A day after the Securities and Exchange Board of India (Sebi) announced a new regulatory regime for stock exchanges, Madhu Kannan, managing director and chief executive officer of Bombay Stock Exchange (BSE), has put in his papers.
Kannan will join Tata Sons as group head-business development and report to its Deputy Chairman Cyrus Mistry.
Tata watchers say the $83.3-billion diversified salt-to-steel conglomerate has finally found a new ideas man in this former Wall Street professional, a post lying vacant for three years.
While BSE said Kannan has expressed his intention to not seek a new term at the expiry of his current term ending May 2012, to pursue another opportunity, industry sources attributed his exit to Sebi's stringent norms for senior stock exchange executives and curbing their powers.
Kannan was instrumental in consolidating BSE's business and projecting the exchange as end-to-end solution provider. Tata Group insiders said Kannan will fill the slot that has been lying vacant since Alan Rosling, a former Executive Director of Tata Sons, stepped down in 2009. Rosling had a similar profile and even oversaw the group's international operations in countries, such as Bangladesh and China. Before Rosling, the seeds of global diversification were planted by former Tata International boss Shyamal Gupta, who also retired in 2009 as a Tata Sons director.
"Kannan's mandate will be similar to that of Rosling's. He will be identifying newer markets, business sectors and even spot sub-segments within the existing portfolio. He will be visualising the tomorrow and give strategic inputs that will influence the group's strategic vision," said a Tata official.
For example, markets like Myanmar and Sri Lanka, in India's neighborhood are slowly opening up for the Tata Group companies to exploit.
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Many of the new ideas can then get incubated by Tata Industries — the investment arm of the group — or get appropriated by various operating companies. "Today, thanks to the global scale and size, Tatas do not know what Tata knows. So a central person proactively keeping a tab on the internal knowledge base is also critical," said another group official.
Tata companies don't depend on a centralised research and development unit. "So, at a central level, somebody proactively looking at group R&D will also be a great strategic move," the official added.
Under Kannan, BSE raised its stake in Central Depository Services to 54 per cent and also launched a clearing corporation. However, these moves will now become redundant on the back of Sebi's tough norms making it difficult for Kannan to bring about a turnaround of BSE, said an industry source.
"Kannan will work with the Board of Directors to ensure that there is a seamless succession process as per Sebi prescribed norms," the exchange said. He will remain with BSE till mid-May. The exchange will soon appoint an executive search committee to find his replacement. Prior to joining BSE, Kannan served as managing director of strategy and business development at Bank of America-Merrill Lynch. In that role, he focused on the development and execution of key strategic initiatives in the emerging markets of Asia, West Asia & North Africa and the global sovereign wealth fund groups. Before that, he served as vice-president of Asia-Pacific, global corporate client group, NYSE.
During his tenure at BSE, Kannan made several attempts to revive the exchange's dormant derivatives segment, which have yielded some results. Turnover in the exchange's derivatives segment stood at Rs 12,113 crore on Tuesday from near-zero before it launched market making schemes in September last year. Observers say that it needs to be seen whether this kind of activity will continue after the exchange withdraws incentive schemes to market makers.
Sebi's new norms, unveiled after its board meeting on Monday, has made top jobs at stock exchanges unattractive, industry officials say.
Curbing powers of senior stock exchange executives, Sebi has prescribed that the head of departments of member regulations will directly report to an independent committee of the board of stock exchange as well as MD and CEO. Also, the head of departments of listing regulations will directly report to an independent committee of the board of stock exchange as well as to MD and CEO. The surveillance function will report to an independent committee of board of the exchange as well as to the MD and CEO.
According to the new Sebi rules, a compensation committee consisting of majority public interest directors will determine the compensation of key management personnel.
The regulator has said the variable pay component of senior stock exchange executives will not exceed one-third of total pay. Of the variable component, 50 per cent of the amount will be paid on a deferred basis after three years. Also, employee stock option plans and other equity-linked options in market infrastructure institutions like a stock exchange will not form part of the compensation for the identified key management personnel. Sebi will also approve remuneration to key management personnel. Kannan's pay package was a little over Rs 2 crore in 2010-11.