Vikram Limaye: Undone By The Ghost Of Exchange Square

When Vikram Limaye took charge of the National Stock Exchange of India five years ago, the leadership at country's largest stock exchange was in disarray. A co-location probe had been stone walled by the existing management, top-level appointments never got vetted by the board's Nomination and Remuneration Committee and eventually the board was reconstituted under the direction of the market regulator SEBI.

Before taking up the NSE top job, Limaye was the CEO of IDFC Ltd. and a member of the Supreme Court-appointed committee of administrators at the country's apex cricket body BCCI. Limaye stepped down from the BCCI CoA in August 2017 to steer NSE from co-location probe, board overhaul and leadership changes that destabilised the organisation. Much of the reputational restoration was only to be undone by a SEBI order earlier this year.

A herculean task lay ahead of Limaye as his predecessors Ravi Narain and Chitra Ramkrishna were persuaded to step down from the NSE board as the co-location and dark fiber investigations that engulfed almost every department and senior executive management of the company. Meanwhile, there was growing angst among NSE's shareholders who wanted the exchange to go public like its peer BSE.

To be sure, NSE's financial performance improved in line with the growth in trading volumes in the last five years. Its revenue has grown at a compounded annual rate of 26%, while profit rose at a CAGR of 29% during the period. When Limaye took charge, NSE had a revenue of Rs 2,681 crore in FY17. That rose to Rs 8,500 crore at the end of FY22. And profit jumped from Rs 1,219 crore to Rs 4,400 crore.

NSE has also consolidated its position across various trading segments. Its share in the cash market rose from 85% to 92% at the end of March 2022. It fully dominates the equity futures and options market at 100%, and has nearly two-thirds share in currency futures and options, and near-dominance in the bond market.

Despite this growth, NSE's further expansion through innovative products has been slow.

And Limaye chose not to seek extension of his tenure as NSE's reputation slumped again, by not a co-location probe or dark fiber investigation, but by a Yogi that found mention in a SEBI order. What followed was a media circus that destroyed not just the reputation of a market institution but also prompted the government at the highest level to step in for damage control.

Imagine the union finance minister in a post-budget outreach in Mumbai having to chair a meeting to take a first-hand report on the NSE Yogi issue. Subsequently, a lot of institutional action has been taken with the central agencies stepping in to investigate the case.

And yet in the five years Limaye has achieved which no other exchange CEO could: bringing back the offshore Nifty volumes to India... well not yet, but soon. And that will be his legacy.

It was an epic fight of two stock exchanges–NSE and SGX–riled up in arbitration, that eventually required two friendly sovereign governments and their regulators to arrive at a solution. This has ensured Nifty products are available to overseas investors in Singapore while the volume shifts to India.

What could have been frustrating for any CEO is the undoing of the last five years of work. And that happened at NSE as well. The legacy systems were replaced, new checks and balances were put in place to prevent a similar fiasco. And then, the Ghost of Exchange Square returned to haunt the very reputation NSE rebuilt in the last five years.

Limaye even tried to take NSE public by filing a draft red herring prospectus. But this attempt to take the exchange public is again stuck in regulatory hurdles as SEBI and other agencies continue to move forward to take the co-location case to a logical conclusion. If you ask the regulator on the visibility of an NSE IPO, you are unlikely to get an idea when that would be possible.

An important market infrastructure institution cannot be subjected to such instability and be under the continuous shadow of central investigating agencies. The government and regulator need to close this chapter, ring fence the exchange to safeguard the reputation of India's capital markets. Else, the country's largest exchange is on a slippery wicket and despite putting the past behind it will continue to be haunted by the Ghost of Exchange Square.

The new CEO will start from where Limaye began five years ago and is at an even worse position than him.

Sajeet Manghat is Executive Editor at BQ Prime.