Asia's First Stock Exchange: The Legacy of the Bombay Stock Exchange Since 1875
On July 9, 1875, Asia witnessed the birth of its first stock exchange, the Bombay Stock Exchange (BSE). Founded by the illustrious cotton merchant and stockbroker Premchand Roychand, BSE has since grown into one of the world’s largest and most influential stock exchanges. This blog explores the fascinating history and evolution of BSE, its impact on India's financial landscape, and its journey from a modest gathering of brokers under a banyan tree to a global financial powerhouse.
The Genesis of BSE
Premchand Roychand, often referred to as the Cotton King, Bullion King, or simply the Big Bull, was the visionary behind the establishment of the Bombay Stock Exchange. During the 1850s, five stockbrokers started trading under a banyan tree near Mumbai Town Hall, in what is now Horniman Circle. This modest beginning marked the inception of what would later become the epicenter of Indian finance.
As the number of brokers increased, they relocated several times before finally settling in 1874 at a permanent location. In 1875, this group of brokers formalized their association, naming it "The Native Share & Stock Brokers Association." This move was instrumental in setting up the structured framework that would lead to the establishment of BSE.
Growth and Development
The Bombay Stock Exchange's journey is one of resilience and innovation. Throughout its history, BSE has faced and overcome numerous challenges. One notable event was the car bomb explosion in the BSE building’s basement on March 12, 1993, during the Bombay bombings. Despite such adversities, BSE has continued to grow and evolve.
In 2007, BSE underwent demutualization and corporatization, a significant milestone that transformed it from a broker-owned organization to one that is publicly traded and professionally managed. This change was facilitated by the BSE (Corporatization and Demutualization) Scheme, 2005, notified by the Securities and Exchange Board of India (SEBI).
In 2017, BSE itself got listed on the National Stock Exchange (NSE), marking another significant development in its journey. This listing provided an additional platform for investors to engage with BSE, enhancing its visibility and accessibility.
Technological Advancements and Initiatives
BSE has always been at the forefront of adopting new technologies and innovations to improve market efficiency and transparency. One such initiative is India INX, established on December 30, 2016, as the country’s first international exchange. This platform allows Indian and international investors to trade in a range of financial instruments, thereby expanding BSE's reach and influence.
In October 2018, BSE launched commodity derivatives contracts in gold and silver, further diversifying its offerings and providing investors with more opportunities for portfolio diversification.
BSE's commitment to sustainability is also noteworthy. In September 2012, it became a Partner Exchange of the United Nations Sustainable Stock Exchange initiative, reflecting its dedication to promoting sustainable and responsible investment practices.
Market Statistics and Investor Participation
Despite its size and influence, the Indian stock market has historically seen lower participation rates compared to other major economies. The Bimal Jalan Committee report highlighted that only about 3% of India's population was actively invested in the stock market, compared to 27% in the United States and 10% in China.
As of April 2018, an estimated 60 million retail investors had invested in Indian stocks, either directly or through mutual funds. However, market volatility remains a significant challenge, with Morgan Stanley noting that Indian stocks have experienced four bear markets in the past 25 years.
Criticisms and Controversies
Like any major financial institution, BSE has faced its share of controversies. The exchange has been implicated in several high-profile corruption scandals, including the 1992 Indian stock market scam involving Harshad Mehta, and the NSE co-location scam. These incidents have highlighted the ongoing challenges of maintaining transparency and fairness in the market.
Regulatory bodies like SEBI have implemented measures to curb malpractices such as insider trading, price rigging, and market manipulation. Despite these efforts, market operators continue to exploit loopholes, necessitating continuous vigilance and regulatory updates.
Conclusion
From its humble beginnings under a banyan tree to becoming the seventh-largest stock exchange in the world, the Bombay Stock Exchange's journey is a testament to its resilience, innovation, and enduring significance in the global financial landscape. BSE has not only played a crucial role in the development of India's financial markets but has also set benchmarks in market practices, technology adoption, and sustainability initiatives.
As BSE continues to evolve, it remains a beacon of growth and opportunity, inspiring confidence among investors and stakeholders alike. Its story is not just about the past but also about the future, where it will undoubtedly continue to shape and influence the financial markets in India and beyond.