BSE CEO Interviewed For NSE Top Job While IPO Was Underway: Exclusive

Even as India’s oldest stock exchange, Bombay Stock Exchange, was courting investors via an initial public offer, its Managing Director and Chief Executive Officer, Ashishkumar Chauhan, was interviewing for the top job at rival and market leader National Stock Exchange.

Two officials very close to the developments have told BloombergQuint that Chauhan interviewed for the position of managing director and chief executive officer of NSE in January, around the same time as BSE’s shares went on sale to the public. The BSE IPO opened on January 23 and closed on January 25 with an oversubscription of approximately 52 times. But investors lining up to buy BSE shares did not know that the exchange’s top leader may have been seeking to change sides.

One of the officials cited above said, on condition of anonymity, that Chauhan informed Sudhakar Rao, chairman of the BSE board of directors, on January 31. Rao then informed the other board members. But so far no public disclosure has been made to shareholders, old or new.

Neither Rao nor Chauhan nor the BSE media communications team commented on the matter, despite repeated efforts by BloombergQuint over the past three weeks. Dharmesh Mehta, managing director of Axis Capital, one of the bankers to the BSE IPO said he would not comment on speculative news.

The NSE Back Story

In the last three months both exchanges have been in the news. BSE for its initial public offer, the first by a stock exchange in India, and NSE for the sudden resignation of its Managing Director and Chief Executive Officer, Chitra Ramkrishna. NSE too is in the process of going public and listing its shares.

Ramkrishna resigned for what she cited as ‘personal issues’ but as BloombergQuint had reported then, her departure was more likely prompted by governance issues. The timing was awkward too – the exchange was weeks away from filing its draft red herring prospectus.

Also Read: Two Governance Controversies That May Have Prompted Chitra Ramkrishna’s Resignation

Subsequent to Ramkrishna’s departure, on December 3, the NSE board set up a four-member selection committee to identify a candidate for the top position. The selection committee issued an advertisement seeking applications before midnight of January 11. Thereafter the committee interviewed select candidates and the NSE board is expected to announce its decision very soon, maybe even today as indicated by officials close to the process.

The NSE IPO will proceed only after a new managing director and chief executive officer is appointed.

Also Read: An Outsider Will Likely Lead The NSE After Chitra Ramkrishna’s Sudden Exit

Chauhan’s History With NSE

Ashishkumar Chauhan was appointed as managing director and chief executive officer of BSE on November 2, 2012. He joined the exchange in 2009 and since May 2012 had been serving as BSE’s interim CEO after then CEO Madhu Kannan quit to move to Tata Sons.

Before joining BSE, Chauhan worked at the Reliance Industries Group from 2000 to 2009. Prior to that he worked at NSE. His biography on the BSE website describes him as a founding member of what is now India’s largest exchange.

Chauhan has also in the past served on several government, RBI and SEBI committees.

Is This ‘Material’ Information? Should It Be Disclosed?

Chauhan’s decision to interview for the top job at a rival exchange may be a personal one but that it happened while BSE was seeking to go public may raise some questions.

1. Did Ashishkumar Chauhan need to seek approval from the BSE board before interviewing for the NSE top job?
2. Did the BSE board ask Chauhan to clarify his position after a news report suggested he was in the reckoning for the NSE position?
3. Did the BSE board inform the bankers and lawyers to the IPO of Chauhan’s potential desire to move to the rival exchange?
4. Did the issuer, in this case the exchange, and its bankers and lawyers consider making a public disclosure of this to inform potential shareholders that the exchange may soon be confronting a change in top management?

It is not known if Chauhan’s employment contract with BSE includes a non-compete clause. Even if it doesn’t, that he was seeking employment with a rival exchange while BSE was courting public investors, or at the very least had interviewed for the top job at rival NSE, could be considered ‘material information’ said one of the two officials cited above.

To be fair, it’s not clear whether the information that a key managerial personnel (KMP), and in this case also a director on the board, has interviewed for a position in another company, in this case a rival exchange, can be considered ‘material’ at the time of the interview.

Sandip Bhagat, partner at S&R Associates – a leading capital markets law firm, points out that SEBI's Issue of Capital and Disclosure Requirements, Regulations (ICDR Regulations) require that the offer document shall contain all material disclosures which are true and adequate so as to enable the applicants to take an informed investment decision. But, he adds, there is no bright-line test under Indian law to determine what constitutes ‘material information’ or information that will “enable investors to make an informed investment decision”, and accordingly, such phrases are construed in light of specific facts and circumstances of a particular case (including by courts in India).

Another leading capital market lawyer said, on the condition of anonymity, that any such information would arguably become material and require disclosure only if the issuer’s key managerial personnel has committed to the other job and intimated that to the board of the issuer. He also pointed out that there have been instances in the past where key managerial personnel of an issuer company left soon after an IPO. Opportunity only knocks once, he added, concluding that you can’t fault someone for wanting a better job.

It’s important to point out that the BSE prospectus clearly states the ‘ability to retain and maintain our key personnel...’ as a risk factor.

If Chauhan is selected to lead the NSE, then the materiality of the information is clear and definite and its disclosure incumbent upon BSE. But till then it is not clear what view market regulator SEBI will take of these developments, if at all it takes one. SEBI has been closely involved with the appointment of the next NSE chief. Besides, the regulator’s approval of the appointment of a managing director of an exchange is also necessary under the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012.

Chauhan’s decision to interview for the NSE job may not qualify as a material information disclosure event, but it could make for bad optics. And dampen slightly the high spirits of BSE shareholders, currently celebrating the listing of the exchange’s shares at a 36 percent premium.

With inputs from BloombergQuint’s Sajeet Manghat.

Also Read: BSE Lists At 36% Premium To Issue Price