The Good, The Bad, And The Ugly- A History Of The Stock Market

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  • 11 Mar 2023

London formed the first stock exchange of the world in 1773, which was merely 19 years before New York formed the New York Stock Exchange. The London stock exchange (LSE) was handcuffed by laws that restricted shares but the NYSE took up trading of stocks since its inception. NYSE, however, was not the first stock exchange in USA; after beginning its operations, NYSE soon overpowered the previously formed Philadelphia Stock Exchange.

So, even though LSE was the first stock exchange of the world, NYSE was the first stock exchange that become the most powerful and continues to be so till this date. The location of NYSE at the Wall street played a pivotal role in making it the most powerful stock exchange nationally and internationally. This is so because this location was in the heart of all the trade that took place coming from and going to the USA. It was also the base for most banks. NYSE set a registering fee and listed requirements, which made it wealthy.

London Stock Exchange emerged as the major exchange for Europe, but several major companies that listed themselves got listed on the NYSE. Several domestic stock exchanges had companies listed in them simply because they wanted to prepare themselves for the LSE and thereafter for the big league, of NYSE.

The Indian stock market is one of the oldest stock markets in Asia. It started its operations to some extent to the close of the 18th century when the East India Company used to transact loan securities and later trade on corporate stocks and shares in Bombay. Despite the trade happening on a broad level, the number of traders was just half a dozen during 1840 and 1850.

Trading began under a banyan tree opposite the Town Hall of Bombay between an informal group of 22 stockholders in mid-1850s. They began with an investment of Rupee 1, which at that time was considered to be a generous amount. The exchange flourished further with 60 brokers and furthermore to 250. The informal group referred to themselves as the Native Share and Stockbrokers Association, which got formally named as the Bombay Stock Exchange in 1875. The building for BSE was acquired and built in 1930.

Premchand Roychand was the leading stockbroker who was part of setting the traditions, and procedures for the trading of stocks at the BSE, which are still followed. The Bombay Stock Exchange was recognized as the first stock exchange of the country in 1956 under the Securities Contracts (Regulation) Act.

With the National Stock Exchange (NSE) came in an electronic marketplace which helped radicalize the government’s position. NSE started trading operations on the 4th of November 1994 and exceeded BSE in its turnover. Even after automating at a fast pace, BSE could never catch up to NSE. It roughly has 66% of equity spot turnover and 100% equity derivatives turnover.

Let’s take a look at the major milestones that the SENSEX has crossed since its inception!

Sensex Points Date Description
1,00025 Jul 1990In the wake of a good monsoon & excellent corporate results,
5,00011 Oct 1999The BJP-led coalition won the majority in 13th Lok Sabha election
10,0007 Feb 2006SENSEX touched 10,003 points during mid-session
20,00011 Dec 2007Touched the mark on the back of aggressive buying by funds
30,0004 Mar 2015Following steps were taken by RBI to cut repo rates
35,00017 Jan 2018First close above the mark
36,5824 Feb 2019Current mark at which SENSEX stands

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Now, let’s understand how the BSE and NSE have evolved over a period of time.

BSE dominated the trading volumes in the post-independence era, but the low levels of transparency and undependable systems of clearance and settlement increased the need to have a financial regulator. SEBI came into existence to this effect in 1988 as a non-statutory body. It was later made a statutory body in 1992. Post the Harshad Mehta scam in 1992, the need for another stock exchange increased. One that was large enough to compete with BSE. This gave birth to NSE, which was incorporated in 1992 and recognized as a stock exchange in 1993. NSE started its trading operations in 1994 making it the first stock exchange that carried out trading electronically. To come at-par with NSE’s cutting edge system, BSE too came up with an electronic system, BSE On-line Trading (BOLT) in 1995.

While the unstable markets have been an integral part of stock market history, there have been quite a few events that made the markets unstable in just 2018.

Let’s look at the top 5!

The global sell-off marked a sign of global pessimism, which SENSEX could not battle as well. Through this period in February, SENSEX fell around 1700 points in 3 trading days! Global pressure again resulted in a collapsed stock market in October.

The Rupee depreciation reached an all-time low, making INR the worst currency in Asia for the year of 2018.

The US-China Trade War was a month-long battle between two of the largest economies of the world. This resulted in a sell-off sight for many Indian stocks, mainly the metal stocks.

Jitters of NBFC crisis spread across the stock market. This brought in a fear of liquidity crunch in the Indian market.

Some scams that mark their stains in the timeline of Indian stock markets have also thrown light on many ways in which the market can be affected or manipulated. Let’s take a look at the top two that the Indian economy took a while to recover from.

  1. The Harshad Mehta Scam: Harshad Mehta was a famous stockbroker in the 80s and 90s who found ways to manipulate the market focussing mainly on the BSE. He forged stock prices in his exchange and took undue advantage of the loopholes in the banking sector. This is considered to be the most significant stock market scandal till date!

  2. Nirav Modi scam: It turned out to be the biggest banking scam in India. The outstanding scam amount stood at Rs. 14,000 crores till the end of the first-quarter results. This scam is still under trial.

As many bad memories hover over the stock market history, there are several ugly ghosts that hover the past as well. Let’s take a look at some of the biggest falls that the stock market has witnessed.

On January 21, 2008, Sensex dropped by 1,408 points at the of the session on Monday, making it one of the biggest ever loss. This was the result of weak global cues and fears of US recession that left investors in a panic mode.

On November 9, 2018, the stock market crashed by 1689 points with demonetization coming into effect. Consequently, the black money cracked down resulting in frantic selling making Sensex drop by 6% to 26,902 points and Nifty to 8002 points.

With every fall and every scam, the Indian stock market has tried to get as bulletproof as can be made possible. From the change of board members to implementing new policies by the RBI post the NBFC strike-down, every fall led the Indian markets to better policies and strategies. With time, the ways to manipulate markets and draw an imbalance also evolve but what’s important is to implement rectifying measures at the earliest.

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