Ashish Kumar Chauhan takes over the reins of India’s premier National Stock Exchange (NSE) at a time when its credibility is at its lowest ebb. The most important task before the new MD and CEO will be to restore faith in the governance of the exchange and regain investor trust. The co-location scam — which revealed that a few market intermediaries colluded with exchange officials to profit unfairly on the co-location servers — has been haunting the exchange for more than seven years now. With top officials of the exchange, some of whom were also founding members of the exchange, facing allegations of being involved in the scam, the NSE brand has been tarnished. Chauhan’s challenge will be to delink in the public’s perception NSE, the market infrastructure institution, from the team that controlled it for over three decades. He should address the gaps in the governance at the exchange, ensuring that due processes are followed while taking decisions and that the Board of Directors play their part in supervising and controlling the management. The NSE is not only the largest stock exchange in India, but it is also ranked as the largest derivatives exchange globally for the last three years. It has transformed the Indian stock market over the last three decades, ushering in greater reach and transparency with the help of technology. The alleged misdemeanours of the previous chiefs should not be allowed to diminish the contribution that the institution has made to the growth of the Indian stock market.
That said, Chauhan’s challenge will be to help the NSE evolve as a less-arrogant and more empathetic institution. Controlling 100 per cent of the equity derivatives volumes and over 90 per cent of cash volumes in equities does not give the exchange the privilege to make selective disclosures to the regulator and investors., and ride roughshod over media. Prompt communication to investors during trading glitches, owning up technical faults, if any, and making amends will go a long way towards winning back investor trust. Similarly, trading members and investors need to be informed well in advance about future changes in trading or settlement rules and their feedback should be considered before implementing them. The other factor that the new chief needs to focus on is on increasing investor awareness on risks in direct equity and equity derivative investments. The pandemic has resulted in a large wave of retail investors entering the equity market with a surge in new demat accounts in 2020 and 2021. While this has helped the turnover on NSE surge, the growth is primarily in the derivatives segment. An awareness drive to inform investors about the virtues in long-term investing and the risks in derivative trading are much needed.
Chauhan is well suited to implement these changes, given that he has been running the BSE for the last 10 years; a relatively quiet and controversy-free period for the country’s oldest exchange. Since he was also a member of the founding team of the NSE and had a large role to play in launching the automated screen-based trading system and first commercial satellite communications network of the NSE, he should be able to ensure that the NSE builds on its technological prowess and leadership position globally.