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If India’s stock markets today are safe, efficient, large and the settlements cycle is a speedy T+2, a large part of the credit must go to the National Stock Exchange (NSE). NSE’s success—the bourse turns 20 today—is all the more stunning given its PSU parentage comprising a clutch of financial institutions and banks. To have taken on the Bombay Stock Exchange (BSE), then the country’s premier bourse, at a time when brokers thrived on the opacity of the trading ring, and to have overtaken it within less than five years was a creditable achievement. Thanks to the vision of the team of professionals running it—very different from the coterie of brokers that controlled BSE then—NSE was a demutualised exchange ahead of the London and New York stock exchanges.
The management structure apart and the initial opposition from brokers who didn’t like the transparency it brought into pricing, NSE’s biggest attraction was its ability to attract brokers from across the country thanks to its superior electronic trading platform; it helped that while a BSE card could cost as much as R2 crore in those days, NSE’s membership cost a fraction. Not only did brokers find the NSE far more affordable, investors found the transparency of an electronic trading system refreshing after the stock market scam of 1992—indeed, NSE was conceived as a reaction to the Harshad Mehta scam. The big draw, of course, was the derivatives segment, which was kicked off in June 2000; the average daily turnover on the NSE’s futures and options segment is currently over R1 lakh crore, a performance that the BSE hasn’t been able to match even after so many years.
None of this, however, would have been possible without the government’s initiative on dematerialisation—India set up its first depository, NSDL, under the Depositories Act passed by Parliament in 1996, and this was co-promoted by NSE. What helped was Sebi insisting, over a period of time, that while investors were free to hold paper-shares for a while, trading would take place only in dematerialised shares. The operation was so well executed, there were few complaints about fake/duplicate shares