A blackboard, an oval table, 20 brokers

Reliving the way stocks were traded at the Madras Stock Exchange in the colonial era



Madras in the 1930s and 1940s was a bustling port town on the shores of the Bay of Bengal. Besides being a commercial hub, Madraspattinam had a vibrant stock market before other cities in India, the Madras Stock Exchange having been set up in 1937.

A walk down memory lane with M S Sivasubramanian, 89, a Partner in one of the oldest stock broking firms trading on the Madras Stock Exchange, Maconochie & Co., revealed how stock trading took place in those times; when the British had not yet exited the country, when there were neither computers, nor internet and telephone facility was limited.



The exchange floor

“The Madras Stock Exchange in the 1940s was a large hall dominated by a large oval table. About 20 representatives of the member brokers would be sitting around this table to transact business during trading hours. That was typically for two hours, between 12 to 2 in the afternoon, five days a week. Orders received before trading hours were recorded in an order book which used to be taken to the trading floor by the representative. For orders received between 12 noon and 2 pm, the broker would send the order written on a slip of paper through his assistant, who would run with this information to the representative sitting at the oval table.”

“Once the broker’s representative at the oval table received the order, he would try to find out which of the others at the table could be the counterparty. When the transaction was finalised, a slip in a pad was filled and the pad was thrown to the counter-party for affixing his initials and returned. The slip, after completion of the deal, would be given to an exchange official, who would write the executed transaction on a blackboard.”

The exchange would, of course, be over-run with broker’s assistants trying to get their slip to the men at the table. At the end of the trading session, the exchange would collate all the transaction slips and prepare the trading details of all the stocks.

This list would be cyclostyled and distributed to the members. Proximity to the exchange was critical to get orders across fast. The result was concentration of broking offices on the famous Wall Street, Dalal Street and so on.



Sivasubramanian joined Maconochie in the 1940s, but the firm was around even prior to 1890 in Bombay. In 1927, the company, then called Croft, Forbes and Chard, opened a branch in Madras. There were only two other stock broking firms in Madras then, Huson, Tod & Co. and Kothari and Sons.

Captain AEF Maconochie, former aide-de-camp to the Governor of Madras province, joined Croft, Forbes and Chard and soon became its senior partner. The name was then changed to Maconochie & Co.

The adventurous captain with a yen for stock-broking did not live past the age of 34, though the firm continues to bear his name. Sons of Sivasubramanian, S Venkateswaran and S Sri Ram, handle day-to-day operations of the firm now.

There was no difference in the exchange traded system immediately after independence. “The mechanism set up by the British was followed after independence as well. It is the onset of online trading that has ushered in a great change in Indian stock trading methodology.”

Of stocks and clients

The earliest known account of stock trading in Madras is in 1903, when the firm Tod & Co. was known to have been involved with stock-broking. The conservative folks in Madras did not take to stock investing at the outset and the more affluent preferred investing in government securities.

Gradually, interest in listed companies grew. The clients of Maconochie in the forties were high net-worth individuals owning tea, coffee and rubber plantations. A market report prepared by Maconochie in 1943 reveals that stocks belonged to only few sectors then – banks, sugars and breweries, cotton mills, tea, coffee, rubber, public utilities and others.

There were unheard of companies such as Cambodia Mills, Nellore Power and Light, Vellamai Tea, Woodlands Estate and Cochin Rubbers.

Besides government securities and MSE-listed companies, investors could also buy shares listed on the Bombay and Calcutta Stock Exchange.

What is more, shares listed on the London and Colombo Stock Exchange could be traded just as easily.

“Before the foreign exchange controls, we used to buy and sell securities listed in London and Colombo. Only for remittance of money one had to take Reserve Bank’s permission,” says Sivasubramanian.

Investing was mostly bottom-up. There was an index specifically for the Madras Stock Exchange, but it was not popular. The benchmark index of the Bombay Stock Exchange was followed to gauge the overall movement of the market.

“But investors would be more interested in the moves of the various sectors; for instance, plantation stock going up or textile stocks moving down. Investors were also more concerned with dividend yield those days than they are now,” he added.



Research in the 40s

How would an investor pick a stock for investment those days? “Whenever a client needed some advice on any investment, he would write to the broker. Maconochie would give clients a market slip containing data on these companies derived from company annual reports – balance sheet, profit and loss account, the chairman’s statement and so on. The state of the industry would also be considered for making up a market slip that would be sent to clients.

There were assistants specially allocated to do this work. Newspaper reports were also used to arrive at investing decisions. Technical analysis was done by plotting each day’s movement as one unit in a bar or point and figure chart, drawn manually on a graph paper.”

The daily rigmarole

Settlement was long-drawn. “Back then, delivery had to be given after two days, but before 14 days. Share certificates had to come also from other cities. The rules were very strict then also. When shares were delivered to a broker, he had to give the cheque by afternoon. If he failed to do so, he would be termed a defaulter by the stock exchange.”

KYC check for a new client was also done by enquiring about his financial position. A reference from an existing client was also insisted upon before opening a new client account.

Any money received for purchase of shares or the sale proceeds retained for future investment was placed in a separate bank account called “client account”.

It is obvious computerisation has affected employment. “There are fewer employees now than in the 1940s. I did not send any one home. But once someone retired, I have not opted to fill up the place,” he said.

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