THE PROFILE OF BOMBAY STOCK EXCHANGE LIMITED

Dr. M.Venkataramanaiah
Assistant Professor
Department of Accounting and Finance
College of Business and Economics
University of Gondar
Post Box 196, Ethiopia
mvrsvu@gmail.com
+251912692976

1
 THE PROFILE OF BOMBAY STOCK EXCHANGE LIMITED
Abstract:
The study focuses mainly on the genesis of the BSE, objectives, the mechanism of
functioning, composition of membership within the BSE and aggregate of India, state-wise
distribution of membership and spread of distribution of members in the BOLT. Further,
comparison with other stock exchanges, especially NSE, has made. The study hints that there
is continues progression in all the variables examined for the purpose with a few exceptions.

Key words: BSE limited, BOLT, demutualisation, trading cycle, stock brokers

1. Introduction
The BSE is the oldest stock exchange in Asia. Its history can be traced back to 1850s.
At the beginning, four Gujarati stock brokers and one Parsi stock broker gathered together
under Banyan trees in front of Mumbai Town Hall. This location has been changed many
times as the number of brokers constantly increased. Finally, this group had moved to Dalal
Street during 1874. The BSE started its operations during 1875 under the name of the Native
Share and Stock Brokers Association. When the government passed the Securities Contracts
(Regulation) Act (SCRA), 1956, the BSE was the first stock exchange that obtained
recognition under the Act. During 2005, the erstwhile BSE became the BSE Limited under
the corporatisation and demutualisation scheme of 2005. During 2007, the BSE had
completed the process of demutualisation.
The BSE carries the depth of knowledge of capital markets since its inception. It is
located in Mumbai, the commercial capital of India. The BSE has been the backbone of the
country’s capital market. In the beginning, the operations of the BSE were confined to
Bombay only because of natural constraints. In those days, there was open outcry system to
bid securities on the floor of the BSE. After the emergence of sophisticated technology and
induction of online trading through computer network, trading ring was dispensed with.
During 1995, the BSE had replaced its age old open outcry system with the BSE Online
Trading (BOLT). The operational area of the BSE has been widely enlarged due to BOLT. It
eliminated physical boundaries. It enables investors to carry out trading activities from any
location facilitated by internet.
2. Methodology
The primary objective of the study is to examine the profile of the BSE in order to
evaluate the recent trend in the stock exchange in terms of changing style of functioning,

2
membership (brokers) composition within the BSE and aggregate of all India level, member’s
clients’ dispersion and spread of work stations. Further, comparison with other stock
exchanges also intended. To reach out the pre-defined objectives of the study it was planned
to use secondary data. The data was collected from official website of the BSE, RBI, journals
and magazines, published and unpublished sources. The collected data was processed,
tabulated and interpreted with help of percentages, compound annual growth and wherever it
was necessary ‘t’ test has been used to check the significance of the growth rate.
3. Objectives and functions
The main objectives behind the establishment of the BSE could be summarised as
under: (i) to make funds available to entrepreneurs of business class; (ii) to ensure maximum
possible return on investment to investors; (iii) to provide a platform for savings, investments
and reinvestment activity; (iv) to provide a market for the purchase and sale of securities;(v)
to promote and develop a well-regulated market for dealings in securities; (vi) to establish
and promote honourable and just practices in the securities market; and (vii) to encourage
investment culture across the country.
Finance is the oxygen for any economy. Stock exchanges are commonly associated
with industrial finance. Stock exchanges provide transaction facility to investors and thus
discover the price for securities traded on them. The stock exchanges are organised markets
for buying and selling existing industrial stocks, shares, debentures, government securities
and hybrid instruments due to their functioning. The main function of a stock exchange is to
create conducive climate for an active primary market and to ensure fair and efficient trading
in securities in the secondary market. The former Finance Minister of India, Sri C.D
Deshmukh, while placing a bill on securities contracts (regulation) bill in the Lok Sabha
during November 1955, stated that the economic services which a well constituted and
efficiently run securities market can render under normal incentives and impulse of private
enterprise are considerable. This statement reveals the importance of stock exchanges in
promoting desirable economic growth.
At present, the BSE functions across 380 medium and big cities in the country. The
foremost function of the BSE is to channelize savings from household sector to meet the
investment requirements of productive sectors of the economy. The functions include to: (i)
impart liquidity to securities in the market i.e. securities can be readily converted into cash;
(ii) provide stability of continuity in price; (iii) provide easy marketability of shares and other
securities so that value of these securities can keep pace with growth; (iv) provide a well
organised mechanism to create a common platform for trading in securities; (v) safeguard the

3
interest of investors through strict enforcement of rules and regulations; (vi) regulate
members through registration, inspection and enforcement of provisions;(vii) provide
speculation in the market to absorb more investor folk into the market; and (viii) provide
listing and quotation for trading of securities. The BSE also undertakes support functions
such as training and education, technology solutions, data/information services and index
services.

4. Organisation and Management

Historically trading members used to control and manage the stock exchanges in the
country. This model was designed to serve the exchanges, which were essentially regional in
character. After opening of the economy, the Indian stock market registered robust
development. With the advent of telecommunications during 1990, a need was felt to
recognise the structure of the BSE to cope with the interest of investors spread over the
country. Towards this end, the BSE has initiated several measures to separate trading rights
from ownership and management.
The Governing Board of the BSE comprises 9 directors, one managing/chief
executive director, two public representatives and three representatives from each of the
shareholders and trading members. A President, Vice-President, Treasurer and Secretary are
annually elected from among the elected directors of the governing body. The members of
the stock exchange elect their directors. The representation of trading members does not
exceed one fourth of total strength and the remaining directors are appointed as per the
guidelines given by the Securities and Exchange Board of India (SEBI) from time to time.

5. Demutualisation
Traditionally, stock exchanges were organised in the form of clubs, with the
ownership and control vested with the brokers. In case of disputes, often the interests of
brokers alone were protected, leaving the investors at the losing end. Therefore, to reduce the
dominance of trading members in the management of stock exchanges, the government of
India has proposed to corporatize the stock exchanges by which ownership, management and
trading membership segregated from one another. In this row, during 2005, the erstwhile BSE
became the BSE Limited. The ownership has been diluted. The public shareholders took 51
per cent of brokers’ stake. The public shareholding includes 5 per cent share of each of its
strategic partners i.e., Deutsche Borse and Singapore Exchange.

4
6. Membership
In reflection of the need to upgrade the professional standards of market
intermediaries, the admission standards for trading membership have become more vigilant.
The BSE administration has tightened the qualifications/norms such as capital adequacy,
experience etc. Now, the ownership and management of the BSE are completely separated
from the rights of trading member to trade on the BSE. No person is eligible for admission as
a member unless : (i) he/she worked for not less than two years as partner with or an
authorised clerk or remisier or apprentice; or (ii) he/she agrees to work for a minimum period
of two years, as a representative member with another member and enters into bargains on
the floor of the exchange not in his own name but in the name of such other member; or (iii)
he/she succeeds to the established business of a deceased or retiring member who is his
father, uncle, brother or any other person who is in the opinion of the Governing Board a
close relative; or (iv)he/she has a minimum networth, possesses a minimum working capital
of cash and/or marketable securities, and possesses assets belonging to himself/herself and/or
spouse or children, of such nature and value as the Governing Board may from time to time,
in its opinion, determine and consider acceptable; and (v) he/she qualifies in a written test
conducted by the exchange and in case of a corporate member, the directors referred to in
sub-clause (v) of Rule 19A(b) qualify in a written test conducted by the exchange, and in the
case of a Financial Corporation, the Chief Executive Officer and another Director/Officer
both possessing experience as provided in sub-clause (v) of Rule 19A(b) qualify in a written
test conducted by the exchange.
The applicant must be engaged solely in the business of securities and must not be
engaged in any fund/asset based activity. Admission of trading members in the BSE is a two
stage process. After meeting the minimum eligibility to become a member, the applicants are
required to go through a written examination followed by an interview. The candidates are
interviewed by a committee consisting of experienced people from the industry. The
committee assesses the applicants’ capability to operate as a member. Trading members of
the BSE are the individuals, partnership and corporate members. They have the right to trade
in the stocks listed on the BSE. An investor can buy/sell securities through one of the trading
members of the exchange. The members must be registered with the SEBI.
In India, traditionally, brokerage firms were proprietary or partnership concerns with
unlimited liabilities. This restricts the amount of capital that such firms can raise. The ever
growing volume of transactions made it imperative for such firms to be well capitalised and
professional. The necessary changes were effected to the existing legal frame work to open

5
up the membership of stock exchanges to corporate members with limited liability. In
recognition of the fact that the trading members were undercapitalised, the BSE has
encouraged the setting up of corporate trading members with higher capitalisation.
The year wise membership in the BSE during 2001-10 is presented in Table 1. The
membership is spread over individuals, partnership firms and corporate. The individual
membership has declined from 178 in 2001 to 147 in 2010 with relative ups and downs. Of
the total membership in the BSE, the individual members constituted 25.83 per cent in 2001
Table 1: Year-wise Membership in BSE during 2001-10
Membership
Year Total
IM PM CM
178 48 463 689
2001
(25.83) (6.97) (67.20) (100)
158 39 463 660
2002
(23.94) (5.91) (70.15) (100)
158 39 468 665
2003
(23.76) (5.86) (70.38) (100)
157 37 479 673
2004
(23.33) (5.50) (71.17) (100)
156 36 534 726
2005
(21.49) (4.96) (73.55) (100)
148 31 661 840
2006
(17.62) (3.69) (78.69) (100)
148 31 722 901
2007
(16.43) (3.44) (80.13) (100)
148 31 767 946
2008
(15.64) (3.28) (81.08) (100)
148 31 805 984
2009
(15.04) (3.15) (81.81) (100)
147 30 826 1003
2010
(14.66) (2.99) (82.35) (100)
Notes: IM Individual membership; PM Partnership membership; CM Corporate
membership; Figures in brackets indicate the percentage to total.
Source: SEBI, Hand Book of Statistics on Indian Securities Market-2011, Mumbai,
2012, 17-23.

as compared to 14.66 per cent in 2010. The partnership members were 48 or 6.97 per cent in
2001 vis-à-vis 30 or 2.99 per cent in 2010. In the meanwhile, there are to and fro changes in
it. The corporate members were 463 in 2001 as compared to 826 in 2010. There is a gradual
growth in relative as well as absolute terms throughout the period. The share of corporate
members was 67.20 per cent in 2001 as against 82.35 per cent in 2010. As pointed out in the
first chapter, the share of individual and partnership members has declined while that of
corporate members increased. This has prevailed in all the stock exchanges in the country in
the same period. When all the three categories of members are put together, the aggregate
members were 689 in 2001 while they were 1003 in 2010. It may be noted that this trend is
contrary to the one observed in the first chapter. If all the stock exchanges are considered as a

6
whole, the membership had declined in 2010 as compared to 2001. It may be concluded that
both the individual and partnership members have declined in 2010 in both absolute and
relative terms over 2001, whereas the corporate membership has shot up in 2010 upon 2001.
There is nearly a two fold increase in corporate members. Thus, corporate members account
for a lion’s share in the BSE. Further, on an overall basis, the membership has gone up in the
BSE.
The relative share of the BSE in the total membership of all the stock exchanges in
India during 2001-10 is furnished in Table 2. In the case of individual membership, the
Table 2: Relative Share of BSE in the Total Membership of all Stock Exchanges in India
during 2001-10
Partnership
Individual membership Corporate membership All categories total
membership
Year

All India All India All India

BSE BSE BSE BSE India
aggregate aggregate aggregate

178 5650 48 405 463 3808 689 9863

2001
(3.15) (100.00) (11.85) (100.00) (12.16) (100.00) (6.99) (100.00)
158 5519 39 308 463 3862 660 9689
2002
(2.86) (100.00) (12.66) (100.00) (11.99) (100.00) (6.81) (100.00)
158 5381 39 303 468 3835 665 9519
2003
(2.94) (100.00) (12.87) (100.00) (12.20) (100.00) (6.99) (100.00)
157 5294 37 287 479 3787 673 9368
2004
(2.97) (100.00) (12.89) (100.00) (12.65) (100.00) (7.18) (100.00)
156 5025 36 273 534 3764 726 9062
2005
(3.1) (100.00) (13.19) (100.00) (14.19) (100.00) (8.01) (100.00)
148 5046 31 271 661 3952 840 9269
2006
(2.93) (100.00) (11.44) (100.00) (16.73) (100.00) (9.06) (100.00)
148 4998 31 285 722 4101 901 9384
2007
(2.96) (100.00) (10.88) (100.00) (17.61) (100.00) (9.60) (100.00)
148 4288 31 274 767 3955 946 8517
2008
(3.45) (100.00) (11.31) (100.00) (19.39) (100.00) (11.11) (100.00)
148 4288 31 285 805 4079 984 8652
2009
(3.45) (100.00) (10.88) (100.00) (19.74) (100.00) (11.37) (100.00)
147 4317 30 290 826 4197 1003 8804
2010
(3.43) (100.00) (10.34) 100.00) (19.68) (100.00) (11.39) (100.0)
Note: Figures in brackets indicate the percentage to total
Source: As in Table 1

proportion of the BSE in the aggregate individual membership of all the stock exchanges was
3.15 per cent in 2001 as compared to 3.43 per cent in 2010. It was the least at 2.86 per cent in

7
2002 while the highest at 3.45 per cent in each of 2008 and 2009. In the case of partnership
membership, the share of the BSE has varied between 10.34 per cent and 13.19 per cent
during the period. With regard to corporate membership, the BSE has formed 12.16 per cent
in 2001 vis-à-vis 19.68 per cent in 2010 with relative fluctuations. The years 2002 and 2009,
with a proportion of 11.99 per cent and 19.74 per cent, formed the lowest and the highest
sequentially. When all the three categories of members are considered as a whole, the
proportion of the BSE was in the range of 6.81-11.39 per cent. It may be summed up that the
relative share of the BSE in the total membership of all the stock exchanges is the least in
individual membership followed by partnership membership and corporate membership.
Further, its proportion has never crossed 20 per cent in any one of the years of study period.
Furthermore, there is a decline in individual membership and partnership membership in
2010 over 2001 in the BSE as well as Indian aggregate. A converse situation prevails in both
the cases.
The state-wise distribution of clients of members in the BSE during 2010 is shown in
Table 3. During 2010, there were 206.57 lakh clients to the members of the BSE spread over
different states and union territories in the country. Of them, 49.48 lakhs or 23.96 per cent are
in Maharashtra followed by Gujarat with 32.31 lakhs or 15.64 per cent. These two states
account for 40 per cent in the aggregate of clients. The share of each of six states such as
Delhi, West Bengal, Uttar Pradesh, Tamil Nadu and Karnataka varied between 6.04 per cent
and 6.61 per cent. The proportion of each of the five states like Rajasthan, Madhya Pradesh,
Haryana, Kerala and Punjab was in the range of 2.18-4.65 per cent. The account of
Jharkhand, Bihar and Orissa was 1.31 per cent, 1.26 per cent and 1.41 per cent respectively.
The share of each of eight states was in the level of 0.11-0.69 per cent. The account of each
of nine states and union territories differed between 0.01 per cent and 0.08 per cent. The
share of all these was 0.23 per cent. The proportion of Mizoram and Lakshadweep is
negligible. It may be said that, out of the states and union territories, there is high uneven
distribution of clients to the members of the BSE. This is on account of many causes such as
stage of economic concerned, spread in the density of population, distribution of income
among the investing public in financial instruments, habit of development of the region thrift
and savings, availability of online facility, perception of risk, psychology of investors,
knowledge of finance etc.

8
 Table 3: State-wise Distribution of Members’ Clients in BSE during 2010
(Lakh number)
State No. of clients % to total
Maharashtra 49.49 23.96
Gujarat 32.31 15.64
Delhi 13.64 6.61
West Bengal 13.35 6.46
Uttar Pradesh 13.25 6.41
Tamil Nadu 13.05 6.32
AP 12.86 6.23
Karnataka 12.47 6.04
Rajasthan 9.61 4.65
Madhya Pradesh 6.02 2.92
Haryana 5.73 2.77
Kerala 5.59 2.71
Punjab 4.51 2.18
Jharkhand 2.71 1.31
Bihar 2.60 1.26
Orissa 2.35 1.14
Chattisgarh 1.42 0.69
Uttarakhand 1.32 0.64
Assam 1.06 0.51
Chandigarh 0.79 0.38
Jammu& Kashmir 0.67 0.32
Himachal Pradesh 0.54 0.26
Goa 0.53 0.26
Pondicherry 0.22 0.11
Tripura 0.16 0.08
Dadra Nagar Haveli 0.07 0.03
Daman& Diu 0.06 0.03
Meghalaya 0.05 0.03
Sikkim 0.04 0.02
Manipur 0.02 0.01
Nagaland 0.02 0.01
Andaman Nicobar Islands 0.02 0.01
Arunachal Pradesh 0.01 0.01
Mizoram 0.00 (neg.)
Lakshadweep 0.00 (neg.)
Total 206.57 100.00
Source:http://www.bseindia.com/markets/keystatics/Keystat_clients.aspx?expandable=4

7. Trading mechanism
The trading system of the BSE, known as BOLT, is fully automated and screen based.
During 1994, BOLT came into existence as a part of four-phase computerisation programme.
This was introduced to bring an automated trading environment in the BSE. The aim is to
convert the open outcry system of trading into screen-based trading system (STS). The

9
extension of BOLT to cities outside Mumbai started during 1997. The existing technique can
handle a maximum of 3,500 trades per second. On an average, per second, 222 orders can be
executed with a peaking speed of 6,000 orders. The system comprises 17,000 Trade Work
Stations (TWS) network on Ethernet, Very Small Aperture Terminals (VSAT) and Local
Area Network (LAN). The wide area network (WAN) of the BSE is connected to over 8,000
BOLT TWS spread over 380 cities across the country. Further, WAN alone connects 2,500
member offices within Mumbai and 29 major metropolitan cities to BOLT.
BOLT enables the members to trade simultaneously with ease and efficiency across
the county. In one stroke it dispensed with need for people to congregate on the floor of an
exchange to trade and took the exchange floor to the investors’ doorstep. BOLT enables the
BSE to render quality and standard service to members, investors and other market
intermediaries. Presently, BOLT has the capacity to execute 80 lakh orders per day. Further,
the BSE has introduced centralised exchange based internet trading system viz.
BSEWEBx.co.in for the first time in the world. This initiative enables investors to trade on
the BSE platform from anywhere in the globe. Through its technology, the BSE provides a
facility for screen based trading with automated order meeting. The trading system of the
BSE is an anonymous order driven system. This technique helps members to place orders,
whether large or small, without disclosing their names. The disadvantage of disclosure of
identity is avoided. The trading system operates on a strict principle of price-time priority. All
orders received on the system are sorted out with the best priced order getting the first
priority of matching. Orders are automatically matched by computer. The computer keeps the
system more transparent and fair. If an order does not find a suitable match, it remains in the
system and is displayed to the whole market till a fresh order comes in or the earlier order is
cancelled or modified.
The trading system provides flexibility to users to place several kinds of orders:
orders with time related, price related and volume related conditions can be
placed/implemented at the same time without any delay in their execution. It also provides
market information online through many enquiry channels. The market screens, at any time,
provide information on the total offer depth relating to a security i.e. the high and lows, the
last traded price, spread of the security etc. This information is updated online, which enables
a member to make better decisions.
The clearing and settlement system in a stock exchange refers to the mechanism
where the seller delivers the securities and purchaser makes payment thereon. The clearing
and settlement system of the BSE had undergone many changes along with the changes of

10
security market as a whole. The clearing and settlement operations of the BSE are managed
by the Bank of India (BOI) Shareholding Limited, which is the Joint Venture of the BSE and
the BOI.
As per the directions of the SEBI, all the transactions in all groups in equity segment
and fixed income segment are required to be settled under T+2 basis. In the BSE, the
settlement cycle starts on Monday and ends on Friday. The BSE circulates settlement
calendar among the market participants. It shows the dates of settlement and the related
issues. Under this system, the deals struck on a particular day are settled after a given number
of business days. T+2 means that the exchange of securities for money between seller and
buyer will take place after a span of 2 days after the BSE. Member settles trade deals on his
own account or on behalf of individual or corporate or institutional clients. This is carried out
either through member himself or through the SEBI registered custodian appointed by
him/client. The BSE generates delivery and receives orders for the trading day excluding
Saturday, Sunday and any other public holiday. Table 4 shows the trade settlement cycle time
and process of operations in transactions carried out by members in different group scrips
after sum up
Table 4: Trade Settlement Cycle Time and Process in the BSE during 2010

Day Timings Job performed

T ( Trading 9.30 A.M to 3.30 P.M (Market Buy/sell of securities
day) timings)
T+1 by 11.00 A.M Confirmation of all trades
by 1.30 P.M Processing and downloading of
files to brokers/custodians
T+2 by 11.00 A.M Pay-in of securities and funds
by 1.30 P.M Pay-out of securities and fund
Source: http://cbse.nic.in/fmm-12/FMM%20II_Chapter%205.pdf

of purchase and sale deals. The delivery/receive order passes information about the name of
the company’s script and the quantity to be delivered /received by the member through
clearing house. The market timings on the trading day are 9.30 AM to 3.30 PM. During this
period, the securities are bought and sold. Under T+1, all trades are confirmed by 11 AM.
Files are processed and downloaded to brokers/custodians by 1.30 PM. In the case of T+2,
pay-in of securities and funds is by 11 AM and pay-out of securities and funds is by 1.30 PM.
Settlement cycle in the BSE is presented in Fig.1.

11
 Figure 1: Settlement Cycle in the BSE during 2010

Source: The Institute of Charted Accountants of India, Hand Book for Investing and
Investor Protection, Sahitya Bhavan Publications, New Delhi,2011, p21.
Every short delivery has to be first debited/credited directly to the account of clearing
member of the clearing house at the closing price of short-delivered shares on the previous
trading day to the settlement day. Then, it is auctioned off on the next trading day and settled
on a T+2 basis. Finally, short deliveries that are left unmatched are closed out at the highest
price prevailing on the BSE from the trade day till the day of closing out or 20 per cent above
the official closing price on the auction day, whichever is higher.
On the basis of nature, the securities traded in the BSE are classified into seven
groups. These include ‘A’, ‘B’, ‘S’,‘T’,‘TS’,‘F’,‘G’ and ‘Z’. ‘A’ group covers large
outstanding shares, good track record and big volume of business in the secondary market.
Carry forward transactions are permitted in it. At present, 216 companies’ securities are
under it. Group ‘B’ consists of relatively liquid securities. Group ‘S’ represents scripts
forming part of the ‘BSE-Indonext’ segment. All the trade deals in this segment are through
BOLT system. ‘T’ group consists of scripts that are traded on trade to trade basis. The ‘TS’
group includes those scripts traded in the ‘BSE-Indonext’ segment. These are settled on a
trade to trade basis as a surveillance measure. ‘F’ group comprises fixed income securities
whereas ‘G’ group government securities. ‘Z’ group includes securities of companies which
have failed to comply with listing requirements of the BSE. All the securities are settled
through the clearing house.
Till the advent of online trading, an investor who wants to transact business in any security
which was not traded in the nearest stock exchange had to route orders through a series of

12
correspondent brokers to the appropriated exchange. This has resulted in a great deal of
uncertainty and high transaction cost. The BSE has made it possible to connect the parts of
the nation by its online trading system. The success of any organization depends upon the
efficiency and the qualification of members/brokers. The trading platform of the BSE is
accessible to investors only through the trading members/brokers. The spread of trade work
stations of the BSE through BOLT across the cities is provided in Table 5. The number of
trading terminals were 9,705 in 2004 as against to 15,630 in 2010. On an average, per year,
the trading stations were 14,138.71. There are fluctuations in the yearly progress. It varied
between 0.88 per cent and 25.90 per cent. The compound growth rate (CGR) was 7.04 per
cent, which is insignificant. The trading was spread over 420 cities in 2004 as compared to
293 in 2010. The decline was in the range of 1.69 – 13.31 per cent. On an average, per year,
the BSE has covered 375.86 cities during the period. The CGR in the spread of cities was -
5.01 per cent which is not significant. The decline in the coverage of cities is due to the
emergence of the NSE as premier stock exchange in the country, establishment of regional
stock
Table 5: Spread of Trade Work Stations of BSE through BOLT during 2004-10
Trade work stations Cities
Year % of change
% of change over
Number Number over previous
previous year
year
2004 9705 - 420 -
2005 13097 25.90 421 0.24
2006 14440 9.30 414 -1.69
2007 15197 4.98 391 -5.88
2008 15409 1.38 360 -8.61
2009 15493 0.54 332 -8.43
2010 15630 0.88 293 -13.31
Mean 14138.71 375.86
CGR (%) 7.04 -5.01
‘t’ cal 17.43NS 20.08NS
Note: NS Not significant.
Source: As in Table 3.1

exchange etc. It may be said that the trading terminals of the BSE have increased but the
number of cities covered declined. Either the increase or decrease are insignificant during the
period.

13
8. Indices
Over the decades, the BSE has passed through good and bad periods. Till 1980s, there
was no index to measure ups and downs in the prices of scrips of stock market. During 1986,
the BSE came out with a stock index, which is popularly known as ‘Sensex’. The launch of
sensex was followed by the introduction of National Index during 1989. It comprises 100
stocks listed at five major stock exchanges such as Bombay, Calcutta, Delhi, Ahmadabad and
Madras. During 1994, the BSE launched two more indices, namely, the BSE 200 and the
Dollex 200 with a view to provide a representation to an increasing number of listed
companies, large market capitalisation and new industry sectors. Since then, the BSE came a
long way by adjusting itself to the varied needs of investors and market participants. In order
to fulfil a wide range of expectations of market players, the BSE has introduced segment
specific and sector specific indices. During market hours, the values of these indices are
updated on real time basis and the same is displayed through BOLT system. The index
committee periodically revises all the indices of the BSE. Presently, 11 sectoral indices
emerged in the BSE. The details of sectoral indices, which emerged in the BSE during 1999-
2007, are furnished in Table 6. A glance at the Table reveals that five sectoral indices such as
the BSE capital goods, the BSE consumer durables, the BSE fast moving consumer goods,
the BSE health care and the BSE information technology were launched during 1999. After a
gap of 3 years, the BSE bankex was brought during 2003. Three more indices like the BSE
auto, the BSE metal and the BSE oil and gas were launched during 2004.
Table 6: Sectoral Indices of the BSE during 1999-2007

Name of index Sector Date of launch

BSE capital goods Capital Goods 9-8-1999
BSE consumer durables Consumer Durables 9-8-1999
BSE FMCG Fast Moving Consumer Goods 9-8-1999
BSE health care Health 9-8-1999
BSE IT Information Technology 9-8-1999
BSE bankex Banking 23-6-2003
BSE auto Automobile 23-8-2004
BSE metal Metal 23-8-2004
BSE oil and gas Oil and Gas 23-8-2004
BSE realty Real Estate 9-7-2007
BSE power index Power and Energy 9-11-2007
Source: http://www.bseindia.com/about/abindices/sectoralindices.asp

14
During 2007, the BSE power and the BSE realty indexes were added. Thus several sectoral
indices were launched by the BSE at different points of time.

7.1 Method of compilation

In the BSE, most of the indices are calculated by following the free-float market
capitalisation methodology. The free-float methodology is the process of constructing an
index. The free-float market capitalisation is the total shares issued by a company, which are
readily available for trading in the market. It generally excludes promoter’s holdings,
government holdings, strategic holdings and other locked-in shares. This method allows that
the level of index at any point of time reflects the free-float value of component stocks
relative to base period. The market capitalisation is multiplied by the free-float factor to
arrive at the free-float market capitalisation. All the index companies have to submit the filled
in free-float on quarterly basis to the BSE. Then, the BSE, on the basis of information
submitted by each constituent company,determines the free-float factor for each company.
Once the free-float of a company is determined, it is rounded-off to the higher multiple of 5
and each company is categorised into one of the 20 bands. The free-float bands of BSE
sensex are given in Table 7.
Table 7: Free-Float Bands of BSE Sensex during 2010
Band (%) Free-float factor Band (%) Free-float factor
0-5 0.05 51-55 55
6-10 0.10 56-60 60
11-15 0.15 61-65 65
16-20 0.20 66-70 70
21-25 0.25 71-75 75
26-30 0.30 76-80 80
31-35 0.35 81-85 85
36-40 0.40 86-90 90
41-45 0.45 91-95 95
46-50 0.50 96-100 100
Source: www.bseindia.com
If a free- float factor is 0.55, it means only 55 per cent of market capitalisation of the
company will be considered for index calculation.

15
7.2 Sensex
The BSE’s sensitivity index is popularly known as the BSE sensex. The sensex came
into existence during 1986. Subsequently, sensex has become the barometer of the Indian
stock market. Sensex is designed with global standards of index construction and review
methodology. It is a basket of 30 constituent stocks representing a sample of large, liquid and
representative companies. The base year of sensex is 1978-79 and hence the base value is
100. The index is widely used in both the domestic and international markets. Due to wider
acceptance of Indian investors, the BSE sensex is regarded as the pulse of stock market.
Initially, the index was calculated on the basis of full market capitalisation methodology.
Later on, as a part of stock market reforms, the BSE adopted free-float methodology, in the
place of full market capitalisation methodology since 2003. On any trading day, closing
sensex is computed by taking the weighted average of all trades of constituent companies in
the last 30 minutes of trading session. The use of index closure algorithm prevents any
intentional manipulation in the value of closing index.
One of the important aspects of maintenance is upgradation of data to the base year
average. The adjustment of base year value ensures the replacement of stock in index,
additional issues of capital and other corporate announcements like right issues etc. The index
cell of the BSE takes care of day-to-day maintenance of index within the broad framework of
index policy. It ensures proper maintenance of index by updating data at regular intervals.
During market hours, prices of index scrips are automatically updated for every 15 seconds in
all the trading work stations which are connected to the BSE trading computer. The BSE
selects scrips on the basis of criteria to promote transparency in trading. The general
guidelines for the selection of constituents in the sensex are: (i) listed history; (ii) trading
frequency; (iii) final rank; (iv) market capitalisation weights; (v) industry representation; and
(vi) track record.
8 Comparative analysis
The membership in all the stock exchanges in India during 2010 is furnished in Table
8. In the case of corporate members, the share of the BSE was 82.35 per cent followed by
Delhi stock exchange. The share of corporate members has increased in all stock exchanges
over the years. The percentage of total corporate members to total members in all stock
exchanges was 38.61 per cent during 2001, which increased to 47.67 per cent during 2010.
The reverse trend can be observed during the same period in the case of individuals and
partnership members. The percentage of individual and partnership members

16
 Table 8: Classification of Members in Stock Exchanges in India during 2010
Name of stock CM IM PM
exchange
Ahmedabad 171 139 19
(51.98) (42.25) (5.78)
Bangalore 129 129 3
(49.43 (49.43) (1.15)
Bombay 826 147 30
(82.35) (14.66) (2.99)
Bhuvaneswar 19 195 -
(8.88) (91.12)
Calcutta 197 667 44
(21.7) (73.46) (4.85)
Cochin 79 350 9
(18.04) (79.91) (2.05)
Coimbatore 48 87 -
(35.56) (64.44)
Delhi 254 169 32
(55.82) (37.14) (7.03)
Gauhati 3 94 1
(3.06) (95.92) (1.02)
Interconnected 345 569 29
(36.59) (60.34) (3.08)
Jaipur 18 460 6
(3.72) (95.04) (1.24)
Ludhiana 89 209 2
(29.67) (69.67) (0.67)
Madhya Pradesh 38 153 1
(19.79) (79.69) (0.52)
Madras 75 104 14
(38.86) (53.89) (7.25)

National 1,175 68 67
(89.69) (5.19) (5.11)
Over the counter 538 148 18
(76.42) (21.02) (2.56)
Pune 54 125 7
(29.03) (67.2) (3.76)
Saurashtra
Uttar Pradesh 75 259 5
(22.12) (76.4) (1.47)
Vadodara 64 245 3
(20.51) (78.53) (0.96)
Total 4197 4317 290
(47.67) (49.03) (3.29)
Notes: CM corporate membership; IM individual membership; PM partnership membership;
There are no members registered in Hyderabad, Magadha and Mangalore stock exchanges
during 2010.
Source: Compiled from relevant issues of Hand Book of Statistics on Indian Securities
Market-2011, SEBI, Mumbai, 2012.

17
to total members in all stock exchanges was 49.03 per cent and 3.29 per cent respectively
during 2010 against to 57.28 per cent and 4.11 per cent respectively during 2001.The share of
corporate members in total members in the BSE ranged between 67-82 per cent which was
the second highest among all the stock exchanges. This shows a conscious effort by the BSE
to improve the corporate membership so as to strengthen confidence in its operations. The
members in corporate firm could raise more funds and have better infrastructure setup. This
leads to better liaison between the exchange and clients.
9. Conclusion
Evaluation of profile of the BSE demonstrated that the progression of the BSE during
2001-2010 was remarkable in terms of number of brokers registered with the BSE
comparatively other stock exchanges leaving the NSE. The new settlement cycle has given
oxygen to boost up the overall development of stock market. The number of member
(brokers) clients was increased drastically. The usage BOLT for online trading was
significantly increased. Further, the change in method of compilation of indices assured the
investors more accuracy in terms of capitalisation. Furthermore, corporate members were
slowly increased while the individual and partnership membership in the BSE was declined
over the time. It shows the paradigm shift of preference of ownership of membership due to
corporate reforms happened recently in the stock market. It may be concluded that new
challenges in the new millennium posed by market forces were addressed by the BSE
effectively and efficiently.
References
(1) Avadhani, V.A (1996) A Manual on Stock Broking, Himalaya Publishing House,
New Delhi.
(2) Bimal Jalan (2008) Review of Ownership and Governance of Market Infrastructure
Institutions, SEBI, Mumbai, 15-16

(3) BSE (1957), Rules, Bye-laws, and Regulation, Bombay, 3-5.

(4) Ibid, 4
(5) http://articles.economictimes.indiatimes.com/2012-01-
10/news/30611596_1_singapore-exchange-deutsche-borse-listing
(6) www.sebi.gov.in/stkexchnage/BseCorpDmut.html
(7) Sinha , S.L.N (1960), The Capital Market of India, Vora Publisher Pvt. Ltd. Bombay.
(8) www.bseindia.com
(9) www.nseindia.com

18