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NSE opex, capex will spike from Rs 400 crore to Rs 4,000 crore, says managing director Vikram Limaye

“The trading systems have been scaled up substantially. We used to process about 100,000 messages per second till about two years ago – that has been scaled up to 300,000. That’s the best in the world,” says Limaye

March 08, 2022 / 11:01 AM IST
On the regulatory front, NSE MD and CEO Vikram Limaye said one area of focus has been client asset protection and the other is detecting manipulative behaviour, surrounding surveillance and other functions

On the regulatory front, NSE MD and CEO Vikram Limaye said one area of focus has been client asset protection and the other is detecting manipulative behaviour, surrounding surveillance and other functions


The National Stock Exchange has enormously increased focus on regulatory and technology aspects over the past four years which makes the exchange a far safer place than was before, Vikram Limaye, MD and CEO of NSE, said. The increased attention on these areas has resulted in the annual opex and capex for the exchange rising nearly 8-10 times from Rs 400 crore in 2019 to Rs 4,000 crore for FY23 (expected).

Limaye, who was appointed as MD and CEO amid controversy over misgovernance by the earlier management team headed by its once celebrated CEO Chitra Ramkrishna, has been at the helm since 2017. His term will come to an end in July. While he is eligible for another term, NSE has solicited candidates for the position and maintained that the incumbent will have to compete with other candidates for the next term.

Limaye said, on the regulatory front, one area of focus has been client asset protection, and the other is detecting manipulative behaviour, surrounding surveillance and other functions.

Earlier, client assets would be deposited with the broker, which meant that there was a possibility of misuse. We decided that for securities, there cannot be any running account (open, unsettled, revolving credit facility). Now, securities cannot leave the client’s demat account at all. For client funds, NSE takes client-wise fund balances on a weekly basis from all brokers and then it is verified with aggregate balances with banks, clearing corporations and clearing members. The verification that used to be made during an inspection now can be completed offsite on a T+15 basis,” said Priya Subbaraman, chief regulatory officer, NSE. “Unless all market infrastructure intermediaries work together and share information, investor protection will be a lot tougher.”

Subbaraman pointed out that this regulatory tightening is the reason for broker defaults rising in recent times. “A lot of the cleanup of the system has happened now. Compared to one-year ago, we are not seeing any serious disablements. What we have seen are very small, Rs 20-25 crore kind of disablements.” NSE also disseminates more information to clients which means they can also match and see the status of their money and securities. Besides, to address mis-selling to clients, especially selling of assured return offers, which are illegal, the exchange has started “mystery shopping” last year. Off-site inspections are also conducted more frequently rather than it being an annual affair, so there is early detection of problems, said Subbaraman. Several Sebi orders in areas of insider trading, market manipulation like rigging in certain derivative contracts, front-running, etc, are a result of NSE’s surveillance efforts. NSE’s surveillance system is modern and integrates information available on social media and then tries and correlates that to what is happening in terms of orders to detect misconduct. “We try to keep as much ahead of the market as we can. We've invested a substantial amount of time, effort and technology to do this,” added Limaye. “Culturally, we have a more collaborative approach to the market along with Sebi. Fundamentally, we believe that Sebi and NSE are on the same side of the table as frontline regulators and super regulator, and the relationship has to be collaborative and coordinated, in order to be effective,” said Limaye.  

NSE has now also started a new department called listing investigation, where the exchange looks at financial and non-financial parameters. Working with a fintech, NSE is building its own layer of information and alerts. “The idea is to be able to catch a DHFL ahead of the market,” Limaye said. He started his career as a chartered accountant, worked with Arthur Anderson, EY and Citibank only to pursue his MBA from Wharton School and working in Wall Street with Credit Suisse First Boston before returning to India.  

Although NSE, even under the earlier management, was admired for technological prowess, that has been further enhanced to keep up with the requirements of the future. “Each part of the technology value chain has been modernised,” said Limaye.  

On the connectivity side, NSE has doubled the point of presence to around 25 which has enhanced our geographical coverage. On the trading side, about four years ago, the exchange could deal with about 700 to 800 million orders messages a day; today that number is at 12 billion. This also comes on the back of rising retail investors. Compared to 3.5 crore registered investors for the first 25 years of existence, NSE currently has 7.5 crore investors, all active investors. “The trading systems have been scaled up substantially. Otherwise, you can't deliver seamlessly. We used to process about 100,000 messages per second till about two years ago – that has been scaled up to 300,000. That’s the best in the world. We're always thinking ahead,” added Limaye.  

He also emphasised that most major exchanges around the world in the last 24 months have been hit by some cybersecurity incident or the other. “Touch wood, we've been okay.” Cloud-related initiatives and cybersecurity are also important priority areas for the exchange, Limaye said. “We moved our disaster recovery centre in Chennai to a third party. In the coming year, we will move our BKC data centre to a third-party data centre, somewhere in Mumbai or the outskirts of Mumbai.”

In the middle of COVID, NSE also launched Project Parivartan, which dramatically changes the stakeholder experience in terms of how they interface with the exchange. “Every part of the technology architecture, and the value chain is modernised,” Limaye said. “For two key areas, which is regulatory and technology, we are never constrained for human or financial capital. In FY19, our capex and opex for technology was about Rs 400 crore. In FY23, it will be at close to Rs 4,000 crore. It's not a small number, will be almost 30-40% of our revenues, which used to be 12-15% of revenues in 2019,” he added.  

Asked if the trading volumes being witnessed currently are sustainable, Limaye said there was no sign of contraction yet. “We may not see growth as in the past; I do not foresee severe contraction. But I agree, this is the nature of the business. When you're running a platform business, there is a certain fixed cost that you will have to incur, irrespective of volumes. Beyond that, everything starts dropping to the bottom line. If we were to take a 50% hit on volumes, the margins will collapse obviously but we will still be profitable. But we have to think long term. We can not avoid spending to ensure robustness of the platform,” he said.  

 

 

 
N Mahalakshmi