Mumbai: The National Stock Exchange of India (NSE) has battled several issues this year—there was a stand off with shareholders on its listing plans; allegations surfaced of allowing unfair access to some brokers; and managing director Chitra Ramkrishna resigned unexpectedly.
In an interview, chairman Ashok Chawla said the initial share sale of the nation’s largest exchange will likely happen in the beginning of the April-June quarter after it hires a new managing director and completes corrective action based on a forensic audit to examine allegations of “unfair access” to its algorithm trading platform. Edited excerpts:
NSE has been in the eye of a storm in the recent past.
NSE is an efficient and well-oiled organization and it is not for nothing that the exchange over the years has grown from zero percent market share to 85%. In an organization, issues do come up sometime that are not necessarily defining aspects. There have been some technological issues in the past, which were resolved in 2014 and are also under investigation to prevent any future occurrences. Listing of the exchange is being pursued with a fair degree of rigour, as it is only appropriate that the existing shareholders get an exit option. Resignation of the managing director and CEO had nothing to do with this—people come and go for many reasons. In her case it was personal reasons.
The NSE management has mostly been averse to listing in the past.
NSE wasn’t opposed to listing, but they had two concerns— the need for restructuring of the company into regulated and unregulated businesses, and a perception that if they list on a competing exchange it could lead to some troubles. Last few months the board has looked at these issues; restructuring is worth looking at at some point but that should not be something that the listing process should be held hostage to. Listing on the other exchange is the regulator’s decision so we will abide by that.
What would be the size of the offer?
The offer for sale (OFS) is not to raise money as we have adequate cash on our books. All the 70 shareholders of NSE have been asked to offer some of their shares in the OFS, which is coming to be around 20-25%.
The current Sebi rules do not allow for an overseas listing, so is the overseas listing off the table?
There was some thinking initially to tap global markets through overseas listing but for now we are restricting ourselves to domestic listing. We could revisit it later. We had earlier said that by January we would file a Draft Red Herring Prospectus with Sebi but now we have preponed the timeline and would file by 20 December for a domestic listing.
Issues have been raised that the NSE board examining the issues of alleged unfair access to certain brokers while accessing the algorithmic trading platform is a case of NSE investigating itself.
As per the Sebi (Securities and Exchange Board of India) directive, we have commissioned a forensic audit to examine the allegations and the report is expected from Deloitte India in few days. We would submit the entire report to the regulator and if the board has some observations and comments to offer then we would add those. Whether there would be a fair examination of the allegations considering that NSE has commissioned the audit, you should ask the regulator. There would be some confidence that Sebi has in the NSE board.
Considering the timelines you have highlighted would it be safe to say that the exchange would not list till the new CEO is in place and the issues around allegations of unfair access are resolved?
Yes, we would not list till these two issues are resolved as this is the prudent thing to do. The new MD and CEO would be in place before the end of the first quarter of the coming calendar. Corrective actions based on the forensic audit in consultation with Sebi would also be finished around the same time. As to listing this would happen around the beginning of the second quarter of the calendar year.
Is NSE okay with listing on a rival exchange—because of the concerns of conflict of interest that may arise out of cross listing remain?
We have requested Sebi to provide some comfort in existing regulations. For instance, in case the exchange, acting as regulator, proposes an action against an exchange which is listed on its platform perhaps it could be looked at by some external party or independent member. Sebi is positively considering the proposal, if it comes then it would give the parties some ease and if it doesn’t then the philosophy behind cross listing is—you can’t be a judge of your own cause and we will honour that.
There have been many reports pointing to differences with the board being the reason for Chitra Ramkrishna’s exit from NSE.
Differences with the board are something like what two people have while talking across a table, nothing more than that. At least there were no issues between the board and the ex-CEO that could have prompted such a move on her part, so to that extent I deny (these claims).
Reportedly, the board was concerned about the appointment of the group chief operating officer Anand Subramanian. So, are you saying that the board had no concerns on his appointment?
Well, there is no merit in visiting that issue today. This was something that happened in the past and we would like to leave it there.
While BSE’s Gujarat International Finance Tech (GIFT) plans seem crystallized, we have not heard much from NSE on its plans for GIFT. Would you be able to take us through your plans for GIFT City?
You are right, as per the media reports BSE is launching on 9 January. You can expect NSE to launch just a little later. We are in the process of getting permissions from the District Commissioner for a space in GIFT and a nod from the regulator, Sebi. We already have approvals in place from the Registrar of Companies for setting up the subsidiaries for GIFT.