Page 67 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes Principle of Sound Infrastructure

A sound, robust and safe market infrastructure in terms of payment and settlement systems,
regulatory and supervisory framework and market monitoring and surveillance is essential to
enhance resilience of the government securities market against external shocks. It also contributes
to continuous price discovery, thereby enhancing market liquidity.

Principle of Heterogeneity

For promoting liquidity in the g-securities market, the principle of heterogeneity of market
should be followed so as to take care of varied transaction needs, risk assessments and investment
horizons. This is also necessary to attract foreign investors and NRIs who have risk preferences
different from those of domestic investors. However, liberalization to encourage foreign
participation has to be calibrated suitably keeping in view sequential development of domestic
markets.

4.5 Exchange Platform

Domestic Exchanges

Indian equities are traded on two major exchanges: Bombay Stock Exchange Limited (BSE) and
National Stock Exchange of India Limited (NSE).

Bombay Stock Exchange (BSE)

BSE is the oldest stock exchange in Asia. The extensiveness of the indigenous equity broking
industry in India led to the formation of the Native Share Brokers Association in 1875, which
later became Bombay Stock Exchange Limited (BSE).
BSE is widely recognized due to its pivotal and pre-eminent role in the development of the
Indian capital market.
In 1995, the trading system transformed from open outcry system to an online screen-based
order-driven trading system.
The exchange opened up for foreign ownership (foreign institutional investment).
Allowed Indian companies to raise capital from abroad through ADRs and GDRs.
Expanded the product range (equities/derivatives/debt).

Introduced the book building process and brought in transparency in IPO issuance.
T+2 settlement cycle (payments and settlements).
Depositories for share custody (dematerialization of shares).
Internet trading (e-broking).

Governance of the stock exchanges (demutualization and corporatisation of stock exchanges)
and internet trading (e-broking).
BSE has a nation-wide reach with a presence in more than 450 cities and towns of India. BSE has
always been at par with the international standards. It is the first exchange in India and the
second in the world to obtain an ISO 9001:2000 certification. It is also the first exchange in the
country and second in the world to receive Information Security Management System Standard
BS 7799-2-2002 certification for its BSE Online Trading System (BOLT).

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