India’s NSE scandal comprising a mysterious Himalayan yogi, a “group operating officer” who had never worked in the securities market, and a board that looked the other way shows that it takes only a few key individuals to tarnish even a hallowed institution. But there’s redemption in embracing good governance, writes Georgy Thomas

In February, India’s stock market regulator, the Securities and Exchange Board of India (SEBI), quietly uploaded a 190-page report written by Whole-Time Director Ananta Barua to its website. Its matter-of-fact title, “Final Order Against Ms Chitra Ramkrishna and Others”, may have initially wrong-footed some in the media. But the contents of the report were so explosive that news soon spread like wildfire through social and mainstream media outlets that were forced to play catch-up.

The uproar created by the report has still not subsided. It revealed how Ramkrishna, a former managing director and CEO of the National Stock Exchange (NSE), presided over the bourse in a way perhaps best described as bizarre during her 44-month tenure, which ended abruptly in December 2016.

For Asia Business Law Journal, the reports on the dramatic events at the NSE during Ramkrishna’s tenure provide us with the rare opportunity to contrast each episode of misconduct with governance principles that offer better outcomes.

In the report, Barua describes how Ramkrishna used to regularly take instructions over email from an outsider, revealed to be a Himalayan Yogi — a Siddha Purusha, in her words.

The following exchange reveals the extent to which corporate governance was a casualty at the NSE during her watch:

SEBI investigator: Can you please elaborate as to how the Siddha Purusha was aware about a lot of intricate details on the functioning and hierarchy at the NSE.

Chitra Ramkrishna: Largely, I would have provided that inputs [sic].

The “inputs” she passed on to the Siddha Purusha included the exchange’s five-year financial projections, dividend payout ratio, business plans, and the agendas of board meetings. The SEBI report says she even consulted the mystery outsider, whose email ID is a reference to three of the Vedas, scriptures that form the core of Hinduism – about the performance appraisals of NSE employees.

The report also indicts Ramkrishna for appointing an unqualified person (Anand Subramanian) initially as chief strategic adviser, and later promoting him to group operating officer through the misuse of her authority.

The report’s findings were not the first instance of Ramkrishna being associated with reputational harm to the NSE. In fact, the SEBI stumbled onto the findings when it was probing the colocation (CoLo) scandal at the bourse. A whistle-blower had called out the scandal in January 2015, when Ramkrishna was heading the bourse. The NSE’s CoLo facility allows brokers to locate their servers right next to the exchange, for a fee, to take advantage of reduced latency. The scandal involved a few brokers gaming the facility to beat others into executing buy/sell orders, and profiting from the granular pricing information available to CoLo subscribers.

Long-term damage amid growth

The NSE is no ordinary stock exchange. It is India’s leading bourse, which is among the world’s largest, and has an inspiring origin story. The NSE was set up in 1992 because the then Indian government was convinced its celebrated economic reforms would not attract foreign investment in the existing environment of fragmented and non-transparent stock exchanges where brokers cried themselves hoarse in open pits trying to outbid each other.

When it kicked off operations in 1994, the NSE’s electronic order matching system made trading easy, affordable and accessible across India. It cut out middlemen and broadened the market. Transparent price discovery and ease of use were the NSE’s strong suit as it raced ahead to achieve market leadership.

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