Market Scene : Stocks as a Contact Sport : Bombay’s busy market is nicknamed ‘The Ring.’ But the boisterous trade will soon give way to the computer age.
The warning bell has sounded jarringly, signaling just 15 minutes left in the trading day, and a swarm of traders have Darnesh, one of the Bombay Stock Exchange’s brightest whiz kids, pinned against a pillar.
They roughly grab the shrimpish 25-year-old’s earlobes or the flesh of his cheeks or neck to get his undivided attention, then shout questions at him to try to close a final deal.
“He can give five quotes in a single second,” said an admiring BSE official, eyeing the crush around the young black-haired Gujarati. “Three hundred and seventy-five companies he can give quotes for!”
If capitalism is a jungle, as somebody said, then it doesn’t get any wilder--or noisier--than on the floor of the Bombay Stock Exchange. Suitably named, as in other contact sports, the floor is called “The Ring.”
For two hours each business day, from noon to 2 p.m., amid stagnant air, raucous noise and the grayish light let in by a dome that looks like an inverted version of New York’s Guggenheim Museum, any number of 4,200 brokers’ agents converge to shout their readiness to buy and sell.
Some of India’s great fortunes have been made in the Brueghelian tumult of what is proudly said to be Asia’s oldest stock exchange, where 3,500 companies are now listed. Some scams have been just as lucrative.
“Speculation is central to a stock exchange. People come here to trade in risk,” said the exchange’s executive director, Arvind N. Kolhatkar.
There are no fights though, broker Kanti V. Dand wants it made clear.
As in a demonic dance, some of the traders--most of whom are young Gujarati men, natives of an Indian state famed for its business acumen--circulate, while others keep assigned spots on the floor. Dealers in the “A” group--88 blue-chip Indian companies whose trading volumes are high--have special places.
In blue jackets, assigned the role of incorruptible guardian angels, members of the Quotation Service hover, ready to jot down a buy or sell order as a guarantee that the terms of a deal will be respected by both parties.
A few old men hobble by on canes, enjoying the hubbub and the vicarious thrill.
“They have worked here and don’t know anything else,” Suresh More, a young officer in the Quotation Service, explained. “They come here because they feel they are in their own house.”
They won’t feel that way for long, it seems. Like the mechanical adding machine, the rotary dial telephone and other outdated relics of the business world, the days of BSE trading as a contact sport are numbered, if Kolhatkar and the rest of the leadership are able to implement their plans.
By October, the exchange housed in a futuristic building on Bombay’s Dalal Street plans to introduce electronic-screen-based trading, which means the firm Darnesh works for will be able to trade with other brokerages via computer terminal and will not need to meet their representatives in the flesh.
“When we go screen-based, this physical process will be eliminated,” Kolhatkar promised.
Members of the powerful old guard in Bombay financial circles resisted change at the BSE for years, but India’s economic reforms, tougher government regulations, the threat of competition and an upsurge in business fueled by a wave of foreign investment have left them little choice but to evolve.
The problem is that the time-honored way of doing things on Dalal Street has left brokerages gagging on paperwork.
At Parag Parikh Financial Advisory Services Ltd., the eponymous chairman surveyed a desk piled high with the seven-inch squares that constitute shares of Tata Iron & Steel Co. (TISCO) stock and the long forms that accompany each transaction.
All that paper represents stock purchases worth about $66,000, he said.
“In the United States, I don’t think that stockbrokers ever see a share of stock,” Parikh said. “Here, high volume gives me no advantage. It just means more paper to process.”
Until that system is modernized, each share transfer form must be signed by seller and purchaser; the seller’s signature must be authenticated, and tax stamps worth five rupees, or about 15 cents, must be affixed to the form for every 1,000 rupees, or $30 worth, of stock traded.
Since TISCO shares are issued in denominations of 50, a purchase of 1,000 shares generates 20 stock certificates and share transfer forms, each of which must be dated, filled out, signed and stamped. The process can take months.
The hassle of dealing with such chores has limited the capacity of banks and brokerages to accept investor money.
When the chairman fell ill at the Bank of Hong Kong here, his office was taken over by clerks so they could stick stamps on transfer forms.
Screen-based dealing and a central depository for paperwork should greatly streamline the trading process, Kolhatkar, the Bombay Stock Exchange executive, predicted during an interview in his 25th floor office overlooking the still-growing business district of Bombay. His plan is to connect stock brokerages throughout the city via microwave transmitter.
Screen-based trading, which began in 1971 in the United States, is already the rule at two-thirds of the world’s markets, he noted.
“Due to the fact India was so much an insular country, trading practices never improved here,” Kolhatkar said. “But there’s one good thing about Indians. They resist change as long as they can--but when they have to adapt, they change fast.”
Competition is one reason. Two years ago, when the Indian government was stunned by a securities scam involving BSE investments that led to losses estimated at more than $420 million, a plan was floated for a new exchange free of Bombay’s notorious wheeler-dealers.
The National Stock Exchange is supposed to open at another Bombay locale--with state-of-the-art screen trading, speedy settlements and completely open transactions--in phases, beginning with trading in wholesale debt this month. Some members say next year is more likely.
“I would consider it as solving the problems of the Bombay Stock Exchange, and also competing with them so the customer gets the best services,” said Parikh, a charter member. “It’ll be survival of the fittest.”
Sensing a change in the wind, even Bombay’s old guard brokers, who have run the BSE for decades on terms profitable for themselves, are signing up to join the new market.
Since last year, about $1.5 billion in foreign investment, much of it American, has poured into the BSE, which has a total market capitalization in the neighborhood of $140 billion.
For the moment, Indian law allows only registered foreign financial institutions to invest.
In December alone, the infusion of foreign cash topped $400 million. By April, however, the inflow had dried up to $4 million in a typical week, in large part, analysts here said, because the rise in U.S. interest rates gave outside investors other attractive options. In large part because of the drop in overseas demand, the BSE index is off about 14% since the year’s start.
Another body blow for brokers came when the watchdog Securities and Exchange Board of India, effective March 12, banned a practice called “forward trading.” That meant buying on the margin using money loaned at interest rates higher than those charged by banks. The practice allowed speculators to roll over stock purchases for months.
After watchdog agency’s ukase, trading collapsed by 80%.
Despite Kolhatkar’s sunny predictions about the advent this autumn of screen-based trading, some brokers doubt the ability of the BSE to swiftly introduce a central depository system to centralize paperwork, which they say is essential for Western-style stock market transactions. The old men may feel at home in “The Ring” for a little while longer.
In any event, predictions are widespread that trading will pick up again in the summer.
In the long term, Kolhatkar, a former civil servant, is bullish.
“We’re still just scratching the surface,” he said. “There are only 25 million shareholders in India. Our population today is around 900 million. There is room for expansion.”
