INDIA'S stock markets, among the largest in the developing
world, may be on their way out of the Stone Age - more accurately
the paper age - and in to the electronics age. Regulators have
tackled two major obstacles.
One is the delay in selling or purchasing shares by paperwork.
The process can take months, largely because Indian investors still
use paper certificates to establish ownership of a stock.
Occasionally a stockbroker here can be spotted lugging about a sack
jammed with these documents.
The Securities and Exchange Board of India, the stock-market
regulator, is expected to publish by the end of the month
regulations that would pave the way for an electronic system to
This same board removed the second obstacle earlier this month
when it lifted a ban imposed in March 1994 on an indigenous form of
margin trading called badla. Badla allowed short-term investors to
buy stock on margin (a partial payment) and delay paying the full
price of the share. After the ban was imposed, the volume of
trading and prices fell sharply on Indian stock exchanges.
The board, which the government established in 1992, had banned
margin trading because it felt that India's stock markets were not
doing a good enough job of regulating it.
Stock exchanges didn't make brokers pay margins. They also
didn't force brokers to convert margin trades into purchases of
shares. The board suspected margin trading helped brokers rig share
The board's harsh medicine, brokers say, almost brought the
market to its knees. Prices fell sharply. The value of all shares
listed on the exchanges fell from $189.84 billion in September 1994
to $148.84 billion in September 1995.
After the ban, trading transactions of blue-chip "A" group
shares declined sharply on the Bombay Stock Exchange, the largest
of India's 23 stock exchanges with 5,650 listed companies. They
went down from an average of 2.85 billion rupees ($90.85 million) a
day in fiscal 1993 to only 400 million rupees a day this year.
Analysts say the moves by the government will help draw both
domestic and international institutional investors (the largest
traders) back into the market. Over the last year, international
investors - who have invested $3.6 billion dollars in Indian
markets to date - had been reluctant to increase the size of their
They found settlement procedures cumbersome. Also after margin
trading was banned, they found it hard to sell large blocks of