Bombay Stock Exchange (BSE) : Full Form, Features, Functions and Importance
Last Updated :
29 Dec, 2023
What is Bombay Stock Exchange (BSE)?
A stock exchange is a central marketplace for stocks, commodities, bonds, and derivatives. Companies can issue shares to the general public, and investors can buy and sell them. By means of regulations, stock exchanges ensure fair pricing, transparency, and liquidity for these securities. The Bombay Stock Exchange (BSE) is one of India’s oldest and most prestigious stock exchanges. It was founded in 1875 in Mumbai, Maharashtra, as the “Native Share & Stock Brokers’ Association.” BSE Limited is now its official name. However, it is popularly called BSE. BSE stands for Bombay Stock Exchange. The BSE is vital for the Indian financial market since it provides a trading platform for buying and selling a variety of financial products, notably stocks and equities, but also commodities, derivatives, and mutual funds. It is a significant contributor to the country’s economic growth and acts as a measure of the performance of the Indian economy.
BSE is famous for its major stock market index, the Sensex (short for Sensitive Index), which tracks the performance of the exchange’s 30 largest and most actively traded companies. The BSE has played an important part in shaping the growth of India’s capital markets and the country’s economy as a whole. It operates under the regulatory framework established by the Securities and Exchange Board of India (SEBI), the Indian securities markets’ regulatory authority.
History of Bombay Stock Exchange (BSE)
The Bombay Stock Exchange (BSE) has an extensive history dating back to the late 1800s. Here’s a brief summary of the BSE’s main historical turning points and developments:
| Foundation |
1875 |
The BSE began as the “Native Share & Stock Brokers’ Association” in Mumbai (then Bombay) in 1875. It began as an informal meeting of stockbrokers in front of the Town Hall under a banyan tree. |
| Recognition |
1957 |
The BSE was granted legal stock exchange status by the Indian government in 1957 under the Securities Contracts (Regulation) Act. |
| Shifting base to Dalal Street |
1980 |
The BSE moved its trading floor from the banyan tree to Dalal Street in Mumbai in 1980, which became its iconic position. |
| Sensex Launch |
1986 |
In 1986, the BSE introduced the Sensex (S&P BSE Sensex). It consists of 30 of the largest, and most actively traded equities on the exchange and is one of the most followed stock market indices in India. |
| Introduction of Computers |
1995 |
The BSE replaced open outcry trading with automated trading in 1995. This development significantly increased trading capacity and efficiency. |
| Global Recognition |
2007 |
The Bombay Stock Exchange (BSE) gained international prominence with the establishment of a formal relationship with Deutsche Börse in 2007. This arrangement facilitated cross-market access for investors from both exchanges, therefore enhancing the global awareness of the BSE. |
The Bombay Stock Exchange (BSE) has emerged as a significant organization within India’s financial domain, serving as a significant contributor to the country’s economic growth and development.
Features of Bombay Stock Exchange (BSE)
The Bombay Stock Exchange (BSE) provides a variety of features and services to investors, traders, and listed firms in the Indian market. The following are a few prominent characteristics of the Bombay Stock Exchange (BSE):
1. Stock Trading: The Bombay Stock Exchange (BSE) serves as a key marketplace for the exchange of equities, namely stocks and shares, belonging to publicly listed corporations inside India. Investors have the ability to engage in the purchase and sale of these securities within the specified trading hours.
2. Listing Services: Through initial public offerings (IPOs) and follow-on public offerings (FPOs), the BSE helps companies get listed in the stock market. Companies can get money by selling shares to the public and getting listed on an exchange.
3. Commodities Trading: BSE also has a place where buyers can buy and sell derivatives of commodities like gold, silver, and agricultural goods.
4. Regulatory Compliance: The BSE makes sure that listed companies follow the rules set by the Securities and Exchange Board of India (SEBI) and other important bodies about disclosure and other rules.
5. Corporate Governance: The exchange encourages good corporate governance and openness among businesses that are listed, which is important for maintaining investor trust.
Functions of Bombay Stock Exchange (BSE)
The key functions of the Bombay Stock Exchange are as follows:
1. Price Determination: On the secondary market, the prices of securities are determined by demand and supply. Therefore, the BSE assists in this process by continuously evaluating all listed securities. Moreover, investors can readily monitor the prices of these securities using the SENSEX index.
2. Contributes to the Economy: BSE provides a trading platform for various companies’ securities. Continuous reinvestment and disinvestment are integral to the trading procedure. This presents an opportunity for capital formation, funds flow, and economic growth.
3. Facilitates Liquidity: The most essential function of the BSE is to facilitate the sale and purchase of securities. This enables investors to convert existing securities into cash at any time. Therefore, investors can purchase and sell at any time, providing them with high liquidity.
4. Transactional Safety: After verifying the company’s position, BSE ensures that the securities are listed. In addition, all listed companies are required to abide by the Securities and Exchange Board of India (SEBI) rules and regulations.
Importance of Bombay Stock Exchange (BSE)
The Bombay Stock Exchange (BSE) is similar to a large marketplace where people purchase and sell “stocks” or “shares” of businesses. It is essential because it allows businesses to develop by raising funds from the public. It also enables ordinary people to invest in these enterprises and potentially profit from ownership. The success of the nation’s enterprises is a positive indicator for everyone. In addition, it serves as a large scoreboard for the economy, indicating how things are moving forward. Therefore, it is not just a platform to trade stocks; it is an integral element of the financial system of the country.
1. Liquidity and Investment Opportunities: The BSE facilitates the purchase and sale of equities and other financial instruments, providing a liquid market for investors to exchange their investments. This liquidity facilitates the purchase and sale of assets by investors.
2. Economic Indicator: The performance of the BSE is frequently viewed as a barometer of the Indian economy as a whole. When the stock market performs well, it may indicate economic growth and stability.
3. Financial Inclusion: The BSE has introduced a number of initiatives aimed at encouraging financial inclusion, making it possible for a broader segment of the population to invest in the stock market and thus participate in wealth creation and economic development.
4. Market Benchmark: BSE’s primary index, the S&P BSE Sensex, is widely regarded as an indicator of the Indian stock market’s performance. Investors, analysts, and fund managers use it to evaluate market trends and performance.
5. Corporate Governance and Transparency: Listed companies on the BSE are subject to stringent regulatory and reporting requirements that encourage transparency and corporate governance. This is essential for establishing investor confidence.
In conclusion, the Bombay Stock Exchange is an integral part of the Indian financial ecosystem, fostering capital formation, investment opportunities, transparency, and economic expansion. It plays an important part in channelling reserves into profitable investments and operates as an indicator of the state of the economy.
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