History of Trading
The trading of loan securities (of East Indian Company) started by the end of 18th century. The Companies Act was enacted in 1850 introducing limited liability of company propelling trading volumes. American Civil War took place in 1861 and the American cotton supply to Europe was cut-off. This increased the cotton demand for India thereby increasing cotton prices & its exports with the payment started being made in bullion. New ventures raised around 30 crore rupees as paid-up capital with 38 crore rupees premium.
When the civil war ended, people who held securities were shocked as they were unable to buy buyers for their securities. To set up a formal market, the brokers formed a stock exchange on Dec 3, 1887, and named it Native Share & Stock Brokers Association. In 1894, Ahmedabad Share & Stock Brokers Association came into existence. Talking about eastern India, the prices of jute, tea, and coal boomed in the decades spanning from 1870 to 1890 and there a number of disputes and differences occurred between traders. This paved the way for the Calcutta Stock Exchange Association on June 15, 1908.
The road to Securities Contract (Regulation) Act, 1956
Initially, Control of capital issues was introduced under the Defence of India Act 1939 to channel resources to support the war efforts. And in April 1947 this was replaced by Capital Issues (Continuance of Control) Act. Stock exchanges started getting regulated only when Bombay Securities Contract Control Act was enacted in 1925 and later on the recommendation of A D Gorwala Committee, Securities Contract (Regulation) Act, 1956 was enacted.
SEBI coming into the picture
SEBI (Securities Exchange Board of India) got established in the early 1990s and Capital Issues (Control) Act 1947 was repealed in May 1992. SEBI issued Disclosure & Investment Protection (DIP) guidelines which allowed eligible issuers to issue securities at market determined rates. A screen Based trading system was introduced to cut down on time, cost, risk of error and fraud resulting in improved operational efficiency. Margin Trading & Sec Lending mechanism was rationalized on Mar 19, 2004, thereby promoting liquidity in the market.
Depositaries Act 1996 was passed to ensure transferability of securities with speed, accuracy & security. Securities Contracts (Regulation) was amended in 1995 to lift the ban on options in securities and derivative trading took off in June 2000 on both BSE and NSE exchanges. The trading cycle has also improved from being T+5 in Dec 2001 to T+3 in Apr 2002 and then was modified to T+2 in Apr 2003.
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