‘Modernisation and transformation’: NSE’s value chain has been transformed, says Vikram Limaye

While regulatory systems have made detection of frauds easier, investments in technology have increased the exchange’s capacity and bandwidth.

Vikram Limaye, MD & CEO of the National Stock Exchange, says every part of NSE’s value chain “has undergone and is undergoing modernisation and transformation”.

This, says Limaye, whose current term at the NSE ends in July, includes connectivity, trading system, risk management, clearing and settlement system, surveillance and stakeholder engagement. Security has also been an important area of focus and attention.

The transformation hasn’t been easy as Limaye had his work cut out for him when he took charge back in 2017, under the shadow of Chitra Ramkrishna’s controversial departure. On top of his agenda at the time was to address grievances of NSE’s key stakeholders and to make markets safe for investors by transforming the regulatory and technology systems.

Given the tsunami of orders, the exchange processes per day since the pandemic, the task has been gigantic indeed. In just two years, 4 crore new retail investors have opened demat accounts and more than 60% of these are active users. No other exchange in the world can process more than 250,000 orders per second, but the NSE has the capacity to process 300,000 orders per second and does 12 billion order messages a day, up from 2 billion a few ago.

When Limaye took charge, information was fragmented and it was hard to spot malpractices and misdemeanours by brokers. Now, information is seamlessly shared between market intermediaries in real time, which helps ensure safety of client assets. Deployment of new systems has brought to the fore broker defaults and misappropriation of client assets like that at Karvy Stock Broking and a few others.

Currently, less than 1% of client assets are at risk because of these measures and NSE also does mystery shopping to detect malpractices of brokers such as guaranteeing returns from equities and mis-selling derivatives.

Priya Subbaraman, chief regulatory officer at NSE, says: “Earlier, because of running account, client assets would be deposited with the broker, which then had the possibility of misuse. Now, we have said securities cannot leave the client’s demat account at all. For client funds, NSE takes client-wise fund balances on a weekly basis from all brokers and then it is verified with aggregate balances with banks, clearing corporations and clearing members. The verification that used to be made during an inspection now can be completed offsite on a T+15 basis.”

While regulatory systems have made detection of frauds easier, investments in technology have increased the exchange’s capacity and bandwidth. The exchange’s capital and operational expenditure on technology will touch $1 billion by the end of FY23, and on an ongoing basis, Rs 1,000 crore a year will be spent to continuously upgrade existing systems.

Other than using technology, NSE also has strong off-site surveillance systems. The exchange also actively works with the auditors of brokers to ensure they flag off concerns early. NSE also now uses AI and machine learning to spot patterns or potential risks from the disclosures made by companies. So, if a company’s revenues are increasing but cash flows are not, NSE’s systems pick this up for further investigations.

Limaye, who is eligible for another five-year term, says technology capex and opex have increased from around Rs 400 crore in FY19 to almost Rs 4,000 crore expected for FY23. There are certain special projects planned in calendar 2022, which include moving the data centre at the Bandra Kurla Complex to be future-ready in terms of capacity for the next 5-10 years.

Shiv Kumar Bhasin, chief technology and operations officer at NSE, says the “capacity has been enhanced, even though we are seeing 70,000 orders per second. There was no failure because processes were put in place. We were working on this capacity before the pandemic struck”.