Nearly 23 years since
it was brought in to cut the BSE to size, the NSE finds itself accused of some
of the governance issues that had caused BSE’s fall from grace.
There were many
regional exchanges at that point, but BSE was by far the biggest and most
important of them all. It had the maximum number of companies listed on it, and
more trading volumes. But retail investors in far-flung towns wanting to buy or
sell shares on the BSE invariably ended up getting poor prices because their
orders would be routed through a chain of sub-brokers to the main broker in
Mumbai.
The broker lobby was opposed
to computerisation as it meant transparent prices and less room for brokers to
fleece their customers. Financial institutions like UTI asked for a membership
on the exchange, but were denied.
When the newly
established market regulator SEBI tried to get brokers to register with it for
a fee, the proposal was stoutly opposed by brokers and jobbers. They refused to
carry out transactions, with the result that BSE had to be shut for a week in
April 1992. A hostile crowd booed the then Finance Minister Manmohan Singh, who
had come down to the BSE to meet the agitating brokers, during his visit to the
city.
NSE’s arrival on the
scene dramatically changed the way the stock broking business was conducted.
The biggest appeal of the NSE was its electronic or screen-based trading, which
meant retail investors could get to know prices in real time, and were not at
the mercy of their brokers. From a broker’s perspective, it was easy to get
membership on the NSE by paying a refundable deposit. In contrast, the BSE operated
like a closed club with a ‘card’-based membership. The card was stiffly priced,
and not easy to come by.
Another distinguishing
feature was that the NSE was was run by professionals and did not have even a
single broker member on its board. In comparison, the BSE’s governing board was
packed with brokers, and the officials in charge of operations complained of
frequent interference by influential brokers. Most importantly, the NSE’s
biggest advantage over the BSE was its pan-India reach, offering services
across the country. The BSE had to wait for some months before it could expand
beyond Bombay. That head start made quite a difference, as the NSE had already
made a mark for itself in many of the smaller towns by the time the BSE came
calling.
