 "At 20, NSE poised for a giant leap")
The turmoil he talks about involved a well-known corporate entity hit by a liquidity crunch, and there were fears that the large industrialist hit by the crisis was having trouble coming up with the required cash. Details of the crisis are lost to history or perhaps shadowed by the Harshad Mehta scam, which is said to have been the immediate trigger for the exchange's formation.
The new kid on the block was somewhat derisively called the Sarkari Share Bazaar, as it was founded on a government initiative. “The government tapped the Industrial Development Bank of India (IDBI) for the project to create competition for the BSE. Nadkari, the chairman of IDBI, asked Ravi Narain, now managing director and CEO of the NSE, and four other employees of IDBI to build this online exchange rapidly,” says an Indian Institute of Management (IIM), Bangalore, study titled, ‘The battle between the Bombay Stock Exchange and the National Stock Exchange’, authored by Daan Struyven and Estelle Cantillon and dated November 19, 2008. (NSE THROUGH THE YEARS)
Narain is now vice-chairman of the exchange. Tarun Khanna’s book ‘Billions of Entrepreneurs: How China & India are reshaping their Futures — and Yours’ notes how it was felt the NSE would not pose a challenge.
Other exchanges had a close-knit community of members to draw trades and “exchanges are not about technology, they are about people”, says an extract from the book. But the exchange leveraged technology to introduce screen-based trading, which drastically reduced inefficiency in the Indian capital markets, which had once allowed firms like Nirpan to make handsome profits from arbitrage. “It was like unclaimed money lying on the road,” remembers Shah, who is more involved in derivatives now and depends on technology himself through the algorithms which today do his trading for him.
Dinesh Thakkar, chairman and managing director, Angel Broking, too recalls the scepticism surrounding the new technology. “That was the time of the outcry system and there was a lot of debate whether this screen-based trading would be successful,” he says.
Thakkar decided to take the plunge and bought NSE’s membership in addition to the two BSE cards he held. “People held more than one card then. There was a Rs 20-crore limit on the exposure a broker could take,” he says.
A broking card on the BSE cost Rs 2-3 crore at the time. Membership of the National Stock Exchange could be had for a deposit of Rs 50 lakh.
“One of the biggest challenges was to get the market to accept new paradigms in risk management, when NSCCL (National Securities Clearing Corporation Ltd) was launched and buyers and sellers were guaranteed settlements. Simultaneously, accounting period settlement gave way to rolling settlement and eventually the settlement cycle was brought down to T+2,” says NSE Managing Director & CEO Chitra Ramkrishna. R H Patil, who died last year following a three-year battle with cancer, was the founder and first managing director of the NSE.
Subsequently the exchange was at the forefront of the government’s other effort to reform the capital markets in India; moving from the badla system to modern derivatives with the introduction of index futures in 2000. By June 2001, the exchange had introduced futures on individual securities as well as options. The next 20 years too are likely to see more investors in the market, adds Ramkrishna.
“Domestically the percentage of savings flowing into the markets should be closer to 25 per cent. When the number of investors in the markets is closer to 150 million, rather than 15 million, India will be the leading financial centre and the NSE a truly global exchange,” she says.