by The Indian stock market has undergone a remarkable transformation over the last few decades, moving from an open outcry, ring-based trading system to a modern, fully automated, screen-based trading environment supported by satellite communication networks like VSAT (Very Small Aperture Terminal). This shift not only modernized the functioning of stock exchanges but also improved transparency, speed, and efficiency in trade execution, bringing India’s capital market infrastructure on par with international standards.
Ring-based Trading Era
Before the 1990s, trading in Indian stock exchanges was carried out through the open outcry system in a trading ring. The “ring” was a circular area in the stock exchange floor where brokers and jobbers gathered to buy and sell securities. Transactions were carried out verbally, with brokers shouting bids and offers and using hand signals to communicate in the noisy trading floor. Deals were confirmed verbally, and settlement records were written manually.
While this system had existed for decades, it had several limitations. It lacked transparency as trade information was available only to brokers present on the floor. The process was slow and prone to errors, including mismatched orders and bad deliveries. Physical settlement of share certificates caused delays, often stretching settlement cycles to weeks. Additionally, geographical access to trading was limited, as participation required a physical presence in the exchange, making it inconvenient for investors outside major cities like Mumbai or Kolkata.
Need for Modernization:
By the late 1980s and early 1990s, the Indian economy was opening up, and capital markets were expected to play a key role in mobilizing funds. However, the inefficiencies of ring-based trading were becoming a barrier to growth. The lack of nationwide access restricted investor participation, and the risk of price manipulation and insider dealing was high due to information asymmetry. Internationally, stock exchanges were moving toward computerized trading, prompting India to initiate reforms to enhance efficiency, transparency, and reach.
Introduction of Screen-based Trading:
The turning point came in 1994 with the establishment of the National Stock Exchange (NSE). From its inception, NSE adopted an entirely screen-based, automated trading system. Orders were entered into computer terminals and matched electronically, removing the need for physical presence in a trading ring. This system allowed anonymous order matching based purely on price and time priority, ensuring fairness in trade execution.
The Bombay Stock Exchange (BSE), which had been operating in a ring-based environment for over a century, also shifted to an electronic trading system in 1995 by introducing the BOLT (BSE Online Trading) platform. Other regional stock exchanges followed suit. This marked the beginning of a new era where trades could be executed in real-time, with transaction details instantly visible to all market participants.
Role of VSAT Technology:
To make screen-based trading accessible across India, stock exchanges adopted VSAT (Very Small Aperture Terminal) satellite technology. VSATs allowed secure, high-speed, two-way communication between stock exchange servers and trading terminals in remote cities and towns. This eliminated geographical barriers, enabling brokers and investors from across the country to participate in trading without physically being present at the exchange.
VSAT networks significantly expanded market reach, especially in areas without reliable terrestrial communication infrastructure. NSE’s VSAT network connected thousands of trading terminals across India, democratizing access to capital markets and boosting participation from retail investors.
Advantages of the Shift:
The move from ring-based to screen-based VSAT trading brought several benefits:
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Transparency: All orders and trades became visible on the trading terminal in real time, reducing information asymmetry.
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Speed and Efficiency: Trades were executed within seconds, and settlement cycles shortened drastically, eventually reaching T+2.
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Wider Access: Brokers and investors from smaller towns could access markets without traveling to exchange floors.
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Error Reduction: Automated matching minimized human errors common in verbal and manual systems.
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Audit Trails: Electronic records of all trades improved accountability and facilitated regulatory oversight.
Impact on Investors and Market Growth:
Screen-based VSAT trading increased investor confidence by creating a level playing field and reducing the scope for manipulation. It encouraged broader participation from retail and institutional investors, contributing to higher trading volumes and liquidity. The modernization also facilitated the introduction of new financial products like derivatives, exchange-traded funds, and debt instruments, expanding investment opportunities.
The increased efficiency and reach of the market played a key role in integrating Indian capital markets with the global financial system. Foreign institutional investors (FIIs) were more willing to participate, as the new system met global standards for transparency and settlement.
Legacy and Continuing Evolution:
While VSAT networks were revolutionary in the 1990s and early 2000s, the evolution has continued with the adoption of internet-based trading and high-speed leased lines. Many brokers and investors now trade through advanced online platforms and mobile applications, making market access even more convenient. Nonetheless, the introduction of screen-based VSAT trading remains a landmark in India’s stock market history, as it marked the first successful leap from a localized, manual system to a modern, technology-driven, nationwide network.
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