When noise, anxiety, confusion and dejection symbolised our stock markets in the 1980-90s, very few would have imagined that investors and brokers, one day, would have hassle-free trading through computers and mobile phones.

In that era, one had to wait for days on end, in suspense, even to get a confirmation from brokers on basic information such as buying and selling of shares. And even after buying the shares, to extract information on the exact price paid for them was a Herculean task.

For opening an account those days, one lost count on the number of signatures needed on the application form that ran into pages with several clauses, loaded in favour of the broking fraternity. Besides, one had to give tonnes of supporting documents including a cancelled cheque, banking documents and address proof.

But thankfully, those tedious days are behind us. These days, we receive SMS alerts almost immediately — right from opening the account through every step of the transaction.

Gone are those days when investors cursed their fate over non-receipt of share certificates even after paying for them or receiving duplicate certificates. No one then could have expected that one day electronic form of share certificates would make trading less anxious. Now, trading has become easy with a transaction getting completed within microseconds (except for illiquid stocks) with just the click of a button and transfer of shares or funds happening seamlessly.

Path-breaking reforms

To attain this level of efficiency, market regulator SEBI took several path-breaking reforms. The first and foremost was online electronic trading platform, the idea for which came from the National Stock Exchange (NSE). SEBI gave its green signal to the NSE to launch its pan-India online equity trading platform in 1994. Till then, the cries of brokers and traders rent the trading floor (the ‘outcry’ model), as they shouted and used hand signals to buy and sell stocks.

Inside view of Bombay Stock Exchange. (Circa 2001)
PHOTO: THE HINDU ARCHIVES

Inside view of Bombay Stock Exchange. (Circa 2001) PHOTO: THE HINDU ARCHIVES

Unlike now, a festival-like atmosphere prevailed in Dalal Street, where the BSE (then the Bombay Stock Exchange) is located, abuzz with activity as many investors, traders and brokers gathered, and where brokers ruled the roost. Even members and brokers of regional stock exchanges such as Madras (now Chennai), Calcutta (Kolkata), Delhi and others used to be in constant touch with the BSE brokers to get details on trends, price and orders on individual stocks and the market.

Now, anybody can get the tick-by-tick price and volume movement of any share. But during those ‘outcry’ days, this was not possible and it was purely brokers’ call and, in all likelihood, the buy price would be the day’s highest and sell price the lowest for investors.

However, with the entry of screen-based trading system, the whole scenario changed.

Traders at Bombay Stock Exchange.

Traders at Bombay Stock Exchange.

Enter demat

The second key step was the introduction of dematerialisation (now famously known as demat).

Earlier, all shares used to be in the physical form, called share certificates. For transfer of shares from one person to another, one had to send a signed Transfer Deed to a company either directly or through a broker. After verifying signatures, the company secretary would transfer the shares to the buyer's name. The process took at least two-three weeks if there were no other issues.

Now, the change of ownership of shares has become seamless. Holding shares in demat form is safer than in paper form as the risks associated with physical certificates such as bad delivery, fake securities, delays, thefts and mutilation have been eliminated. Another major advantage is that shareholders can even buy or sell one share in the stock market, unlike older days where shares were generally allotted in 100s.

For those new to trading, settlement of transactions those days were often fraught with default risks due to fixed settlement days. The BSE used to settle trades every Friday and the NSE on Tuesdays. So all trades that happened between Monday and Thursday had to be settled (delivery of shares to the buyers and payment of cash to the sellers) on subsequent Fridays on the BSE; on the NSE, trades that took place between Wednesday and Monday had to be squared off on Tuesday.

Settlement reforms

As the settlement was by physical movement of paper, it was not only time consuming but often ended up creating confusion. Besides, the settlement system had encouraged false liquidity because people could buy and sell shares without having to pay immediately, thus encouraging speculative activities. Harshad Mehta, the infamous stockbroker, exploited this system well through bank funding system during his heydays.

Due to excessive speculation, often the settlement cycle was extended either for want of cash or scrip. Brokers, too, exploited the investors through their own funding arrangement mechanism, or what was then called the Badla system.

One of the path-breaking reforms came on the settlement side, as SEBI introduced rolling settlement in July 2001. Initially, it was introduced for certain scrips on a T+5 basis (in five days from date of trade (T)) and then it was expanded to all scrips in a phased manner by December 2001. SEBI reduced the cycle to T+3 in April 2002 and T+2 in April 2003. Now, some scrips have been shifted to a T+1 cycle.

ASBA magic for IPOs

Another area that has improved is opening an account with brokerages. With the 'Uniform Know-your-Client' norms introduced in 2011, opening an account takes just a day now unlike earlier, when it took at least a week.

Investors of IPOs always used to be an anxious lot. Getting allotment or refund was a painstaking process. During the dotcom days, when many companies launched IPOs, it was very difficult to even know whether one had got allotment or not. For non-allottees, getting a refund was a mammoth task. Investors had to run from pillar to post, and in many cases money would not be refunded for months together for non-allottees.

During those days, merchant bankers, hired by fly-by-night promoters, indulged in unethical and shady activities to dupe gullible investors. To curb these malpractices, SEBI initiated several measures and the most important among them was the introduction of Applications Supported by Blocked Amount or ASBA framework in 2008. In this mechanism, the amount, though blocked, will remain in the customer’s account. On allotment or non-allotment, cash would either be moved or unblocked.

No doubt, with these giant steps, SEBI has made trading and investing easy from every possible angle. However, a few more initiatives such as making closing of accounts easy, moving towards universal demat account encapsulating all instruments (gold, estate, bank cash etc) and portability of broker accounts would make trading even more efficient.

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