Independent director was fed up with frequent governance issues and soaring personnel costs at the sinking bourse

The Bombay Stock Exchange (BSE) is going downhill fast. The resignation of Mr Vivek Kulkarni, an ex-IAS officer is just a symptom of the serious malaise that has continued to drag the exchange down despite a string of professional CEOs.

In fact, we learn that Mr Kulkarni resigned nearly two months ago but the exchange has kept the fact under wraps and has yet to accept his resignation officially.

Today, The Economic Times reported that Mr Kulkarni had objected to the exchange's proposal to buy Computer Age Management Services (CAMS), a mutual funds registrar and transfer agent. He believed that the exchange was investing in a sunset business which has no long term future, because he believes that service will be provided by depositories. Mr Kulkarni had similarly objected to BSE’s investment in United Stock Exchange (USE) the fourth currency derivatives exchange. The BSE had acquired a 15% stake in USE for Rs22.5 crore. At one time it planned to enter into a deal where BSE would restrict itself to the cash market and all derivatives trading (yes, equity, commodities or any other segment that was launched) would be through the USE. This plan seems to have been dropped after Mr Kulkarni’s objections. The BSE, it may be recalled had launched and failed in both equity and currency derivatives segments; for currency derivatives it set up an exchange which was dead in less than three months. The USE, launched with great fanfare had managed to boost trading volume artificially, which has dwindled considerably since. Worse, it has no revenue model, since all currency derivatives bourse have been forced to follow NSE’s lead of not levying transaction charges.

Earlier, Mr Kulkarni had questioned a decision to acquire Marketplace Technologies Pvt Ltd (MT) for Rs43 crore. The company belongs to Ashish Chauhan, deputy chief executive of the BSE, which apparently would compete with broker front-office software of an NSE-affiliate and the market leader Financial Technologies. The decision to acquire the company was taken at a meeting that Vivek Kulkarni could not attend.

Moneylife had then reported that Ashish Chauhan had made the acquisition of his company a condition to joining the BSE. It is still not clear what value that acquisition has brought to the bourse. Meanwhile, Chauhan is just another expensive part of the BSE’s top management.

Mr Kulkarni had also raised objections to the HR policy where the exchange is splurging large sums of money on a top-heavy team which had caused personnel costs to soar.

The latest management team, which came in with high expectations due to its international experience, has yet to make its mark or show an understanding of how the Indian capital market system works. Instead, typical of the US, team BSE is top heavy and driving up personnel costs while it spends more time in financial engineering to increase the bourse’s valuation rather than increase trading volume or enter new businesses. The CEO Madhu Kannan, who was formerly a vice-president of the New York Stock Exchange (NYSE), hired the services of a New York-based boutique advisory firm named Galileo Global Advisors. Galileo’s Jim Saphiro is now with the BSE (he was Kannan’s boss at the NYSE). Sayee Srinivasan, who is in charge of business development was the India representative of the Chicago Mercantile Exchange and then, finally, there is deputy CEO Ashish Chauhan.

Mr Kulkarni’s decision to quit the BSE board was trigged by the realization that he was being second-guessed. Apparently, the BSE management used to constantly check whether he planned to attend a board meeting, so that decisions that he is likely to question, could be tabled in his absence. We learn that the decision to acquire CAMS was also put before the board without prior notice. It is unclear how the rest of the luminaries on BSE’s board have reacted to Mr. Kulkarni’s action. Mr Kulkarni, a former IT Secretary with the Karnataka government is known for this high integrity and uncompromising nature.

As Moneylife had reported earlier, this is not the first professional management team to run down the bourse’s reserves through questionable investments. Its former CEO, Rajnikant Patel, resigned over a controversial decision to fork out Rs65 crore to two brokerage firms—Apollo Sindhoori and SMC Global—for market-making in the derivatives segment; a controversial decision to invest Rs100 crore for a 26% stake in the National Multi-Commodity Exchange (NMCE) and finally, a hurriedly signed $60 million technology deal with OMX, a Swedish Company. Read more http://www.suchetadalal.com/?id=b244f25a-0147-e16d-4a9510fe6285&base=sections&f