From a banyan tree to Dalal Street: how Bombay's brokers built Asia's oldest exchange

The oldest stock exchange in Asia began as a group of men standing in the shade. Sometime in the 1850s, brokers in Bombay took to gathering under the banyan trees in front of the Town Hall, the building that now houses the Asiatic Society’s library near Horniman Circle, to buy and sell shares in the handful of banks and trading companies that existed. Every retelling says there were twenty-two of them. Nobody can produce the attendance register, so treat the number as tradition rather than fact. What is certain is that they had no building, no rules and a growing amount of business.

Cotton, a war on the other side of the world, and a mania

What turned a shady gathering into a market was the American Civil War. From 1861 the Union blockade cut Lancashire’s cotton mills off from the plantations of the American South, and the mills turned to India. Bombay’s cotton exports multiplied, money flooded into the city, and the money went looking for somewhere to go.

It found shares. New banks, new financial associations, and above all the land reclamation companies that promised to fill in the sea and build a bigger Bombay were floated one after another, and their shares were traded at prices that had nothing to do with anything the companies had built. The broker at the centre of it was Premchand Roychand, a Jain cotton and bullion dealer who came to be called the Cotton King. At the height of the boom, in early 1865, a share of the Back Bay Reclamation Company that had been issued at 5,000 rupees was changing hands for ten times that.

Then the war ended. Word that the Confederacy had surrendered reached Bombay in the spring of 1865, American cotton came back on the market, the price of Indian cotton collapsed, and with it went the share prices, the new banks and most of the fortunes made in the previous four years. The Bank of Bombay, the Presidency bank that had lent recklessly against shares, had to be reconstituted. Roychand lost most of what he had. He spent the rest of his life giving away what remained; the Rajabai clock tower at the University of Mumbai, named after his mother, was paid for with his money.

The 1865 crash is worth knowing for one reason beyond the drama. It was the first Indian lesson in a pattern that has repeated every generation since: cheap money, a new story, prices that detach from earnings, and a reversal that arrives from a direction nobody was watching.

A street of brokers

The brokers who survived kept trading, and kept being moved on. Their numbers grew, the banyan trees became crowded, and the authorities, who regarded a crowd of shouting men as a nuisance, pushed them from one spot to another around the Fort district for the better part of a decade.

By 1874 they had settled on a lane that came to be called Dalal Street, dalal being the word for broker. On 9 July 1875 the group formalised itself as The Native Share and Stock Brokers’ Association, with an entrance fee of one rupee. That association is the Bombay Stock Exchange. Its first proper building on Dalal Street opened in 1899, and for most of the twentieth century business happened the old way: in a trading ring, by open outcry, with brokers and jobbers shouting prices and signalling with their hands in a code outsiders could not follow.

Recognition, a tower and a bull

Independence brought regulation. The Securities Contracts (Regulation) Act of 1956 gave the government power to recognise stock exchanges, and on 31 August 1957 the BSE became the first exchange in the country to receive it. The present building, Phiroze Jeejeebhoy Towers, went up on the same Dalal Street site and was completed in 1980, named after the exchange’s long-serving chairman who had died that year. The exchange launched the Sensex in 1986, which the Sensex and Nifty chapter explains, and became a familiar backdrop on the evening news.

On 12 March 1993 one of the bombs in the coordinated attacks on Bombay exploded in the basement of the tower, killing dozens of people. Trading resumed within days, which the exchange has told as a point of pride ever since.

The bronze bull that tourists photograph outside the building is a recent addition, installed in 2008, more than a century after the association was formed and a couple of decades after Wall Street got its own.

The ring falls silent

The thing that finally ended the open-outcry ring was not a reform but a competitor. The National Stock Exchange, set up in 1992 after the securities scandal of that year and trading from 1994, had no ring at all: it was screen-based from the first day, with terminals in cities far from Bombay. Within a year it was taking the BSE’s volume. In 1995 the BSE replaced the ring with its own electronic system, called BOLT, and the shouting stopped. Most of the brokers who had learned the hand signals never used them again.

Why the story is worth knowing

Three threads from the banyan tree run straight to your broking app. The first is that Indian markets have always been built by trading communities first and regulated afterwards; the rules arrive after the crisis, never before, which is why the scandal stories in this section matter. The second is that the 1865 bust was about leverage and a new narrative, and so was 1992, and so was 2008; the instruments change, the behaviour does not. The third is that the exchange you use today is the direct descendant of a one-rupee club under a tree, and the man who did most to make it was ruined by the very mania that made it necessary.

The twenty-two brokers, the one-rupee fee and most of the colourful detail come from the exchange’s own histories and nineteenth-century accounts, which disagree with each other on dates and numbers. Where they disagree, this article has preferred the version the BSE itself publishes.