Want to trade in stocks, you can from the comfort of your home, sipping a cup of hot chocolate.

All you need to do is log on to your trading account on your broker’s Web site, check live quotes, do a quick research on the company you wish to buy or sell through the Internet and then punch in your trade.

You can even buy and sell stocks on the go, via your mobile phone.

But transacting on stock exchanges was not this easy two decades ago.

Trading in nineties

Back in 1994, the stock market landscape had over 20 regional exchanges, each catering to investors in a specified region. It was of course the Bombay Stock Exchange that ruled the roost then. Dalal Street, now free of IPO form vendors, was the hub of activity, swarming with investors, traders, brokers and sub-brokers, juice-wallahs and sellers of chutney sandwiches. The Bombay Stock Exchange was, in fact, considered a symbol of India’s economic progress and hence became a terrorist target in March 1993.

Trading/investing was riddled with potholes. Lack of transparency and the fact that it was controlled by a select club of brokers made common man looked askance at investing in equities.

Business of stock exchanges was done in mere two-and-half hours in the trading rings through open outcry system. An investor wishing to buy or sell a share had to call his broker’s office to place his order. The broker would pass on the order to his man assigned on the trading ring. The broker’s man would then go to the stock’s counter, (which was the market-maker for the stock) to put through the transaction, all the while jostling with a group of other sub-brokers also trying to trade on the counter.

The difficulties in this system were innumerable since the broker’s man would have to revert to his office who in turn would consult with the client if the price quoted did not match the order. Remember all this took place in an era where there were no mobile phones. You can imagine the frenzied activity in broker’s offices during the trading session.

In the absence of Internet and business channels on television, only way to obtain live stock quotes was through the stock broker. Final closing price of a stock could be checked through the ‘bhav-copy’ that was published every evening by the stock exchange.

Once the security was purchased, there was the additional rigmarole of sending the physical share certificates to the registrars for transfer in the investor’s name. Institutional investors dealing in large quantities needed a large back-office to deal with all this paper work.

Stock exchanges morph

The winds of change started blowing through Indian stock exchanges with the launch of the National Stock Exchange in 1994. The NSE was pan-India exchange and brought in a technological revolution through its online trading platform. The BSE was also permitted to expand nationwide in 1997. As brokers from every part of the country moved on to the more liquid exchanges, the regional exchanges turned redundant.

Prior to 2000, leveraged trading existed in the form of badla trading on Indian exchanges. This was a more informal system with no separate derivative instruments. If the investor did not have the money to pay for the stock he could notify it as a badla transaction. He could sell the stock later and pocket the profit or bear the loss after accounting for the cost of leverage. The badla financier who financed these deals was paid the interest that an investor had to pay on such deals.

Indian markets aligned themselves to global practices in 2000 with the launch of equity futures and options. Now, the exchanges also offer exchange traded currency futures and options, trading in bonds, exchange traded funds and interest rate derivatives. Trading hours were gradually increased over the years to the current 9 am to 3.30 pm regime.

With dematerialisation of securities, unnecessary paper-work was avoided. The Securities and Exchange Board of India, set up in 1992, has also been very busy in this period setting up the regulatory framework to govern companies, investors and intermediaries.

The last two decades also witnessed the foreign institutional investors becoming the most influential investor category. It was in 1993-94 that foreign institutional began taking a serious look at Indian equities net purchasing $3.5 billion worth of equity that year.

Since then it has been the purchases and sales by these investors that has influenced the direction of our equity market.

Net FII inflows averaged at $2.3 billion in 10 years from 1993-94. As it shot up to $11.3 billion in 2003-04, Indian stock markets also launched in to a strong bull-phase. Similarly concerted pull-out by FIIs kick-started the 2008 crash.

With most of the hard work in improving the exchange infrastructure and the regulatory environment done in the last 20 years, exchanges can now turn their focus on improving the penetration of equities.

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