Bombay Stock Exchange (BSE): Meaning, Benefits and Its Functions

Recognised as Asia’s oldest and largest stock exchange, it wouldn’t be amiss to call BSE Limited the pulse of the Indian economy. Formerly known as Bombay Stock Exchange, over the decades, the BSE has contributed immensely to the growth and development of the country. Therefore, it becomes all the more essential for investors to understand the Bombay Stock Exchange before they make suitable investment decisions.

This article simplifies what the erstwhile Bombay Stock Exchange is, how it functions, its significance, the differences between BSE and NSE, and its role in the Indian economy.

• Table of contents

1. What is Bombay Stock Exchange (BSE)?
2. How does Bombay Stock Exchange work?
3. Significance of the Bombay Stock Exchange
4. Background of BSE
5. Functions and operations
6. Major indices at Bombay Stock Exchange
7. Advantages of listing on BSE
8. What is BSE Sensex?
9. How does BSE differ from NSE?
10. Role of BSE in the Indian Economy

What is Bombay Stock Exchange (BSE)?

Located in Mumbai, Bombay Stock Exchange meaning BSE is the first and one of the largest stock exchanges in the whole of Asia. It caters to over 6,000 companies for listing their stocks and enables investors to trade in the stock market. The BSE facilitates these transactions smoothly and securely – the transparency, efficiency and innovation shown by the BSE over the past many decades have made it an integral component of the Indian financial system. Now that you know what is BSE, let’s have a look at how it works:

How does Bombay Stock Exchange work?

• Listing process: Companies must meet certain criteria to list their shares on the BSE. Once listed, their shares become available for trading.
• Trading mechanism: The exchange uses an electronic trading platform called BOLT (BSE Online Trading) to execute transactions seamlessly.
• Price discovery: The BSE ensures fair pricing of securities based on demand and supply.
• Clearing and settlement: It ensures that transactions are completed on time, usually within a T+1 settlement cycle, with a few stocks benefiting from a T+0 settlement cycle.

Significance of the Bombay Stock Exchange

• Providing companies with access to capital for growth and expansion.
• Offering investors a platform to invest and grow their wealth.
• Enhancing liquidity in the financial markets.
• Supporting economic growth by fostering a culture of investment.

Background of BSE

BSE has a fascinating history. Back in the 19th century, a group of traders, led by businessman Premchand Roychand, used to gather under a Banyan tree on what is now Dalal Street. They called themselves the Native Share and Stockbrokers Association, and their main activity was buying and selling stocks. Over time, this group grew and became the Bombay Stock Exchange.

In its early days, BSE used a floor trading system. Licensed brokers would stand in a ring, announcing stock prices, while investors had to rely on newspapers to learn about these prices. This made it challenging for everyone to access real-time information.

Then came the National Stock Exchange (NSE), which introduced a digital trading system that allowed stock prices to be accessible to all investors in real-time. This innovation made NSE a preferred choice for many.

To keep up, BSE also decided to go digital. In 1995, with the help of CMC Ltd, BSE switched to an online trading system. Today, this digital platform is known as BSE Online Trading.

Functions and operations

Some of the key Bombay Stock Exchange functions are:

• Facilitating trading: Providing a secure and transparent platform for trading in various securities.
• Regulating market practices: Ensuring compliance with regulatory frameworks to maintain fair practices.
• Price discovery: Enabling the determination of securities’ prices based on market dynamics.
• Providing market data: Offering real-time data and analysis to investors and stakeholders.
• Clearing and settlement: Ensuring efficient and timely completion of trades.

Major indices at BSE

• BSE Sensex: This is the most well-known index, featuring 30 of the top-traded stocks in India. It is widely followed by analysts, the media, and investors to understand the health of the Indian economy.
• BSE 500: This index includes 500 companies from different sectors, giving a broad picture of the Indian stock market. It is useful for tracking overall market performance.
• BSE Midcap: It focuses on mid-sized companies that are ranked from 101 to 250 by market capitalisation, helping investors explore opportunities in this segment.
• BSE Smallcap: This index tracks smaller companies ranked 251 and beyond by market capitalisation, suitable for those looking to invest in smaller businesses.
• BSE Bankex: It includes banking and financial services companies and is used to track how the banking sector is performing.
• BSE Healthcare: This index covers healthcare and pharmaceutical companies, giving insight into the performance of the healthcare sector.

Advantages of listing on BSE

• Easy capital generation: Listed companies gain investor trust, enabling effective fundraising through equity or debt.
• Liquidity: Securities can be readily traded, meeting liquidity needs for both businesses and investors.
• Legal oversight: SEBI regulations ensure transparency and reduce fraud risks for investors.
• Timely disclosures: Companies must publish financial details periodically, including dividends and investments.
• Fair pricing: Demand-supply dynamics determine share prices, reflecting true market value.
• Collateral support: Listed securities can be used as collateral for loans.

What is BSE Sensex?

The BSE Sensex, short for the Sensitive Index, is the flagship index of the Bombay Stock Exchange. It comprises 30 companies representing various sectors of the Indian economy. The Sensex serves as a barometer for the market’s overall performance. For example: if the Sensex rises, it indicates a positive sentiment in the market. On the other hand, a decline suggests a bearish outlook. The Sensex is widely used by investors and analysts to assess market trends and make informed investment decisions.

What is difference between BSE and NSE?

The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are India's leading stock exchanges, each playing a crucial role in the financial markets. While both facilitate securities trading, they have distinct characteristics. BSE, Asia's oldest exchange, has a long-standing history and a large number of listed companies, including smaller and mid-cap firms. NSE, being relatively newer, leads in trading volume and market capitalization, featuring advanced electronic trading systems and higher liquidity. It attracts a significant share of derivatives trading, with the NIFTY 50 index serving as a key benchmark for market performance. Essentially, BSE offers a wider variety of listed companies, whereas NSE provides higher liquidity and trading activity. Both operate under the regulations of the Securities and Exchange Board of India (SEBI). They key distinct differences:

• Establishment: BSE was founded in 1875, while NSE was established in 1992.
• Indices: BSE’s main index is the Sensex, whereas NSE’s primary index is the Nifty 50.
• Trading Volume: NSE generally has higher trading volumes compared to BSE.
• Technology: NSE’s technological infrastructure is often considered more advanced.
• Geographical Reach: Both exchanges have a nationwide reach, but their investor bases may differ.

Role of BSE in the Indian Economy

• Promoting Investment: Encouraging both domestic and foreign investment.
• Supporting start-ups: Providing a platform for smaller companies through the SME segment.
• Creating jobs: Facilitating employment opportunities in the financial and allied sectors.
• Driving innovation: Introducing new financial instruments and services.

Conclusion

The BSE remains an integral part of India’s financial ecosystem. From its rich history to its modern-day operations, the BSE continues to play a critical role in shaping the country’s economic future. Whether you are an investor, a company, or a policymaker, understanding the Bombay Stock Exchange’s meaning and functions is essential for navigating India’s dynamic financial landscape.

FAQs

What is meant by BSE?

BSE, formerly Bombay Stock Exchangem is a leading stock exchange in India, providing a platform for trading in securities such as stocks, derivatives, and mutual funds.

What does BSE company do?

The BSE facilitates trading, ensures transparency, provides market data, and offers listing services to companies.

Which is better NSE or BSE?

Both have unique strengths. NSE is preferred for high trading volumes, while BSE has historical significance and diverse listing options.

What is the difference in NSE and BSE?

Key differences include their primary indices (BSE Sensex for BSE, Nifty50 for NSE), trading volumes, and establishment years.
The BSE, founded in 1875, is India’s oldest stock exchange, while the NSE, established in 1992, has higher trading volumes and advanced technology. BSE lists more companies, but NSE offers greater liquidity. Both facilitate stock trading, with NSE being more active and BSE known for its long-standing presence.

Which body regulates the BSE?

The Securities and Exchange Board of India (SEBI) regulates BSE, ensuring compliance with securities laws, financial laws, practices etc.

What are the major indices associated with the BSE?

Key indices linked to the BSE include the BSE Sensex, which tracks the 30 largest and most actively traded stocks. Other important indices are the BSE 100, BSE 200, BSE 500, and sector-specific indices such as the BSE Bankex and BSE IT.

How can a company list its shares on the BSE?

To list its shares on the BSE, a company must comply with SEBI regulations and meet BSE’s listing requirements. This includes submitting a detailed offer document, fulfilling eligibility criteria related to financial performance and corporate governance, and obtaining SEBI’s approval.

What is the trading mechanism used by the BSE?

The BSE operates on an electronic trading platform called BOLT Plus (BSE On-Line Trading System). This system enables seamless and transparent trading, allowing investors to buy and sell securities efficiently through registered brokers.

What are the trading hours of the BSE?

The equity market on the BSE operates from 9:15 AM to 3:30 PM Indian Standard Time (IST), Monday to Friday. Trading hours for commodity and currency derivatives may differ.

What are the benefits of investing through the BSE?

Investing through the BSE provides access to a broad range of listed companies, offering diversification opportunities. Its regulatory framework and transparent trading system aim to safeguard investor interests. While there is potential for capital appreciation, investment outcomes depend on market conditions.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.