Opinion SEBI’s order points to glaring governance lapses at stock exchange, calls for instituting checks and balances

Last week, the Securities and Exchange Board of India (SEBI) passed its final order in a sordid saga, involving the country’s largest stock exchange. The order, strongly censuring senior officials of the NSE, including its former MD and CEO Chitra Ramkrishna, throws light on a series of governance lapses at the stock exchange. The stock exchange regulator has levied fines on the parties involved in acts of impropriety, and also barred NSE from introducing any new products for a six-month period. Given the scale of misgovernance, including the violation of several rules and regulations, however, harsher penalties were called for. More worryingly, the episode has exposed the absence of checks and balances at the stock exchange.

SEBI’s order revolves around the irregularities in the appointment of Anand Subramanian who held key posts at the stock exchange between 2013 and 2016. It notes that Subramanian was given “an exorbitantly higher compensation/salary package”, despite him having “no relevant experience in the position in which he was appointed.” The investigation has found Ramkrishna guilty of giving Subramanian “frequent, arbitrary and disproportionate increases in the compensation”. But this, as the probe report reveals, was more than corruption by individuals at the helm. That “concerns regarding delegation of substantial power” to Subramanian, who was merely a consultant, were not raised at the NSE board reveals serious institutional failings. It’s mystifying that Ramakrishna shared confidential information such as “organisational structure, dividend scenario, financial results, human resources policy and related issues, response to regulator” with an “unknown person” through an unofficial email id. This unknown person “significantly influenced the decision making” of the stock exchange’s MD and CEO. According to Ramkrishna, the unknown person was one Yogi Paramahansa, who was “maybe largely dwelling in the Himalayan ranges”. A forensic investigation by E&Y has, however, revealed that this “unknown” person and Subramanian were the same — a finding that the NSE has concurred with.

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These are not crimes of omission. The SEBI order exposes the complicity of the board in the unseemly episode. It notes that the board was “aware of the exchange of confidential information” with an unknown person. However, the NSE and its board took “a conscious decision to not report the matter to SEBI and keep the matter under wraps.” It is apparent that the board, packed with well-known figures in financial circles, failed to discharge its duties. Steps must be immediately taken to ensure that such failings do not recur and aspersions are not raised on NSE’s status as an independent institution.

This editorial first appeared in the print edition on February 17, 2022 under the title ‘NSE’s failures’.