“A crooked finance minister, compromised National Stock Exchange officials and a cowardly regulatory body, these three came together, not formally but in operations”, said Dr Subramanian Swamy, renowned economist and Rajya Sabha member, at the inaugural launch of Absolute Power, a new book from authors Sucheta Dalal and Debashis Basu.
The book covers a decade-long history of the National Stock Exchange (NSE), from the very beginning when it was set up as a cleaner alternative to the century-old Bombay Stock Exchange after the 1992 Harshad Mehta scam, to the recent algo scam. It is the culmination of decades of reporting, observations and stories from insiders, describing NSE’s amazing commercial success which eventually lead to hubris, arrogance and a fall from grace.
“We believe we have written the untold story of the NSE, the invisible side and this could have been written only after the algo scam, which was a part of the pattern,” said Debashis Basu, co-author and editor of Moneylife, while providing some background information on the book. “NSE is a regulated entity. But our book cites examples of how it worked to kill competition, that are so egregious, that it simply could not happen without the full backing of the regulator – SEBI – as well as the finance ministry. The word for the situation is Regulatory Capture,” he explained.
“This book is about my own personal journey from being a huge supporter of the NSE and an admirer of its unparalleled achievements despite enormous pressure from the broker lobby – to documenting how it began to crush anyone who dared to question its secretive ways,” said Sucheta Dalal, co-author and managing editor of Moneylife. “It is important to mention that Absolute Power is not about the Algo Scam alone – it is about the entire journey of the NSE, which started life under the extraordinary Dr RH Patil and how, over the next 25 years, its market dominance and super profits converted it into a nasty, secretive organisation that was actually run like a mom-and-pop outfit at the highest level, behind a façade of utmost professionalism,” she further added.
“With a complex technology we need to be very careful, because if we don’t understand it, we don’t have a regulatory machinery which is equally intelligent and knowledgeable, we can land the economy into a big mess,” said Dr Swamy in his opening comments while talking about the book. He further elaborated with an example of how Western stock markets had collapsed with derivatives.
“Today we are heading towards a much more complex system, and it is only a preview, what Sucheta and Debashis have pointed out in their book. That, this is how it happened with the NSE, which was at one stage a matter of great praise from everybody because it was computerised unlike the BSE, and then how the same computerisation lead to the algo scam,” he added. “It’s a book that has come at a very appropriate time, because we are now moving very quickly into the cyber space when it comes to financial issues and there the accountability issue is going to be a huge one.”
Talking about the advent of cryptocurrency and the importance technology plays today in financial matters, Dr Swamy said, “Today with this cyber currency, is there any scope for any kind of regulatory mechanism? No one has thought about it. But it’s already coming in and going in a big way and this is ideal for money laundering and so many other things. There is also no governance, because it’s directly between buyer and seller. So it’s a technology, which can be manipulated by anybody. Today the Chinese are sitting on a lot of bitcoins and people think that they can do anything online through their cyber activities. Everything is now focused around this computer technology.”
Dr Swamy highly praised the book, Absolute Power, in his comments saying, “It is worth reading, because they have de-mystified this whole NSE scandal. I know a large number of people who have come to me asking about the scandal and I myself wasn’t as clear as I have now become after reading this book. It’s a book that is worth reading cover to cover and I’m sure there will be a sequel because more developments are going to come!”
Speaking about the algo scam and the role of the regulators, Dr Swamy said, “SEBI as a regulatory body was only doing a ‘rapping on the knuckles’ and that didn’t matter because crores and crores of rupees were siphoned off.”
Although we need an organisation as the NSE, Dr Swamy in his comments considered how we can go about to de-fang its powers. He even suggested that Indian stock markets have been considered as a rigged affair since 1987 by western stock markets and something needs to change.
“We are a growing economy and we have the potential to be a global economic power, I never had any doubts about that. But this requires the efficiency in the use of resources,” Dr Swamy added in his closing comments. “The stock market is a way of moving money around for people who want to invest for higher returns. So this process needs to have faith and that means confidence. In this context, I feel that the country must demand and point out, that in the long term missteps such as the NSE will only harm us. Books such as Absolute Power, are something that are most welcome in today’s world.”
Commenting on whether a lot has changed since the founding team of the NSE wielded its absolute power in its early days, Debashis Basu said, “Well, last year, the number of broker-defaults hit a historic high. This year, the exchange faced an embarrassing technical glitch and its risk management system, the core of any exchange’s operations, failed. There is a strange reluctance on the part of SEBI to act against the NSE even today.”
Dr Swamy had this to add to the same question, “I think for regulators and government officials to take up this matter, they must have a modicum of knowledge on economics and finance. I would say that I know MPs who understand but they are on the other side, so they won’t support us. What I think is the process the Sucheta and Debashis have started helps to encourage people to take action. At the moment however, if we want to see some change in the financial system, people like Sucheta and Debashis will have to join the parliament!”
Pratip Kar, former executive director of SEBI, R Balakrishnan, columnist for Moneylife, and Rohit Talwalkar, managing director at Everstone Capital, spoke on the occasion.