The Indian stockmarkets have come a long way since the early 18th century when securities trading was initiated under a sprawling banyan tree in front of the Town Hall in Mumbai. The Companies Act, passed in 1850, signalled the beginning of the era of joint stock companies in India. In 1874, Dalal Street became the place where brokers met to conduct this business. On July 9, 1875, these brokers organised themselves into the Native Share Brokers Association. This marked the birth of bse.

The early 1980s witnessed the equity cult gaining ground. The government constituted the Securities & Exchange Board of India (SEBI) on April 12, 1988. Subsequently, the Over The Counter Exchange of India (OTCEI) was formed in 1992 to encourage small companies list their securities.

The creation of the National Stock Exchange (NSE) by leading financial institutions in 1992 triggered the move to screen-based trading for equities, debt instruments, and hybrids.

The process of globalisation began with opening up of the Indian capital markets to foreign institutional investors (FIIs) in 1992. This led to foreign custodians and brokerages setting up base in India. They brought their best global practices to Indian markets. Equity research gained prominence.

A significant reform was the 1996 decision to move to a dematerialised (DEMAT) form of settlement. Prior to December 1996, securities were traded and settled only in the physical mode, resulting in delays and other operational hassles. Today, 90 per cent of market transactions are in DEMAT form.

To stimulate the capital market, the Securities & Exchange Board of India (SEBI) introduced the Securities Lending Scheme in February 1997. Currently, there are nine approved intermediaries through whom securities can be lent and borrowed.

Derivatives-trading began in June 2000 with index futures as the first product. Since then, a host of other derivative-instruments such as index options and single-stock options have been introduced by the exchanges. Recently, SEBI approved trading in single-stock futures.

In a further effort to integrate with international markets, SEBI introduced the compulsory rolling settlement on a t+5 basis for 409 scrips on July 2, 2001, to streamline settlement systems. In parallel, a slew of risk-containment measures and new margining norms were introduced.

Regulatory measures and governance are becoming top priority among exchanges and regulators. SEBI should continue to be given greater freedom; that will create confidence amongst investors that India is a well-regulated market.

Today, the Indian capital market is poised to take a significant leap into the future with the following developments: a move towards a t+3 settlement and introduction of continuous net settlements (CNS), enabling real time gross settlement (RTGS). Margin trading for channelisation and utilisation of bank funds in the secondary markets will help investors borrow money to finance purchase of securities or borrow securities needed for sale.

SEBI has recently announced that it is working to streamline stock-lending and borrowing systems and segregate the short-selling facility to institutional participants, which should facilitate stock futures. The Finance Ministry has been working on a proposal to enable market participants to integrate with international financial markets once the rupee becomes fully convertible.

Plans to establish a centralised clearing house to attend to the business of clearing and settlement of trades in debt instruments and forex transactions will stimulate increased activity in the secondary debt market. These measures are comparable to those that have already been put in place in developed markets like the US, UK and the EU.

However, the globalisation of markets has made the Indian financial markets more vulnerable to external events, as a result of which, any movement in the global markets have a corresponding ripple-effect in India. While integration and compatibility are critical drivers for a robust market, it is best to maintain a steady pace up the development curve.