A STUDY ON IMPACT OF INFORMATION TECHNOLOGY IN INDIAN

STOCK MARKET: WITH SPECIAL REFERENCE TO NSE & BSE

Paper III: Seminar Presentation
(Pre PhD, Part I Examination - 2015)
Seminar paper presented in partial fulfillment of the Pre-PhD Examination in
Department of Commerce and Business Administration
Submitted by
Gangineni Dhanaiah
Research Scholar
(Regd no Y14 COMR 021)

Research Director

Dr. R. Siva Ram Prasad

Co-ordinator,Department Of Commerce & Business Administration
Acharya Nagarjuna University
Department of Commerce & Business Administration
Acharya Nagarjuna University
Nagarjuna Nagar 522 510, Andhra Pradesh
January 2015

1. INTRODUCTION
In India, Capital markets are playing an increasingly important role, with the stock exchanges
acting as their fulcrum. Stock Exchange as an institution has long history in India dating back
100 years ago. Over the years, price discovery has become more efficient, transactions have
become faster, safer and cheaper, number of investors has risen and markets have become
globalized. Indian markets have become larger, deeper, diversified and more modernized.
IT plays a dominant role in the management of Stock Exchange World over. IT has
transformed the working of Stock Exchange in the global scenario. The rapid advances in
information technology have determined important changes and innovation in the operation
of Stock Exchange. Information Technology advances have produced, and continue to
determine important changes also in the way trading activity is carried out, thereby affecting
market dynamics, price formation mechanism and price volatility. IT has impact on
management of Stock Exchange through reporting and surveillance activity, allows regulators
to assess the adequacy of any regulatory measures in place.

We present in the following tables statistics and data relating to

a) Miles stones in the history of Indian stock market development

b) The chronological introduction of automation in stock exchanges around the
world
c) A description of latest data relating to market participants in Indian securities
market.

Table 1: Important mile stones of evolutionary development of Indian stock market

Date

Event

1875

1. Formation Native share and stock brokers association

1957

2. BSE Granted permanent recognition

1986

3. Sensex Lunched

1992

4. Empowerment of SEBI

1992

5. SEBI Formulated Insider trading regulations

1994

6. Establishment of NSE

Nov 1994

7. Trading in Equities at NSE

1995

8. BSE On-line trading system (BOLT)

1996

9. Commencement of NSDL

Apr 1996

10. Launch of CNX NIFTY

Feb 2000

11. Commencement of Internet trading

Jun 2000

12. Commencement of

introduced

Derivatives trading (Index

Futures)
Dec 2000

13. Commencement of WAP trading

Apr 2002

14. Shift to T+3 settlement

Apr 2003

15. Shift to T+2 rolling settlement

Jun 2004

16. Launch of STP interoperability

2005
Nov 2010

17. Incorporation of BSE limited

18. Launch of mobile trading

Source : Various annual reports of SEBI and NSE

Table 2. Some automated stock exchanges around the world

Country
Australia
Canada
France
Germany
Hong Kong
Italy
Japan

Exchange
ASX
TSE
Paris
FWB
SEHK
Milan
TSE

System
SEATS
TOREX
CAC
XETRA
HKTS
GTB
CORES

Year of automation
1987
2000
1986
1997
1993
1991
1982

Mexico
Singapore
Switzerland
Spain
USA
USA

BMV
SSE
SWX
SSE
NYSE
NASD

SENTRA
CLOB
SWX
SIB
ABS
SOES

1996
1987
1995
1991
1991
1985

Source : World federation of Exchanges (WFE)

Table 3: Market Participants in Securities Market
Market Participants
Depositories
Stock exchanges ( Nation
wide)
Brokers ( Cash Segment)
Brokers ( Equity Derivatives)
Sub-brokers ( Cash Segment)

FY 2012
2
2

FY 2013
2
2

FY 2014
2
3

10268
2337
77141

10128
2957
70242

941
3051
51885

Source : Indian Securities market review , 2014

Table 4. No of Listed Companies in India
Year
2011-12
2012-13
2013-14
Source : ISMR 2014

NSE
1646
1666
1688

BSE
5133
5211
5366

2. LITERATURE REVIEW
There are extensive studies, reports and books available on Indian Stock market. We have
reviewed some

literature pertaining to the topic under study. The relevant literature is

reviewed on basis of books, periodicals, newspapers and websites. The detailed review is
given below.
Cardella,et.al(2014) in their study entitled Computerization of the Equities, Foreign
Exchange, Derivatives and Fixed Income Markets surveyed empirical studies on the
development and effects of increased computerization across various financial markets. The
researchers find that there have been dramatic changes in certain derivative markets, foreign
exchange and in particular equity markets. The research has found positive effects of

computerization on measures of market quality, but the survey highlights that human
intermediation is still prominent and beneficial in certain areas.
In a report entitled The future of computer trading in financial markets published by
Government office for Science reports that there is no direct evidence that high frequency
computer based trading gas increased volatility.
Surti & Desai (2013) in their study measures the impact of increase in trading hour on Indian
Stock Exchange. For this study primary data are collected through structured questionnaire
from Bardoli region and for this purpose three different questionnaires were prepared that is
for branch manager, relationship manager and customers. To measure the reliability of the
survey reliability test is used.
Bhunia & Ghosal ( 2011) in the paper titled An impact of ICT on the growth of capital
market empirical evidence from Indian Stock Exchange investigate the impact of ICT on
the growth of the Indian Stock Exchange using a modified version of the Gompertz
technology diffusion model introduced by Chow (1983) and accordingly reshuffles the model
with ICT development. The results of the study reveal that preferred variables are appreciably
affected by information and communication technology more than ever in respect of
amplifying the number of stock brokers, investors and admittance to ICT.
Ming-Chi Lee (2009) in a study entitled Predicting and explaining the adoption of online
trading: An empirical study in Taiwan investigates how stock investors perceive and adopt
online trading in Taiwan. We developed a research model which integrates perceived risk,
perceived benefit and trust, together with technology acceptance model (TAM) and theory of
planned behaviour (TPB) perspectives to predict and explain investors' intention to use online
trading. The model is examined through an empirical study involving 338 subjects using
structural equation modelling techniques.
Report on Indian Exchanges (2009) by IDFC research describes that transparency, annuity
revenues; high operating leverage and solid entry barriers make exchanges a near-perfect
business. The report further argues that Indian Exchanges are almost on par with global peers
in terms of corporate structure and sophistication of systems, Indian Exchanges are gathering
scale. As elucidated in the report exchanges have been around for centuries, but the business
model continues to strengthen with the industry increasingly gaining depth.

Shah, etal (2008) in the book titled Indias Financial Markets observes that the public
equity market within India, both spot and derivatives, takes place almost entirely at the two
exchanges NSE and BSE. There is an open electronic limit order book (ELOB) with order
matching by the trading computer. The author reports that the processes of organized
financial trading in India have focused on Exchanges.
In a paper titled politics of market micro-structure, John (2007) describes the rapid
technological change that characterized Indian financial markets in the last three decades of
twentieth century by increasing the opportunity costs of maintaining Indias unreformed
equity market microstructure. The author argues that India eventually adopted many latest
innovations, leapfrogging from archaic market institutions and practices in the early 1990s to
international best practices at the beginning of new millennium. The paper further elucidates
that by 2001, reforms brought India up to par with the global standards for every aspect of its
equity market microstructure.
Jain & Johnson (2006) in their article titled Trading Technology and Stock Market
Liquidity: A Global Perspective expound on technological revolution that swept financial
markets around the world. Computerization and satellite communication have transformed
the organization of stock exchanges and improved secondary market liquidity.
Lee (2002) in the paper titled The future of securities exchanges presents a range of
predictions about securities exchanges. The author analyzes that historically, exchanges have
had seven main types of revenues: 1) Membership subscription, fees for 2) Listing, 3)
Trading 4) Clearing and 5) Settlement and charges for the provision of 6) Company news and
for 7) quote and trade data. In the paper four broad themes related to securities exchanges are
discussed concerning information, industry, governance and politics.
3. RESEARCH GAP
Making observations from the review of literature, it can be concluded that there is no precise
study which addresses the impact of Information technology on Stock market
development either in the Indian context or in International background. Hence, this

study may be treated as pioneer work on the impact of IT on stock exchanges in

promotion of capital market. Although there is no dearth of work on stock exchanges and
capital market but no one has addressed the key issues. By and large the works relate to price
behaviour, market efficiency, market uncertainty, market crash & scams and market reactions
to corporate events.
The capital markets are the back bone of the economy and have a crucial role in the
consolidation and development of Industrial sector. These capital markets depend upon the
effectiveness and organisational mechanism of stock exchanges that play a cardinal role in
promoting the level of capital formation through effective utilization of domestic savings and
by attracting foreign capital for long term purposes. Thus there is need to verify as to what
extent stock exchanges are impacted by automation. Therefore, present study examines the
impact of IT in Indian stock market.

Until now the majority research has focused on developed countries financial markets.
Therefore this topic in the Indian Context needs lengthy analysis and more research attention.
The present study is an addition to the existing body of knowledge as very scanty work is
available in this area of research in case of India. There are very few journal articles and
publications related to the area under study.
4. NEED & SIGNIFICANCE OF THE STUDY
Information Technology has transformed the stock market from the periodical disruptions of
a market functioning from a hall with gesticulating and open outcry to usage of VSATs,
leased lines and uninterrupted uplinking on all trading hours.
The study is significant as all over the world investments in securities are making an
unprecedented growth. With the advent of computerization complimented by the advent of
internet and online trading becoming a reality, it has become relevant to study the extent of
impact created by the process of Information Technology in the Stock Exchanges.
The study aims to highlight the impact of information technology in terms of reduction in
transaction costs, ensuring market integrity, fair and transparent prices for participants,

effective surveillance on fraudulent practices. the Indian Stock Market. The study will point
to further research regarding the progressive growth of Indian Stock Market and role of IT.

5. STAMENT OF THE PROBLEM

5.1 ) Floor-based Trading prior to 1994
Equity trading in India was dominated by FBT on BSE upto late 1994. This process had
several problems of non-transparency and illiquidity. The non-transparency of the FBT
led to market abuse such as investor being charged higher prices for purchases compared
with actual prices traded on the floor. During this period it was not possible for the
investors to cross check the prices.
The BSE was located in Bombay the primitive state of telecom in India coupled with the
use of FBT, greatly limited market access to investors outside Bombay. It also generated
low liquidity for the market as a whole, by being unable to access the order flow from
outside Bombay

5.2) Scenario Post-Screen Based Trading

NSE built an electronic order matching system where computerization of trading took
place it used satellite communications to make this highly accessible from locations all
over the country. Electronic trading place role in reducing search costs for market
participants.
5.3).Trading

Mechanism,

Settlement

system,

Trading

efficiency

&

Dematerialization
The researcher wood like to study how electronic trading systems and automation
a) Reduced manipulation of Prices and hiding of Audit trails of such manipulation.
b) Ensured that investors received time based priority and correct price for their
trades
c) Fundamentally changed the BSE , NSE as they were allowed to extend
electronically nation wide from 1996-97
d) How the initiatives facilitated by implementation of IT reduced transaction costs
in Indian stock market.
e) How the wide-spread usage of IT will safe guard market integrity and act as a
effective check for instances of fraudulent trading
6. OBJECTIVES OF THE STUDY
1) To study automation infrastructure scenario of Indian stock exchanges such as NSE
and BSE in comparison with the exchanges of developed countries
2) To compare the pre-technology era of Indian Stock Market to post-technology era
3) To identify the Information Technology Impact parameters in the stock market
4) To analyze the Impact parameters and interpret using various statistical methods.
.
5) To study the satisfaction of stake holders of Indian stock market regarding Information
Technology implementation.

7. HYPOTHESES
1. Indian Stock Exchanges today are at par with developed international stock exchanges
in terms of use of IT.
2. There has been substantial increase of investor satisfaction by IT implementation
3. There has been substantial reduction in transaction costs due to IT implementation in
Indian Stock Market
4. There has been substantial increase in efficiency of regulation & surveillance by stock
exchanges using IT implementation.

8. RESEARCH DESIGN
Research design is the conceived plan and structure of investigation to obtain answers to
research questions.
SELECTION OF SAMPLE
8.1) Exchanges:
NSE
BSE
Sample of around 100 professionals from various fields like Officials from exchanges,
Academicians related to financial markets, Journalists and Analysts from financial media
including press and electronic media will be contacted for the required information.
8.2) Brokers

Around 100 Members of Exchanges (Brokers) will be identified and will be contacted for
data collection which is 10% of the total brokers in the Stock exchanges

8.3) Investors
Investors in equity market were contacted and questionnaires were collected with
information on impact parameters.
Sample of 800 investors from various cities will be contacted.

Data Collection & Resources

Sources of Data
Primary Data
Primary data is proposed to be collected through questionnaires and also personal interviews
and schedules of officials of stock exchanges, brokers and investors will be used for data
collection. Observations, Interaction and Interview methods will be used.
Secondary Data
The research is also based on desk research based on secondary data compromising of
published reports of various institutions. The data also gets derived from RBI, SEBI
publications, directives and circulars, committee reports,books,research publications both
published and unpublished. Electronic media and websites of stock exchanges, business
news papers like Economic Times, Business Standard, Business Line and magazines related
to stock market were utilized for the study.

The collected data would be subjected to proper recording,editing,classification,tabulations

and interpretations as per the well established practice of social research methodology.
Secondary data is collected from the following sources
-

Research Journals

PhD and M Phil dissertations

Various central and state govt publications

Public records and statistics

Books, Magazines, News papers and periodicals

Other relevant websites

Sampling Procedure
The questionnaire approach will be used for the collection of primary data. In this study the
primary data will be collected from 800 investors. Questionnaire will be distributed through
on-line platform through websites and offline platform through various sections of people.
Questionnaires will be hand delivered to many people while personal interviews will also be
taken to ensure a degree of objectivity in the survey data, selected investors will be personally
interviewed to verify the accuracy of the self reported data. The responses will be received
from those investors who wish to contribute to research willingly.
Steps were taken as far as possible to ensure that the respondents were selected impartially
and they would give a true representation of the sample.
The researcher proposes to use purposive sampling technique and snow ball sampling
technique and wants to collect information from employees of members of exchanges,
broking companies, Investors and market experts including academicians and experts from
financial media.
Statistical Tools & Techniques

Several methods will be adopted for analyzing the relevant data and drawing conclusions. For
the purpose of analyzing the data appropriate statistical techniques are used.
The analysis part of the present research will be made by using various statistical tools like
ANOVA, Correlation analysis, Percentage analysis and Software packages like Excel &
SPSS.

9. LIMITATIONS OF THE STUDY

1. The study considers only two exchanges. NSE and BSE as there is nil trading on other
regional stock exchanges.
2. The study is limited to data available with Exchanges.
3. The study is limited to the sample size of 600 investors in Indian stock market
10. Chapter Scheme
Chapter No
Chapter I
Chapter II
Chapter III
Chapter IV
Chapter V
Chapter VI

Proposed Contents
Introduction
Review of Literature
Role of IT Indian Stock Market
Research Design
Analysis of Data
Findings, Suggestions and Conclusions
References
Appendices

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