NSE Rot Runs Much Deeper

It is much deeper and goes way beyond the former managing director of National Stock Exchange of India Limited (NSE) and the Himalayan Yogi.

The yogi's blessings were running the world's largest derivatives exchange as per Chitra Ramkrishna, its former managing director.

Securities and Exchange Board of India (SEBI) has documented a 190-page order released on 11th February. She was communicating with the Himalayan Yogi through her e-mail.

A Paramahansa who resides in the Himalayan ranges whom she met in holy places. No locational co-ordinates are given. These baffling details made NSE the laughing stock of the world.

The Central Bureau of Investigation (CBI) is investigating this case and has arrested the Himalayan Yogi, Anand Subramanian. He was appointed by Ramakrishna in violation of all rules, got astronomical perks, promotions and increments, violating established processes.

More arrests are likely, for the co-location scam at the NSE which happened between 2010 and 2014. A few brokers with unauthorised and preferential access to NSE's co-location servers earned huge profits.

NSE is a high-technology platform having near monopoly control over India's capital market.

How has it become a hotbed of scams and scandals? The million dollar question which all in our community are asking.

Behind the enormous commercial success, NSE is a symbol of absolute power. It has a history of bending rules to suit its ambitions and suppress competition. Its founders Ravi Narain and Ramkrishna used its monopoly power for regulatory capture.

SEBI allowed NSE to expand into new businesses, ignoring conflicts of interest, make illegal appointments to top posts, and work ruthlessly to destroy any competition.

But the MD communicating with a yogi for guidance on running the exchange is still a surprise.

How did NSE, operating in a sensitive and highly regulated sector, overseen by a high-profile board, SEBI, and the finance ministry, acquire such enormous power and abuse it with exemption from any punishment for so long? It is with the help of the same people responsible for its oversight.

Who Wields Power at NSE

Over 15 years, Narain and Ramakrishna ensured that NSE's board members were selected to ensure dedicated and unconditional support after having delegated far-reaching powers to the MD.

Hence, when SEBI asked NSE about the algo scam, the board's first reaction was there were no irregularities.

This was no surprise as the same board had irregularly appointed Ramkrishna as MD in 2013.

The NSE board constituted a selection committee of Ravi Narain, S H Khan (former chairman of NSE and IDBI), S Venkiteswaran (former NSE director and senior advocate), and Deepak Satwalekar (public interest director) on November 6, 2012.

The committee met soon to strongly recommend an internal candidate and Ramkrishna was appointed for five years.

SEBI's mandatory approval was not sought.

None was considered for the post, but the committee's mandate was to shortlist candidates from within NSE, from other exchanges, from the financial sector and exchanges globally.

For the kind of money NSE was paying it would have attracted the best from exchanges globally.

The much smaller Bombay Stock Exchange (BSE) had put together a crack team of professionals who had worked at the New York Stock Exchange and Chicago Mercantile Exchange.

While recommending Ramkrishna as MD, the committee also created a brand new designation of non-executive vice-chairman for Ravi Narain, ignoring the fact that NSE could not possibly have both, chairman and vice-chairman, in non-executive posts.

It was as if NSE was a personal kingdom of people from the founding team and when one of them stepped down, the next would automatically step in while the former was accommodated in another capacity.

The board saw nothing strange in Ramkrishna appointing Subramanian immediately after becoming MD without any discussion with the Nominations and Recruitment committee (NRC) and bypassing all SEBI rules.

It apparently remained silent when he was promoted to Group Operating Officer, again bypassing the NRC as well as stringent regulatory compliances and clearances.

Surprise. Surprise. He was even kept out of the list of key management personnel, while enjoying the second highest remuneration and perks and being appointed to the boards of all NSE subsidiaries.

Key Managerial Personnel ("KMP") refers to the whole-time employees of the company who are vested with the most important roles and responsibilities. They are the first point of contact between the company and its stakeholders and are responsible for the formulation of strategies and their implementation.

He had absolutely no experience of capital markets or technology to run a large and complex exchange.

The NSE ecosystem of influence is so strong that even after Ramkrishna left under a cloud, it did not bother to find someone within India or abroad with specific skills and qualifications to run it.

Instead, it chose a successor who had no experience of running an exchange, a real-time trading technology platform or capital market regulations.

The NSE scam and its abuse of power happened under the watchful eyes of three successive SEBI chairmen, the worst happening under C B Bhave and U K Sinha.

So the NSE rot goes far deeper and way beyond the MD and the yogi.

The dignitaries who have been in the NSE's successive boards over the past two decades, the bigwigs at SEBI and key officials in the finance ministry and reportedly a powerful politician have all helped.

If the government is keen on a clean-up, these eminent people must be made answerable.

To be continued