 "<b>Chai with BS:</b> Ravi Narain")
He may have retired from executive responsibilities at the National Stock Exchange (NSE) close to two months ago, but Ravi Narain says the "next two years may not be that easy". Apart from being non-executive vice-chairman of the NSE, Narain will have to do a fair amount of travelling since he is chairman of the working committee of the World Federation of Exchanges - a grouping of more than 50 bourses. As if that weren't enough for a post-retirement life, he is also hoping to do a "portfolio" of other things, write Shyamal Majumdar and Nishanth Vasudevan.
Despite our persistent efforts, all that Narain says about the "portfolio" is that it is not necessarily in the financial sector. Do we now see him in other corporate boards? The answer is predictably brief: "Within Sebi's [Securities and Exchange Board of India] tight framework, some of this can happen."
We had got a taste of his busy-ness much earlier when we were told that since he was always on the wing, Narain didn't have the time to follow the standard "Lunch with BS" format of choosing a restaurant for us to host him. Instead, he's invited us for tea at the tastefully decorated conference room of the NSE headquarters at Mumbai's Bandra Kurla complex. "Let's call it 'Chai with BS' as that sounds more interesting," Narain says, with a broad grin.
Such statements are not exactly music to journalists' ears , but we keep trying. Why did he retire as MD and CEO so early, we ask. The architect of the NSE is less guarded in his response; he says he will be 58 this year and would have been incapable of doing other interesting things had he taken one more contract. "That's long enough - six years as deputy CEO and 12 years as CEO. Something begins to happen inside your head and I started feeling the need to do something else," Narain adds.
He is more than willing to take a walk through the alleys of nostalgia. An economics graduate from Cambridge and MBA from Wharton, a young Narain had a cushy job in Washington. But he came back to India three years later to join IDBI for three reasons: one, he didn't want to be sucked into the easy life in the US; two, his father passed away, which forced him to simply pack his bags and leave; and three, he wanted to do something whose impact would go beyond just one particular organisation. And IDBI gave him that huge canvas to experiment with different things.
So when S H Nadkarni, then IDBI chairman, asked Narain to join a team that would set up a brand new stock exchange, it seemed more like a "fun thing to do", since none of them had any clue about how an exchange worked. Contrary to conventional thinking, life was much easier since the team started with a clean slate, even though a lot of people laughed at what they thought a few babes in the wood trying to compete with 100-year-old institutions.
One of the most common things he heard when the NSE wanted to bring in technology to transform the market was that exchanges are about people, not technology. To that, his response was: "Technology helps people do the right things." What the team quickly figured out was that opacity was the key issue in stock exchanges and they were not run efficiently. So the NSE did five things to change the rules of the game.
First, it replaced the physical floor in exchanges with a virtual one. In other words, it launched screen-based trading, in which the computer screen plays the role of an exchange floor. The second thing it did was to enable delivering that screen simultaneously to all parts of the country - be it Patna or Kochi. It may sound very simple now, but it was a huge task at a time when the telecom revolution was nowhere in the horizon. The third thing was the introduction of the concept of membership, where you deposit a certain amount with the option of getting refund if you wish to exit. This was contrary to then nonsensical system of auctioning wherein the highest bidder would get seats. Fourthly, the NSE brought in a scientific risk management framework that could allow it to guarantee settlements. And fifth, the exchange replaced badla with more advanced futures and options, which were readily accepted by the market.
Narain's response to the inevitable globalisation going forward is to convert some of the global exchanges to partners. The NSE is looking at forming joint ventures with overseas companies to start businesses in the market infrastructure space - ranging from setting up new exchanges, clearing houses and offering exchange-traded products to settlement services and data distribution. It is keen on joint ventures for allied services rather than setting up new exchanges.
He says he doesn't want to take the M&A route because mergers rarely work. Cross-listing alliances, on the other hand, expand the market for investors from both sides without having to integrate. That explains the NSE's decision to take its benchmark index, Nifty, for trading in the global markets. Exchange-traded funds based on the NSE's index are already traded in several global exchanges. The NSE has also brought many foreign indices to India.
Regulatory arbitrage is something that worries him a great deal. Narain says India needs to streamline regulations to attract greater foreign capital and fend off a growing threat of financial activity moving to other countries. Competitor nations were using favourable regulatory regimes to attract business away from India. "We need to tackle the regulatory arbitrage between India and some other jurisdictions," he adds.
Though the NSE has become the leading stock market in India with 95 per cent market share in derivatives, Narain still has a very long to-do list for the exchange. The list includes benchmarking the NSE to global standards, increasing the product range, increasing the depth of the markets and currency futures and options.
Narain admits India was an underserved market 20 years ago and remains one even today. The proportion of household financial savings that end up in the equity market is six to eight per cent, he says, adding that the key to raising this proportion to 50-60 per cent is to increase retirement savings and not exhortation and marketing to individual households. "If we push a household that predominantly invests in NSC [National Savings Certificates] or other deposits to invest in stocks, I am afraid this could result in mis-selling. So, the key to correct this is to reform EPFO [Employees' Provident Fund Organisation], which is a burning need at the moment. On the other side, we need to grow the NPS [New Pension Scheme], which is a very nice modern apparatus tailor-made for this purpose. So, the challenge is how a big chunk of the EPFO corpus can be shifted to NPS", he says.
Narain also thinks there is an urgent need to tighten insider trading rules. The vast bulk of individuals who indulge in tips or insider trading with 100 shares will never get caught. That's the case - whether it's the US or London or any other place. "So we have to keep doing two things: improve our armoury against the menace and go after the big cases that will hopefully send shivers down their spine. It's a slow process. But it's happening. Sebi has got a couple of nice cases," he says, as his aides remind him about his next meeting.
Narain's second innings is clearly as busy as his first one.
Despite our persistent efforts, all that Narain says about the "portfolio" is that it is not necessarily in the financial sector. Do we now see him in other corporate boards? The answer is predictably brief: "Within Sebi's [Securities and Exchange Board of India] tight framework, some of this can happen."
We had got a taste of his busy-ness much earlier when we were told that since he was always on the wing, Narain didn't have the time to follow the standard "Lunch with BS" format of choosing a restaurant for us to host him. Instead, he's invited us for tea at the tastefully decorated conference room of the NSE headquarters at Mumbai's Bandra Kurla complex. "Let's call it 'Chai with BS' as that sounds more interesting," Narain says, with a broad grin.
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The reason it's so tough to get Narain to talk about himself is his obsession to keep away from the arc lights. Ask him whether this reticence on his part has sometimes earned the NSE a bad name for being arrogant, and the answer is that he "simply doesn't know any other way of operating." He also doesn't understand why a CEO needs to "bare his soul" when the only thing that he is paid for is to sit quietly and do his job. "The self-effacing business has been part of the NSE's DNA for a long time. People should not matter more than the institution. It is actually silly to do aggressive in-the-face selling of yourself," he says.
Such statements are not exactly music to journalists' ears , but we keep trying. Why did he retire as MD and CEO so early, we ask. The architect of the NSE is less guarded in his response; he says he will be 58 this year and would have been incapable of doing other interesting things had he taken one more contract. "That's long enough - six years as deputy CEO and 12 years as CEO. Something begins to happen inside your head and I started feeling the need to do something else," Narain adds.
He is more than willing to take a walk through the alleys of nostalgia. An economics graduate from Cambridge and MBA from Wharton, a young Narain had a cushy job in Washington. But he came back to India three years later to join IDBI for three reasons: one, he didn't want to be sucked into the easy life in the US; two, his father passed away, which forced him to simply pack his bags and leave; and three, he wanted to do something whose impact would go beyond just one particular organisation. And IDBI gave him that huge canvas to experiment with different things.
So when S H Nadkarni, then IDBI chairman, asked Narain to join a team that would set up a brand new stock exchange, it seemed more like a "fun thing to do", since none of them had any clue about how an exchange worked. Contrary to conventional thinking, life was much easier since the team started with a clean slate, even though a lot of people laughed at what they thought a few babes in the wood trying to compete with 100-year-old institutions.
One of the most common things he heard when the NSE wanted to bring in technology to transform the market was that exchanges are about people, not technology. To that, his response was: "Technology helps people do the right things." What the team quickly figured out was that opacity was the key issue in stock exchanges and they were not run efficiently. So the NSE did five things to change the rules of the game.
First, it replaced the physical floor in exchanges with a virtual one. In other words, it launched screen-based trading, in which the computer screen plays the role of an exchange floor. The second thing it did was to enable delivering that screen simultaneously to all parts of the country - be it Patna or Kochi. It may sound very simple now, but it was a huge task at a time when the telecom revolution was nowhere in the horizon. The third thing was the introduction of the concept of membership, where you deposit a certain amount with the option of getting refund if you wish to exit. This was contrary to then nonsensical system of auctioning wherein the highest bidder would get seats. Fourthly, the NSE brought in a scientific risk management framework that could allow it to guarantee settlements. And fifth, the exchange replaced badla with more advanced futures and options, which were readily accepted by the market.
Narain's response to the inevitable globalisation going forward is to convert some of the global exchanges to partners. The NSE is looking at forming joint ventures with overseas companies to start businesses in the market infrastructure space - ranging from setting up new exchanges, clearing houses and offering exchange-traded products to settlement services and data distribution. It is keen on joint ventures for allied services rather than setting up new exchanges.
He says he doesn't want to take the M&A route because mergers rarely work. Cross-listing alliances, on the other hand, expand the market for investors from both sides without having to integrate. That explains the NSE's decision to take its benchmark index, Nifty, for trading in the global markets. Exchange-traded funds based on the NSE's index are already traded in several global exchanges. The NSE has also brought many foreign indices to India.
Regulatory arbitrage is something that worries him a great deal. Narain says India needs to streamline regulations to attract greater foreign capital and fend off a growing threat of financial activity moving to other countries. Competitor nations were using favourable regulatory regimes to attract business away from India. "We need to tackle the regulatory arbitrage between India and some other jurisdictions," he adds.
Though the NSE has become the leading stock market in India with 95 per cent market share in derivatives, Narain still has a very long to-do list for the exchange. The list includes benchmarking the NSE to global standards, increasing the product range, increasing the depth of the markets and currency futures and options.
Narain admits India was an underserved market 20 years ago and remains one even today. The proportion of household financial savings that end up in the equity market is six to eight per cent, he says, adding that the key to raising this proportion to 50-60 per cent is to increase retirement savings and not exhortation and marketing to individual households. "If we push a household that predominantly invests in NSC [National Savings Certificates] or other deposits to invest in stocks, I am afraid this could result in mis-selling. So, the key to correct this is to reform EPFO [Employees' Provident Fund Organisation], which is a burning need at the moment. On the other side, we need to grow the NPS [New Pension Scheme], which is a very nice modern apparatus tailor-made for this purpose. So, the challenge is how a big chunk of the EPFO corpus can be shifted to NPS", he says.
Narain also thinks there is an urgent need to tighten insider trading rules. The vast bulk of individuals who indulge in tips or insider trading with 100 shares will never get caught. That's the case - whether it's the US or London or any other place. "So we have to keep doing two things: improve our armoury against the menace and go after the big cases that will hopefully send shivers down their spine. It's a slow process. But it's happening. Sebi has got a couple of nice cases," he says, as his aides remind him about his next meeting.
Narain's second innings is clearly as busy as his first one.