Technology has become an integral part of our daily life and even the stock market has changed to incorporate this aspect into its functioning to make our life and investing smoother. Bombay Stock Exchange or BSE Limited was started in 1875, as an open outcry floor trading exchange. While trading, the traders would stand and shout the prices of the stocks for buying and selling. The traders would then exchange the money collected with physical receipts of the shares called certificates. This resulted in great amount of paper work. The settlement of agreements took a huge amount of time because of the requirement to physically deliver the share certificates. The risk associated with these transactions was substantial as the physical securities could be forged, stolen and the handling of the massive amount of paperwork often led to errors.
Towards the end of the 1980s, new economic growth and currency crisis emphasized the need for modernization of the financial system. Government created the Securities and Exchange Board of India (SEBI) in 1988.
In April 1992, with stock market crashing due to Harshad Mehta Scam, then Finance Minister Mr. Manmohan Singh urged the need of another Stock Exchange & with that in November 1992, National Stock Exchange of India Limited (NSE) was established as the first electronically traded Stock Exchange in India. NSE was the first to introduce electronic screen based trading. Three segments of the NSE trading platform were established one after another. The Wholesale Debt Market (WDM) commenced operations in June 1994 and the Capital Market (CM) segment was opened at the end of 1994. Finally, the Futures and Options segment began operating in 2000.
With the Introduction of depository and mandatory dematerialization of shares, chances of fraud reduced further. In 1996, National Securities Depository Limited (NSDL), commenced its operations coining the term dematerialization or De-mat, as it is commonly known, to mitigate the risks associated with share trading in paper form. Dematerialization is the process through which an investor coverts his/her physical share certificate to electronic form. NSDL holds the securities of investors in electronic form in its Depository system. NSDL interfaces with its investors through its agents called Depository Participants (DPs). If an investor wants to avail the services offered by the Depository, the investor has to open an account with a DP in India, all De-mat accounts are currently held by two Depositories, namely National Securities Depository Limited (NSDL) & Central Depository Services Limited (CSDL). NSDL holds 90% of the market share in terms of custody value.
A De-mat account secures all the investments that an individual makes in the form of shares, exchange traded funds, government securities, bonds and mutual funds in one place. For online trading, it is necessary for an investor to hold a de-mat account.
