That boardroom at Jeejeebhoy Towers

For a reporter on the stock market beat in the early 90s, the big daddy of the stock exchanges was the Bombay Stock Exchange (BSE), then perceived as the seat of capital market activity in the country. The big BSE brokers revelled in a kind of superstar status, commanding the affairs of the stock exchange with an iron grip. By the mid-90s, with the advent of the National Stock Exchange (NSE)?a state-of-the-art, institutions-owned, professionally managed bourse?on the scene, the situation altered pretty dramatically for BSE.

The figures speak for themselves. On BSE?s cash segment, the average turnover in May this year stood at Rs 1,971 crore, while that of NSE was Rs 3,946 crore. In October, while BSE?s average turnover was Rs 2,955 crore, that of NSE was Rs 6,040 crore. On the futures and options (F&O) side, the situation is much worse for BSE. In October, the NSE derivatives turnover was around Rs 20,700 crore, while the BSE is still struggling to get its F&O act together.

Most BSE old-timers, including former officials, admit that the lack of a professional management at BSE has been its biggest drawback vis-a-vis NSE, which started off as a professionally managed entity. The initial resistance of the large BSE brokers to automation and to allowing institutions as members also meant losing precious time to usher in change. NSE got a head-start and attracted market intermediaries. The initial advantage derived by NSE on its cash market, quickly translated into a major advantage on the F&O side, too, with most players flocking to the same exchange for derivatives trading as well. What?s even more ironical is that despite having the most-tracked index, the Sensex, BSE hardly sees any trading in Sensex derivatives, while derivatives based on the NSE?s Nifty does roaring business.

Perhaps what damaged the reputation of BSE the most was the 2001 scam, when its top echelons came under a cloud. The exchange authorities are now trying to put the house in order.

With BSE turning into a corporate entity, its top management now claims that the coming days will see the bourse turning into a professional and growth-oriented bourse. BSE?s managing director, Rajnikant Patel, says the exchange, over the past year, has already increased market share from 29% to 36% in the cash segment. This apart, an ?internal re-engineering? process is under way to get the derivatives segment on track. As many as 150 new members have also been added in a year. More important, Patel says the exchange will now go through the distribution route, increasing its presence through active offices in Delhi, Kolkata, Kochi, Rajkot, Ahmedabad and other cities to make BSE truly national.

But will all this be enough to bring BSE back to the position it enjoyed in its heydays? It will be naive to assume that the future of BSE will be secure merely by the act of separating ownership and management by corporatisation or demutualisation, getting listed or even by getting in a strategic partner. In the new structure, brokers will have a 25% strength on the BSE board, while the exact break-up of the remaining 75% will be notified shortly. If investors with BSE shares in the new set-up join hands on the board with the broker-directors, they can still wield considerable clout on the exchange?s affairs.

The true test of the exchange as a professional entity will lie in how it is able to keep away vested interests from dominating its activities. If the regulator and the BSE management allow the non-trading, investor-directors and broker directors to gang up, there is every chance that, once again, vested interests will get a stranglehold on the exchange.

A professional and unbiased management team, which does not bend before any set of directors or shareholders and works in line with regulations and investor interest, will hold the key to success of the new-look BSE Ltd. There are signs that this time BSE is keen on running its affairs professionally. The Securities and Exchange Board of India (Sebi) will need to assure the management that whatever the permutations and combinations on the new board, the regulator will not tolerate any deviation from norms and will do everything to uphold the independence of the professional team. Only then will BSE be a professional stock exchange in the real sense.