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Stock market reforms in India

             India currently has two major stock exchanges, namely the Bombay Stock Exchange and the National Stock Exchange. The provision for liquidity is a major function of a stock exchange. There have been important structural changes in the Indian financial sector. One of them is the stock market reform. The Bombay Stock Exchange (BSE) used to be the premier exchange in India until 1994. The National Stock Exchange (NSE) began its operations in 1994 and has dramatically transformed the Indian stock markets. From the inception NSE started stealing a march over BSE both in terms of trading performance and in establishing itself as the foremost stock exchange in the country. .
             Despite a seemingly high rate, India faced a severe shortage of investible resources. By early 1990's it was recognized that it is crucial to raise funds from abroad to fill the gap. Financial sector reforms were needed to remedy the structural weakness and inefficiencies in the stock markets, primary markets, banking and insurance sectors. Reforms were required in order to boost investor confidence and broaden the investor base. The Indian corporate sector demanded these reforms in order to reduce the cost of capital and to enhance its competitiveness. The government seriously deliberated about these reforms in order to facilitate participation by foreign institutions and corporates.
             Prior to the creation of the NSE, India ranked last among 12 emerging markets on settlement, safekeeping, and operational risk. Poor liquidity and high bid-ask spreads were common. The system was so vulnerable to defaults. The following major problems were frequently cited: outdated trading and settlement mechanisms, lack of transparency in transactions, delays in physical delivery and registration of transfer, poor disclosure, price manipulation, insider trading, lack of liquidity and "excessive speculation". .
             The major measures recommended by the Narasimhan committee and the Pherwani committee set up to study the implementation of possible measures to strengthen the Indian financial sector, were:.

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