Context: The Securities and Exchange Board of India (SEBI) has alleged that the former chief of the National Stock Exchange, Chitra Ramkrishna used to communicate confidential information about the stock exchange with an ‘unknown person’. The article discusses the managerial wrongdoings, structural issues, other aspects of the matter.
Background

• The Securities and Exchange Board of India (Sebi) has alleged that Chitra Ramkrishna, one of the founding members of NSE and a former MD & CEO of the National Stock Exchange (NSE) used to share confidential information about the stock exchange with an ‘unknown person’, a yogi who lived in the Himalayas.
• Sebi alleged that Ramkrishna had leaked confidential information such as NSE’s five-year financial projections, dividend payout ratio, the exchange’s business plans, and agenda of NSE’s board meeting with the yogi.
• It has shaken the capital market of India and also caused reputational damage to the NSE.

Structural Issues
Managerial misconduct

• The issue occurred due to the managerial misfunctioning at the NSE. Managerial misconduct is a global phenomenon and that is the reason an effective check on management is necessary.

Ineffective Boards

• The NSE brought a revolution in the stock market of India. Such kind of mismanagement at this level is very unacceptable.
• The Board members are selected by the top management or by the promoter who is top management itself in India. Hence, there should be a focus on how the board members are selected.
• As long as the top management selects the board members or influence the selection process, there is little hope of any active challenge to management.

Lack of Penalties

• There is a lack of penalty if the members failed to meet up the expectations or for any kind of error.

Accountability

• There were five Public Interset Directors at NSE who were required to inform SEBI about any kind of mishappenings. But, they failed to do so.
• It should be the responsibility of the directors to be accountable for any kind of lapses.

Key measures to be taken
Selection of Board Members

• The top management must be allowed to choose not more than 50% of the independent directors. The rest will be selected by the other stakeholders such as financial institutions, banks, small shareholders, employers, etc. 
• This will bring a change in the dynamics of the boardroom, will diversify the selection of board members, and also open up the possibility of directors challenging the top management.

Penalties

• Regulators must penalize the directors through a variety of instruments such as strictures, financial penalties, removal from the board, and a permanent ban from board membership.

Accountability of the regulators

• The regulators must be accountable for any misconduct. There should be periodic audits of all regulators by a panel of eminent persons.
• The panel must review the performances of the regulators with respect to their objectives.
• The internal processes and governance mechanisms of regulators must be subjected to the glare of public scrutiny. It is vital to guard the guardians.

Road Ahead

• The recent revelations regarding the leakage of confidential information of NSE to an unknown person have shaken the financial market of India. There are various reasons behind this matter such as managerial misconduct, lack of transparency and penalties, etc. This matter should be taken seriously and appropriate measures should be adopted so that this kind of issue will not occur in the future.