Forgery, market liquidity, and demat trading: Evidence from the national stock exchange in India

Madhav S. Aney and Sanjay Banerji

No 7/2024, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

Abstract: We analyse the impact of the introduction of a new technology on the National Stock Exchange in India that allowed trading of stocks without the need to transfer paper share certificates (demat trading). We document a decrease in the bid-ask spread and an increase in trading volume following its introduction particularly for those stocks that were previously illiquid. We present evidence that suggests that the primary channel for the increase in liquidity was the elimination of the risk of being sold forged securities as the clearing system took on the risk of reimbursing buyers of forged shares at the introduction of demat trading.

Keywords: Liquidity trading; Bid-ask Spead; Frauds; Market manipulations (search for similar items in EconPapers)
JEL-codes: G18 G19 G28 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-fmk
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