On 5th January, I forwarded a letter from insiders at the National Stock Exchange (NSE), raising concerns about conflict of interest at the NSE board, to UK Sinha, chairman of the Securities and Exchange Board of India (SEBI). Mr Sinha thanked me for drawing his attention to the letter and will, hopefully, act on it soon.
This is the fourth in a series of letters that have exposed that the bourse had been functioning like a private fief. The top management comprised a close group that worked with friends, relatives, useful former employees and select academics. NSE has never been questioned about this. Nobody questions a very profitable entity that played a pivotal role in transforming India’s capital market in the 1990s.
Over the years, NSE’s rapid growth to become the fourth largest exchange in the world, induced awe from those at SEBI and the finance ministry. This led to complete ‘regulatory capture’ and, probably, ensured that the founding team went on to head the exchange in succession for over two decades. The founding managing director (MD), Dr RH Patil, made way for the elevation of Ravi Narain as MD and he, in turn, passed the baton to Chitra Ramakrishna, without the post being advertised or going through a formal selection process. NSE’s selection committee also performed a perfunctory and questionable role, as has been revealed by documents procured by us from SEBI under the Right to Information Act on Ms Ramakrishna’s appointment.
SEBI officials have rarely dared to question NSE’s clubby senior management or ensured that it complies with the elaborate regulations imposed on listed companies and intermediaries. After all, many senior SEBI and finance officials have worked on deputation at the NSE and tend to remain in awe of the bourse. Let’s not forget how CB Bhave was appointed SEBI chairman, despite the National Share Depository Ltd, which he founded, having been indicted by SEBI in the multiple applications (to IPOs) scam. The matter was eventually buried. Is it any wonder that NSE has got away with a mere warning even in investigations like fat finger trades and the change of client codes?
This changed in September 2015, after Justice Gautam Patel’s path-breaking order on the Rs100-crore defamation case filed by NSE against Moneylife. We published the exposé by a whistleblower on how NSE’s algo-trading and co-location system was being rigged, with the connivance of insiders, to ensure substantial profits to a set of brokers. The NSE management had allegedly papered over the issue by sacking those who were involved. A subsidiary that provided consultancy services to brokers for co-location and algo-trading was also quietly sold off, at a huge valuation.
Justice Patel dismissed NSE’s attempt to gag Moneylife through a hard-hitting order and imposed an unprecedented Rs50-lakh fine. Although NSE has appealed the order, SEBI’s technical advisory committee confirmed the whistleblower’s allegations. SEBI has, since, ensured a change in NSE’s board composition and initiated punitive action. It asked the bourse to conduct a forensic audit to pin responsibility on the individuals responsible for the system’s breach. The consulting firm, Deloitte, was appointed, and it confirmed SEBI’s finding that a few stockbrokers repeatedly got preferential access to NSE’s systems. NSE was also asked to deposit the revenue generated from its co-location business into a separate bank account and several hundred crore rupees have been set aside for this.
These actions led to another development. NSE insiders and employees mustered the courage to write anonymous letters to the SEBI chairman and finance ministry officials. I have been copied on at least four such letters. The internal rot that they exposed is shocking and, probably, accelerated the revamp at the top.
After the algo-trading scam was established, Ashok Chawla became the NSE chairman. Mr Chawla, unlike most of its past chairmen, is not a puppet of senior management. The board was also partly revamped. This quickly resulted in two important exits—that of Chitra Ramakrishna, MD and CEO, and Anand Subramanian, whom she had appointed as advisor and group operating officer (GOO). More on this later. As NSE readies for a public listing, investors need to ensure a clean-up of the irregular appointments and dodgy governance practices that have crept into what was once an exemplary organisation.
When Dr RH Patil passed the baton to Ravi Narain without a selection process being followed, the then finance minister, Yashwant Sinha, did have some concerns, but they were quickly buried. Later, Mr Narain pushed for Ms Ramakrishna’s elevation as MD saying that he did not want to continue in an executive role. In doing so, he ensured that he retains power at NSE without accountability. Mr Narain is on all board committees—the audit committee, nominations and remuneration committee, stakeholder relationship committee as well as the risk assessment and review committee.
Importantly, he was the executive head of the NSE when the algo-trading breach occurred. Yet, Mr Narain was part of the decision to appoint Deloitte as the forensic auditor and to decide on accountability of employees! This conflict of interest was flagged by the whistleblowers’ letter that I forwarded to the SEBI chairman on 5th January. Since SEBI has an elaborate policy to evaluate board members, it will be interesting to find out what it has to say about Mr Narain’s role in the ongoing upheaval at NSE.
On 21st October, the NSE board, finally, questioned Anand Subramanian’s appointment, following a SEBI directive on the matter. He abruptly left that day, even vacating his apartment in a few hours. Mr Subramanian was appointed by Ms Ramakrishna, although he had no technical or financial background for the job. His appointment as a consultant also bypassed the appointment committee of the bourse.
As part of the founding team of the Exchange, who has been with the organisation for over two decades, Mr Narain was probably the only person capable of questioning Ms Ramakrisha’s action. Instead, he seems to have supported Mr Subramanian’s elevation to GOO and his induction to the board of NSE group companies. Insiders say that Mr Subramanian was allotted Mr Narain’s former apartment in Mumbai, and that his office was the only one on the same floor as that of Ms Ramakrishna, with an inter-connecting door. His perks as a consultant included first-class international travel and three days every week at NSE’s Chennai office which was headed by his wife Sunitha Anand.
Ms Anand, also appointed as a NSE consultant, drew a hefty compensation. But the couple was not among the 36 key employees listed in the annual report, nor identified as ‘key persons’ for SEBI. Were Mr Narain and NSE’s appointment and compensation committee unaware of this?
A former executive tells us that there was a clear strategy to appoint semi-retired professionals as consultants to key departments involving high security operations rather than build teams with long-term commitments. This is also true of NSE group companies. In at least two instances, the Exchange skirted the requirement to advertise a post in order to appoint a ‘favourite’ or appointed a ‘consultant’ to head it. Other cases of conflict of interest, where spouses of those in key posts at NSE were also consultants, or those related to influential academics, have been exposed by internal whistleblowers in four separate letters.
Given how scandalous this is, shouldn’t the NSE board ask for a full review of its HR policies and appointments? NSE’s DRHP reveals that it has now decided to absorb suitable consultants as employees and foreclose contracts of others.
The SEBI chairman, Mr Sinha, is quoted by the media as saying that he is ‘not satisfied’ with NSE’s response to the Deloitte report on algo-trading and wants to see action against brokers and employees who colluded with them. That is necessary, but not sufficient. Investors ought to demand clear evidence of a ‘deep cleaning’ of the bourse, before listing.
How is this different from a businessman buying mamta banerjee painting for 3Cr!
Subbu sir joined office exactly very next day after Ravi Narain sir retired.
Subbu sir had no konwn education or working history. There was no formal selection process in recruiting for such role. It appears even in joining form where all details are required to be filled, the form was completely left blank - both on edu and past experience or past compensation. Unlike typical corporate announcements when people join anywhere or even within NSE, no specific mention of his past experience was mentioned
Subbu sir handled only infrastructure renovation projects for 2 years (something that could have been done by existing team). Got new conf rooms, board rooms (80 seater board room created at approximate spend of 5Cr under pretext of WFE con - 2 day conf! , board room in delhi, kol etc. renovated. Got lobby renovated. One can argue none of these were required at all. Special board approvals were taken - and even the very passive board had apprehensions about need for such meaningless expenses. It seems for all this he was being paid 3-4 Cr per year (or 2L per day). It is most interesting to note that in contrast, one of the members of founding team at NSE, and some with extremely vast experience in exchange and very well respected, and continues to advise NSE 2-3 days in a month, Raghavan Putran sir, is paid around 25k per day for getting up at 3 am in the morning to come to Mumbai, do a good one day work and go back to reach home at 1am
Subbu sir sat in every single meeting held by Mam - larger meetings as well as one on ones. VC was installed in board room on CEOs floor only to facilitate Subbu sir joining discussions from Chennai in those rare cases when he was not around and Chitra Mam was in mumbai. Interestingly also heard that he not only sat in all appraisal discussions of all Mam's direct reports, he drove discussions and between mam and subbu sir they played good cop and bad cop.
fact that he was married to Sunita Anand mam was suppressed. Sunita mam used to call him sir in office. Instead of using 'Anand' which is his name, everyone was advised to use 'Subbu' or 'Subramanian' which is actually his fathers name. It appears it was to avoid any linkages that people may draw with Sunita Anand
Sunita Anand mam was also made consultant in order to avoid typical corporate clauses like spouses not having reporting relationships
Subbu sir used to travel back to Chennai on weekends. On rare occassions he would stay back in Chennai. In such cases he used Chitra Mams office to work
VIP culture introduced - out of 3 lifts which anyway were insufficient for load, 1 lift was kept blocked for Mam and Subbu when they were expected to use it. No one else was allowed to travel in those lifts. Esp. at peak hours this resulted in major discomfort. Even when Mam was not in office lift would be reserved for Subbu sir alone. Ravi Narain sir never would have allowed this. He was humble not only to travel in lifts with others but also make good meaningful conversations with all staff.
If subbu sir visited any other floor, prior to his visit a protocol team would arrive. They would clean the toilets on the floor, spray deodorant, get a basket of hand towels, sanitizer, good quality handwash, mouthfreshener etc and put it on washroom slab. On his leaving same were removed. Esp. given that NSE had taken a funny and ironical policy decision (yes formal decision) not to have handryers as well as paper napkins in washrooms, this was quite a contrast. Typically others were advised to not use those toilets while Subbu sir was around.
Mam and Subbu sir would commute together to office and back, everyday, have their lunch together everyday. It is said that lunch for both was catered from Chitra Mams house.
Subbu Sirs office was the only office on Chitra Mam’s floor, and they had a door connecting the two offices. Likewise they stayed on the same floor at company residence.
Unlike past where Ravi Narain Sir and Chitra Mam would always ensure one of them is in office in Mumbai, here both travelled together on most occassions - both India and abroad.
On rare occassions when this did not happen, the delegation would be given to someone in formal management team with a disclaimer that they need to operate on basis of advise from Subbu sir
Subbu sir was made board member in all subsidiaries where there is no external scrutiny. This was in lieu of Ravi Sir
Subbu sir was called 'Mr Pencil Review' since all his comments were written in pencil and passed on to chitra.
It was well known that even if Mam has rejected something earlier, going via Subbu sir is a sure way to get it aproved. Vice-versa, if one did not seek Subbu sirs blessings, it was sure to get rejected.
It is also said that Subbu Sir and Chitra Mam ensured that anyone who can possibly be a strong number two were specifically harassed endlessly to ensure they leave. For others as said in your column also, semi retired professionals were hired. Effectively all efforts were made to ensure there is no succession plan and hence dependency on one person
Rumours say that Subbu sir would run away from floor or stay in chennai whenever Ravi Narain Sir was in Mumbai or office. subbu sir never attended any meeting where ravi sir was there
Some very interesting and contra practices started by Subbu sir included secretary rotations. unlike most organisations where people carry forward their secretaries because of long established trust and comfort, here a secretary rotation policy was formally created!
All employees at senior level who were allowed busines class travel as per policy were verbally told to travel economy. Only subbu sir and chitra mam could travel business.
was never put in front of board members or committees in any formal capacity and kept under radar. Esp. given that influence he weilded within organisation with absolute no accountability.
the list is endless..hope other NSE employees also read and contribute to this - if not for anything else but just to get it out of their system.
There are much more major issues of larger public interest on which MONEYLIFE should delve on and shift gears from individuals to issues.
Some of these are :
1. Level playing field for market participants :
It makes me laugh that the level playing field amongst the algo traders who constitute 1% of market participants is debated so much. These 1% algo traders with co-location advantage enter the market and trade with advance market info data and the speed at which things happen, the game is over for the balance 99% who have not even entered the stadium. It is the fight for this level playing field that is important and MONEYLIFE should focus on.
2. Discourage Day Trading :
A number of youth in the country are wasting prime day time trading with their savings the whole day. These folks are the ones who are mauled by the algo traders with superior information and trading tools.
MONEYLIFE should look at this as a social issue as day trading is nothing but legal gambling. Just as gambling is a social sin, so is day trading. We now have a Puritan PM who can be expected to see the merit in this argument.
To begin with , as the PM is already eyeing the markets for more tax collection, in the coming budget the government could impose charge 75% tax on stock trading as a business activity and allow no set off of trading loss against trading profit. By doing so, day traders will lose charm of the activity and indulge in more gainful and purposeful endeavors . Algo traders will migrate to other casino stock exchanges overseas which will be good riddance.
3. NSE and BSE IPOs :
Hard decisions must precede the IPOs of stock exchanges. The risk factors should be reviewed. BSE's profits may halve in future and NSE's profits may go down by 80 %. After that the offer for sale should be allowed so that the lay investors are not short changed.
4. Encourage hard decisions that serve a good cause :
MONEYLIFE should note that the country has taken well hard decisions on social issues. Bihar has gone dry and PM has even appreciated his rival Nitish for this. Mumbai is better of without the dance bars...
Likewise MONEYLIFE will be appreciated and blessed by so many parents and spouses who see their children or spouses waste their lives on day trading, a ruinous activity... A campaign against day trading on a national scale is the need of the hour. This legal gambling must be discouraged and participants made to pay heavily for it.
On a different note, have you investigative journalists been able to find out Mr Subramaniam mystery - After all who is he, where he came from and where has he vanished ?