BSE must act as catalyst for wealth, job creation: Chauhan

Menaka: What do you make of the last 15 years of equity markets in India?

A: It has been a phenomenal journey. India has cleaned up quite a lot of its operational issues in terms of the transaction processing. We have had a total automation.

Menaka: A few words on the journey that BSE itself has seen over the last 15 years. I know you may not reign in terms of market share but you do have credits to you name for instance automation, for instance the speed of transactions. What would you like to say about how far BSE has come and how long it will take to resume its numero uno position?

A: BSE has been the first word in the financial markets. When you think of stock markets, you think of BSE and Sensex has been a part of your life although many of us may not want to but still many remember when I was in class 10 what was the Sensex number, when I got married what was the Sensex number and when I had my first only child what was the Sensex number.

So, effectively Sensex has been part of our life. So, effectively BSE will remain the first word in the markets and BSE will also remain the last word, like today we have done the closing bell, so, effectively BSE will continue to be the largest section in the world in terms of number of stocks listed, 5525.

BSE is only a reflection of the Indian wealth and that is where we believe that BSE has to act as a catalyst for wealth creation, job creation. India needs to create 1.5 crore new jobs every year for next 20 years and BSE is going to be at the center and forefront. Many people think volumes do matter but what matter more is how does an exchange helps the society solve its problems.

Menaka: My direct question to you is when do you resume your number one position vis-à-vis the National Stock Exchange (NSE)?

A: We are number one in the world. It is just that now you have to stand accepting it.

Menaka: In terms of volume you are not, in terms of market share you are not?

A: It is like saying that in Olympics only one race matters 100 meters, all other marathon and other things do not matter. We want to only focus on one particular aspect. For me trading for the sake of trading may not be a great idea especially for a developing nation. What is required for an exchange to do is to ensure, to help the country raise capital and once the capital is raised for the corporate that money goes into creating jobs. India’s job for next 20 years is to create jobs.

Menaka: What can we look forward to in terms of the new developments that the Bombay Stock Exchange (BSE) to become even more competitive exchange?A: We are not competing for the sake of competition because as regulators our first job is to ensure the market work well. There is no manipulation and there is huge amount of cooperation between two exchanges. Senthil: One example of cooperation is that you are part of the startup team of NSE; you are now at the BSE. You have a huge technology background. Where will technology take transaction cost to?A: For us technology can bring down the transaction cost. In BSE’s case, we use to have cost of around Rs 50 crore a year on capex itself on just the hardware for the response time it was 10 milliseconds and per second transaction of 5,000 orders per second. Today we have capacity of 500,000 orders a second that is 100 times larger and we give response time which is 200 microsecond; 50 times faster than what we were. Our cost has come down by 70 percent. What has happened is we have gone for open source technology which was not used in India before because most stock exchanges, most telecom companies, most banks went into what we call proprietary fault tolerance technology 20 years back and they got stuck there. Now to come out, India has never seen an automation one going into automation two. India has seen manual mode from banking or stock markets into automation but automation one to automation two, if we do not go we will become obsolete as a country. Therefore, we need to continue to upgrade, update ourselves and also continue to change into the newer technologies which none of the exchanges; no banking, no other system has been able to do because we are still in the first phase. Menaka: What it is going to mean for the average retailer, transaction cost. How is all of this going to come down? Can you explain how the technology translates and benefits for the investor?A: For currency today other exchanges are charging around Rs 100-120 even after discounts. BSE is charging Rs 2 per crore; 99.5 percent lower and similarly in Options other exchanges are charging Rs 5,000 to Rs 1,000 on round three basis for crore. BSE is charging Rs 50 per crore. On stock Futures BSE is charging 80-89 percent lower. On equities, which is an old style business, BSE is charging 20-25 percent lower. Every aspect of it including newer aspects like mutual fund distribution through exchanges BSE is a market leader. In offer for sale almost out of 130 plus transactions that have happened on offer for sale. BSE has been there throughout. Similarly debt distribution through exchanges last three years 90 percent of the corporate debt that has come into Indian market have been distributed by BSE. It is just that we do not look at many of these stuffs but the cost of doing on initial public offering (IPO) has come down so much.

Menaka: What do you see as some of the more current challenges facing the robustness of Indian equity market? Things that all of you have to do whether it’s your exchange or the NSE etc?A: We have done a great job as a society in cleaning up our stock markets in terms of making them modern. In the first phase we had manual mode to automation then clearing cooperation for risk management, depositories for settlements and so on. However, we have not been able to bring investors trust back and that trust is also dependent. How do we bring back the trust? Menaka: We have number of companies listed on the Bombay Stock Exchange that are unable to delist but they are vanishing companies or companies that are barely even trading now which desperately need to close down and delist, right?A: And so for me we are in what we call trust markets. When you buy something on Flipkart, you get that material whether it is working or not, you know once it is delivered to you. In stock markets or even in banks what you put in is your hard earned money with a hope that it will come back with returns and that trust, the stock markets and the financial markets including banks, mutual funds are the only places which connect the future with current and that is where we need to have that trust.