Role of Stock Exchange in the Development of Indian Capital Market: A Study of National Stock Exchange


Rakesh Kumar Sharma
Senior Lecturer of Management
Ansal Institute of Technology

Dr. Vijay Kumar Sharma
Associate Professor
Department of Commerce
Himachal Pradesh University

Capital occupies a position so dominant to the economic theory of production and distribution that it is natural to assume that it should occupy at least an equally important place in the theory and practice of economic growth. The subject whether approached historically or analytically or from the standpoint of policy, it is the process of capital accumulation that occupies the front of the stage. It is usually implied that economic growth and capital accumulation with a high positive and significant correlation and additions to the stock of capital can provoke and facilitate faster rate of growth even under the circumstances which can be described as shortage of capital.

The aforesaid correlation between the process of economic growth and capital accumulation inspired the earlier theorists of economic development and even in the works of modern economists output is still assumed to be limited by capital whether there is abundant labour or not. A high rate of capital formation usually results in rapid growth in the production and income, but more capital formation by itself will not bring a corresponding acceleration in the growth of production. It also depends to a large extent on the manner in which the capital is utilized.

Capital market means the market for all the financial instruments, short term and long term as also commercial, industrial and government paper.  The capital market deals with capital. The capital market is a market where borrowing and lending of long term funds takes place. Capital markets deal in both debt and equity. The governments both central and state raise money in the capital market, through the issue of government securities. Capital markets refer to all the institutes and mechanisms of raising medium and long-term funds, through various instruments available like shares, debentures, bonds etc.

Corporate both in the private sector as well as in the public sector raise thousands of crores of rupees in these markets. The government, through Reserve Bank of India, as well as financial institutions also raise a lot of money from these markets.  Example of a well-developed markets are The Global depository and American depository.

There are two important operation carried on in these markets:

1. The raising the new capital
2. Trading in securities already issued by the companies.

The important constituents of the capital market are:

1. The stock exchanges
2. Banks
3. The investment trusts and companies
4. Specialised financial institutions or development banks.
5. Mutual funds
6. Post office saving banks
7. Non banking financial institutions
8. International financial investors and institutions.

The supply in this market comes from saving from different sectors of the economy. These come from the following sources:

1. Individuals
2. Corporates
3. Governments
4. Foreign countries
5. Banks
6. Provident funds
7. Financial institutions.

Moreover the establishment of National Stock Exchange and Bombay Stock Exchange has been turning point in the working of capital markets. Recently the RBI has allowed participation of individuals in the government securities markets. This move is likely to open new avenues for investment to individuals. Moreover the Finance Ministry has announced the removal of income tax on dividend in the hands of the receiver and no capital gains tax on investments made in equity after 1.3.03 and held for one year.


The history of the capital market in India dates back to the eighteenth century when East India Company securities were traded in the country. Until the end of the nineteenth century, securities trading was unorganized and the main trading centres were Bombay (now Mumbai) and Calcutta (now Kolkata). Of the two, Bombay was the chief trading centre wherein bank shares were the major trading stock. During the American Civil War (1860-61), Bombay was an important source of supply for cotton.  Hence, trading activities flourished during the period, resulting in a boom in share prices. This boom, the first in the history of the Indian capital market, lasted for a half a decade. The bubble burst on July 1, 1865, when there was tremendous slump in share prices.

Trading was at that time limited to a dozen brokers: their trading place was under a banyan tree in front of the Town Hall in Bombay. These stockbrokers organized an informal association in 1875-Native Shares and Stock Brokers Association, Bombay. The stock exchanges in Calcutta and Ahmedabad, also industrial and trading centres, came up later. The Bombay Stock Exchange was recognized in May 1927 under the Bombay Securities Contracts Control Act, 1925.

The capital market was not well organized and developed during the British rule because the British government was not interested in the economic growth of the country. As a result, many foreign companies depended on the London capital market for funds rather than on the Indian capital market.

In the post-independence period also, the size of the capital market remained small. During the first and second five-year plans, the government's emphasis was on the development of the agricultural sector and public sector undertakings. The public sector undertakings were healthier than the private undertakings in terms of paid-up capital but their shares were not listed on the stock exchanges. Moreover, the Controller of Capital Issues (CCI) closely supervised and controlled the timing, composition, interest rates, pricing, allotment, and floatation costs of new issues. These strict regulations demotivated many companies from going public for almost four and a half decades.

In the 1950s, Century Textiles, Tata Steel, Bombay Dyeing, National Rayon, and Kohinoor Mills were the favorite scrips of speculators. As speculation became rempant, the stock market came to be known as 'Satta Bazaar'. Despite speculation, non-payment or defaults were not very frequent. The government enacted the Securities Contracts (Regulation) Act in 1956s was also characterized by the establishment of a network for the development of financial institutions and state financial corporations.

The 1960s was characterized by wars and droughts in the country which led to bearish trends. These trends were aggravated by the ban in 1969 on forward trading and 'badla', technically called 'contracts for clearing.' 'Badla' provided a mechanism for carrying forward positions as well as borrowing funds. Financial institutions such as LIC and GIC helped to revive the sentiment by emerging as the most important group of investors. The first mutual fund of India, the Unit Trust of India (UTI) came into existence in 1964.

In the 1970s, badla trading was resumed under the disguised form of 'hand-delivery contracts-A group.' This revived the market. However, the capital market received another severe setback on July 6, 1974, when the government promulgated the Dividend Restriction Ordinance, restricting the payment of dividend by companies to 12 per cent of the face value or one-third of the profits of the companies that can be distributed as computed under section 369 of the Companies Act, whichever was lower. This led to a slump in market capitalization at the BSE by about 20 per cent overnight and the stock market did not open for nearly a fortnight. Later came a buoyancy in the stock markets when the multinational companies (MNCs) were forced to dilute their majority stocks in their Indian ventures in favour of the Indian public under FERA, 1973. Several MNCs opted out of India. One undred and twenty-three MNCs offered shares were lower than their intrinsic worth. Hence, for the first time, the FERA dilution created an equity cult in India. It was the spate of FERA issues that gave a real fillip to the Indian stock markets. For the first time, many investors got an opportunity to invest in the stocks of such MNCs as Colgate, and Hindustan Liver Limited. Then, in 1977, a little-known entrepreneur, Dhirubhai Ambani, tapped the capital market. The scrip, Reliance Textiles, is still a hot favourite and dominates trading at all stock exchanges.

The 1980s witnessed an explosive growth of the securities market in India, with millions of investors suddenly discovering lucrative opportunities. Many investors jumped into the stock markets for the first time. The government's liberalization process initiated during the mid-1980s, spurred this growth. Participation by small investors, speculation, defaults, ban on badla, and resumption of badla continued. Convertible debentures emerged as a popular instrument of resource mobilization in the primary market. The introduction of public sector bonds and the successful mega issues of Reliance Petrochemicals and Larsen and Toubro gave a new lease of life to the primary market. This, in turn, enlarged volumes in the secondary market. The decade of the 1980s was characterized by an increase in the number of stock exchanges, listed companies, paid up-capital, and market capitalization.

The 1990s will go down as the most important decade in the history of the capital market of India. Liberalisation and globalization were the new terms coined and marketed during this decade. The Capital Issues (Control) Act, 1947 was repealed in May 1992. The decade was characterized by a new industrial policy, emergence of SEBI as a regulator of capital market, advent of foreign institutional investors, euro-issues, free pricing, new trading practices, new stock exchanges, entry of new players such as private sector mutual funds and private sector banks, and primary market boom and bust.

Major capital market scams took place in the 1990s. These shook the capital market and drove away small investors from the market. The securities scam of March 1992 involving brokers as well as bankers was on of the biggest scams in the history of the capital market. In the subsequent years owing to free pricing, many unscrupulous promoters, who raised money from the capital market, proved to be fly-by-night operators. This led to an erosion in the investors' confidence. The M S Shoes case, one such scam which took place in March 1995, put a break on new issue activity.

The 1991-92 securities scam revealed the inadequacies of and inefficiencies in the financial system. It was the scam, which prompted a reform of the equity market. The Indian stock market witnessed a sea change in terms of technology and market prices. Technology brought radical changes in the trading mechanism. The Bombay Stock Exchange was subject to nationwide competition by two new stock exchanges-the National Stock Exchange, set up in 1994, and Over the Counter Exchange of India, set up in 1992. The National Securities Clearing Corporation (NSCC) and National Securities Depository Limited (NSDL) were set up in April 1995 and November 1996 respectively form improved clearing and settlement and dematerialized trading. The Securities Contracts (Regulation) Act, 1956 was amended in 1995-96 for introduction of options trading. Moreover, rolling settlement was introduced in January 1998 for the dematerialized segment of all companies. With automation and geographical spread, stock market participation increased.

In the late 1990s, the Information Technology (IT) scrips were dominant on the Indian bourses. These scrips included Infosys, Wipro, and Satyam. They were a part of the favourite scrips of the period, also known as 'New Economy' scrips, alongwith telecommunications and media scrips. The new economy companies are knowledge intensive unlike the old economy companies that were asset intensive.

The Indian capital market entered the twenty-first century with the Ketan Parekh scam. As a result of this scam, badla was discontinued from July 2001 and rolling settlement was introduced in all scrips. Trading of futures commenced from June 2000, and Internet trading was permitted in February 2000. On July 2, 2001, the Unit Trust of India announced suspension of the sale and repurchase of its flagship US-64 scheme due to heavy redemption leading to panic on the bourses. The government's decision to privatize oil PSUs in 2003 fuelled stock prices. One big divestment of international telephony major VSNL took place in early February 2002. Foreign institutional investors have emerged as major players on the Indian bourses. NSE has an upper hand over its rival BSE in terms of volumes not only in the equity markets but also in the derivatives market.

It has been a long journey for the Indian capital market. Now the capital market is organized, fairly integrated, mature, more global and modernized. The Indian equity market is one of the best in the world in terms of technology. Advances in computer and communications technology, coming together on Internet are shattering geographic boundaries and enlarging the investor class. Internet trading has become a global phenomenon. The Indian stock markets are now getting integrated with global markets.


The Securities Contracts (Regulation) Act, 1956, has defined Stock Exchange as an "association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business of buying, selling and dealing in Securities".

Stock exchange as an organized security market provides marketability and price continuity for shares and helps in a fair evaluation of securities in terms of their intrinsic worth. Thus it helps orderly flow and distribution of savings between different types of investments. This institution performs an important part in the economic life of a country, acting as a free market for securities where prices are determined by the forces of supply and demand. Apart from the above basic function it also assists in mobilizing funds for the Government and the Industry and to supply a channel for the investment of savings in the performance of its functions.

The Stock Exchanges in India as elsewhere have a vital role to play in the development of the country in general and industrial growth of companies in the private sector in particular and helps the Government to raise internal resources for the implementation of various development programmes in the public sector. As a segment of the capital market it performs an important function in mobilizing and channelising resources which remain otherwise scattered. Thus the Stock Exchanges tap the new resources and stimulate a broad based investment in the capital structure of industries.

A well developed and healthy stock exchange can be and should be an important institution in building up a property base alongwith a socialist in India with broader distribution of wealth and income. Thus Stock Exchange is a vital organ in a modern society. Without a stock exchange a modern democratic economy cannot exist. The system of joint stock companies financed through the public investment as emerged has put the vast means of finances almost to enterpreneurs' needs.

Finance from external sources mainly from the investing public can become possible only when an institute like Stock Exchange provides opportunities for the conversion of scattered savings into profitable investments with the promises of a reasonable yield and minimum element of risk. Such a mechanism as provided by Stock Exchanges is not merely a source of capital but also a conduit which channelises the savings into investment alongwith a free movement of capital.

With the probable exception of a totalitarian state no Government will be able to mobilize resources from the public if the money market in the form of stock exchange does not exist. The Stock Exchange benefits the entire community in a variety of way. It enables the producers to raise capital which directly and indirectly gives gainful employment to millions of people on the one hand and helps consumers to get ;the variety of goods needed by them on the other. It provides opportunities to savers to store the value either as temporary abode of purchasing power or as a permanent abode of purchasing power in the form of financial assets. It also helps the segments of the savers who put their savings in commercial firms and non-banking financial intermediaries because these institutions avail themselves of the services of Stock Exchange to invest the money thus collected.

The Stock Exchange comes close enough to a perfectly competitive market allowing the forces of demand and supply a reasonable degree of freedom to operate as compared to other markets specially the commodity markets. This segment of the factor market can be considered as a perfect or a nearly perfect market. Apart from providing a mechanism for transacting business in stock and shares it generates genuine potential for a new entrepreneur to take up initiative in the private sector enterprises and allows the expansion of investing community by offering gainful development of their otherwise sluggish or shy capital. The Stock Exchange must assume the responsibility of protecting the rights of investors specially the small investors in the Joint Stock Companies.


Any attempt at raising the standard of living of the masses must address itself to the task of producing the right quantity of the right types of goods and have them available for consumption at the right time. This requires large-scale production through coordination of activities of hundreds of people under the same roof even when the product is the simplest to make.

This, however, calls for raising vast amounts of financial resources for the purpose of acquiring land, buildings and equipments, besides purchasing raw materials and employing labour. No one individual or a small group of individuals is rich enough to provide all the capital required by modern business enterprise and savings of hundreds, if not thousands, of people must be mobilized.

The corporate form of organization is well adapted to the task of raising capital from many people. This is done by issuing or offering for sale at cash, different types of securities, that is, shares and bonds, which offer to individual investors a means of productively employing capital/savings suited to his/her needs and temperament.

The need for offering for sale different types of securities is obvious. Some people may desire safety of the amount they have invested and a regular income from their investment. To them the corporation or company may offer debenture bonds- a certificate issued under the seal of the company promising a refund of the loan on a specified date and payment of interest at prescribed intervals.

Other investors may be willing to commit their savings for an indefinite period of time and to assume greater risk while still desiring safety of capital and stability of income. To them the corporation will sell preference shares. Still other investors may be willing to shoulder the business risk that goes along with the ownership of the business in the hope that the profit realized would be large enough to compensate the greater risk they are assuming.

But no one will buy these securities unless there exists an organized market where the holders can dispose of them, should the need arise, and new investors can purchase them. Over the years, such organized markets have come into existence in all democratic and capitalistic countries including India. Such a market is called stock market or a stock exchange in English speaking countries and a 'brouse' in continental Europe.  There is, obviously, no need for stock exchange in Communist countries since in such countries all the productive organizations are owned by the government.

Organised stock exchange in India are of recent origin. As late as 1933 there were only three stock exchanges one each at Ahmedabad, Bombay and Calcutta, but trading in securities was in vogue much prior to that year. Of course, no one can tell when the first transaction took place, however, it is generally agreed that business in securities had begun as early as the concluding years of the 18th century, that is, between the years 1790 and 1800 A.D.

Existing structure of the stock exchanges in India

The Act recognizes stock exchanges with different legal structure. Presently the stock exchanges which are recognised under the Securities Contracts (Regulation) Act in India, could be segregated into two broad groups 20 stock exchanges which were set up as companies, either limited by guarantees or by shares, and the 3 stock exchanges which are functioning as associations of persons (AOP) viz. BSE, Ahmedabad Stock Exchange and Indore Stock Exchange. The 20 stock exchanges which are companies are: the stock exchanges of Bangalore, Bhubaneswar, Calcutta, Cochin, Coimbatore, Delhi, Gauhati, Hyderabad, Interconnected SE, Jaipur, Ludhiana, Madras, Magadh, Managalore, NSE, Pune, OTCEI, Saurashtra-Kutch, Uttar Pradesh, and Vadodara. Of these, the stock exchanges of Ahmedabad, Bangalore, BSE, Calcutta, Delhi, Hyderabad, Madhya Pradesh, Madras and Gauhati were given permanent recognition by the Central Government at the time of setting up of these stock exchanges. Apart from NSE, all stock exchanges whether established as corporate bodies or Association of Persons (AOPs), are non-profit making organizations.

Powers that may be exercised by the Stock Exchange

The powers of the stock exchange are to be exercised as per provisions in its bye-law. As per SCRA Act any recognised stock exchange may, subject to the previous approval of the[Securities and Exchange Board of India make bye-laws for the regulation and control of contracts. The bye-laws can provide for the exercise of following powers by the stock exchange

a. The opening and closing of markets and the regulation of the hours of trade;

b. Set up a clearing house for the periodical settlement of contracts and differences thereunder, the delivery of and payment for securities, the passing on of delivery orders and the regulation and maintenance of such clearing house;

c. The regulation or prohibition of blank transfers;

d. The regulation, or prohibition of badlas or carry-over facilities;

e. The fixing, altering or postponing of days for settlements;

f. The determination and declaration of market rates, including the opening, closing, highest and lowest rates for securities;

g. The terms, conditions and incidents of contracts, including the prescription of margin requirements, if any, and conditions relating thereto, and the forms of contracts in writing;

h. The regulation of the entering into, making, performance, rescission and termination, of contracts, including contracts between members or between a member and his constituent or between a member and a person who is not a member, and the consequences of default or insolvency on the part of a seller or buyer or intermediary, the consequences of a breach or omission by a seller or buyer, and the responsibility of members who are not parties to such contracts;

i. The regulation of taravani business including the placing of limitations thereon;

j. The listing of securities on the stock exchange, the inclusion of any security for the purpose of dealings and the suspension or withdrawal of any such securities, and the suspension or prohibition of trading in any specified securities;

k. The method and procedure for the settlement of claims or disputes, including settlement by arbitration;

l. The levy and recovery of fees, fines and penalties

m. The regulation of the course of business between parties to contracts in any capacity;

n. The exercise of powers in emergencies in trade(which may arise, whether as a result of pool or syndicated operations or cornering or otherwise) including the power to fix maximum and minimum prices for securities;

o. The regulation of dealings by members for their own account;

p. The separation of the functions of jobbers and brokers;

q. The limitations on the volume of trade done by any individual member in exceptional circumstances;

r. Fixing the obligation of members to supply such information or explanation and to produce such documents relating to the business as the governing body may require.


The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000.

NSE's Mission

NSE's mission is setting the agenda for change in the securities markets in India. The NSE was set-up with the main objectives of:

1. Establishing a nation-wide trading facility for equities, debt instruments and hybrids,

2. Ensuring equal access to investors all over the country through an appropriate communication network,

3. Providing a fair, efficient and transparent securities market to investors using electronic trading systems, enabling shorter settlement cycles and book entry settlements systems, and

4. Meeting the current international standards of securities markets.

5. The standards set by NSE in terms of market practices and technologies have become industry benchmarks and are being emulated by other market participants. NSE is more than a mere market facilitator. It's that force which is guiding the industry towards new horizons and greater opportunities.

Corporate Structure of NSE

NSE is one of the first de-mutualised stock exchanges in the country, where the ownership and management of the Exchange is completely divorced from the right to trade on it. Though the impetus for its establishment came from policy makers in the country, it has been set up as a public limited company, owned by the leading institutional investors in the country.

From day one, NSE has adopted the form of a demutualised exchange - the ownership, management and trading is in the hands of three different sets of people. NSE is owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries and is managed by professionals, who do not directly or indirectly trade on the Exchange. This has completely eliminated any conflict of interest and helped NSE in aggressively pursuing policies and practices within a public interest framework.

The NSE model however, does not preclude, but in fact accommodates involvement, support and contribution of trading members in a variety of ways. Its Board comprises of senior executives from promoter institutions, eminent professionals in the fields of law, economics, accountancy, finance, taxation, etc, public representatives, nominees of SEBI and one full time executive of the Exchange.

While the Board deals with broad policy issues, decisions relating to market operations are delegated by the Board to various committees constituted by it. Such committees includes representatives from trading members, professionals, the public and the management. The day-to-day management of the Exchange is delegated to the Managing Director who is supported by a team of professional staff. Distinctive Features of NSE

NSC is able to radically transform the Indian Capital market during the decade of its existence. It has changed the mindset of all market players and has built investor confidence in the secondary markets.

"The NSE is different from most other stock exchanges in India where membership automatically implies ownership of the exchange. The ownership and management of NSE have been totally delinked from the right of trading members. This pattern has been adopted.

Since broker owned stock exchanges are also broker managed there is a clear conflict of interest. This is a structurally unstable model, as it inevitably leads to emergence of power groups, and investor interests invariably take a back seat.

Management Structure

The NSE has tried to benefit from the long experience and expertise of its trading members in their advisory capacities. It Board of Directors does not have any representative of brokers.

The Executive Committee, which is concerned with the management of the exchange, has four brokers nominated by the board to reflect different types of interests in the market. But the exchange has appointed different committees to advise in areas such as best market practices, settlement procedures and risk containment systems.

Securities industry professional and trading members man these committees and NSE staff concerned with respective areas of exchange operations also participate in them. The day-t-day management of NSE is delegated is delegated to the Managing Director who is supported by a team of professional staff.

Introduction of Technology Initiatives

Stock exchanges today have to rely increasingly on information technology to stay competitive in delivering services. This is primarily because of newer trading channels used for communicating and transacting like Internet and On-line security trading.

The IT department of NSE employs 150 IT professionals forming a third of its total staff strength. The exchange has invested close to Rs.400 Crores in computers, software and communication equipment. It is therefore recognized as one of "Top IT User" organizations.

In line with global trends NSE is structured and operates much like an information technology company. It has the largest VSAT network in this part of the world with a huge and complex web of hardware and software. It has a detailed disaster recovery site that mirrors all operating systems. The NSE has set up its own Internet Webster, which is visited daily by four Lakh persons

Stock Exchange Technology

The modern stock exchange technology does not need the traditional type of brokers to match investors' orders as they used to do on the physical-trading floor. The automated Trading screens can match buy and sell orders without the intervention of brokers. Today brokers are needed only for settlement responsibilities. NSE introduced a nation-wide VSAT driven screen based trading system.

Operations commenced in Mumbai and rapidly spread all over India. NSE today offers investors trading facilities in over 280 cities and town through 4000 terminals. For the first time NSE introduced in India screen based trading with automated matching.

The system conceals the identity of the parties to an order or trade. This help better functioning of the market as disclosures of identity would put most members at a disadvantage. The trading system operates on price time priority. This means given the same set or orders, the orders that come first receive priority in matching. When an order does not find an immediate match in remains in the system and is displayed to the whole market, till a fresh order comes in or the earlier order is modified or cancelled. The market screens at any point of time give the members complete information on the total order depth in a security, the high price, the low price, the last traded price and other related information.

Nationwide Trading Facility

Nationwide Trading system of NSE has immensely benefited investors in all places, which do not have a stock exchange nearby. Earlier their orders took three days for confirmation. This time lag is now a thing of the past, as the orders and prices are visible and instantly available to all investors across the country, representing a dramatic change in investor access and protection. This has served to unify the earlier fragmented market into a single national order book, bringing with it unprecedented increases in liquidity and transparency.

Risk Containment Measures -Investors freed from Counterparty Risks

NSE introduced risk containment measures like mark to market margins, exposure limits etc., bringing enormous safety to fast growing and changing electronic market.

NSE has introduced the concept of a clearing corporation, by which the counterparty risk of each member is taken by NSCC and the financial settlement guaranteed by the Corporation. Counterparty risk is being guaranteed through the tight risk management system and an innovative method of on-line position monitoring and automatic disablement. NSE introduced this system of automatic disablement to control grave risks. Under this system each broker of NSC is given a limit up to which he can trade. This limit is fixed in relation to the money he deposits with NSC or its clearing corporation. This money can be cash or pledge of securities or Bank Guarantee. Currently the limit is 8.5 times the money deposited.

The trading system works in such a way that the broker gets warning messages after he crosses 70% of his trading limit and the moment he reaches 100% of his limit NSE computer disconnects all his terminals from the system so that he cannot trade further. He is allowed to trade again only when he brings additional deposits or authorise NSC to reduce his trades either by selling or buying on his behalf.

NSE Milestones

November 1992


April 1993

Recognition as a stock exchange

May 1993

Formulation of business plan

June 1994

Wholesale Debt Market segment goes live

November 1994

Capital Market (Equities) segment goes live

March 1995

Establishment of Investor Grievance Cell

April 1995

Establishment of NSCCL, the first Clearing Corporation

June 1995

Introduction of centralised insurance cover for all trading members

July 1995

Establishment of Investor Protection Fund

October 1995

Became largest stock exchange in the country

April 1996

Commencement of clearing and settlement by NSCCL

April 1996

Launch of S&P CNX Nifty

June 1996

Establishment of Settlement Guarantee Fund

November 1996

Setting up of National Securities Depository Limited, first depository in India, co-promoted by NSE

November 1996

Best IT Usage award by Computer Society of India

December 1996

Commencement of trading/settlement in dematerialised securities

December 1996

Dataquest award for Top IT User

December 1996

Launch of CNX Nifty Junior

February 1997

Regional clearing facility goes live

November 1997

Best IT Usage award by Computer Society of India

May 1998

Promotion of joint venture, India Index Services & Products Limited (IISL)

May 1998

Launch of NSE's Web-site:

July 1998

Launch of NSE's Certification Programme in Financial Market

August 1998


February 1999

Launch of Automated Lending and Borrowing Mechanism

April 1999

CHIP Web Award by CHIP magazine

October 1999

Setting up of NSE.IT

January 2000

Launch of NSE Research Initiative

February 2000

Commencement of Internet Trading

June 2000

Commencement of Derivatives Trading (Index Futures)

September 2000

Launch of 'Zero Coupon Yield Curve'

November 2000

Launch of Broker Plaza by Dotex International, a joint venture between NSE.IT Ltd. and i-flex Solutions Ltd.

December 2000

Commencement of WAP trading

June 2001

Commencement of trading in Index Options

July 2001

Commencement of trading in Options on Individual Securities

November 2001

Commencement of trading in Futures on Individual Securities

December 2001

Launch of NSE VaR for Government Securities

January 2002

Launch of Exchange Traded Funds (ETFs)

May 2002

NSE wins the Wharton-Infosys Business Transformation Award in the Organization-wide Transformation category

October 2002

Launch of NSE Government Securities Index

January 2003

Commencement of trading in Retail Debt Market

June 2003

Launch of Interest Rate Futures

August 2003

Launch of Futures & options in CNXIT Index

June 2004

Launch of STP Interoperability

August 2004

Launch of NSE's electronic interface for listed companies

June 2005

Launch of Futures & options in BANK Nifty Index

November 2006

NSE awarded 'Derivative Exchange of the Year', by Asia Risk magazine

To conclude we can say that India has a long tradition of functioning capital markets. The process of reform of capital markets started in 1992 and aimed at removing direct government control and replacing it by a regulatory framework based on transparency and disclosure. The first step was taken in 1992 when SEBI was elevated to a full-fledged capital market regulator. An important policy initiative in 1993 was the opening of capital markets for foreign institutional investors and allowing Indian companies to raise capital abroad. FII registrations in the country have gone up significantly over the years. The number of registered FIIs has gone up from 823 in December 2005 to 972 in October 2006. FIIs had made $10.7 billion worth of investment (Rs 47,181 crore) in calendar 2005. The FIIs have been rewarded well by attractive valuations and increasing returns. The depository and share dematerialization systems have been introduced to enhance the efficiency of the transaction cycle. A number of significant reforms have been implemented in the spot equity and related exchange traded derivatives markets since the early 1990s. For instance, spot prices are mostly market-determined, trading volumes in the derivatives market exceed those in spot markets and market practices such as speed of settlement and dematerialization are close to international best practices.

As we can see that the stock exchange is now seen increasingly for what it really is, namely an essential financial infrastructure for any economy. It is this view of the exchange as infrastructure that motivated the Indian government to encourage the establishment of the National Stock Exchange of India at Mumbai, which in a few short years completely revolutionized the Indian capital market. The transparency of the price discovery process which results, especially in technology driven stock exchanges encourages participation in economic activity and enhances the efficient utilization of resources. In addition, the stock market is increasingly perceived as an electronic marketplace for buyers and sellers of securities to transact their business, under the full view of observers.


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10. Low, Chee-Keong, (2000), Financial Markets in Hong Kong, Springer-Verlag Singapore Ltd.

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13. Robinson, R I and Wrightsman, D, (1981), Financial Markets, Mc-Graw Hill, London.

14. Shaw, G.S. (1973), Financial Deepening in Economic Development, New York, Oxford University Press.

15. Singh, Ajit, (1997), "Financial Liberalization Stock Markets and Economic Development." The Economic Journal , Vol.107 (May), pp. 771-82.

16. Singh, Ajit and B A Weisse, {1998), "Emerging Stock Markets, Portfolio Capital Flows and Long Term Economic Growth; Micro and Macro-Economic Perspective World Development," Vol. 26, No.4 (April), pp 607-22.

17. Stigilitz, J E, (1994), "The Role of State in Financial Markets," in M Bruno and B Pleskoviz (eds), Proceedings of the World Bank Annual Bank Conference on Development Economics 1993, Washington, D. C., pp. 19-52.



Rakesh Kumar Sharma
Senior Lecturer of Management
Ansal Institute of Technology

Dr. Vijay Kumar Sharma
Associate Professor
Department of Commerce
Himachal Pradesh University

Source: E-mail January 4, 2008


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