The History of Bombay Stock Exchange

• The Bombay Stock Exchange is known as the oldest

exchange in Asia.
• It traces its history to the 1850s, when stockbrokers
would gather under banyan trees in front of Mumbai's
Town Hall.
• The location of these meetings changed many times, as
the number of brokers constantly increased.
• The group eventually moved to Dalal Street in 1874
and in 1875 became an official organization known as
'The Native Share & Stock Brokers Association'.
• Sir Phiroze Jeejeebhoy was another who dominated the
stock market scene from 1946 to 1980. His word was
law and he had a great deal of influence over both
brokers and the government. He was a good regulator
and many crises were averted due to his wisdom and
practicality. The BSE building, icon of the Indian
capital markets, is called P.J. Tower in his memory.
• In 1956, the BSE became the first stock exchange to be
recognized by the Indian Government under the
Securities Contracts Regulation Act.
• The Bombay Stock Exchange developed the BSE
Sensex in 1986, giving the BSE a means to measure
overall performance of the exchange.
• In 2000 the BSE used this index to open its derivatives
market, trading Sensex futures contracts.
• The development of Sensex options along with equity
derivatives followed in 2001 and 2002, expanding the
BSE's trading platform.
• Historically an open-cry floor trading exchange, the
Bombay Stock Exchange switched to an electronic
trading system in 1995. It took the exchange only fifty
days to make this transition.
Investment and Financial Intermediation
• An investment, broadly defined, is an action that
creates a cost today but provides benefits in the
future.

• It is difficult to bring savers and investors together.

Households save for different reasons than firms
invest. Households try to minimize risk and have
their savings readily accessible, or liquid, while
firms are risk takers and need funds that will be
tied up for a long time.
 • Financial intermediaries create a valuable link
between savers and investors. Without financial
intermediaries, society would not be able to turn its
savings into profitable investment projects.
Financial intermediaries help bring savers and
investors together. By using their expertise and the
powers of diversification, financial intermediaries
reduce risk to savers and allow investors to obtain
funds on better terms.
Why Financial Intermediaries Emerge
• By pooling the funds of savers and making loans to
individual businesses, financial intermediaries
reduce the costs of negotiation.
• Financial intermediaries also acquire expertise in
both evaluating and monitoring investments.
• Some financial intermediaries also provide the
liquidity households demand.
What is Investing?
♦Criteria used to determine whether an investment
of money is investing or something else, including:
– Is it short-term or long-term?
– Is it productive or unproductive?
– Is it legal or illegal?
– Is it rational or irrational?
♦Gambling occurs when
– Outcome is determined very quickly (a roll of
the dice, for instance)
– A source of entertainment
– Outcome is not based on an economic
endeavor, but, rather, random outcomes
 – Creates risk without expectation of economic
benefit
♦Speculation occurs when
– An asset is purchased with hope that price will
rise rapidly, leading to quick profit
– Not based on random outcomes
♦Example: Buying an IPO of a stock on the
first day hoping to sell it in several days at
a higher price
♦Major asset classes include
– Primary securities such as common and
preferred stock, government bonds, corporate
bonds, Treasury bills, commercial paper
– Derived instruments such as mutual funds, put
and call options, forward and futures contracts
– Physical assets such as houses, land, buildings,
diamonds, gold