In the early 1990’s, banks in India were
not allowed to invest in the equity markets. However, they were
expected to post profits and to retain a certain ratio (threshold) of
their assets in government fixed interest bonds. Harshad Mehta squeezed
capital out of the banking system to address this requirement of banks
and pumped this money into the share market.
He promised the banks higher rates of
interest, while asking them to transfer the money into his personal
account, under the guise of buying securities for them from other banks.
At that time, a bank had to go through a broker to buy securities and
forward bonds from other banks. Harshad Mehta used this money
temporarily in his account to buy shares, hike up demand of certain
shares, sell them off, pass on a part of the proceeds to the bank and
keep the rest for himself. This resulted in stocks like ACC, which was
trading in 1991 for ₹200/share, catapult to nearly ₹9,000 in just 3
months.
Harshad Mehta, a registered and
well-known broker, manipulated the Bombay Stock Exchange (BSE) along
with his partners by taking advantage of loopholes in the banking
system. Hence it was a need of time to setup another Stock market
exchange otherwise Investor was fully worried about their investments as
some key players of market were playing with the law and regulations of
Stock market.
The era of early 90’s, triggered many
changes in India’s financial regulatory system. The Securities Laws
(Amendments) Act was passed in 1995, widening Sebi’s jurisdiction and
allowing it to regulate depositories, FIIs, venture capital funds and
credit-rating agencies. To secure investor interest, Sebi could also
make it mandatory for companies issuing securities to make disclosures
and there was a need to regulate exchange in efficient manner to gain
trust of investors.
How NSE Changed Stock Market of India?
The main objective behind NSE
establishment was to improve functions of trading facility nationwide
for all types of securities. It also ensures equal access to all
investors in the country through the process of an appropriate
telecommunication network. NSE was able to achieve its objectives within
a very short span of time. BSE or Bombay Stock Exchange is the oldest
stock exchange in Asia that was established in 1875. It’s a regional
stock exchange of Maharashtra unlike NSE which is nationwide.
During the early part of the 1990s, the
ranking of the Indian capital market with reference to the standard
global indices relating to efficiency, safety, market integrity, etc.,
was not at all flattering. But after the NSE was set up, the entire
atmosphere changed. The broker-owned and managed exchanges started
worrying more about the competitive threat that NSE posed to their
business and how they should meet investors’ minimum demands so that
they did not lose out completely to NSE.
Which One is Best Exchange for Investment and Trade
BSE is more suitable for beginners,
while NSE is more suitable for seasoned investors and traders. If you
are an investor in India who want to invest in shares of new companies,
BSE would be an ideal choice. But if you are a day trader, risking share
trading with derivatives, futures and options would be the preferred
choice. Also, NSE has better software for high-risk online transactions.
For conservative investors, who like to sit and watch their investments
grow, BSE is the right choice.
NSE and BSE have different methods of
levying a tax. Taking that into consideration, NSE is suitable for
lesser turnovers, and BSE is ideal for more significant turnovers.
Both are secure and provide good online services; hence both are excellent choices.