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Bombay Stock Exchange (BSE) – What is BSE, Background, Objectives & FAQs

  • Akshatha Sajumon
  • 30 Apr
  • 5 minutes

 

What is a Stock Exchange?

Stock exchanges are organised markets in which industrial shares, debentures, government securities and hybrid instruments are bought and sold. These stock exchanges have an active role to play in creating a conducive climate for an active primary and secondary market.

What is BSE (Bombay Stock Exchange)?

Located on Dalal Street, the Bombay Stock Exchange, or the BSE, is Asia’s oldest stock exchange. Currently, it is the ninth largest stock exchange in terms of overall market capitalisation. It is the backbone of the country’s capital market system and has spread its reach and operations across India.

What is the Background to BSE?

The BSE boasts of humble beginnings – it started with just four Gujarati stock brokers and one Parsi stock broker discussing how to multiply their earnings through shares and stocks under the Banyan trees in front of the Mumbai Town Hall. With the change in locations multiple times thereafter, the number of brokers only kept growing.

In the year 1874, the BSE moved to Dalal Street and began its official operations in the name of Native Share and Stock Brokers Association in the following year. It gained statutory recognition under the Securities Contracts (Regulation) Act in 1956.

During the year 1995, the BSE replaced its open outcry system with an upgraded, state-of-art BSE Online Trading (BOLT) system. This changeover increased the operational reach of BSE and enabled investors to undertake trading activities online through a dematerialization account.

In the year 2005, BSE became BSE Limited under the Corporatisation and Demutualisation Scheme of 2005. The process of demutualization or legal restructuring of the organization reached its fruition in 2007.

Objectives of Bombay Stock Exchange

The main objective behind establishing BSE was to firstly, make public capital available to the entrepreneurial class; secondly, to ensure high returns on investment; thirdly, to create, promote and develop a well-developed market for the purchase and sale of securities; and lastly, to develop and promote ethical trading practices in the securities market. The BSE set out with the sole idea of encouraging and fuelling investment culture across the country.

Organisation and Management of the BSE

The   Governing   Board   of   the   BSE, elected by the members of the stock exchange, comprises nine directors, one managing or chief executive director, two public representatives and three   representatives from each of the shareholders and trading members. The elected directors of the governing body would annually elect the president, vice president, the treasurer and the secretary from amongst them.

Current Operations of BSE

The BSE functions across 380 medium and megacities. It has successfully funnelled savings from the household sector toward productive investments. It uses the BOLT system to ensure that this is effectively done.

The BSE also undertakes support functions such as technology solutions to investment problems, capacity building and training, providing information services and index services to the investors and traders. The clearing and settlement operations of the BSE is managed by the Bank of India Shareholding Limited (a joint venture between the BSE and BOI).

What is SENSEX?

In 1986, the BSE started a stock index called SENSEX. It comprises 100 stocks listed at five major stock exchanges of Bombay, Calcutta, Delhi, Ahmedabad and Madras. The launch of the SENSEX was followed with the introduction of the National Index in 1989 and the BSE 200 and Dollex 200 in the year 1994. The index committee periodically revises all the indices of the BSE.

Difference Between National Stock Exchange and Bombay Stock Exchange

The differences between the BSE and NSE have been listed below –

ParametersBombay Stock ExchangeNational Stock Exchange
Best known forIt is known for being the oldest stock exchange in India.Being the largest stock exchange in India.
Instruments traded inThe BSE promotes trading in multiple financial instruments such as mutual funds, debt instruments,, currencies, equities and derivativesNSE promotes trading debt, currency derivatives segments, equity derivatives,  and equity derivatives, .
Trading volumeIt has a lesser trading volume.It has a greater trading volume as the number of buyers and sellers available for a stock are greater.
LiquidityComparatively the opportunities to convert stocks into cash are lesser in BSE.There is more liquidity making the process of trading easier and hassle free.
IndexSENSEXNIFTY FIFTY
StocksThe list is exhaustive and larger than that of NSE.The number of listed stocks is less.
Derivative contractsThis segment is beyond the reach of BSE.This segment has been monopolized by NSE.

In terms of making an investment in either of the stock exchanges, the following things must be kept in mind. In case one is a beginner, or wishes to invest in newer stocks, or is a conservative investor, then it is advisable to invest in the Bombay Stock Exchange. If one is an experienced investor, or wishes to trade in derivatives, futures, and options, NSE is a better option.

Frequently Asked Questions

  1. How are the transactions in the equity and fixed income segment settled in the BSE?

All the transactions in groups in the equity and fixed income segment are settled under the T+2 basis. T+2 implies that the exchange of securities for money between sellers and buyers will take place 2 days after the BSE.

  1. Is SENSEX the only index of the BSE?

No, SENSEX is the flagship index of the Bombay Stock Exchange.

  1. Which body regulates the BSE?

As the first stock exchange recognized by the Securities Contracts Regulation Act, it is regulated by the Securities Exchange Board of India.

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Akshatha Sajumon