What is Bombay Stock Exchange?
Bombay Stock Exchange is the oldest stock exchange in India as well as Asia. It is an integral component of the “$1 trillion” club, having the 11th largest market capitalisation value at $2.2 trillion.
BSE stock exchange was founded by Premchand Roychand in 1875 and is currently managed by Sethurathnam Ravi, serving as the chairman.
How Does It Work?
Financial transactions in BSE are done online through an electronic trading system. Market orders can be directly placed in BSE online, without the requirement of external specialists through direct market access. Due to the absence of such limit orders, focus is shifted from buyers/sellers to the total value of transactions in a day.
Trading in the BSE share market has to be done through a brokerage agency, against a stipulated charge. However, direct investment access is given to certain preferential investors making large transactions in the BSE stock market. BOLT-Bombay Online trading platform is used by this stock exchange for efficient trading.
Transactions made in BSE online are done through T+2 rolling settlement, wherein all transactions are processed within two days. Securities and Exchange Board of India (SEBI) is responsible for the regulation of this stock exchange, continuously updating rules for its smooth operation.
What Are The Advantages Of Listing?
A company listed under Bombay Stock Exchange can enjoy several benefits, such as:
- Hassle-free capital generation
Listed companies enjoy the trust of all kinds of investors present in the market. It spreads market knowledge regarding a budding business, allowing individuals to carefully analyse the imminent condition of such companies and invest accordingly.
Paid up capital for a business can only be raised effectively if a company is listed with a prevalent stock exchange in a country.
Market securities can be readily sold in a financial market if it is listed in Bombay Stock Exchange, thereby sufficing the liquidity needs of both businesses and individual investors. Funds to meet any requirement of a company can be obtained through the issuance of debt and equity securities, which investors purchase for the purpose of wealth creation.
Securities purchased can be readily sold through the electronic trading settlement of BSE, thereby allowing investors to effectively encash their investment as and when the need arises.
- Legal Supervision
Investors can skim through fraudulent companies if they choose to invest in organisations listed with BSE. Several rules and regulations are mandated by SEBI monitoring the actions of registered companies, minimising the chances of investors incurring a loss due to illicit activities of a business.
- Timely information display
Adequate information about total revenue generation and reinvestment pattern have to be published annually by all companies listed under the BSE stock exchange. Total dividend disbursed, bonus and transfer issues, book-to-closure facility etc. has to be displayed as per SEBI regulations.
- Adequate pricing rules
Price of securities trading in BSE share market is determined through demand and supply of the same currently prevailing. This reflects the real value of a share, affecting a company’s market capitalisation and ease of procurement of funds.
- Collateral guarantee
Securities issued by a company acts as a collateral guarantee at the time of availing loans. Most financial institutions accept equity shares listed in BSE as leverage against which funds can be obtained.
What Are The Various Investment Methods?
Trading of securities of a company listed in Bombay Stock Exchange can be done either directly or indirectly, depending upon the volume of transactions undertaken. Primary trading can be done only by registered brokerage agencies and institutional investors making bulk transactions in BSE.
Retail customers, on the other hand, do not have to access to direct investment schemes and have to make transactions through a certified stockbroker or a stock investing platform. This is known as secondary trading mechanism, regulated by the Financial Industry Regulatory Authority (FINRA). For secondary trading, an individual must hold a Demat account, through which the financial transactions take place. Virtual ownership of all stocks can be gained through the account itself.
Chief Investment Segments
All companies listed under BSE can use the following financial instruments to raise funds for their business:
- Equity –
Equity instruments primarily consist of shares issued by a company to raise adequate paid-up capital for its smooth operations. Massive equity is raised during an initial public offering of a start-up company in the primary capital market. However, new issuance of shares is subject to strict regulations under SEBI, due to volatility of prices at this stage.
Equity already issued can be traded amongst retail customers in the secondary market through a stockbroker.
- Debt Instruments and government securities –
These tools are issued by an underlying company to raise finances without giving ownership to investors. Relatively risk-free in nature, trading in debt instruments can be done in both primary and secondary market, depending upon its nature.
Various government securities such as zero coupon bonds, floating rate bonds, capital indexed bonds and dated securities are traded in BSE.
Sensex is a benchmark index under BSE. It is a free floating market-weighted index tracking the performance of the top 30 companies. BSE share market uses Sensex to monitor the performance of these companies to determine whether the capital market of India would rise or fall, depending upon movement direction of share prices of these companies.
Other than the benchmark index, several other sectoral indices are also provided by BSE, such as:
- S&P BSE Auto
- S&P BSE bankex
- S&P BSE Capital Goods
- S&P BSE Consumer Durables
- S&P BSE Fast moving consumer goods
Indices segregating companies on the basis of market capitalisation into small and mid-cap companies are also launched by BSE, in the form of BSE small-cap index and BSE mid-cap index. These indices can be tracked by index Mutual Funds aiming to profit from capital appreciation of stocks of these companies.
Bombay Stock Exchange plays a vital role in regulating financial markets of India. Market fluctuations in an economy can easily be observed through the performance of its benchmark index, which has cascading effects on the capital sector of economies all around the world.
Background to the BSE
BSE has an interesting back story to it. In the 19th century, some traders, with businessman Premchand Roychand, would gather under a Banyan tree in current Dalal Street. Popularly known as the Native Share and Stockbrokers Association, this gathering would engage in purchasing and selling stocks. This association later evolved into the BSE.
Earlier, the BSE worked on a floor trading system in which a licensed broker stands in the ring and calls out the rising price. The investors, who were outside the BSE, would only find out about the stock prices in the newspapers. That is why the NSE or the National Stock Exchange went digital, and the prices became public to all the investors. Consequently, the NSE became the favorite spot for investing.
Seeing the shift to digital, the board of BSE decided to change their system as well. In 1995, BSE received technological aid from CMC Ltd and went digital. Today, the BSE trading area is called BSE online trading.