By James Lamont and James Fontanella-Khan
The New York Stock Exchange left an indelible stamp on Madhu Kannan.
It was there that the 38-year-old chief executive of the Bombay Stock Exchange cut his teeth in the late 1990s, and where later he fell under the spell of John Thain, former CEO of the NYSE. Few close to him fail to notice the influence of ?Superman? – as Mr Thain was known for his facial resemblance to Clark Kent – on his professional life.
For the young south Indian executive from a modest family, Mr Thain was something of a father figure who took him under his protective wings from the first days he joined the exchange. To this day, Mr Kannan?s loyalty for his mentor is unaffected, even after Mr Thain?s image was tarnished amid revelations that he had spent $1.2m to refurbish his office at Merrill Lynch, where they both moved in 2008.
When Mr Kannan returned to India to take up his role as the youngest head of any major bourse two years ago, he had plenty of battles ahead of him to resurrect a tired brand and modernise an exchange that more closely resembled a gentlemen?s club than the throbbing heart of one of the world?s biggest emerging markets. ?A 136-year old start-up? is how he describes the BSE.
Dalal Street, as India?s oldest exchange is known in Mumbai, is a world away from Wall Street. Mr Kannan has a cramped glass office in a hulking tower block exchange. Outside his office are a deck of vacant work stations. From here, together with three lieutenants, he has set about the Herculean task of reasserting the reputation of Asia?s oldest bourse.
The boyish looking executive, who appears slightly uncomfortable in an oversized dark suit, is good natured, fidgety and fast-talking. While he has the restless energy of a New York trader – he joined the NYSE in 1997, rising to the post of senior vice-president before following Mr Thain to Bank of America Merrill Lynch as managing director of strategy and business development – his story is distinctly Indian.
Mr Kannan grew up in Tamil Nadu, in the south of India. His family, who invested heavily in his education, had ambitions for him to be an engineer. But he had other ideas. Excited by the ideals of former prime minister Rajiv Gandhi and with a head for statistics (especially of the cricketing kind), he hankered after a career in development or economic policy. ?I made it a point to keep my parents happy by getting the engineering degree they always wanted, but at the same time I fostered my own personal interests,? he says.
He won a place at the Birla Institute of Technology and Science in Pilani, Rajasthan, and graduated in 1995 as an engineer, a calling that, along with the medical profession, has traditionally ranked as the most prestigious in India.
Tata Consultancy Services offered him a job as a software engineer. He turned it down. ?I had been a good son and did what my parents wanted me to do. After I got my engineering degree, I decided it was time for me to go my own way,? he says.
That ?way? led him to an MBA at Vanderbilt University in Nashville, Tennessee, and a career in US financial markets. The fallout in New York during the financial crisis persuaded him and his wife, a former south Indian tennis champion, to return home.
The BSE had hit hard times. Outflanked by more technologically aggressive rivals such as the National Stock Exchange, it had been slow to expand beyond cash equity trades to derivatives, options and currency trading. Its members were a tight-knit bunch with little interest in the ability of electronic systems to capture rising incomes among a younger profile of investor.
As well as having one of India?s best known financial brands – Sensex, the BSE?s benchmark index of the top 30 stocks – the exchange?s building in downtown Mumbai is one of the most recognised in India. A million people visit the BSE website every day.
However, since the early 1990s, when India?s economy opened up, the institution started losing relevance and volumes in a liberalised market. The leadership deficit was blatant: Mr Kannan?s job had been vacant for nine months before he was recruited to do it.
?It?s easy to create something on a blank piece of paper but difficult to put it on a legacy infrastructure,? he says, reflecting on his efforts to transform the BSE. ?Anything that you change is harder to change if there?s always the legacy. There?s lots of baggage to clean up.?
He says his priorities are ?technology, innovation, access and a strong service mindset?, but insists that it all boils down to ?technology, technology, technology?.
Technology represents up to 40 per cent of the exchange?s spending. His team devotes a lot of time to persuading regulators of the benefit of internet-based 2G mobile phone trading services and offering the fastest possible execution times to brokers across India. Further out, it plans to launch an exchange for smaller companies.
Another significant move was to shake up the board and convince the well-connected S. Ramodorai, a fellow south Indian and the former chairman of TCS, India?s largest outsourcing group, to join the BSE as chairman. ?We?ve made a lot of progress on [the] management front,? Mr Kannan says. ?We have a board that can help take the organisation to where it must go.?
Mr Kannan also lowered the cost for investors to trade on the exchange, a move aimed at increasing trading volumes by opening the bourse to investors for whom it would previously have been off-limits. ?There was a club mentality. The Nike store does not charge you to come in to buy shoes,? he says.
His mission is to extend trading across multiple asset classes, including derivatives, options, currency and power and encourage the participation of mutual funds, pension funds and insurance companies. The result, he hopes, will be to boost the number of Indian stock market investors from the current 1 per cent of the country?s 1.2bn population. ?For someone in a rural area like my father in Vellore, the concept is that the BSE is somewhere far away. I want it to become nearer,? he says.
The engineer in Mr Kannan stands out. The technocratic training is clearly an advantage in a fast-changing market all about cutting execution times, building efficiencies with the minimum human intervention and using technology to enable mass participation across Indian cities. By contrast, Ravi Narain at the NSE is a Cambridge-educated economist.
Mr Thain was remembered as a chief executive who wrought more changes to the NYSE in his three-year tenure than had taken place in the previous 211.
Mr Kannan would like a similar modernising legacy. Two years in, he has made a difference but the revolution is yet to come.
? The Financial Times Limited 2011