Gopinath's appointment on the NSE board kicks off debate

Opinion divided on whether there is a conflict of interest.

Seven months after she retired as deputy governor of the Reserve Bank of India (RBI), Shyamala Gopinath has been appointed on the board of the country’s largest bourse, the National Stock Exchange (NSE).

Gopinath was practically No 2 with the central bank until June 20 last year, when she retired. Earlier, economist Vijay Kelkar joined NSE as its chairman soon after laying down office as the Chairman of the 13th Finance Commission. This latest appointment has started a debate on whether giving lucrative high-profile posts of independent directors to those who were once its watchdogs, would trigger a conflict of interest and whether such appointments raise a serious issue of “ethics”. This is because both RBI and the finance ministry are super-regulators to the exchanges. Though the finance ministry may not be a direct regulator in the strict sense, RBI is a regulator to the NSE— in both letter and spirit over its currency derivative segment operations.

As deputy governor, Gopinath was RBI nominee on the Securities & Exchange Board of India (Sebi) board, where she was a direct regulator of NSE. There are, however, no rules to prevent her from joining the stock exchange.

Many, though, dismiss such apprehensions. This camp says RBI doesn’t regulate exchanges; only Sebi does. If a policy has to be made for the currency segment, the market regular consults the central bank and makes the policy for all exchanges.

They also say a uniform policy should be made in this regard for all sectors and not exchanges alone.

While the debate continues, NSE is certainly not alone. MCX-SX has also appointed former regulators and bureaucrats on its board. It had appointed Ashok Jha and Vepa Kamesam on its board in 2009 and 2010 respectively. Jha was finance secretary in 2007 and Kamesam served as deputy governor of RBI between 1998 and 2003. Some others have directly regulated MCX in the past.

But there was a gap between their retirement and taking up the MCX SX job. Jha, for example, superannuated in April 2007 -- and joined the MCX SX board only in August 2009. Kamesam retired as RBI deputy governor in 2003, and joined the MCX SX board in April 2010. Similarly, G N Bajpai, who retired as Sebi chairman in 2005, joined the advisory board of Financial Technologies in 2008. S A Dave, who headed Sebi in the late 1980s, joined the MCX board in 2009. Prior to that, Dave after retiring, worked on the board of several private companies including Housing Development and Finance Corporation.

Both NSE and MCX did not want to comment on the issue. Gopinath could not be contacted.

On the Bombay Stock Exchange, there are several retired government officials on the board. But, all of them joined after a cooling off period of at least a year. 

Being autonomous bodies, the RBI and Sebi do not have a “cooling-off” period in their respective service rules. The Forward Market Commission, the commodity market regulator, has however set a one-year cooling off period, before its members join any private firm.

With the exception of G V Ramakrishna and C B Bhave, who retired only recently, all other former Sebi bosses are on boards of at least four or more listed companies, but this they did after a cooling off period of at least one year.