Bombay Stock Exchange (BSE)

History of the Bombay Stock Exchange:

The Bombay Stock Exchange is known as the oldest exchange in Asia. It traces its
history to the 1850s, when stockbrokers would gather under banyan trees in front of
Mumbai's Town Hall. The location of these meetings changed many times, as the number
of brokers constantly increased. The group eventually moved to Dalal Street in 1874 and
in 1875 became an official organization known as 'The Native Share & Stock Brokers
Association'. In 1956, the BSE became the first stock exchange to be recognized by the
Indian Government under the Securities Contracts Regulation Act.

The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE a
means to measure overall performance of the exchange. In 2000 the BSE used this index
to open its derivatives market, trading Sensex futures contracts. The development of
Sensex options along with equity derivatives followed in 2001 and 2002, expanding the
BSE's trading platform.

Historically an open-cry floor trading exchange, the Bombay Stock Exchange switched to
an electronic trading system in 1995. It took the exchange only fifty days to make this
transition.

About the Bombay Stock Exchange:

• BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value – weighted

index composed of 30 stocks that started January 1, 1986.
• The Bombay Stock Exchange (BSE) is the oldest Stock Exchange in Asia and has
the third largest number of listed companies in the world, with 4900 listed as of Feb
2010.
• It is located at Dalal Street, Mumbai, India.
• On Feb, 2010, the equity Market Capitalization of the companies listed on the BSE
was US$1.28 trillion, making it the largest stock exchange in South Asia and the 12th
largest in the world.
• With over 4900 Indian companies listed & over 7700 scripts on the stock exchange, it
has a significant trading volume.
• Though many other exchanges exist, BSE and the National Stock Exchange of India
account for most of the trading in shares in India.
As the first stock exchange in India, the Bombay Stock Exchange is considered to have
played a very important role in the development of the country's capital markets. The
Bombay Stock Exchange is the largest of 22 exchanges in India, with over 6,000 listed
companies. It is also the fifth largest exchange in the world, with market capitalization of
$466 billion.

The Bombay Stock Exchange uses the BSE Sensex, an index of 30 large, developed BSE
stocks. This index gives a measure of the overall performance of the Bombay Stock
Exchange, and is closely followed around the world. Based on the Sensex, the BSE
equity market has grown significantly since 1990.

In addition to individual stocks, the BSE also has a market in derivatives, which was the
first to be established in India. Listed derivatives on the exchange include stock futures
and options, index futures and options, and weekly options.

The Bombay Stock Exchange is also actively involved with the development of the retail
debt market. The debt market in India is considered extremely important, as the country
continues to develop and depends on this type of investment for growth. Until recently,
the debt market in India was limited to a wholesale market, with banks and financial
institutions as the only participants. The Bombay Stock Exchange believes that a retail
market will bring great opportunities to individual investors through better
diversification.

At a regular intervals, the Bombay Stock Exchange (BSE) authorities review and modify
its composition to be sure it reflects current market conditions. The index is calculated
based on a free-float capitalization method; a variation of the market cap method. Instead
of using a company's outstanding shares it uses its float, or shares that are readily
available for trading. The free-float method, therefore, does not include restricted stocks,
such as those held by promoters, government and strategic investors..

Initially, the index was calculated based on the ‘full market capitalization’ method.
However this was shifted to the free float method with effect from September 1, 2003.
Globally, the free float market capitalization is regarded as the industry best practice.

As per free float capitalization methodology, the level of index at any point of time
reflects the free float market value of 30 component stocks relative to a base period. The
Market Capitalization of a company is determined by multiplying the price of its stock by
the number of shares issued by the company. This Market capitalization is multiplied by
a free float factor to determine the free float market capitalization. Free float factor is also
referred as adjustment factor. Free float factor represent the percentage of shares that are
readily available for trading.

The Calculation of Sensex involves dividing the free float market capitalization of 30
companies in the index by a number called Index divisor. The Divisor is the only link to
original base period value of the Sensex. It keeps the index comparable over time and is
the adjustment point for all Index adjustments arising out of corporate actions,
replacement of scrips, etc.

The index has increased by over ten times from June 1990 to the present. Using
information from April 1979 onwards, the long-run rate of return on the BSE Sensex
works out to be 18.6% per annum, which translates to roughly 9% per annum after
compensating for inflation.

http://en.wikipedia.org/wiki/BSE

http://en.wikipedia.org/wiki/Dalal_Street

http://en.wikipedia.org/wiki/BSE_Sensex

http://en.wikipedia.org/wiki/Bombay_Stock_Exchange