NSE at a crossroads

The new MD, who takes over today, has his task cut out

National Stock Exchange (NSE) Chairman Ashok Chawla recently talked about the “difficult times” that the country’s largest stock exchange was going through. While his statement with the broad message of “we shall overcome” was understandable, given that it was aimed at boosting the morale of NSE employees, the task ahead of Vikram Limaye, the new managing director (MD) and chief executive officer (CEO) who takes charge on Monday, is formidable indeed. There is no doubt that the NSE, which controls about 80 per cent of India’s derivatives market, is facing its toughest phase. And the technology glitch that halted trading for almost three hours last Monday was just the latest in a series of controversies that has engulfed the exchange in recent times. 

While the markets regulator, the Securities and Exchange Board of India (Sebi), has asked for a detailed report on what led to the technical snag and has also asked the exchange to submit a detailed plan as to what measures are going to be taken to avoid such recurrences, the matter that is of real concern is the enquiry into whether the exchange allowed some traders preferential access to its hi-frequency trading that allowed them faster access to prices — an issue that will certainly delay a proposed initial share sale by the exchange. An independent agency appointed by the exchange had said that there were indications that some trading members got preferential treatment. Sebi’s technical advisory committee also found evidence that the NSE violated norms of fair access and allowed some brokers to benefit.

But the crisis didn’t end here. The regulator also issued show cause notice to the exchange and 14 officials — former and current — over the findings of the Sebi panel and the report of the forensic probe, following which Ravi Narain, one of the founding members of the NSE, quit as vice-chairman and board member. This came shortly after Chitra Ramkrishna resigned as MD from the NSE, an institution she had helped build from scratch. It could not have been a mere coincidence that her departure followed a controversy over the high pay package of a chief operating officer who was not part of the designated key management personnel.

It is indeed unfortunate that the NSE, which became a world-class institution in a short span of less than 25 years, is in the midst of such an overwhelming crisis of confidence and credibility — something that to a large extent is its own making. For example, when the allegations of preferential access to a limited few first came up, all that the NSE management did was to fight them tooth and nail. As later events proved, this was like living in a deliberate state of denial. The new MD has made all the right noises so far. In an interview to this paper, he has talked about addressing regulatory issues as his most important task, the other two being strengthening systems and processes for effective working and a detailed plan on listing of the NSE to give an exit route to investors. He could add one more thing to his list of priorities: The NSE has a dedicated set of employees who have all worked hard to build a great institution. His foremost priority thus would be to restore the credibility of the stock exchange.