Sundararaman Ramamurthy, who has a professional track record of four decades, has seen segments like banking and the securities market from close quarters. In that time, he has weathered many a storm and faced many a challenge. But it won’t be wrong to say that Ramamurthy, the current MD & CEO of BSE, is at the most interesting—and challenging—crossroads of his professional journey.
Ramamurthy, 61, was part of the founding team of the National Stock Exchange (NSE), which was launched in the mid-1990s at a time when BSE—Asia’s oldest stock exchange that traces its origins all the way back to 1875—was the only major bourse in the country. A cost accountant by training and a member of the Indian Institute of Bankers, Ramamurthy helped build NSE that eventually drove BSE to a distant second and even established a near monopoly in certain market segments, including derivatives—also known as futures & options or F&O.
Now, Ramamurthy, who also has had stints with Bank of America, State Bank of India and IDBI, among others, finds himself in the corner office of BSE, tasked with the job of competing with NSE—an exchange he helped build—and create a “meaningful presence” for the much-older but now much-smaller bourse in terms of market share.
Consider this: If the cash market segment is taken into account, BSE’s share is in single digits—ranging from 6-9% in most of the recent months. In February, the average daily turnover of BSE was pegged at Rs 10,341.08 crore, as against NSE’s Rs 1,17,032 crore, according to data from the stock exchanges.
The balance was even more skewed in the F&O segment where NSE, which is the world’s largest derivatives exchange in terms of the number of contracts traded, had a clear monopoly with BSE’s share less than 1% till June last year. However, the efforts of the past few months have ensured that BSE’s share has risen from near-zero to nearly 16% in December 2023, and was pegged at 15.30% in February.
Incidentally, if the share price of the exchange is anything to go by—BSE is the only listed stock exchange in the country—then it seems that the market is also bullish on the prospects of the bourse as the stock has risen more than 65% in the past six months till March 15, as against only 10% gain in the Nifty.
But it is not the immediate gain in market share or even the stock price of the company that Ramamurthy is currently focussing on. His long-term strategy is to turn the bourse around and create a vibrant niche for it in all the segments of the capital market; that plan is still in its initial stages and the BSE boss, who completed a year in office in January 2024, is not in for the short haul.
A VIBRANT EXCHANGE
“There were a lot of challenges when I joined. Some of them continue to exist, while some of them are being addressed meaningfully,” says Ramamurthy, sitting in his 25th-floor office at the iconic BSE headquarters, called Phiroze Jeejeebhoy Towers, that offers a bird’s eye view of the Arabian Sea and the bustling business district of tony south Mumbai. He says that people often ask him what he means when he says that he wants to make BSE a vibrant exchange. “BSE should have a meaningful presence in all the segments where it has a licence, and it operates [in]. I visualised it in the form of building a block,” he explains.
When Ramamurthy took charge in January 2023, he knew that reviving BSE and making it vibrant was not a desk job. He went out on the field and started meeting market participants who are responsible for driving the volumes on the exchanges. “We went in for deeper analysis. We unravelled a lot of interesting things,” says Ramamurthy, who met 300-350 brokers as part of this exercise to understand the bottlenecks that were stifling BSE’s growth.
What emerged was interesting. A large section of retail brokers had not even enabled BSE on their mobile trading platforms and even those that had, did not create a level playing field between BSE and NSE in terms of features and accessibility on the platform.
“The important ingredient is the voice of the customer,” says the BSE boss while highlighting the feedback that he got from the market, which ultimately led him to take the first set of steps to ensure that there was some amount of traction in the cash and F&O segments of the exchange.
To start with, BSE reduced the so-called tick size—the minimum difference in the bid and offer price—of nearly 650 stocks; that saw its market share go up in those stocks from less than 10% earlier to around 12% in the past few months.
Then it was time to address the elephant in the room—how to revive BSE’s F&O segment. This assumes significance as there have been various attempts in the past—even market-making schemes were launched where brokers were paid to trade—to revive BSE’s derivatives segment, but they all met with failure.
This time, though, the market feedback was taken into account and tweaks were announced. For instance, derivatives on Sensex 30 and Bankex indices were relaunched while ensuring that the expiries did not clash with those of the more-popular instruments of NSE. The relaunch happened in May last year and since then there has been a gradual and consistent rise in BSE’s market share.
Interestingly, the collateral benefits include the co-location space—where brokers place their servers for faster access—that had been languishing, has been sold out now. There are around 50 foreign portfolio investors (FPIs) that trade in the BSE’s F&O segment that sees the participation of around 350 broking entities as well.
More importantly, around 1.5 million investors regularly trade in Sensex derivatives, though Ramamurthy aims to have 15 million investors on board for a proper deepening of the market.
While he knows that the exchange needs more brokers and FPIs for institutional deepening of the derivatives segment and, once that happens, he can even look at more products, his efforts till date have certainly not gone unnoticed.
A BULLISH UNDERTONE
Ramamurthy’s steps have found favour with those who track the markets. “BSE has embarked on a multi-year transformation journey under new management… we expect BSE to move ahead to monetise its success in the derivatives market through improved product pricing and co-location income,” stated a recent report by global financial major Jefferies.
In a similar context, HDFC Securities, in a detailed report released in November last year, stated that the exchange’s gain in market share in the derivatives segment is quite impressive, which also improves revenue visibility with better profitability. “The new BSE is well-placed to get a share of the large options market in India, powered by the new generation of options traders… The go-live of large discount brokers and increase in active UCCs (Unique Client Codes) is driving volume for BSE,” stated the report.
The analyst community is not the only one that has recognised BSE’s progress. Even those that have been closely associated with the exchange in the past are acknowledging the initial success. “Derivatives have proven to be the Achilles heel for BSE for long, but it seems that now the right steps are being taken and it is coming up in a good way to begin with,” says Rajnickant Patel, Co-founder of RUHN Global Advisory LLP and a former BSE CEO himself.
“If you have two exchanges in the Indian capital markets then we equally need both the exchanges to derisk the ecosystem. If the market share in any segment is highly skewed, then it poses a systemic risk to the entire capital markets. This is important from the perspective of risk management and risk mitigation. The way the BSE F&O segment is developing, I think it is going in the right direction,” adds Patel.
Indeed, there are two leading stock exchanges and the strong existence of both is important for the overall safety and robustness of the Indian capital markets, say experts. And while one may feel that BSE and NSE are engaged in cut-throat competition, the heads of both the bourses believe that they complement each other.
“We are public infrastructure, and we have to work for public interest and not our interest. NSE and BSE are not competing as all the companies are listed on both the exchanges, the same set of regulations apply to both the exchanges and even the brokers and investors are the same on both the exchanges,” Ashishkumar Chauhan, MD & CEO of NSE, had told Business Today in an exclusive interview in November last year. Chauhan, too, is a former BSE MD & CEO.
“The society requires many more players. I believe that even monopolies that are designed for public good may not remain good for very long. There is a lot of co-operation, and the competition would be just 0.001 per cent,” the NSE boss had said.
Ramamurthy agrees. “We are not competing, we are complementing [each other]. We have clearly proved in derivatives that we are complementing [each other]. In the cash market also, the pie will grow. Think of the cost reduction when liquidity improves,” he says.
THE ROAD AHEAD
BSE’s gain in market share in the derivatives arena may well have grabbed headlines but that is just one tiny spoke in a big wheel and Ramamurthy is well aware of that. Going forward, he aims to make BSE a more vibrant exchange not just in the cash and derivatives segments but also in the small and medium enterprises (SME) and mutual funds (MF) arena. His key focus areas include ensuring that the growth is deeper and sustainable.
“SME and MF are close to my heart. We need to go to the quality SMEs and tell them the benefits of listing and bring them in while creating a vibrant [and] active fundraising platform with proper visibility. MFs have a very important role to play in wealth building and diversion of a portion of savings into physical assets to financial assets,” he explains.
BSE is doing fairly well in both these segments—nearly 500 SMEs have listed on the exchange and its MF platform has been consistently setting new records in terms of the number of transactions—but Ramamurthy knows that the processes need to be designed and implemented in a manner that stands the test of time. And only the first steps have been taken.
People will come and go but what is important is that BSE should continue to grow, sums up Ramamurthy. With the priorities set right, Asia’s oldest exchange can look forward to better days ahead.
@ashishrukhaiyar