 "The vicious rivalry of Indian stock exchanges and why they should not list")
Like Arnold Schwarzenegger and the dinosaurs of the Jurassic age, the constituency in favour of listing Indian stock exchanges is back.
It started with a bang catching the finance minister off guard on his American trip, where investors alleged that the holdup in BSE’s IPO is an example of the bureaucratic logjam that still plagues investors in India. It is now all over this morning’s newspapers, with one of them wailing that he feels like “an orphan”
The case put forward by the investors that true economic value of these cash generating business entities needs to be discovered through listing and exits need to be allowed seem logical and the arguments based on global examples sound strong and irrefutable – on paper. However, these reports are missing a crucial element that has been etched in the DNA of Indian exchange business – the vicious nature of competition and the complications this brings in.
The birth and the rise of the National Stock Exchange at the turn of the millennium has been stuff of folklore. It was created out of a need to break the “brokers’ club” of the then BSE, which had allegedly become a fostering ground of scams like this Forbes article pointed out.
The new exchange had its top management picked from IDBI, a public sector institution, which was till recently among the investors trying to sell off the remaining stake. NSE consciously kept its distance from the brokers given the circumstances of its birth. But, brokers have interpreted this to be a sign of arrogance and have often tried to side with the underdog.
After the deathblow by way of badla trade ban at the turn of the millenium, BSE took years to regroup and comply with the rules of demutualization and shareholding caps. This in turn brought in shareholders, who are trying to exit now through an IPO.
Over seven years ago, BSE brought in the Chennai-born Madhu Kannan, who had earlier worked in Merrill Lynch and New York Stock Exchange. He acqui-hired the present BSE chief Ashish Chauhan by buying out his firm Marketplace technologies as his deputy.He also brought in a few expats. One of them was James Shapiro.
A look at this video will give an idea of how these tensions broke out in a seminar where both NSE and BSE were participating. Shapiro made his famous Alice in Wonderland reference in 2009.
The event became the starting point of an article on BSE’s guerilla war I had co-written while working for Mint
Kannan and Shapiro have since left, while Chauhan has taken centre stage at BSE.
That December 2009 article ended with a reference to emergence of the MCX stock exchange. The Jignesh Shah-led exchange brought to the exchange wars its own baggage of fights with NSE. NSE and Financial Technologies were locked in a bitter legal and media battle, which some say was precursor to the latter’s entry into the stock exchange space.
They were already in a bitter battle for market share in the currency derivates exchange, introduced by the regulator in 2008, which would go to the competition commission and eventually end up in Supreme Court.
A Business Standard article from early 2009 calls FT vs Financial Technologies as the mother of all market battles.
Now, if you arrived late, you might be wondering what is wrong about competition. Is it not healthy to have competition?
Camps of journalists and commentators, seen sympathetic to each group emerged. Private treaties and other business arrangements with media houses either party had were leveraged. And, soon everyone was pushed to make a choice in this battle of “US vs them”.
While journalists were witnesses to what was happening on the media side, a simultaneous war for one-upmanship was raging in the regulatory corridors. The matter of MCX-SX’s shareholding, its divestment plans and its innovative methods to comply with the regulatory norms became subject of much speculation and a ground for the raging media war.
Even the then Sebi chairman CB Bhave and his deputies were alleged to have taken sides. As pressure for listing of exchanges mounted, Bhave set up a committee under former RBI governor Bimal Jalan to evaluate the pros and cons of listing of exchanges and market infrastructure institutions.
It initially gave a big No for listing. Exchanges that were planning to list saw foulplay. It was alleged that the management of one exchange, which had become too powerful doesn’t want to list.
All hell broke loose. Hectic and unprecedented lobbying broke out with one of the industry chambers playing a crucial role.
Us vs them came into play. It didn’t take too long before things turned vicious. The case of Sebi action against National Securities Depository Ltd (NSDL), promoted by NSE and earlier headed by Bhave, itself became another battleground. It all blew up when a letter from former Sebi member KM Abraham addressed to the prime minister leaked in the media.
As the regime changed, the Jalan panel recommendations were turned on its head. Exchanges saw some hope in listing. The war between NSE and the FT group ended with the collapse of the National Spot Exchange in 2013. In its defence, the Jignesh Shah led group has openly alleged that its rivals had connived with some government officials and regulators to bring about its downfall.
The fall of Shah’ s empire breathed fresh life into the BSE and NSE rivalry. They have been fighting in whispers though. The ugly side of this rivalry came out in the open when a letter allegedly written by BSE to the regulator broke out in the open on this portal run by a former colleague, Saumit Singh. The row even dragged in some members of the media.
Staff involved have been moved to other departments within the exchange. Not before long, investigative reports about some stocks in BSE SME bourse began to surface.
Several news reports including in Business Standard highlighted the spiraling prices that were not backed by fundamentals.Six months on, Sebi has banned some 239 entities.
Some commentators have called for action against the errant exchange
The latest in the saga is the mysterious and anonymous whistleblower account that has surfaced. This has led to some frenetic regulatory activity in the high frequency segment.
Thus, the stock exchange space in India is fraught with mutual distrust bordering on a diabolic hatred. It also doesn't help that the various players have worked with each other at different points of time. This poisons every discourse, every regulatory measure and every new product. Arguments get twisted. Facts get blurred. Even neutral people are forced to first think of and look for the vested interests behind every proposal. The greater common good of organized development of clean, deep and liquid securities market takes a back seat. The same applies to mechanics of listing. How will they get the courage to list their stocks on each other’s bourses? What is the guarantee that they won’t spread stories about the other and write letters to the regulator if they self list?
This kind of a monkey fighting ring is not a right place to throw the garland of an initial public offering. It won’t take long for the value that investors are waxing eloquent about will go up in smoke of vicious ‘whistleblowing’ and ‘media investigations’.
You don’t need to look any farther than the MCX IPO and the people who burnt their hands in it.
Why then create an Indominus Rex just for the fun of some investors and lose the park itself while fighting to put the monster down?
It started with a bang catching the finance minister off guard on his American trip, where investors alleged that the holdup in BSE’s IPO is an example of the bureaucratic logjam that still plagues investors in India. It is now all over this morning’s newspapers, with one of them wailing that he feels like “an orphan”
The case put forward by the investors that true economic value of these cash generating business entities needs to be discovered through listing and exits need to be allowed seem logical and the arguments based on global examples sound strong and irrefutable – on paper. However, these reports are missing a crucial element that has been etched in the DNA of Indian exchange business – the vicious nature of competition and the complications this brings in.
The birth and the rise of the National Stock Exchange at the turn of the millennium has been stuff of folklore. It was created out of a need to break the “brokers’ club” of the then BSE, which had allegedly become a fostering ground of scams like this Forbes article pointed out.
The new exchange had its top management picked from IDBI, a public sector institution, which was till recently among the investors trying to sell off the remaining stake. NSE consciously kept its distance from the brokers given the circumstances of its birth. But, brokers have interpreted this to be a sign of arrogance and have often tried to side with the underdog.
After the deathblow by way of badla trade ban at the turn of the millenium, BSE took years to regroup and comply with the rules of demutualization and shareholding caps. This in turn brought in shareholders, who are trying to exit now through an IPO.
Over seven years ago, BSE brought in the Chennai-born Madhu Kannan, who had earlier worked in Merrill Lynch and New York Stock Exchange. He acqui-hired the present BSE chief Ashish Chauhan by buying out his firm Marketplace technologies as his deputy.He also brought in a few expats. One of them was James Shapiro.
A look at this video will give an idea of how these tensions broke out in a seminar where both NSE and BSE were participating. Shapiro made his famous Alice in Wonderland reference in 2009.
The event became the starting point of an article on BSE’s guerilla war I had co-written while working for Mint
Kannan and Shapiro have since left, while Chauhan has taken centre stage at BSE.
That December 2009 article ended with a reference to emergence of the MCX stock exchange. The Jignesh Shah-led exchange brought to the exchange wars its own baggage of fights with NSE. NSE and Financial Technologies were locked in a bitter legal and media battle, which some say was precursor to the latter’s entry into the stock exchange space.
They were already in a bitter battle for market share in the currency derivates exchange, introduced by the regulator in 2008, which would go to the competition commission and eventually end up in Supreme Court.
A Business Standard article from early 2009 calls FT vs Financial Technologies as the mother of all market battles.
Now, if you arrived late, you might be wondering what is wrong about competition. Is it not healthy to have competition?
Camps of journalists and commentators, seen sympathetic to each group emerged. Private treaties and other business arrangements with media houses either party had were leveraged. And, soon everyone was pushed to make a choice in this battle of “US vs them”.
While journalists were witnesses to what was happening on the media side, a simultaneous war for one-upmanship was raging in the regulatory corridors. The matter of MCX-SX’s shareholding, its divestment plans and its innovative methods to comply with the regulatory norms became subject of much speculation and a ground for the raging media war.
Even the then Sebi chairman CB Bhave and his deputies were alleged to have taken sides. As pressure for listing of exchanges mounted, Bhave set up a committee under former RBI governor Bimal Jalan to evaluate the pros and cons of listing of exchanges and market infrastructure institutions.
It initially gave a big No for listing. Exchanges that were planning to list saw foulplay. It was alleged that the management of one exchange, which had become too powerful doesn’t want to list.
All hell broke loose. Hectic and unprecedented lobbying broke out with one of the industry chambers playing a crucial role.
Us vs them came into play. It didn’t take too long before things turned vicious. The case of Sebi action against National Securities Depository Ltd (NSDL), promoted by NSE and earlier headed by Bhave, itself became another battleground. It all blew up when a letter from former Sebi member KM Abraham addressed to the prime minister leaked in the media.
As the regime changed, the Jalan panel recommendations were turned on its head. Exchanges saw some hope in listing. The war between NSE and the FT group ended with the collapse of the National Spot Exchange in 2013. In its defence, the Jignesh Shah led group has openly alleged that its rivals had connived with some government officials and regulators to bring about its downfall.
The fall of Shah’ s empire breathed fresh life into the BSE and NSE rivalry. They have been fighting in whispers though. The ugly side of this rivalry came out in the open when a letter allegedly written by BSE to the regulator broke out in the open on this portal run by a former colleague, Saumit Singh. The row even dragged in some members of the media.
Staff involved have been moved to other departments within the exchange. Not before long, investigative reports about some stocks in BSE SME bourse began to surface.
Several news reports including in Business Standard highlighted the spiraling prices that were not backed by fundamentals.Six months on, Sebi has banned some 239 entities.
Some commentators have called for action against the errant exchange
The latest in the saga is the mysterious and anonymous whistleblower account that has surfaced. This has led to some frenetic regulatory activity in the high frequency segment.
Thus, the stock exchange space in India is fraught with mutual distrust bordering on a diabolic hatred. It also doesn't help that the various players have worked with each other at different points of time. This poisons every discourse, every regulatory measure and every new product. Arguments get twisted. Facts get blurred. Even neutral people are forced to first think of and look for the vested interests behind every proposal. The greater common good of organized development of clean, deep and liquid securities market takes a back seat. The same applies to mechanics of listing. How will they get the courage to list their stocks on each other’s bourses? What is the guarantee that they won’t spread stories about the other and write letters to the regulator if they self list?
This kind of a monkey fighting ring is not a right place to throw the garland of an initial public offering. It won’t take long for the value that investors are waxing eloquent about will go up in smoke of vicious ‘whistleblowing’ and ‘media investigations’.
You don’t need to look any farther than the MCX IPO and the people who burnt their hands in it.
Why then create an Indominus Rex just for the fun of some investors and lose the park itself while fighting to put the monster down?