Bombay Stock Exchange,
established in 1875, is India’s oldest stock exchange and holds the reputation of being the 11th largest market capitalisation value globally. It was founded by Premchand Roychand as the Native Shares and Stock Brokers’ Association and is now managed by Sethurathnam Ravi. Based in Mumbai, the Bombay Stock Exchange has close to 6,000 companies listed on it and is comparable to stock exchanges in New York, London, Tokyo, and Shanghai.
BSE revamped the country’s financial infrastructure and has given a much-needed boost to India’s capital markets. BSE has also provided a platform for SMEs to engage in equity trading. Over time, it has extended its offerings to include clearing, risk management, and settlement services.
How does the Bombay Stock Exchange Work?
Till 1995, the Bombay Stock Exchange worked on an open floor system. Subsequently, it shifted to an electronic trading system that is vastly popular worldwide used by the New York Stock Exchange and Nasdaq. Some benefits of the electronic trading system are fewer errors, faster execution, and better efficiency.
The electronic trading system has eliminated the need for external specialists by enabling direct market access. This move has shifted the focus from individual buyers and sellers to the total number of transactions in a day.
Though direct investment access is granted to certain investors engaging in large volumes of transactions, trading in BSE online is executed through depository participant and brokerage houses for a stipulated charge.
All the transactions are processed within two days by way of the T+2 rolling settlement. SEBI ensures the smooth operation of this stock exchange by continually updating the rules and ensuring thorough implementation.
Securities listed on the BSE include –
– Stocks, stock futures, and stock options
– Index futures and index options
– Weekly options
Sensex measures the overall performance of BSE since 1986. It is a free-floating market-weighted benchmark index that encompasses thirty of the BSE’s most traded stocks across 12 sectors and is known as BSE 30. Its inclusiveness makes it a fantastic representative of the Indian market as a whole.
The Sensex essentially reflects the investor’s confidence in the market, based on the performance of thirty well-established and financially sound companies in India.
Some other sectoral indices provided by Bombay Stock Exchange are –
– S & P BSE Auto
– S & P BSE Bankex
– S&P BSE Capital Goods
– S & P BSE Consumer Durables
– S & P BSE FMCG
There are several benefits of listing in the Bombay Stock Exchange:
- Easy capital generation
Companies that are listed on the BSE enjoy the trust of the investors. Given the platform’s transparency, individuals can analyse publicly available data points on the companies’ performance and invest accordingly. This trust is beneficial for companies looking to raise capital from ready investors. The securities of companies listed in the BSE have a ready market of buyers. And, the role of the BSE in infusing liquidity into the economy cannot be overlooked.
The electronic trading system of BSE makes the entire process effortless. Thus, giving the investors the ability and confidence to encash their investment as and when they need it.
- Legal supervision
SEBI has stringent mandates for the companies listed on BSE, which are updated from time to time. Thus, a strict check kept on the companies to ensure the rules laid out are implemented, reducing the chances of fraudulent companies making their way to the exchange. This supervision dramatically reduces the risk of loss to investors resulting from the misrepresentation of businesses.
- Publishing adequate information
The information published by the companies listed on BSE regularly includes:–
- – Total revenue generation
- – Reinvestment pattern
- – Total dividend disbursed
- – Bonus and transfer issues
- – Book-to-closure facilities and many more
This periodic information disclosure enhances transparency in the process and helps the investors in making more informed decisions.
- Reflection of the real value of shares
There are efficient pricing rules for securities trading on BSE. The prices are determined based on demand and supply patterns, reflecting the real value of a share at any given time.
- Collateral guarantee
Most of the financial institutions accept the securities listed in the BSE as collaterals against loans. Investments in such stocks are invaluable as aside from offering great returns, they also help traders access capital by mortgaging these share certificates to invest in their business.
Bombay Stock Exchange is making great strides in its journey towards realising its vision of emerging as the premier Indian stock exchange with best-in-class global practices in technology, product innovation, and customer service. BSE also plays a crucial role in regulating the country’s financial markets, while Sensex provides insight into market sentiments and performance.
Have more questions regarding the functioning of this stock exchange, feel free to reach out to us.