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The genesis and growth

As the Bombay Stock Exchange celebrates it's 125 year of operation, here is a look at the events that shaped its past.

AT the entrance to Jeejeebhoy Towers in Mumbai you have to walk through a metal detector under the watchful eyes of security guards. If you are carrying a bag or a suitcase, it has to go through the scanner. You step into the towering 28-storeyed structu re and you will find yourself lost in a maze of narrow corridors, huge halls, tiny offices... a place that reminds you at every turn and corner the complexity of the business that gets transacted there. Welcome to the Bombay Stock Exchange.

Though the earliest records of securities dealings in the country are obscure and meagre, trading in the loan securities of the English East India Company are known to have taken place towards the close of the 18th century.

By the 1830s there was a perceptible increase in the volume of business, not only in loans but also in corporate and bank stocks and shares. It is said that from 1850 to 1865, the history of brokers and their rise to prominence in Bombay is the history o f Premchand Roychand. Brokerage business attracted many, and by 1860, the number of brokers reached 60. Premchand Roychand was their acknowledged leader and was the first broker who could speak and write English.

In 1861, when the Civil War broke out in America, it raised the stakes in the Bombay markets manifold. Cotton supply from America to Europe stopped completely, and it had to rely heavily on Indian cotton. The premium on cotton skyrocketed and money flowe d into the already-rich city of Bombay.

The huge amount of money coupled with lack of investment avenues triggered large-scale speculation -- the share mania ended with the Civil War in 1965 in the first major catastrophe.

The first vital spark of speculation which eventually burst into a conflagration was kindled by the Asiatic Banking Corporation. Originally named the Bombay Joint Stock Bank, its shares were rigged up to a premium of 65 per cent in a few short months and it was the forerunner of 94 other monetary institutions which came into existence on its heels.

From 1861 to the beginning of 1865, there was nothing, however wild it was, that was floated whose shares did not command a premium. Some of the banks and financial associations reached a premium of 50 per cent to 100 per cent without being tested by ret urns.

It was said that ``Man, woman master and servant, employer and employee, banker and merchant, trader and artisan, rich and poor, of all races and creeds, officials in high places included, were deeply busy from day to day in the art of commuting bits of paper, variously called `allotments', `scrips', and `shares' into gold and silver. The madness that seized the people at large was indescribable. They only woke up when the Civil War came to an end''. The fatal day was July 1, 1865, when hundreds of time bargains matured which no one was in a position to fulfill.

The depression was long and severe, but the share mania had certain lasting effects. The expansion of liquid capital and the establishment of a regular market in securities were its direct results.

During 1840-1850, only half a dozen brokers existed and they used to gather under the banyan trees in front of the town hall -- where the Horniman Circle is today. But during the share mania of 1860-1865, their number increased to about 250. The post-war crash made them some kind of an anathema to the general public and they ran from pillar to post looking for a place to assemble.

It was in these turbulent times between 1868 and 1875 that brokers founded an informal association, and finally, as recited in the Indenture constituting the Articles of Association of the exchange ``On or about the 9th day of July 1875, a few native bro kers ... resolved upon forming in Bombay an association for protecting the character, status and interests of native share and stock brokers ...''

When the exchange was first constituted in 1875, the entrance fee for new members was Re. 1 and there were 318 on the list. The number increased to 478 in 1920 and the fee then was Rs. 48,000.

Therein lies the genesis of today's Bombay Stock Exchange housed in Jeejeebhoy Towers -- the construction of which started in 1972 -- the most recognisable monument on the Indian financial scape. The exchange was guided through good as well as turbulent times to reach today's stature by stalwarts like K.R.P. Shroff (President for 43 years from 1923) and Phiroze Jeejeebhoy. And today the BSE is counted among the premier stock exchanges of the world.

However, the emphasis on protecting and enhancing the interests of brokers, as per the original charter, has got diluted over time with the advent of communication tools and entry of educated professionals in the field. The new mantra is investor protect ion and creation of investors' wealth.

By constant innovation and depending upon the nature and distinction of activities, brokers developed functional specialisations like commission broker, floor broker, taraniwalla (jobber), odd-lot dealer, badliwalla (financier), arbitrageur, security dea ler, underwriter. Today depository services, Internet trading and multiple exchange membership not only in India but abroad as well, have been added.

While the game may be old, new rules are being framed as more and more new players with sophisticated skills and tremendous financial muscle enter the arena.

A banyan tree still stands in the BSE compound, tall, majestic and widespread-- perhaps as a metaphor of what the Native Share and Stock Brokers' Association is today.