What the NSE’s new chief must urgently set right

Ashish Kumar Chauhan has returned to his alma mater, the National Stock Exchange (NSE), after 20 years. This was where he picked up the rudiments of running a modern-day, tech-driven stock exchange. As NSE’s new chief executive officer, Chauhan will have to marshal all his learning, management skills and political acumen to steady a ship that has veered sharply off course. The last attribute, ‘political acumen’, might sound odd in the context of a stock exchange, but it will explain itself as you read on. It might also be a truism to say that Chauhan faces a tough task ahead. The list of things that he needs to set right at NSE is indeed long and contentious, but there are two critical undertakings that should top it. The first is clarity on a basic role; an exchange must act as a frontline (or first level) regulator with an irrevocable responsibility for creating a framework that promotes efficient price discovery, provides an equal playing field for all participants, minimizes risks and ensures transparency. The second task is restoring the premium cache of brand NSE, which has suffered from a stream of sordid stories emerging from the exchange.

Living up to NSE’s regulatory onus as a primary intermediary between buyers and sellers, as well as between issuers and investors, is like walking a sword’s edge. The exchange has to compete with rivals in attracting investors with the help of low transaction costs, efficient prices and transparency. While NSE has to make the exchange more attractive for its primary constituency of stockbrokers, who bring investors to the trading platform, it also has to ensure that brokers comply with the rules. What’s required is an even-handed approach which guarantees that no single broker category gets preferential treatment over others. Some success can be achieved through successful communication that what is good for investors must also be good for brokers. This ability to wield an iron grip inside a velvet glove will demand that Chauhan mobilize all his diplomatic skills (the acumen mentioned earlier) in balancing varied interests. Different stakeholders have differing expectations of a stock exchange, be they shareholders, directors, intermediaries trading on its platforms, retail and institutional investors, custodians, depositories and regulators, or its own employees. This complex matrix will make extraordinary demands on Chauhan’s time, attention span and ability to provide solutions.

How Chauhan manages the machinery of NSE’s independently moving discrete parts will also impinge on brand NSE. It is undeniable that NSE’s brand value, considered right up there among the world’s best stock exchanges, has taken some hard knocks over the past few years from an onslaught of damaging stories about misdeeds at the exchange. Allegations ranging from a split-second edge gained by some traders to business advice taken from a faceless source have shaken the edifice of trust and reliability upon which NSE emerged as a competitor to India’s big traditional exchange, BSE Ltd. NSE’s brand image also helped it forge meaningful tie-ups with overseas exchanges, facilitating derivatives trading in its indices and providing an early-warning system for assessing how overseas investors view Indian capital market prospects over the short, medium and long terms. This remains a critical cog in a complex mechanism for attracting foreign portfolio investment and will require Chauhan’s urgent ministrations.