We cannot go back from high-frequency trades: Ashishkumar Chauhan

Interview with Managing director and chief executive, BSE

Ashishkumar Chauhan, managing director and chief executive of the BSE, talks on current issues for the exchange. An interview with Ashley Coutinho and Jayshree P Upadhyay. Excerpts:

What steps is BSE taking to ramp up its technology?

BSE's high-speed Bolt Plus system is the fastest trading platform in the world, with a response time of six micro seconds. Exchanges have to worry about speed, scale, cost and flexibility in functionality. The older technologies were less flexible; the newer ones are easier to modify. Around five years earlier, BSE used to get around 10 million orders a day. Now, on a good day, BSE gets around 520 million orders. Earlier, at 5,000 orders a second, the system would stop behaving well. Today, we can take 500,000 orders a second.

Is there a need to clamp on algo and high frequency trades (HFT)?

The issue has gained international attention. In India, we need to first identify the problems areas. There are issues relating to manipulation and fair access. There are academic papers that suggest HFT provides liquidity, there are papers that suggest this liquidity is fleeting. That debate can go on. HFT has become extremely large in India. So, as an industry, we need to understand the contours of the issues and resolve it in a way that takes care of all the apprehensions that people have. But, one must understand that the industry can’t go back to older technology.

What is the progress on getting the exchange listed?

We have written to the market regulator. Sebi needs to create a framework that is consistent for all exchanges. We will list once the approval comes through but we need to be patient. Our listing would be through an offer for sale (secondary share sale) and valuations will depend on market conditions. BSE doesn’t have an identifiable promoter but we are looking at diluting 10-25 per cent of the shares available with the existing shareholders.

Your plans for a commodity division?

Last year, BSE had decided to get into the commodity business and applied for approvals. We had also set up a company to run the business. With the merger of Sebi and the Forward Markets Commission coming through, all commodity exchanges are now technically stock exchanges. So, we have applied to Sebi to trade commodity derivatives in an additional segment. We are ready with the software to start trading. We would like to trade in as many commodities that are traded internationally but are yet to take a call.

The SME (small and medium enteprises) platform has grown manifold since it started but there is a perception that institutional participation is lacking.

The SME platform is an investment, not a trading platform, so we are not banking on trades to sustain it. I agree that institutional participants such as banks and Life Insurance Corporation can help reduce the possibility of manipulation. That is one area we need to work on. There are issues but the segment needs to be promoted, as they create jobs. We are going for compulsory market making and that has been one of the reasons for the platform’s success.

What about the exchange’s plans for a start-up platform?

BSE has announced a Hi-Tech platform for listing start-ups. We already have opened offices in Bengaluru, Delhi, Hyderabad and Chennai, and are in talks with several start-ups.

What issues does BSE face at present? How are you addressing these?

From recent Sebi orders, the price rise and fall on exchanges are being used for tax evasion. BSE has 5,700 companies, most of which are old and small. This is in comparison to the competition’s 1,500 companies. Recent Sebi orders have proved that some of these companies are using the exchanges for tax evasion. BSE is taking several steps to prevent such illegal activities. We recently suspended five companies on the SME platform, barred their promoters and ensured they can’t go to the main board till Sebi completes its investigation.

Tax evasion happens because long-term capital gains are exempt for listed companies. We have asked the government to plug the loophole. Till the time the government changes its tax laws to plug obvious evasion techniques, the exchange had adopted several measures like daily, weekly, monthly, quarterly and annual price bands for exclusive stocks, now being opposed by several people. However, the exchange cannot be the only one to worry about tax evasion. The government has to also plug the loopholes.