Perestroika at Dalal Street

Winds of change are blowing at the 135-year-old Bombay Stock Exchange.

As a reporter on the stock market beat, the crowded Dalal Street was second home to me for several years. Walking into the iconic Jeejeebhoy Towers, headquarters of the 135-year-old Bombay Stock Exchange (BSE), trying to get a few minutes with top brokers on what was going on in the market as they wound up trading activities for the day, was staple fare. 

Battles between factions of brokers—often based on the language they spoke— was part of the routine every time elections to the powerful BSE governing board drew near. No reporter could really claim to know the BSE without getting an insight into the psyche of the people who ran the exchange. 

Often called a ‘closed club’ of fiercely private star brokers and their firms, the BSE has, however, had to yield to the Government-backed might of the National Stock Exchange (NSE) since the mid-1990s. With cutting-edge technology, new products and a contemporary management structure, the NSE clearly emerged as an exchange with an eye on the future.

To be fair, the BSE has also had forward-looking bosses, and presidents who have had the courage to redefine the way the exchange works. So, whether it was the legendary Mahendra Kampani or the aggressive MG Damani, the BSE did produce presidents fiercely committed to taking the bourse forward. But overall, the perception did not change much, and the institutional investors’ preference for the NSE added to the problems.

Then came a major change—the move by the Government and market regulator Sebi of corporatising and demutualising the country’s stock exchanges. By law, the BSE was required to change its structure and its shareholding pattern to make it much more broad-based and contemporary. This, of course, was the first big step towards making the bourse—Asia’s oldest—into a more transparent institution for trading. But the problem was that by then, the NSE had already got a large chunk of the market, and the BSE was no longer the country’s largest bourse. Today, the NSE’s average daily turnover on the equities side is roughly three times that of BSE’s. But the biggest gap between the two exchanges is on the derivatives side, where the NSE is dominant. 

Of late, though, winds of change seem to be blowing at Dalal Street. And not just because of the fact that Deutsche Börse and Singapore Exchange have picked up 5 per cent stake each in the BSE. Consider the changes over the past year: the exchange has its youngest ever chief executive, 36-year-old Madhu Kannan, whose CV boasts of significant stints at the New York Stock Exchange and Bank of America-Merrill Lynch, and who is determined to usher in change. 

Kannan is clearly doing a few things right. For one, he has acknowledged the exchange needs to move with the times. In an interview to Reuters some months ago, he said that the BSE had been an “ivory tower”, and has now moved the CEO’s office closer to that of his team. Kannan, who was nominated Young Global Leader in 2007 by the World Economic Forum, has also been building a formidable team, comprising Wall Street veteran James E Shapiro (to head market development) and Sayee Srinivasan from the Chicago Mercantile Exchange.

The BSE’s board, now demutualised, boasts of some top class professionals and civil servants. Tata Group’s S Ramadorai is now the non-executive chairman, while former bureaucrat SN Menon, Vivek Kulkarni and lawyer Sudipto Sarkar are directors. Significantly, Deutsche Börse also has its representative, deputy CEO Andreas Preuss, on the BSE board. 

Kannan has also decided to accord sharp focus to new products, technology and customer-centricity. And the presence of DB and Singapore Exchange as shareholders will help in all these aspects. 

The first bricks of the new-look Jeejeebhoy Towers have been laid. And in the interest of the country’s capital market, it is imperative that the historic BSE succeeds in its gameplan. Simply because it is an institution that is much, much more than just a stock exchange.

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