EMERGING TRENDS IN INDIAN SECURITIES MARKET -
September 20th, 2010
EMERGING TRENDS IN INDIAN SECURITIES MARKET
The securities market in India, has undergone sea changes in the last decade, and has coped rather well with that.
The emergence of National Stock Exchange (NSE) with online trading terminals throughout the country, dematerialization of securities (with India being among the few countries in the world to have succeeded in a very short span of time), and shorter settlement cycle (T + 2, with T+l round the comer) have changed the face of the securities industry in India.
The origination of the Indian securities market may be traced back to 1875, when 22 enterprising brokers under a banyan tree established the BSE. Over the last 128 years, the Indian securities market has evolved continuously to become one of the most dynamic, modem and efficient securities markets in Asia.
Today, Indian markets conform to international standards both in terms of structure and in terms of operating efficiency. It has two national exchanges, the Bombay Stock Exchange (BSE) and the NSE. Each has fully electronic trading platforms with around 9400 participating broking outfits.
There are some 9600 companies listed on the respective exchanges with a combined market capitalization of nearly $125.5 bn. Beside these two national stock exchanges, there are 23 regional stock exchanges spread all over the country.
Another fast gaining segment is the Wholesale Debt Market (WDM) that deals with fixed income securities. The WDM segment of the Exchange commenced, operations on June 30, 1994. This provides the first formal screen-based trading facility for the debt market in the country.
This segment provides trading facilities foR a variety of debt instruments including Government Securities, Treasury Bills an~ Bonds issued by Public Sector Undertakings/Corporate/Banks like Floating Rate Bonds, Zero Coupon Bonds, Commercial Papers, Certificate of Deposits, Corporate Debentures, State Government loans, SLR and Non-SLR Bonds issued by Financial Institutions, Units of Mutual Funds and Securities debt by banks, financial institutions, corporate bodies, trusts and others.
Large investors and a high average trade value characterize this segment. Till recently, the market was purely an informal market with most of the trades directly negotiate and struck between various participants.
The commencement of this segment by NSE has brought about transparency and efficiency to the debt market, along with effective monitoring and surveillance to the market.
Besides equity and debt, another innovative financial instrument that plays an important economic role in transferring risks is the derivatives.
These are financial contracts. Standardized derivatives contracts such as Index Futures, Index options, Stock Futures and Stock Options are currently traded in NSE and BSE. Increasing sophistication and range of tradable financial products add to the attractiveness of the market as a whole.
The availability of derivative products including index futures, index options, individual stock futures and individual stock options re-enforces the overall attractiveness of this market to foreign and domestic investors.
The equity derivative markets in India have been structured after studying practices in equity derivative markets globally, and keeping in mind the unique culture and ethos of the Indian market.
In only three years, the market has shown a spectacular growth. Compared to the last financial year the annual turnover of this market grew by over 300%.