Twitter
Advertisement

We ensure BSE not used for tax evasion: MD & CEO Ashishkumar Chauhan

Ashishkumar Chauhan shares with Anto T Joseph his experiences about the journey and plans ahead.

Latest News
article-main
Ashish Kumar Chauhan
FacebookTwitterWhatsappLinkedin

Ashishkumar Chauhan is truly a turnaround man. The affable managing director & CEO of BSE Ltd (formerly Bombay Stock Exchange) has done the unthinkable. He transformed a rigid organisation, extremely rudimentary in its approach. When he joined the exchange five-and-a-half years ago, BSE was in decline, hopelessly poised to lose the high-stakes game to rival National Stock Exchange (NSE) in almost all segments of the market.

But Chauhan scripted a quick turnaround, and is now looking to grab every opportunity to take Asia’s oldest bourse to the next level. He shares with Anto T Joseph his experiences about the journey and plans ahead.

In last 5-6 years, you managed to pull BSE back from the brink. How did you change BSE?When I joined in 2009, BSE had a huge brand name with 135 years of legacy. But a large portion of the market was already taken over by the competition. BSE was not doing well in new markets such as derivatives and currency derivatives and interest rate futures.

It didn’t attempt derivatives when it was allowed in 2000. Technology was not comparable to the competition. New competition was also expected to come in. Overall, the situation was not very hopeful. Not many gave a chance to BSE. In last five-and-a-half years, BSE has changed its technology completely. It is fastest in India today with response time of 200 micro seconds, up from 300 milli seconds, making it 1,500 times faster now. It can also take much large number of orders, with scale going up 100 times. When I joined, even 5,000 orders in a second used to give way to complaints that systems are not working. Now we can take 5 lakh orders per second easily.

The other issue was attracting talent. Good talent refused to join BSE because it was not a good paymaster and people were not hopeful about it. On the other hand, new brokers were not looking at BSE. Distribution was not comparable with other exchanges as BSE was primarily Mumbai-centric with most members coming from the financial capital. In derivatives, BSE today has around 15-20% market share.

The system is from our partner Deutsche Borse, a world leader in derivatives. BSE has also been successful in currency derivatives, with 40-45% market share today, despite coming into the market 7-8 years after other exchanges. In one year of operations, we gained considerable market share, with good open interest. BSE has managed good market share in interest rate futures as well, despite a delayed start. Mutual fund distribution through exchanges began in 2010, and BSE today has 97% market share.

In SME segment that started recently, BSE has more than 95% share. In offer for sale (OFS), which started four years ago, BSE has more than 80% share. BSE has a large market share in e-IPO as well. In IPOs usually, BSE is good. It has a much better distribution network across the country for retail investors. So companies prefer BSE. A lot of changes have taken place over last few years. We have been able to bring in a lot of confidence in employees, brokers and the regulator. One competition that was supposed to come has not shaped up well. BSE has been lucky on that count. Most importantly, cost is not very high despite better technology.

What are the issues the stock exchanges are facing in India?
For one, exchanges are used for tax evasion. BSE has more than 5,700 companies, most of which are old and small. This is in comparison to the competition’s 1,500 companies. Recent Sebi orders have proved that some of these companies are using the exchanges for tax evasion. BSE is taking several steps to prevent companies from undertaking such illegal activities. We recently suspended five companies on the SME platform, barred their promoters and ensured that they can’t go to the main board till the time Sebi completes its investigation.

On the main board, we have suspended more than 40 companies and is in the process of suspending a few more. Recently, we also reduced option strike prices. In each option series, there are seven strike prices. BSE has made it three. So we do not have the deep-in-the-money or deep-out-of-the-money stock options, which are claimed to be manipulated and used for tax evasion on other exchanges. So we are offering only three strike prices, though Sebi allows seven, whether index or stocks. BSE has also written to finance ministry to impose long-term capital gains tax that is currently exempt so that people do not use stock exchange mechanism for tax evasion.

BSE has also introduced weekly, monthly, quarterly and annual price bands (as per Sebi rules, only daily prices bands are mandatory) so that the companies in the smaller price bands do not end up going up or down beyond a limit. This has found to be one of the ways through which people manipulate for tax evasion. BSE is also mulling to create a separate segment for such companies so that investors are aware that these are small illiquid companies and that they should be careful. We are looking at the modalities for the new group. The idea is that if we can create a separate group altogether, brokers can also warn their investors about investing in such companies.

A lot of things are changing at BSE. We are trying a lot at our end, before the government initiates policies. We have to ensure that BSE is not used as a platform for tax evasion. The ministry will have to look at it seriously. It is a loophole in the system and people tend to exploit it. The idea is to plug the loophole. The issues that Sebi has brought out are of serious nature and policy response has to be adequate to ensure that such loopholes are not kept open.

Was attracting talent to BSE an issue?
Initially, yes. But the good news is that BSE has now been to attract talent from various established foreign and Indian companies. People who have worked abroad, and even people who worked in foreign brokerages, and people with IIM and IIT pedigree. Recently, head of operations joined from Morgan Stanley. Someone is joining from Nomura now as economist. A senior employee has joined from Deloitte. A lot of experienced people have come from HSBC, Deutche, Citi, NYSE, BofAML, among others. In a nutshell, a lot of people are ready to join us at salaries that we offered. Remember that we are not a great paymaster in the industry. People are willing to work with BSE because it has started gaining market share, and regaining its past glory. So whatever has happened at BSE is a collective effort.

Despite being a regional stock exchange, you have managed to grow nationally…
When I came in, there were around 800 members, primarily from Mumbai. It had a refundable deposit scheme of Rs one crore, which was brought down to Rs 10 lakh. As a result, 700 new members came in, mostly from outside Mumbai. Today, BSE has a distribution network which is very similar to any other exchange in equities or commodities in India. While other exchanges are losing members, we are getting one or two new brokers applying for membership every week. Last year, we added 84 new members.

Products are no longer just stocks, BSE offers the entire gamut of equity derivatives, currency derivatives, interest rate derivatives, SMEs, IPOs, OFS, among others. While we are trying to get market leadership in newer areas, effort is also on to regain leadership in other existing markets.

For instance, in one year’s time, we have gained 40-45% market share in currencies. Similarly, in interest rate futures, BSE has managed 35-40% market share in last few days. So effectively, it is catching up, and people have more confidence. Brokers also see that BSE is more service-oriented, and give them a wider bouquet of products similar or better than other exchanges.

Are you the fastest in India? Your competition claims that you are being ignorant…
We have to ask brokers. They are the users and they give us constant feedback. They tell us that we are 10 times faster. The last official number received from the competition was 2 milli seconds. After that if they have done something and kept it with themselves to keep everyone ignorant, we don’t know.

We have been very transparent. We give response time on each order on BSE website. If our competition does not make it transparent and then claim that they are the fastest, how will you corroborate it? BSE used to run a system called BOLT, which was developed by CMC. In 2013-14, we completely moved to Deutsche Borse system, which runs on Linux, open source, and basically on Intel boxes. The competition is still on the old system, set up in 1994. It is not worth talking about my competition and their speed.

The debate on algo trading still goes on…
There are several issues to the entire debate. Today, exchanges have become places for trading and are mainly into derivatives. Now India has to ask a fundamental question -- should the exchanges be used for the sake of trading only or for channelising savings into productive capital? If you can answer it either way, then your perspective will be clear.

Are IPOs or derivatives more important? Is algo trading or investments more important? Are high frequency trading or mutual fund investments more important? The answer to these questions will give you a way ahead. Are exchanges meant for capital formation by channelising savings or for trading? We may want to emulate developed countries in many of our activities, but they have done capital formation and have their infrastructure in place.

In India, we still need to build all its infrastructure and utilities. So for us, capital formation is much more important than trading for the sake of it. India can’t stop technology from moving, but it has to use technology for doing good to the society.

What are your new initiatives?
We would try to get into commodity trading as and when Sebi allows stock exchanges to enter commodities. We have created the software and done the testing. As and when Sebi gives a green nod, we are ready to take a plunge. Similarly, BSE is in the process of setting up a new international exchange in GIFT city, in partnership with Deutsche Borse. Regulations on the exchange side are already in place, but clarifications related to the Companies Act and tax matters are to be announced.

The moment these are in place, BSE will quickly move in. It is an international exchange where people, even foreigners, can trade in US dollars, and it will compete with exchanges in Singapore, Hong Kong and Dubai. So BSE is trying to expand its reach to newer areas. Recently, Sebi has come up new guidelines for IPOs of start-ups. We have decided to set up BSE Hi Tech Exchange, and are currently discussing to prepare regulations and attract some of these companies to list. BSE has a huge tradition of promoting start-ups. It has more retail investors.

Who owns BSE?
Today, BSE is owned 30% by foreign investors, of which 10% by exchanges – Deutsche Borse (5%) and Singapore Exchange (5%). The remaining 20% is owned by various funds. Around 31% owned by non-broker Indians – such as Bajaj, Birla and many others. The remaining 39% is owned by brokers. We have over 8,000 shareholders today.

Are you still on with your IPO plan?
In 2013, BSE had applied to Sebi seeking an in-principle approval to do an IPO. As and when Sebi nod comes, we will go for it. At present, BSE doesn’t need funds, it is well capitalised. Even when the listing permission is granted, it will be largely an offer for sale (OFS) by the existing promoters.

What is the size of stock market that you would envision if it continues to grow at the current rate?
It will be $20 trillion by 2035 – that is in next 20 years. Today, we are around $1.6-1.7 trillion. If we become an economy of $20 trillion, which is quite possible, the markets will also be around the same size. Internationally, the size of equity market to the economy is around 0.8:1. If you look at the past history, Indian markets have grown phenomenal over the last 35-40 years. In 1979, the Sensex was 100. In 35 years, it has now gone up to almost 30000. It is around 300 times.

It is possible that the future growth could be even higher, given the demographics we have now. And the technology orientation of our youth is better than youth in other countries. What is more, India is going to remain young for next 30-40 years. India has a chance to become rich before it gets old. China has suddenly become old, and is facing a lot of difficulties on its economic front. India today stands a chance to use newer technologies, to set up its infrastructure in order, to get into manufacturing and artificial intelligence, nano technology and space technology, among others. In most of these sectors, India is already a leader, and produced cost-effective tools and ways for the world.

Over 68 years of its independence, India has gained a mass of doctors, engineers, technocrats and other professionals, who are using newer technologies across the world. Information technology has changed India in last 20-25 years in terms of its confidence to face the world, and in turn, changed the world’s perspective on India. Today, there are 10 such technologies which are transformational and India’s youth is well poised to take up the world challenge. The other day I was told that in the first four months, $3.5 billion of investments have come into start-ups and new ventures. It is phenomenal. As they grow, most of these companies will come to the market to raise capital.

Find your daily dose of news & explainers in your WhatsApp. Stay updated, Stay informed-  Follow DNA on WhatsApp.
Advertisement

Live tv

Advertisement
Advertisement