Eminent yes men behind NSE

For the past two weeks, the media has been agog about a Himalayan yogi whose blessings alone were running the world’s largest derivatives exchange, the National Stock Exchange (NSE), according to Chitra Ramkrishna, its former managing director. As documented in the 190-page order of the Securities and Exchange Board of India (Sebi), released on the February 11, Ms Ramkrishna referred to this “unknown person” as “thee” or “swami ji” or “your lordship” and he was communicating with her through an email id — rigyajursama@outlook.com. When Sebi asked her about the person behind this email id, she replied “Siddha Purusha/Yogi is a Paramahansa who may be largely dwelling in the Himalayan Ranges. I have met him on occasions in holy places. No locational co-ordinates are given.”

Thanks to these and other such bizarre details, the NSE became the laughing stock of the world. Forced to respond, the government has unleashed the Central Bureau of Investigation (CBI), leading to the arrest of Anand Subramanian, whom Ms Ramkrishna had appointed in violation of all rules, and went on to give him jaw-dropping perks, promotions, and increments, which also violated established processes. As the investigation proceeds, more arrests are likely, linked to the co-location scam at the NSE between 2010 and 2014, when a few brokers got unauthorised and preferential access to the NSE’s co-location servers, allowing them to skim off huge profits. The NSE is a high-technology platform and has near monopoly control over India’s capital market. How has it become a hotbed of scams and scandals?
 

There is no paradox here. Behind its enormous commercial success (an unheard-of operating margin of 70 per cent), the NSE is a symbol of absolute power with a history of bending rules to suit its ambitions and quash competition, as its founding team of Ravi Narain and Ms Ramkrishna used its monopoly power for regulatory capture. Sebi allowed the NSE to expand into new businesses, ignoring conflicts of interest, make illegal appointments to top posts, and work ruthlessly to destroy even a hint of competition. But an MD communicating with a yogi for guidance on running the exchange was still a surprise. How did the NSE, a first-line regulator, operating in a sensitive and highly regulated sector, overseen by a high-profile board, Sebi, and the finance ministry, come to acquire such enormous power and abuse it with impunity for so long? The answer: With the help of these same eminent people who were responsible for its oversight.

NSE board of directors

Over 15 years or so, Mr Narain and Ms Ramakrishna ensured that the NSE’s board members (drawing among the highest sitting fees in India) were carefully selected to ensure staunch and unquestioning support after having delegated far-reaching powers to the MD. Hence, when Sebi asked the NSE about the algo scam, the board’s first reaction was there were no irregularities. This was no surprise because the same bo­ard had allegedly irregularly appo­inted Ms Ramkrishna MD in 2013. The NSE board constituted a selection committee of Mr Narain, S H Khan (former cha­irman of the NSE and IDBI), S Venkiteswaran (former NSE director and senior advocate), and Deepak Satwalekar (public interest director) on November 6, 2012. The committee managed to hold its first meeting on the very day it was appointed, almost as if it was ready on the spot and to get cracking. It met again, just two days later, to strongly recommend that an internal candidate was best suited, and Ms Ramkrishna’s appointment with a five-year tenure.

Sebi approval (required under the rules) was not sought. No other candidate was considered for the post, even though the committee’s mandate was to shortlist candidates from “within the organisation, from other exchanges in the country, other parts of the financial sector in the country and exchanges globally”. For the kind of money the NSE was paying it would have attracted the best of names from exchanges across the world. After all the much smaller BSE under Madhu Kannan had put together a crack team of professionals who had worked at the New York Stock Exchange and Chicago Mercantile Exchange. While recommending Ms Ramkrishna as MD the committee also created a brand new designation of non-executive vice-chairman for Mr Narain, ignoring the fact that the NSE could not possibly have both, chairman and vice-chairman, in non-executive posts. It was as if the NSE was a personal fief 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 Ms Ramkrishna appointing Mr Subramanian immediately after she became 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. Extraordinarily, he was even kept out of the list of “key management persons”, while enjoying the second highest remuneration and perks and being appointed to the boards of all NSE subsidiaries. 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 Ms 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.

Don’t forget, the NSE scam and its abuse of power happened under the gaze of three successive Sebi chairmen, the worst happening under C B Bhave and U K Sinha. In short, the rot goes far deeper and is not limited to the MD and the yogi. The luminaries who have decorated the NSE’s successive boards over the past two decades, the brass at Sebi and key officials in the finance ministry and a powerful politician have actively helped. If the government is keen on a clean-up, these eminent men too must be made answerable.

The writer is the editor of www.moneylife.in

Twitter: @Moneylifers