“BSE Is Becoming More Diversified, With More Focus On Investments”

Global markets are in a risk-off mode currently, with the Dow Jones Industrial Average tanking 1,500 points on a single day. This is the first time ever that the Dow had lost so much on a single day in its over 100 years of chequered history. [EasyDNNnews:PaidContentStart] Back home, the man at the helm of the world's fastest stock exchange- Bombay Stock Exchange, Ashish Kumar Chauhan is not a worried man at all as he believes volatility is an inherent trait of equity markets.

One can feel his calmness, poise and confidence while he talks about the road ahead for the BSE - the futuristic stock exchange of India. In a candid conversation with DSIJ, Ashish Chauhan speaks nonchalantly about how BSE has transformed itself into a young organisation that is now tech-savvy and forward looking. The challenge to give a futuristic look to the 143-year-old organisation was by no means an easy task. Chauhan highlights that the new tagline ‘BSE- Experience the New’ is a genuine and well-designed strategy that reaffirms the fact that the BSE of today is indeed a modern, young and agile stock exchange which embraces state-of-the-art technology and leverages technological advances to create its own core competencies

Run like a fintech company, the BSE of today is as tech-savvy an organisation as any other exchange in the world.

An able and proven administrator, Ashishkumar Chauhan's exemplary style of leadership is proving to be a boon for the financial markets in India. What easily distinguishes Ashishkumar Chauhan is his conceptual clarity on financial markets, strategic vision and unambiguous ideas on the path that BSE needs to take and his ability to not only recognise the importance of technology but also to exploit technology optimally for the growth of the exchange. All these qualities put together make him a perfect administrator of an exchange which wants to maintain its proud heritage and hallowed reputation of being the most trusted exchange in the world and, at the same time, strategically intends to remain agile, modern, young and fit enough to not just survive but also thrive by venturing into areas that still remain unexplored in the BSE’s history of 143 years.

Read on as you may be thrilled to know from the man himself on the biggest priorities of BSE and its new areas of focus, including the new initiatives in commodities markets and the establishment of the India International Exchange:

The business of exchange is actually not a business. It is a compliance, a way to enhance the trust of the investing public and other stakeholders like the government, bureaucracy, regulators, media and, of course investors. So, in some sense, the technology you use and the liquidity you have are all temporary, but the trust is what makes an exchange work. Ultimately, people may trade moreor less on a particular exchange or on a particular platform, but they are not investing money for trading. They are investing money for the long term and, therefore, they want better corporate governance, better ways of ensuring that people are not cheated, ensuring that speculation is not so high that everyone is attracted to it, and so on. So, we took a strategic call 7-8 years back at the board level that our focus should be on compliance. We should be the best and the most compliant exchange in the country. Technologically, of course, we are very good now, but in those days we were not very advanced because we had not invested money into technology. Secondly, you can invest a lot of money but come out with bad technology, so you need to have an understanding of the technology and your business and what will work for you and what will not work.

We consciously went for the open source technology, which reduces the cost in the long run and also gives a signal to the market that we are, in a sense, a modern framework which is not going to use people’s money unnecessarily. In some sense, people also worry a lot about the duopoly of exchanges charging them too much. So, we went consciously for the open source technology.

We had people issue, because our people were largely from the old floor-based trading times. So, we had to attract a lot of talent from outside and that has happened and now we are practically the best stock exchange or currency exchange team in India today. That allows us to get into newer areas. The other decision the board had taken 7-8 years back was to go and win newer businesses that are allowed by the regulators.

How did you achieve such stupendous success in new businesses?

We have done exceedingly well in new businesses because of our technology, lower cost, better people, better services, etc. We did not do too well earlier in the other businesses, but slowly, we have now become very large in currencies. RBI has now allowed 100 million dollars of open position, so that should help people who want to trade more. Similarly, in interest rate futures, we have done very well. We were not in it in 2014 and the other exchanges were incumbent. But, in just three years’ time, we are now larger than others. In IPOs, we have been doing exceedingly well since beginning. Similarly, we have been doing well in listings.

In which businesses is BSE lagging and how is BSE gearing up to forge ahead in these areas?

We are currently focusing on two things where we have not done too well. One is equity trading and the other is equity derivatives trading. For this, we have set up a new exchange in the Gandhinagar GIFT City, which is doing exceedingly well now. The commodities trading will be allowed in the local exchanges from October. We are working on that too.

We have succeeded in turning ourselves into a distribution exchange from a trading exchange. So, now, in mutual funds we have a large number of FIIs registered with us and today we account for 20 per cent of all the funds collected in equities and probably even more in the bonds and mutual funds. Over and above that, we have big plans in insurance distribution in alliance with Ebix. So, we are trying to become more diversified, but our focus has been more on investments.

So, from being just a stock exchange, BSE is transforming itself into a financial services organisation. Now, how do you see the growth of stock markets in general panning out in future?

In the last 25 years, the world has seen huge expansion in trading volumes due to a variety of reasons. During the last 25 years, Indian markets have seen growth of almost 700 times, a 700,000 per cent growth in trading volumes! But we think, in the next 25 years, we won’t see that kind of growth. What we’ll see is the expansion in distribution, given the way e-commerce is taking off. BSE will be at the forefront to ensure that we don’t take people to pure speculation alone, but we’ll also ensure that their money is invested wisely using insurance and mutual funds. We also have plans to get into distribution of other things. So these are some of the strategies that we have tried to implement and some have turned out to be very good in terms of implementation, such as mutual funds and bonds. Of course, the changes in technology helped us gain huge market share in currencies and interest rates.

We have done these changes at the behest of the board of the exchange because this is a public utility. This is not an ownerdriven or only management-driven entity. It is a board-driven framework with the primary condition being compliance. We have to be the best in compliance.

We consider ourselves as a fintech, we do not consider ourselves as a pure exchange only. In 1995, when the BSE became automated, it was the most automated organisation in the country and it has remained the most automated. Today, it is at the cutting edge of the technology. We provide a response time of 6 microseconds. A response time which is unheard of in the world—not just in India. The response time of 6 microseconds gives us a scale of five lakh orders per second, three crore orders per minute, 180 crore orders in an hour and 1,200 crore orders in six hours of trading session! Such scales in earlier days would require huge planning and money. Today, we are doing it at a fraction of the cost of our earlier scale of 500 orders per second, which has become 5 lakh orders per second, a thousand times larger. From 200 milliseconds, we have gone to six microseconds. So we have become more than 5,000 times fasterand 1,000 times larger.

The scale and the speed would have increased the cost by fifty times, but it has happened at 30 per cent of the earlier cost. This is basically about the choice of technology and about implementation. We went for open source, our implementation was smarter. These are the things that basically make or break any implementation of technology. We think that’s where we are literally at the forefront of using technology in day-to day-life in India.

We aim to expand our technological prowess into other related areas like mutual funds, insurance and fixed deposits, money transfer, and so on. That would be our aim—to basically act as a framework which uses the technology and our distribution frameworks.

Tell us about your distribution network.

We have 1,400 members, some of them are mom-and-pop types, some of them are large companies with 20-30 lakh customers and some of them also have 8-10 thousand branches each. So, currently, we have around a million people working on our ecosystem. We have around 2-3 lakh people who are traders on our system across 3,000 cities in India. That distribution network itself is a huge asset.

How do you plan to deploy this vast distribution network to grow your as well as your distributors’ businesses?

We are primarily a technology provider and we are the people who provide newer businesses. Earlier, it was stock trading and then it became IPOs, derivatives, currencies and interest rates. So, they are looking to the BSE to give them businesses which are newer, more interesting and more remunerative, because currently most brokers are feeling the pinch as all the volumes have grown, but the margins have shrunk as the brokerages have come down even more. Today, most brokers, on a pure play broking basis, are not earning money and many of them have resorted to giving fundings through NBFCs, thereby taking huge risks. When they get into mutual funds and insurance distribution, they get better returns at a lower risk. So we are trying to get people into safer products. It is easy to take people into chit funds or derivatives, but this is hurting the investors and the brokers and, overall, it doesn’t help the society in anyway. So overall, our framework is always about having social intent in mind in whatever we do and how we can do good using technology rather than taking them on the wrong path. That is our general aim going forward as a fintech also.

In the last 7-8 years, BSE has done very well as compared to the other exchange in whatever was allowed by the regulator. We have almost 70-80 per cent market share in every area, from SME to mutual fund to bond distribution to offer for sale and offer to buy. In some areas, we have more than 95 per cent share.

So, was the change in BSE’s tagline a strategic part of your image makeover?

About 7-8 years back, we changed our tagline below the logo to ‘Experience the New’ because people were associating us with the 140-year-old, sort of old-style exchange. Today, we have become a very hi-tech organisation having cutting edge technology and have attracted younger businesses. So, we have the SME platform having 225 companies. We have incubator within BSE which is the most successful incubator in India with more than 146 companies that have been funded in the last three years, out of which 40 have gone out with funding of almost 40 million thousand.

So, what is the larger aim behind all these endeavours?

We are basically trying to move India in a direction where it would be possible to take advantage of India’s huge technological capabilities, India’s youth and India’s entrepreneurial capability and then using the BSE platform for creating wealth for the country and sharing it with the public. That is basically what BSE has done all along in the 142 years. The last 25 years were about trading, which became important,but not wealth creation or compliance. I think people want safety, security and sustainability—sustainable profits

Yes. If you look at the World Federation of Exchanges report for 2017, the trading volumes have actually declined a little. India has seen some growth, but the rest of the world is not seeing growth and that would happen to India also. There was a period when trading became all important due to automation, derivatives, algorithm facilities, etc. Few things that had happened made the exchanges focus on trading because they were generating more revenues. Now, that phase is over. It is like a two-year-old boy who became two-feet tall and, after that, by 18 years, he became 6-feet tall. But after that, the growth is not going to be twelve feet ever. Now, how do you do other things using your network and your distribution framework and newer technologies and newer ways of doing things? That is what we are trying to do.

In your India International Exchange in GIFT City, will you be giving the infrastructure and encourage high frequency trade?

We do it even in BSE. It’s not that high frequency trading is going to go away. It is just that the growth of trading has tapered off, so people who are focused only on that may not see high growth, but people who are focused on distribution and other things will survive. The trading volume will not go down, but it will not grow very much. It’s like the 6-feet tall boy who may become 6-feet 2 inches, but if you are expecting him to become 18-feet tall, then you are basically into a different sort of mindset. The question to ask is whether the trading volumes, which have gone up by 7,000 times in the last 25 years in India and in most of the countries, will grow 7,000 times more or go up only 2-3 times in the coming 25 years? Once you ask that question, you’ll see the next few steps of people who are investing.

Going forward, what will be your top three strategic priorities for the next five years? You have already said that BSE will be moving into distribution, insurance, etc., but will it be more on tech front and something else?

Tchnology will remain the most important priority. Even more important would be remaining fully complaint and enhancing people’s trust. Here, compliance using technology is the only business you are in. And then, you build new businesses which are very close to your current business. So, that is basically the strategy.

You spoke of enhancing people’s trust. How do you do that?

You ensure that you don’t allow bad companies to come in. You ensure that if they come in, they become compliant as well. Ensure you take appropriate actions to not allow them to take more money from people. Make people aware that such things are happening. You don’t take small people who don’t have experience of trading in derivatives into derivatives because it is highly risky and a highly leveraged position. If you do these things, you start looking good, comparatively. BSE had a bad reputation. In the last 7-8 years, given the way our board guided the management, BSE has now become the most reputed and most trusted exchange. This did not happen by accident, but it happened because we have always complied with whatever the regulator wants us to do. On top of that, we would put on our thinking caps to ensure that we don’t sell wrong products to wrong people, because misselling can actually create distrust. If one person loses his money in a wrong product, he may tell 10,000 others to not go in that direction.

But even after BSE’s 142 years of existence, the retail participation in equity markets still remains very low in India. Why is that so?

We take it as a failure on our part that our 142 years of existence has not yielded more people investing in the market. Only two per cent Indians invest in the market and it’s an opportunity that we get the other 98 per cent to invest. But it is also a failure on our part that in the 142 years, though we have done great work of getting almost 2.4 trillion dollars of market and wealth for the country, had we worked harder or better or created more trust, then 10-20 times more people would have invested in the market. Then, it would have been a more robust market and it would have helped the country create more jobs. So that is how we measure ourselves: how many jobs the company that lists on us create, how much wealth these companies create for the country and how many investors are benefitted. That is our way to measure ourselves and not on how much trading happens and how much profit we make. That will happen, but it cannot be a measure on which you become useful to the society. If you are useful, the society will always want you to be there. That’s how we would like to grow.

Basically, commodity now is pretty much an asset class and BSE had plans to set up a new exchange for commodities in 2015. That was consequent to BSE’s confidence of running a great technology. We had changed our technology of trading in 2014 and it came out to be very successful. We felt that we need to use this technology somewhere else and so we decided that we will set up a new exchange for commodities. But when we went to the regulators, they told us that the regulators are themselves merging and after the merger they will give us an opportunity to trade in commodities on the BSE itself, so we decided to wait. Now, after two to two-and-half years, the regulator has announced that in October this year, that is around 3 years after the merger, the stock exchanges will be allowed to trade in commodities.

Does your commodity exchange in GIFT City have anything new to offer?

We bring in newer framework, innovation, pricing and better and faster technology that is scalable. In terms of the risk management, we have the clearing corporation which has been working for so many years. Real time risk management and many other things are required in the commodity market. We also decided to invest in the commodity repository framework,so like a depository, you can transfer your commodity from one account to another account easily. This makes it more robust. Additionally, we have plans to get involved in spot framework for gold. This budget has announced spot exchange for gold and the Gold Board. In December 2015 , Shaktikant Das, former secretary of the Department of Economics, in one of the conferences in Mumbai, invited exchanges to set up spot trading. Spot trading is hundred times more difficult and thousand times more difficult to run. At that time, nobody wanted to do it, but then we had said that we will get involved because we have a unique skill of understanding markets, technologies, clearing settlements, etc. That’s how we had a tie-up with the IBJ, Gems and Jewellery Association and few other associations. Today, as and when the regulations come up, we think we’ll take the entire market participation along and hopefully create a framework which is nationwide. This will improve the trading and all the operations of gold framework in the country and hopefully the nation will benefit hugely out of such efficient processes.

How do you see BSE Star MF platform’s role in the coming years? How do you see it performing?

Star MF platform was an experiment which started 7-8 years back. It has now become well-recognised. Today, it accounts for almost 20 per cent of the all the mutual fund money that is coming into equities. Last month, we had almost 19 lakh orders. It is the largest distribution platform in the country today with the largest number of distributors—national distributors, FIIs, stock brokers and even banks are now coming on to the Star MF platform because of the way it allows them to do business easily. All the settlements and the technology part with all the mutual funds and the registrars are managed by the BSE. A lot of innovations have happened in terms of the liquid fund, in terms of the paperless SIPs, e-mandates and many other things over the last few years. So, the growth of this business has been phenomenal, beyond our expectations and also beyond industry’s expectations. Currently, we are around 20 per cent of the market, but last year at this time, we were around 8 per cent of the market, and a year before that, we were around 2 per cent of the market. We have literally grown 500 per cent in the last three years and the industry has also grown, but we have grown much faster. BSE’s Star MF has been literally five times the nearest competition and probably 100 times the next large one.

The technology and the fintech part of the BSE is being proven very much and that has helped us to get into bond distribution and we are distributing a very large number of bonds like 35-40 billion thousand a year, which has never happened before in India. Similarly, now we are getting to Ebix distribution, which is the largest distributor exchange of the world in insurance, which will trade in all categories of insurance in general health and life, using our member network across the country. We have now understood that although distribution of financial products of different types is much more complex than running a stock exchange, it is still very important to use fintech. And given the trust we command in the country and the distribution network we have, we should ensure that we take good products to the general public across the country and give them an access to all the mutual funds, insurance products, fixed deposits at some stage and all the newer financial products which are safe and secure. So that is basically our aim and this is just the beginning.

I am involved only as an administrator. My money is not running, neither do I have much money! Whichever way, I do not invest money in stock markets by definition, and by regulation also, I am not expected to. So, I am fully confident that I am not losing or making money and that makes me take decisions that are long term, and not panicky. Secondly, when you look back at your career, there is a lot of noise that happens every day, and then there are signals. You should be able to catch the signals and work on them and ensure that you don’t miss out on the signals in the noise. Sometimes you think it is noise, but it’s actually a signal. If you are able to catch some of the large signals and keep on checking out whether or not your hypothesis is correct, then you will be able to do well. That’s what I do in overall work. We need to have good management framework and good audit framework so that things don’t go wrong. But overall, for a country and an organisation like BSE to continue to remain useful and continue to take the country forward, we need to look at the signals.

The signal for all of us is that fintech is going to grow. But fintech, if not handled well, can also take you in the wrong direction. That is why the onus is on organisations like BSE to do it in a systematic and a disciplined way to take all the good features of the modern technology and modern economy to the public and ensure that things remain disciplined and orderly. That’s what we tend to basically work on and that is our hope, and over the next 25 years, we will continue to do so. That’s why we need to be skilled in technology and that’s what I work on to get good people, better people, getting skills into the older people within the organisation to stay on the cutting edge, compliance people—they are very important, so we focus on a lot on the overall manpower. Overall, it is about the signals and not about the noise.

Once you have figured out how your risk management works, ultimately it’s our job to ensure that India gets settlements every day, because if there is very high volatility, there may be defaults and it can have cascading effect which can be disastrous. So we continue to work with the regulators every day, checking out the details, the margins and other things. Once you are comfortable that things are safe in terms of settlements, things will continue. Of course, some people will lose money and some people will make money, but overall, as far as we have enough margins for everyone and also the settlement guarantee funds over and above that, we should be able to manage any unexpected volatility.

There is so much of noise happening and it has increased in frequency and spread. Because of the television, print and social media put together, everyone gets bombarded with a lot of information, some of them may be correct, some may be incorrect. It is an onus on every individual to educate himself, especially people who are investing in markets or the ones who are investing in any other products. They should educate themselves and do some comparisons and studies about companies, insurance policies, mutual funds, fund managers, company managements and about everything and then take appropriate decisions based on their families’ needs, their own needs, their salaries or business income, tax requirement and other things. This will ensure that you don’t end up making decisions in a hurry or based on wrong information or at the prodding of somebody which you may regret. The idea is suno sabki, karo apni, because money is mined.