National Stock Exchange of India (NSE), is a pioneer and one of the first institutions in India to commence e-commerce thro’ its paperless and electronic trading in India way back in 1994, when e-commerce was novice and this exchange today contributes to more than 90% of turnover in stock markets in India. From a turnover of Rs,100 Crores in 1995, today, the average turnover of the NSE is around Rs.5,00,000 Crores per day, which has peaked Rs.12,00,000 + Crores in a day during the year 2017.
This was possible only due to relentless efforts by its first Managing Director Dr. R H Patil and his team, most of whom were from Industrial Development Bank of India (IDBI). All the Stock Exchange Members spread across the country were connected thro’ V-Sat terminals for trading, clearing and settlement of trades executed thro’ exchange.
The NSE started equity trading in November 1994 and in a short span of one year, surpassed the trading volume of the then largest stock exchange (BSE) of the country. Thus, in October 1995, within one year of operations in equity trading, the NSE became the largest exchange in terms of volume transacted. In his own words: “The entire planning process evolved in 1950 destroyed one very essential element crucial for the growth of any country — competition. And if the country has lost in the way of growth, it is due to the lack of competition.”
The very idea was anathema to the established stockbrokers of the Bombay Stock Exchange (BSE), the largest stock exchange in the country. They felt that their monopoly was threatened. The idea of a national stock exchange remained just that a threat for a while. Brokers at the BSE were relieved when they learnt that the task of setting up the new exchange was entrusted to the Industrial Development Bank of India (IDBI). They were pretty sure that the idea of a national stock exchange would only remain on paper a s the IDBI, in turn, appointed Dr Ramachandra H Patil, then executive director in charge of the loan portfolio, to give it a concrete shape.
The team at the exchange under Dr RH Patil was strong-minded that the National Stock Exchange should be accessible from any corner of the country and its working should be transparent. He also felt the outcry system on the trading floor for buying and selling shares was outdated, and that there was no point in having a large number of shares to be listed just to impress outsiders though a number of them may not be traded for months, and, some others, for long. This meant the system had to be screen-based and order-driven and the demand and supply position for trades should be apparent at any point of time.
This was a radical departure from the system then prevailing. Even the London Stock Exchange (LSE), which is in existence for more than 200 years of trading, still follows the outcry system. This was thus a bold step, even considered risky by some. Incidentally, LSE’s system, Taurus, still occasionally goes on the blink. But the new bourse named the National Stock Exchange, by all accounts, has held well. It is the first stock exchange to use satellite communication for trading.
The NSE has made another significant departure from the other exchanges. Right from the first year of its operation, besides showing profits, it has been paying corporate taxes to the government and dividend to shareholders. In contrast, the other stock exchanges in India claim the status of a trust and do not pay tax. Dr Patil did not entertain the idea of seeking tax exemption and felt that if a stock exchange had to survive in the new paradigm, it must, as a tax-paying entity. Now, all the stock exchanges and commodity exchanges followed NSE business model and they have all became corporate entities and few of them are listed on stock changes also.
There are three main reasons: One, the right man at the top with good team. Second, there was no interference from the government. Third, the organisation was bound by rules right from the beginning, leaving no room for whims or fancies.
Thus, given the right working environment, enterprises in the public sector can also be successful. A simple lesson, but difficult to follow for the government.
