Reforms At Bombay Stock Exchange, Asia’S Oldest
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Reforms At Bombay Stock Exchange, Asia’S Oldest

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Reforms At Bombay Stock Exchange, Asia’S Oldest Reforms At Bombay Stock Exchange, Asia’S Oldest Presentation Transcript

  • Reforms at Bombay Stock Exchange, Asia’s Oldest Stock Exchange – The Competitive Strategies A Case Study Analysis
  • CONTENTS
    • Introduction
    • Formation of the Bombay Stock Exchange
    • Scandals on the BSE
    • Reforms at BSE and Post –reform
    • Challenges faced by BSE
    • Conclusion
  • INTRODUCTION
  • Background
    • The functions of the stock exchange are threefold
    • BSE criticisms
    • BSE reforms over the course of the years
    • BSE a corporate entity in 2005
    • Provides a market place for purchase and sale of securities
    • Provides linkage between savings and investment
    • Plays the role of a barometer
  • Growth of Capital Markets in India
    • Origins of trading- East India company
    • Post independence- Capital issues control act
    • Only nationalized companies allowed to raise capital
    • The securities contract regulation ACT 1956
    • Only stock exchanges recognized by the government of India permitted to function
    • Foreign exchange regulations ACT 1973
  • Evolution of Stock Exchanges in India Stock exchange Year of incorporation Bombay stock exchange 1894 Calcutta stock exchange 1908 Madras stock exchange 1920 Bengal share and stock exchange Ltd. 1937 Indian stock exchange Ltd. 1938 Uttar Pradesh stock exchange 1940 Nagpur stock exchange 1940 Hyderabad stock exchange Ltd. 1944 Bangalore stock exchange 1963 National stock exchange 1992
  • FORMATION OF THE BOMBAY STOCK EXCHANGE
  • Historically Speaking
    • Started in 1850 in front of Town-Hall in Bombay currently known as Horniman circle
    • Formed in 1875 as Bombay Stock Exchange
    • In 1986 launched its first stock index named ‘SENSEX’ with base year 1978-79
    • Non-profit association & evolved as the premier stock exchange
    • Oldest stock exchange of Asia
    • Accounts for 75% of listed capital & 75% of shares in terms of market capitalization
    • Its turnover is 1/3rd of the total turnover in securities in India
  • Membership at the BSE
    • Transactions are carried by TM on behalf of their clients
      • Financial soundness, track record, experience, infrastructure and manpower
    • TM must be registered and pay fee to BSE & Regulatory Authority
    • TM’s play a role of brokers, sub-brokers, floor-brokers, agents, jobbers, dealers, Badla financiers, dealer in G-Sec and underwriters
  • Structure of BSE
    • BSE has
      • A Board of 9 directors
      • Executive Director
      • 3 Gov Nominees
      • A RBI Nominee
      • 5 Public representatives
    • Executive Director is responsible for day-2-day functioning and administration of Stock Exchange
  • Trading & Settlement
    • Outcry System
    • Interaction based trading & settlement
      • If paid-up value= INR 10 & or 100 Sh. Trading lot is 50 or 100 Sh.
      • Paid-up value > 100 INR, market lot of 10 Sh.
    • Settlement period 14 days or more
    • Permission from board or president in special cases
    • Physical settlement by TM at the clearing house
  • SCANDALS ON THE BSE
  • Securities Scams
    • 1991-92
    • Harshad Mehta and Hiten Dalal
    • Ready Forward Deals
    • Banking Receipts
    • Manipulation
    • SEBI Act on April 4th 1992
    • NSE Established in November 1992
    • Badla discontinued in 1993
    • 1994-95
    • Collusion of brokers and top-management for the purpose of price rigging
      • M. S. Shoes Ltd.
      • Rupangi Impex Ltd.
      • Magan Industries Ltd.
    • Fraudulent Shares
      • Sesa Goa Ltd.
  • Securities Scams
    • 1997
    • C. R. Bhansali Group
      • Fraudulent Accounting Practices
      • NBFC
    • 1994-95
    • Harshad Mehta
      • Collusion with top-management for the purpose of price rigging
      • BPL, Videocon, Sterlite
      • Involvement of BSE Officials
      • Lifetime Ban
    • T + 5 System, Rolling Settlement System
    • BLESS
  • REFORMS AT BSE AND POST -REFORM
  • Reforms Undertaken in BSE
    • January 2000: rolling settlement system (T+5 system)
      • Started with 10 scrips
      • Later 153 were brought under
    • January 2001: BLESS was introduced
    • July 2001: badla was wholly replaced by rolling settlement system
    • January 2002: all the shares in BSE were brought under this scheme
  • The Ketan Parekh Scam Money borrowed is diverted to fund the co-brokers at Kolkata Stock Exchange for price manipulation Discounted the pay orders presented by KP and the pay orders worth INR 137 cr bounced Got the pay orders discounted with Bank of India Took pay orders from MMCB without paying money Diverted the amount of pay orders from Bank of India to rig the share prices of K-10 scrips Stock Brokers of Kolkata Stock Exchange Stock Market Activities Ketan Parekh Bank of India MMCB
  • BSE Post Reforms
    • Badla and BLESS were banned
    • Short selling banned from March 2001 to July 2001
    • 20% circuit filter for stocks in rolling settlement
    • Index based filter (10%, 15%, 20%)
    • Introduction of margin trading in September 2001
  • CHALLENGES & COMPETITION
  • Challenges faced by BSE
    • Corporatization
    • To catch up with the development across the world
    • To bring transparencies in transactions.
    • To bring technological and structural change
    • Demutualization
  • Rise of the NSE
    • NSE was started in April 1993 as a corporate body.
    • In July 2005, became the largest exchange in India.
    • Trades over 1500 equity, 800 debt instrument with a corporate membership of 980.
    • Companies are selected on the basis of record, the profitability, paid-up capital, market capitalization and dividend payment.
  • NSE better than BSE?
    • Superior technology.
    • More transparent market place.
    • NSE is a corporate body
    • Promotes the growth of human capital.
    • Innovative approach of trading
    • Regular inspection and investigation.
    • Proper risk management systems (PRISM and SPAN).
    • The telecommunication network is subjected to periodic checkup.
  • CONCLUSION
  • Future Outlook
    • Use of technology
      • Outcry method replaced by screen based trading
      • Web based trading facilities (BSE WebX)
    • Issues
      • Lack of transparency
      • Price manipulations
      • Insider trading
      • Circular trading
      • Mismanagement and immature corporate governance
      • Investor confidence
  • Corporate Governance
    • Corporate Governance addresses:
      • Ethical issues
      • Efficiency issues
      • Accountability issues
    • Corporate Governance vs. Corporate Management
    • Indian model of Corporate Governance
  • Implications
    • Economic
    • Business
    • Individuals