I'm composing this blog in the context of what were the keys which differentiate the stock market from earlier. Why the stock market was so notorious that resemble as a hub of gamblers? What was the reason behind illiquidity in the market??
At first, I would like to share some key points that how trading was done back then and how things got changed now. Now things are more transparent to every individual.
Back then, there was no rule over maintenance of minimum balance that a customer needs to ensure to buy stocks. But now, a customer can’t buy stocks without the minimum money in the account or sell without stocks in Demat account.
The new rule helps reduce the systemic risk from aggressive brokers who were previously compromising risk for the business.
Back then, the settlement of trades was done through paper and counterparty risk was evident. Now, all the settlement of trades happens through clearing corporations (CC), and all transactions are electronic.
Today since the risk from the customer is way lesser due to margin requirements & CC, you don’t need approval from a broker to open an account like in 1992. You can open a trading account online in under 15 minutes with any broker now. Back then, brokerages were also very high but nowadays, you have two options, one can choose according to their need.
Back then, all the trades were placed through dealers and hence they carried a huge execution risk. These days, most of the trades are executed by customers on their own.
Back then, customers were mostly unaware and paid at least 1 per cent as a brokerage for equity delivery trades, while now brokerage is charged bare minimum amount.
Lastly, dealers used to pocket a cut by telling different prices to the customers than actual trade price. However, these days the process is 100 per cent transparent.
Back then, the settlement cycle - the time within which brokers have to pay full money and take delivery of stocks or deliver stocks if sold - was 14 days. Now, it is two days, and SEBI is also hinting at a 1-day cycle soon.
Though these days things are changed people showing interest in the stock market just because of regular amendments in the regulatory bodies. The number of new dematerialized accounts, or Demat accounts, opened during the financial year 2020 was the most in at least a decade at 4.9 million, a 22.5% increase from the 4 million Demat accounts opened in the previous year, showed data from the Securities and Exchange Board of India. Total Demat accounts at the end of fiscal 2020 stood at 40.8 million, up from 35.9 million on 31 March 2019.
These were the few major points which led market unsavoury by the individuals back then. Do let me know in the comments if you have more facts about the stock market of back then.