How reforms transformed D-Street into a world-class capital market

Three decades of reforms, technology and regulation have transformed India's capital markets into one of the world's most efficient, transparent and accessible investment ecosystems

When India embarked on economic liberalisation in 1991, investing in equities was an arduous, often uncertain process. 

Shares existed as paper certificates. There was an open-outcry system for buying and selling them, where rates were announced loudly or through hand signs. Settlement cycles stretched over weeks, and investors routinely grappled with forged documents and bad deliveries. 

Additionally, brokerage rates were as high as 3 per cent of the transaction value, and a significant gap often existed between buy and sell rates. Participation was largely confined to a small segment of urban investors. 

Thirty-five years on, little remains of that system. 

India’s capital markets are now among the most developed, dynamic and largest in the world. 

Deven Choksey, managing director of DRChoksey FinServ, and a veteran with over four decades of experience, describes this evolution as nothing short of foundational to India’s economic modernisation. He calls it the country’s first tryst with ecommerce. 

Choksey says the capital market has been the consistent mover in every period of economic reforms. “When we (India) opened up the economy in 1991, the capital market took the leadership role — we converted the physical trading system into a digital trading system. We were in a way the first ecommerce segment in the economy. We created the financial market commerce through stock exchanges, depositories, surveillance, and various financial products.” 

This transformation has been driven by a steady sequence of regulatory, technological and structural reforms led by the Securities and Exchange Board of India (Sebi), stock exchanges, depositories and the government. Together, they have reshaped the securities market into one that is efficient, transparent and widely accessible. 

Before there was electronic trading, there were over 20 stock exchanges in the country, spread across 15 states. That led to a fragmentation of trading volumes, apart from operational issues. Then, in the absence of a market regulator, rules were often made by sections of brokers, where retail investors were not a priority. 

Between 2013 and 2019, nearly 20 stock exchanges ceased to exist, according to Sebi. 

“It was an inflection point that catalysed a shift towards institutional innovation, regulatory modernisation and the creation of resilient market infrastructure. Today, India stands among the world’s most sophisticated markets, combining scale with efficiency,” says Ashishkumar Chauhan, Managing Director and Chief Executive Officer (MD & CEO) of the National Stock Exchange of India. The journey reflects not merely technological progress, but a deeper commitment to investor trust, market integrity and the democratisation of wealth creation.

The Demat Shift 

Perhaps the most tangible shift has been the move from physical share certificates to electronic holdings. Prior to the late 1990s, investors faced a host of operational challenges — lost certificates, fake shares, mutilated certificates, signature mismatches and prolonged transfer timelines. 

The establishment of the National Securities Depository (NSDL) in 1996, followed by the Central Depository Services India (CDSL) in 1999 ushered in the dematerialisation era. Today, virtually all securities are held electronically, eliminating operational risks and enabling seamless transfers. Issues such as bad deliveries and forged certificates, once endemic to the system, have been largely eradicated, bringing greater certainty and transparency to trading and settlement. 

“Driven by regulatory reforms, technological innovation, improved telecommunications, and a stronger Sebi, India has evolved from inefficient trading systems to world-class electronic exchanges, with a transparent and trusted market ecosystem that has broadened investor participation,” said Sundararaman Ramamurthy, MD & CEO, BSE. This has attracted global capital, generated wealth, and advanced the broader goals of economic growth and financial inclusion, he adds.

 

Shrinking Settlement Cycles 

Trade settlement, once slow and uncertain, has undergone a remarkable shift, too. In the early 1990s, settlements often took several weeks and were susceptible to defaults and delivery failures. Over time, India transitioned from account-period settlements to rolling settlements — moving progressively from T+5 (trade day plus five days) to T+3, T+2 and eventually T+1. 

In 2023, India became one of the first major markets globally to implement a T+1 settlement across stocks. More recently, exchanges have introduced optional same-day settlement mechanisms, further reducing counterparty risk and enhancing capital efficiency. 

“The entire marketplace has focused on ongoing digitisation. It has helped attract both global players and capital. We are the largest traded market in the world with derivatives taking over a significantly large amount of volume,” notes Choksey.

Now, global players are not only widely active in investment banking and research, but are increasingly looking to expand into India’s asset management space as well. 

“This is the kind of power we have employed in the form of technology at the stock exchanges. We are also one of the fastest exchanges in terms of trade executions — while settlements are also faster than many global players. Now that focus is shifting towards tokenisation and more technological evolution, the concerns on cyber security and related infrastructure should not be underestimated,” Choksey adds.

 

IPOs Become Faster 

The primary market, too, has seen a sweeping overhaul. In the early 1990s, IPO applications were paper-based, requiring physical forms and cheques. Allotments could take months, refunds were delayed, and information was often limited — making it difficult for retail investors to make informed decisions. Until 1992, when the Controller of Capital Issues (CCI) was dissolved and the Sebi Act of 1992 came into force, the CCI regulated capital markets as well as initial public offering (IPO) pricing, size of the issue and structure. 

Today, the process is almost entirely digital, and there is free-market pricing. Electronic bidding has replaced paperwork, while the Application Supported by Blocked Amount (ASBA) mechanism ensures that investor funds remain in their bank accounts (earning interest) until allotment. Integration with the Unified Payments Interface (UPI) has further simplified participation, allowing investors to apply for IPOs through mobile phones in just a few clicks. 

Besides, Sebi has also progressively reduced listing timelines. What once took several weeks is now completed within three days, enabling faster capital access for issuers and quicker liquidity for investors.

 

Safeguarding Investor Funds 

One area that has been strengthened significantly over the years is investor protection. Historically, misuse of client funds and securities by brokers was a recurring concern. In response, Sebi introduced a series of safeguards, including segregation of client funds, enhanced reporting requirements and the pledge-repledge framework for margin funding—particularly following the default of Karvy Stock Broking. 

This mechanism ensures that investor securities remain in the client’s demat account and cannot be directly transferred or misused by intermediaries. 

The transition from trading floors and open-outcry systems to electronic platforms has been one of the most visible changes. The introduction of screen-based trading by the NSE in the mid-1990s brought unprecedented transparency and nationwide access. 

Today, investors can open accounts digitally within minutes and trade seamlessly through mobile applications from virtually anywhere in the world. The rise of discount brokers has further lowered entry barriers and costs. 

India now has over 225 million demat accounts and more than 140 million unique investors. Participation, once concentrated in major cities, has expanded rapidly into smaller towns and semi-urban centres. Widespread smartphone adoption and digital onboarding have played a key role in this broadening of the investor base, while costs of market participation have declined significantly.

 

Regulatory Push 

At the heart of this transformation lies the evolution of Sebi—from a relatively nascent regulator into one of the world’s most active and effective market watchdogs. Over the years, it has introduced robust disclosure standards, strengthened corporate governance norms, and built comprehensive surveillance and risk-management frameworks. 

Measures such as mandatory disclosures, insider trading regulations, takeover codes, risk-based supervision and enhanced monitoring systems have improved transparency and reinforced market confidence. Investor grievance redressal mechanisms and tighter regulations governing intermediaries and listed companies have further strengthened the ecosystem. 

The Sebi has also bolstered the mutual fund, portfolio management, and alternative investment space, leading to regulated access for individuals to create wealth in an organised manner. 

As India marks more than three decades of liberalisation, the transformation of its capital markets is a compelling example of how regulation, technology and innovation can work in tandem—not only to expand access, but also to build trust and resilience in the financial system.

 

Major milestones

  Early 1990s: 

Settlements take weeks, with frequent defaults and delivery failures

  Sebi Act, 1992: 

Gives the regulator statutory powers, replacing Controller of Capital Issues

  July 1994: 

NSE set up; introduces screen-based trading to improve transparency, access

  1996: 

NSDL established, followed by CDSL in 1999. This enables dematerialisation of stocks

  2008: 

Sebi introduces Application Supported by Blocked Amount (ASBA) to encourage small investors to apply for public issue

  2010: 

Zerodha is founded; marks the beginning of the discount broking era

  2013 to 2019: 

Number of exchanges reduces from 20 located across 15 states to just two for equities

  2023: 

India implements T+1 settlement, becoming among the first major markets globally to do so