If the new BSE CEO, Madhu Kannan, is allowed to function freely, NSE will at last face some competition
The Bombay Stock Exchange (BSE) seems to have taken the first concrete step to work towards a revival plan by appointing Madhu Kannan as managing director and chief executive officer. Mr Kannan is eminently qualified for the job. He has an engineering degree (electrical and electronics) as well as an MSc (economics) from BITS Pilani and MBA (finance) from Vanderbilt University in the US. He has valuable international experience as vice president of the New York Stock Exchange (NYSE), which he left in 2008 with his boss John Thain to join Merrill Lynch when the latter became the CEO. Mr Kannan had been offered the top job at BSE in 2004 as well, but had turned it down due to family reasons.
On his appointment, Mr Kannan said, “I look forward to ensure that the BSE continues to build on its brand, history and market position to create value for its stakeholders and the financial system.” He is certainly going to have to work hard at it. The BSE has been steadily losing out to the National Stock Exchange (NSE) due to its failure to develop a derivatives market. With the recent introduction of cross margining, the BSE’s turnover has been hit again. The BSE also has higher administrative costs because of the legacy of thousands of listed entities with small to negligible trading turnover. Mr Kannan’s biggest challenge will probably be to deal with the ruthlessly competitive NSE which currently has disproportionate influence over the Securities and Exchange Board of India (SEBI) and the finance ministry that perpetuates its monopoly.
On the positive side, Mr Kannan has the valuable Bombay Stock Exchange sensitive index (popularly known as the Sensex) as an asset that has not been successfully exploited through index–based derivative products. The BSE also commands a great deal of loyalty among brokers and has traditionally had an administrative set up that is far more broker and corporate-friendly than its more successful rival. He has the requisite blend of international experience and local knowledge and contacts to turn the BSE’s fortunes around. The capital market will certainly be watching his every move with interest