Has Ravi Narain joined the list of fallen market heroes?

The recent arrest of Ravi Narain -- the former chief of the National Stock Exchange (NSE) -- for alleged money laundering is a stark reminder that governance structures still need nurturing. Markets have seen quite a few fallen heroes, and they offer lessons to investors and regulators. Let us have a brief look at some of them  

How can we talk of market mishaps and not start with Shantilal Harshad Mehta. In the second quarter of 1992, the securities scandal roiled the markets. Till the scam broke, Mehta epitomised rags to riches story -- someone who started as an outsider to Mumbai to become one of leading market brokers in BSE.

The Rs 4,000 scam involved Mehta taking advantage of the loopholes in the banking system to manipulate the Bombay Stock Exchange. From a wave of followers flocking to his investment choices, Mehta’s fall was stark. He was charged with over 70 criminal offences. The securities scandal brought about many changes in the financial regulatory system.

Investors look up to market leaders for investment choices. But not all of them live up to the expectations in terms of conduct. Ketan Parekh was one such figure. A protege of Harshad Mehta, he had learned trading from him. Ketan was revered as the “Bombay Bull” and was famous for picking stocks that turned to gold. Like Harshad Mehta, Parekh exploited the loopholes in the market and faced allegations of insider trading and manipulating stock prices. 

He was also accused of misrepresentation of facts to borrow from the banks. After Harshad Mehta, Ketan Parekh had markets on the boil and took regulations for a toss.

Another billionaire market leader whose enviable rise was jaw-dropping and eventually fell prey to his own ambition was Jignesh Shah. Shah revolutionised commodities trading in India when he set up Multi Commodity Exchange (MCX). He later launched the National Spot Exchange Limited (NSEL), the country’s first electronic spot exchange for commodities, which eventually led to his downfall. Shah was arrested in a Rs 5,600 crore payments scam, where contracts were sold without collateral, at NSEL. This marked the beginning of the fall of his empire and Shah was forced to move out of everything that he had built.

From market stakeholders, let us move on to the regulators themselves. Chitra Ramakrishna was part of a core team that built the tech-driven National Stock Exchange, now a favourite for retail investors. Chitra Ramakrishna brought with her an understanding of debt markets to NSE.

When she was appointed head of NSE in 2013, Chitra Ramakrishna was one of the rare women CEOs leading a bourse. But in 2015, reports emerged about the co-location scam where select traders were allegedly given preferential access to data and trading systems through the co-location facility at the exchange. There were also allegations of money laundering. This has severely hurt the credibility of the exchange. Ramkrishna resigned from the NSE in late 2016 and earlier this year, the CBI took her into custody.

Even as the Chitra Ramakrishna continues to dominate headlines, the enforcement directorate has arrested former boss of NSE, Ravi Narain in a money laundering case. Narain was the longest serving chief of the NSE, from 1994-2013.

Under Narain, NSE established an edge over BSE and facilitated large volumes of derivatives trading. But then, the shadows of the co-location case haunted him. Earlier this year, Narain was questioned by CBI for his role in the co-location scandal and regulator Sebi had also imposed a penalty. Allegations of governance lapses during his tenure as NSE chief marred his image.

Deven Choksey, MD, KR Choksey Investment Managers says regulations have always been in place, but individuals always found a way to overstep these norms. The systems and frameworks should be more simple

With strict regulations in place, the governance standards have improved leaps and bounds over the years. Effectiveness of these norms should be evaluated on a periodic basis to ensure that there is no other Harshad Mehta