Development of Stock Market in India

• The real beginning in the middle of the nineteenth century, after the enactment of the Companies Act in 1850 which introduced the feature of limited liability, and generated investor interest in securities 
• The Native Share and Stock Brokers’ Association, now known as the Bombay Stock Exchange (BSE) was formed in Bombay (now Mumbai) in 1875 
• Followed by Ahmedabad in 1894, Calcutta (now Kolkata) in 1908, and Madras (now Chennai) in 1937 
• To promote the orderly development of the stock market, the central government introduced  the Securities Contracts (Regulation) Act, 1956.  

Limitations before Reforms

•      Uncertainty of execution price.

•      Uncertain delivery and settlement periods.

•      Front running, trading ahead of a client based on knowledge of the client order.

•      Lack of transparency.

•      High transaction costs.

•      Absence of risk management.

•      Systemic failure of the entire market and market closures due to scams.

•      Chub mentality of brokers.

•      Kerb trading—private off-market deals.

POST-REF0RMS MARKET SCENARIO

After the initiation of reforms in 1991, the Indian secondary market now has a four-tier form as follows:

•      Regional stock exchanges

•      The National Stock Exchanges (BSE and NSE)

•      The Over the Counter Exchange of India (OTCEI)

•      The Inter-Connected Stock Exchange of India (ISE)

NSE was set up in 1994. It was the first modern stock exchange to bring in new technology, new trading practices, new institutions and new products. The OTCEI was set up in 1992 as a stock exchange, providing small- and medium-sized companies the means to generate capital.