Market moves to tame paper tigers

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THE TRADING floor of the Bombay Stock Exchange is a scrum. There are running fights as brokers leap on colleagues whose stock they want, grabbing each other by the ear, hair or collar, before being buried under a sea of bodies on the floor. Outside the pit, investors wait by the door for their favourites to emerge, fuelling them with more orders and sending them back into the fray.

There are 7,000 companies listed on the Bombay Stock Exchange, making it the second largest in the world, behind New York. It is Asia's oldest, established in 1875, and still paper-based, although there are plans to computerise it within two years. Meanwhile it resembles the 19th-century London exchange, brokers jotting down sales during each day's two hours of frantic trading. 'People don't go back on their word because if they do, no one will do business with them,' said broker Afzal Patel, 26, one of the 3,000 allowed into the ring. He's never been seriously injured doing his job, he jokes.

Two months ago, Jardine Fleming gained a seat on the Bombay Stock Exchange, and permission to operate as a full-fledged Indian stockbroker. Three months earlier it had launched the Fleming Indian Investment Trust, the first London-based investment trust investing in Indian stocks; looking mainly to small and middling companies, it is considered a long-term investment. Barings is hot on Fleming's heels: by the end of the year it will have two analysts picking stocks for fund managers in London, plus a team working on stockbroking, securities trading, and corporate finance advice.

But while other British financial institutions are hovering - for example, insurer Sun Life is eyeing India's state-run life assurance business, tipped for future privatisation - they are keen for the Indian government to crack down on such problems as insider dealing. They nervously recall the securities scandal of 1992, when brokers illegally siphoned billions of rupees from banks to speculate on the stock market. And the bomb blast at the exchange in March 1993 reportedly killed 300.

A move in the right direction came earlier this year with the abolition of badla, whereby brokers were able to maintain huge forward positions in the market at nominal cost. Settlement is now within seven days, which has checked the rampant speculation. But while the watchdog, the Securities and Investment Board of India, struggles to bring financial markets into line with those of the West, some problems remain unique. Rapid growth of foreign financial investment - rising from almost nothing in 1991 to dollars 3.5bn in 1993-94 - has clogged the market's paper-based settlement machinery. Jardine Fleming last year had 32 tea-chests of paper each day going into its bank vaults - each piece needing to be signed and coded. The British are partly to blame for setting up the Kafkaesque bureaucracy, but India has made it an art form.

(Photograph omitted)