The woman who bested a 140-year-old exchange

Published May 17, 2015
Chitra Ramkrishna.—Bloomberg
Chitra Ramkrishna.—Bloomberg

MUMBAI: It’s rare that a woman runs a stock exchange — there are just three in the world. Even rarer to find one who was chosen 23 years ago for the crack team that created it and then climbed the ranks to become its chief executive officer in traditionally patriarchal India.

Chitra Ramkrishna, 52 and head of the National Stock Exchange of India, wants to retain the start-up culture of her early days that helped grow the NSE into the world’s third- largest bourse by number of trades and the leader in India with an 82 per cent market share that dwarfs the 140-year-old Bombay Stock Exchange, or BSE. When the NSE needs something new, it creates a team: Currency trading, bond futures and exchange-traded funds are the fruits so far. Another team is now working on bond innovations to go beyond the current 10-year product.

“There is a huge level of energy and can-do attitude that is in a start-up culture which we shouldn’t lose,” Ramkrishna said in an interview last month at the NSE’s squat, glass- fronted headquarters in Mumbai. “For the rest, there is huge focus on processes and discipline that we have to bank upon. We try to get the best of both the worlds.”

Ramkrishna, an upper-caste Brahmin who calls Mahatma Gandhi her role model, wants to make stock markets accessible to India’s middle classes using the exchange-traded baskets of securities known as ETFs. “I’m sure even he would have bought my ETFs!” she said.

Getting living Indians to buy them is another story. Last year, the NSE held more than a dozen public financial awareness programmes and continued a marketing push to get banks and brokerages to encourage investors to put their money into ETFs. Domestic investment can cushion imbalances created by overseas hot money flowing in and out of India. Less risky than individual stocks, they can be a way for people to invest for retirement.

Just an estimated 1.5pc of Indian households own equities, compared with 10pc in China and 18pc in the US Still, domestic investors, fuelled by optimism over the election of Prime Minister Narendra Modi, channelled $6.7 billion into Indian equity mutual funds including the NSE’s 42 ETFs in the fiscal year ending in March. The NSE’s CNX Nifty Index rose 27pc in that period before dropping 3pc since April 1.

“I’m driven by the belief that more ordinary people should be able to prosper and benefit from the stock market boom in India,” said Ramkrishna, whose father and grandfather were accountants.

Ramkrishna, who took over as CEO in April 2013 after serving as co-managing director, has “grown up with the exchange,” said S.B. Mathur, the bourse’s chairman. “She knows the nitty-gritty of the operations, the technology and risk- clearing, since she has been with the place from day one.”

Ramkrishna was working at the state-run Industrial Development Bank of India, or IDBI, after earning degrees in commerce and an accountancy in Mumbai, where she was brought up after being born in Chennai. In 1992, she and four other technocrats were selected to join a team to build the first nationwide bourse. Ramkrishna was the only woman, picked because of her experience at IDBI in the 1980s working on a blueprint for a national regulatory agency that led to the creation of the Securities and Exchange Board of India.

The NSE team was mandated to develop technology to move trading from open-outcry to electronic, untested in India at the time. They were going up against a Goliath, the Bombay Stock Exchange, that had been entrenched since its creation in 1875.

“People were really sceptical about us when we started,” Ramkrishna said. “It gave us enormous freedom, there were no expectations. We were able to question a lot of existing paradigms. We could even be irreverent about it.”

They worked out of a tiny, leased office in a part of central Mumbai known for its defunct textile mills. The average age of the team was 25 — only because its leader, R.H. Patil, was around 60 at the time and used to joke that he skewed the average upward, Ramkrishna recalled. They all worked intensely with a start-up mindset, and they had a blast, she said, “a party every evening.”

Investors, freshly bruised by India’s worst-ever stocks scam, were receptive to change. In 1992, a rogue trader, Harshad Mehta, had funneled money borrowed from banks into equities on the BSE, pushing up stock prices and earning the moniker “Big Bull.” When the $2 billion fraud was discovered, it caused a market crash.

The NSE team identified an inefficiency at the BSE that allowed in only select brokers. Ultimately, its creation ended the open-outcry trading system, where brokers in the pit used hand gestures to find buyers or sellers and cut deals.

“How price discovery happened in those situations, only God knew,” according to A. Balasubramanian, an early stock market investor and CEO of Birla Sun Life Asset Management Co., which manages about $18.7 billion.

NSE’s new screen-based trading started in 1994. Using a satellite, it displayed stock prices that could be accessed simultaneously at brokerages nationwide.

“We kept crossing our fingers on many days, but the good news is that when we switched it on, it worked!” said Ramkrishna.

The NSE introduced refundable membership for brokers, replacing BSE’s earlier system of auctioning broker permits that restricted the number of participants and trading volumes. Antiquated “badla” contracts, an indigenous system using credit for stock purchases, were substituted with more sophisticated futures and options. Nearly 60pc of NSE’s broking membership in the early days came from cities other than Mumbai.

“It also benefited from the perception back then that BSE was run like a cartel, an old boys’ club,” said Balasubramanian. “NSE has been very nimble-footed.”

The NSE’s 82pc share of India’s trading over the BSE comes despite the older exchange having the largest number of publicly traded companies in the world: 5,625 versus 1,733 on the NSE, according to data from the World Federation of Exchanges. The NSE also introduced a range of indexes such as for mid-cap, small-cap and infrastructure stocks, giving investors greater choices, said Balasubramanian. NSE index options, in which the exchange leads the world in trading volume, track companies including those that make cigarettes and tractors or mine coal.

The NSE has spawned a generation of young, technology-savvy investors and brokers who led the stock market boom in the early 2000s, said R.K. Gupta, managing director at New Delhi-based Taurus Asset Management Co.

“It shook the old boys’ club, bringing in new technology, more speed and transparency,” he said. “NSE was a disruptor.”

By arrangement with Washington Post-Bloomberg News Service

Published in Dawn, May 17th, 2015

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