing global importance. While there have been fluctuations due to geopolitical events and other factors, the long-term trend has been positive, and the BSE remains an important market for investors seeking exposure to India’s growing economy.

VI. Companies listed on the BSE

The BSE has a diverse range of companies listed on its exchange, including large corporations, small and medium-sized enterprises, and startups. As of 2022, there are over 5,000 companies listed on the BSE, with a total market capitalization of around $3 trillion.

The BSE attracts a wide range of companies across various industries, including finance, manufacturing, technology, healthcare, and energy. The exchange has a reputation for being a preferred platform for companies looking to raise capital through public offerings, including initial public offerings (IPOs).

In recent years, there have been several significant IPOs and listings on the BSE, including Indian Railway Finance Corporation, SBI Cards and Payment Services, and IRCON International. Additionally, several new-age companies, such as Zomato and Paytm, have opted for the BSE for their IPOs, highlighting the exchange’s growing appeal among startups.

The BSE also has strict listing requirements, such as a minimum market capitalization and profitability criteria, which ensure that only established and financially sound companies are listed on the exchange. This helps maintain the integrity of the exchange and provides investors with a level of assurance that the companies listed on the BSE are reliable and trustworthy.

Overall, the BSE continues to attract a diverse range of companies, providing investors with a wide range of investment opportunities and contributing to the growth of the Indian economy.

VII. Future of the BSE

The BSE has several plans for the future, including expanding its reach into new markets and adopting new technologies. One key area of focus is on expanding its presence in the commodities market. The BSE launched its commodity derivatives segment in 2018, and it has since grown rapidly, with increased participation from traders and investors. The exchange plans to continue expanding this segment by introducing new products and attracting more market participants.

The BSE is also looking to expand its reach into international markets. In 2019, the exchange signed a memorandum of understanding with the Kazakhstan Stock Exchange to explore potential areas of cooperation, such as cross-listing and technology sharing. The BSE has also been exploring partnerships with other exchanges in Asia and Africa to expand its global footprint.

In terms of technology, the BSE has been investing in new systems and infrastructure to improve its trading platform and increase efficiency. The exchange has implemented a new trading and surveillance system, which has improved trading speeds and reduced errors. The BSE is also exploring the use of blockchain technology to improve transparency and reduce settlement times.

However, the BSE faces several challenges in the coming years. One major challenge is the increasing competition from other exchanges, both in India and globally. The National Stock Exchange (NSE) has emerged as a strong competitor to the BSE in recent years, and other exchanges such as the MCX and NCDEX have also gained market share in the commodities market.

Another challenge is the changing regulatory landscape. The Securities and Exchange Board of India (SEBI) has introduced several new regulations in recent years, such as the new margin system and enhanced surveillance measures, which have had a significant impact on trading volumes and profitability for the BSE and other exchanges.

VIII. Conclusion

The Bombay Stock Exchange (BSE) is one of the oldest and most prominent stock exchanges in Asia. This article provides an overview of the BSE, covering its history, functions, and role in the Indian and global economy.

The article first discusses the history of the BSE, highlighting its establishment in 1875 and subsequent growth and development over the years. The BSE serves as a platform for trading a variety of securities, including equities, bonds, and derivatives.

The article then delves into the functioning of the BSE, explaining the role of brokers, trading hours, and the settlement process. Additionally, the article discusses the role of regulatory bodies such as SEBI in regulating the BSE and ensuring fair trading practices.

Next, the article analyzes the BSE’s market performance in recent years, highlighting various factors that have influenced its performance. Economic trends and geopolitical events have played a significant role in shaping the BSE’s performance.

The article also provides an overview of the companies listed on the BSE, highlighting the types of companies that typically list, such as startups and established firms. Recent IPOs and significant listings on the BSE are also discussed.

Finally, the article explores the BSE’s plans for the future, including expanding its reach into new markets and adopting new technologies. Potential challenges and opportunities facing the BSE in the coming years are also analyzed.

Overall, the BSE plays a significant role in the Indian financial market and the global economy. The exchange’s history, functions, and plans for the future all contribute to its importance in the world of finance.