Home / Opinion / Views /  A​​shish Chauhan gets a grip on NSE’s biggest challenge — trust

In a recent interaction with key investors, National Stock Exchange (NSE) CEO Ashish Chauhan stressed on the need to rebuild trust, Mint has reported. After the capers that its former head Chitra Ramkrishna and her protege Anand Subramanian pulled off in the past, leaving her successors to deal with a widening overhang of investigations, restoration of confidence is indeed an imperative for Chauhan.

The former Bombay Stock Exchange (BSE) CEO may have also had one beady eye on the mayhem inflicted by the collapse of the world's second largest crypto exchange, FTX. An $8 billion hole in its books has seen investors across other such exchanges scrambling to pull their investments out and led to a sharp drop in the prices of major digital currencies like bitcoin. 

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FTX's spectacular bankruptcy is a pointer to what happens when an exchange falls under a shadow of suspicion. Like a run on a bank, investors rush to liquidate their holdings, triggering a market collapse. The crypto markets have been hit by disasters in the past but mostly these were in the form of a crash in the prices of tokens. In May this year, digital currency Luna suffered a near-fatal meltdown losing almost all of its value. Despite what was till then the largest ever crypto crash — the ensuing wipe-out was placed at nearly $60 billion — the market for digital currencies recovered.

The current bloodbath turned systemic when FTX, the exchange, got embroiled in the shenanigans that surrounded FTT, the token that its founder Sam Bankman-Fried had simultaneously floated. Its implosion has had a ripple effect. A week later, another exchange, the Hong Kong-based AAX, suspended withdrawals. In a sign of a deepening crisis, crypto brokerage Genesis also announced that it was facing abnormal withdrawal requests forcing it to suspend redemptions in its lending business. 

Given NSE's status as the primary platform for Indian equities, it can ill afford any such shocks. Like Caesar's wife, it needs to be unimpeachable. 

Indeed, for any stock exchange, trust is a far more important issue than profits or any other number. NSE itself came into existence in the early 1990s as an alternative to the century-old BSE, which was then controlled by a cabal of traders and was notoriously opaque in its operations. Not surprisingly, it was hugely mistrusted by retail investors which impacted their participation in the equity markets.

While BSE eventually got its act together, other regional exchanges didn't. A payments crisis triggered by the activities of a circular-trade syndicate comprising lead brokers as well as officials, led to the collapse of the Calcutta Stock Exchange in 2001. Similarly, in 2017, capital markets regulator SEBI derecognised the Delhi Stock Exchange citing “serious irregularities" in its functioning.

Despite its brush with controversy, NSE remains India's largest exchange in terms of total and average daily turnover for equity shares. The trend started in 1995 and has continued ever since. But the problems from its past, particularly the co-location issue which is in the courts, render it vulnerable to further erosion of confidence. 

History has shown that a stock exchange which fails to arrest its decline, is condemned to die. In the US, the American Stock Exchange, which began life in 1842, went down that path. As an alternative to the bigger and more demanding New York Stock Exchange, it had been an excellent platform for smaller companies. But the advent of Nasdaq, snatched away that advantage, and eventually the third largest exchange in the US had to put itself on the block.

While no such threat exists for NSE, Chauhan has an unfinished agenda. A listing of the exchange has been pending for years, with Sebi scotching earlier efforts in light of the controversies surrounding it. NSE's influential institutional and individual investors, many of whom have been waiting for decades to cash out, will be carefully watching how Chauhan will take the IPO plan forward.

The new CEO, under whose watch BSE went public in 2017, has decided to address the major stumbling block with candor. In his interaction, Chauhan accepted the need to win back trust but also admitted that the court cases related to events that happened before 2017, were out of his hands. While he may have spoken directly to only a few of its influential investors, his voice will carry to millions of others invested in companies listed on the exchange, who take its integrity and stability as a given. 

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